With Falling Tax Revenue on Incomes Britain proposes Taxing Wealth that was already Taxed as Income

Posted by PITHOCRATES - September 2nd, 2012

Week in Review

Taxing the rich doesn’t raise tax revenues.  At least it hasn’t yet.  Because what taxing officials don’t understand, or refuse to understand, is that it takes two things to make tax revenue.  A tax rate.  And economic activity.  If you raise the tax rate too high you will reduce economic activity.  So those higher tax rates will tax lower amounts of income.  Thus reducing overall tax revenue.

Perhaps the British taxing officials do understand that.  So they are proposing to tax not income but wealth.  To seize a little of what the wealth creators created.  And already paid taxes on it as past income (see ‘Emergency’ Tax on the Rich Roils Britain by Robert Frank, CNBC, posted 8/30/2012 on Yahoo! Finance).

Deputy Prime Minster Nick Clegg, leader of the Liberal-Democrat Party, has proposed a one-time tax on the wealth (rather than the incomes) of high-net-worth Britons. The details aren’t clear, but Clegg says the country is facing an economic war caused by a prolonged recession, and needs to tax the rich in order to avoid social unrest…

Baroness Susan Kramer, a member of Clegg’s party in the House of Lords, said that a wealth tax could be more effective than an income tax, and that the wealthy won’t move away…

Britain’s tax distribution is less progressive than America’s, with the top 1 percent paying about 24 percent of the total income taxes in the U.K. In the United States, the same group pays more than 35 percent. The top 10 percent in Britain pays 55 percent of income taxes, while in America the top 10 percent pays 59 percent.

You would think that 1% of the people should pay 1% of the taxes.  That would be fair.  But in progressive tax systems ‘fair’ means redistributing wealth from those who’ve earned it to those who did not earn it.  Which is why 1% pays 24% of total income taxes in Britain.  And that same 1% in the United States pays 35% in total taxes.  The top 10% pay over half of all income taxes in both countries.  Yet the left in both countries insist the rich aren’t paying their fair share.  If not then what, pray tell, is fair?  Having this 1% pay 50%?  75%?  95%?  If you did make them pay this much you’d have a problem.  They would no longer be part of the 1%.

The wealthy won’t move away?  Has she never heard of tax exiles?  Like the Rolling Stones?  The Beatles?  Sting?  Led Zeppelin?  Freddie Mercury of Queen?  Phil Collins?  Pink Floyd?  David Bowie?  The Spice Girls?  Michael Caine?  Sean Connery?  Rod Stewart?  Ozzy Osbourne?  U2?  A lot of their music was played during the recent 2012 Olympic Games.  A rich treasure trove of British talent.  Chased away by high taxes.

Wealthy people move away.  Yes, some have come back when their home country reduced their confiscatory tax rates.  But high taxes make wealthy people look for sunnier climes.  And it’s the wealthiest of people that can do this.  These aren’t immigrants getting off the boat at Ellis Island with loose change in their pockets.  These are people that probably already own real estate in other countries.  And live part of their lives in these other countries.  So making the final move to these other countries is more of a matter of logistics than any deep soul searching.

What’s better?  Having, say, 30% of rich people’s income?  Or having 0%?  It doesn’t take an advanced mathematical degree to know that 30% is greater than 0%.  If you try to take more than what is fair—fair as decided by the wealth creator—the wealth creator may take all of his or her money and leave.  Following the notable train of tax exiles that went before them.  And when they do it will only make the budget crisis worse.  Because it won’t take many of the 1% to leave to cause a dangerous fall in tax revenue.

And when you think about it what do these rich people owe their governments?  Their government wasn’t with them on tour sleeping in hotels.  It wasn’t their government writing music and lyrics that enough people loved to fill stadiums during concerts.  It was something these few 1% could do.  Did.  And they did it themselves.  So when the government came around to take up to 80% or more of what they created away they said “nice knowing you but it’s time for me to go.”  And they did.  To sunnier climes around the world to places with a friendly tax policy.  Where they could keep what they earned.

And it will happen again.  Unless you arrest the wealthy and force them to be creative so you can tax them.  But under those circumstances they may withhold their creativity.  Then what?  What do you do when you take that 24% of income taxes paid by the 1% to 0%?  If you think there’s social unrest now just wait until 24% of all government spending disappears.

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Scotland considering Introducing a Local Income Tax and a Wealth Tax

Posted by PITHOCRATES - June 23rd, 2012

Week in Review

The UK is a social democracy.  Which means high taxes.  To pay for all of those government benefits.  Including that national health care.  Exactly the kind of thing a lot of people want for the United States.  Who hope that Obamacare will evolve into a national health service just like they have in the UK.  But there is only one problem with a generous social democracy.  It’s expensive (see John Swinney to consider new local income tax by Simon Johnson posted 6/22/2012 on The Telegraph).

The Scottish Finance Minister said he will examine how to replace council tax with a new levy “based on the ability to pay”, a phrase that has previously been synonymous with the SNP’s argument for a local income tax…

This could see residents taxed on the basis of their savings and share dividends rather than just their income. However, it is not expected that any firm proposals will emerge before the independence referendum in 2014 for fear of angering voters.

This is where Obamacare will lead us to.  To a costly social democracy.  And such a costly welfare state that they will raise our income taxes to pay for it.  And add a wealth tax.  Just like they’re talking about doing in Scotland.  Taxing our savings accounts.  And our investments.  Including our 401(k)s. 

You see, free stuff is expensive.  And is a great disincentive to work hard.  For who wants to work hard and save for their retirement while they will be taxed every step of the way?  Where they’ll tax the income we earn.  Tax the money we save for our retirement.  Tax the inheritance we pass on to our heirs.  And tax the pennies on our eyes. 

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FUNDAMENTAL TRUTH #73: “Politics is about overspending and vote-buying while getting some poor dumb bastard to pay for it.” -Old Pithy

Posted by PITHOCRATES - July 5th, 2011

Washington is Show Business for the Ugly

The founding of America heralded the end of aristocratic rule.  And this is a problem.  For aristocrats.  Those who feel they’re better than everyone else.  Especially those who aspire greatness, and wealth, through political office.  Such as Liberal Democrats.  And RINO Republicans.  Those who like to mingle in the world of the beautiful people.  Rubbing shoulders with the fabulously rich.  And A-List celebrities.  Attending the best parties.  Meeting the best people.  Eating the best food.  Drinking the best booze.  It’s a beautiful life.  The only problem is the price of admission.  You have to be rich and/or talented to get in.  And rich and talented aspiring politicians aren’t.

At least, not at first.  But politics offers them that opportunity.  Rush Limbaugh said Washington is show business for the ugly.  There may be a lot of truth in that.  You see, the beautiful people are, well, beautiful.  That’s their ticket to celebrity and fame.  And access to that beautiful life.  From movie stars being discovered sitting at a drug store counter to talentless reality stars.  Being attractive can be a shortcut to fame.  Beautiful people go the front of the line at the best clubs.  And often get a free pass in.  Because people want to be around beautiful people.  Even if they’re unknown.  That’s the power of being beautiful.  Which can be a problem for the beautifully challenged.

Of course, having talent is a way around not being beautiful.  Those nerds in high school went on to be millionaires.  Even billionaires.  Those geeky guys that never had a date in high school now have the most beautiful women chasing them.  For their money, of course.  But they are still chasing them.  And they learned something.  It’s not important to be beautiful.  As long as you’re rich.  Because it turns out that money can buy a lot of happiness.  Sure it’s the shallow and superficial kind.  But you’ll be at the best parties.  Rubbing shoulders with the other fabulously rich.  And A-list celebrities.  That’s a pretty sweet life.  And one that many covet.  But what do you do if you’re neither beautiful nor talented?  You, of course, go into politics.

You have to be a Real Good Liar

Those with no talent or ability can try to trade in on their appearance.  If they’re considered too ‘ugly’ to get by on their looks alone then they can enter a career of lying.  Politics.  Where you say you care about the little people and promise to give them things if only they will vote for them.  You do anything to get into office.  Because once you do you’re set for life.  Salary and benefits for Congress people are better than anything you’ll get working in the private sector.  And the retirement package is insane.  You live the rest of your life with a large percentage of your Congressional salary.  And you keep a lot of the perks from your Congressional days.  In other words, being elected to office is a ticket into a new aristocracy.  Just like in days of old.  And once you’re in people will treat you as if you are better than everyone else.

It’s a fairytale life.  And a lot of people want it.  People that you have to beat in some election.  Often without the help of any voter election fraud if you’re just starting your political career.  So you have to be a real good liar.  You have to suspend all reason and logic.  And promise, promise, promise.  Even with astronomically high deficits you promise to give people more if they vote for you.  Because you have a plan.  You’re going to shift the tax burden to those who can afford it.  Go after the rich who don’t pay their fair share.  And cut corporate welfare.  With these savings you will be able to spend more on the poor and disadvantaged.  It’s a powerful sales pitch.  And it works well if they are not well educated (thank you public education) and don’t understand taxes and their impact on the job-creating economy.  Also, the more poor and disadvantaged they are the better.  Because the rich and middle class aren’t going to vote higher taxes on themselves.  Only the poor and disadvantaged (who are not well educated on taxes and their impact on the job-creating economy) will continuously vote to raise taxes on those who have more than they do.  Classic class warfare.  So it’s important that your programs fail.  Because you don’t want to help these people.  Not if you’re relying on them to help you sustain your better life.

Of course having a large percentage of the population dependent on your government policies and programs isn’t enough.  It will make the elections easier but it isn’t going to pay the bills.  These people are, after all, a burden.  They consume a lot of the tax base.  But most don’t pay any taxes.  Sure, you can live a comfortable life on a Congressional salary.  But there’s so much more to be had out there with the power to write laws and regulations.  When you can decide winners and losers in the economy you wield considerable influence.  And that influence is worth something.  Especially to crony capitalists.  Who look to profit not by competing in the free market.  But by having friends in high places.  Friends who will reward them well in exchange for a little cash and perks thrown their way.  And by a little I mean a lot.  Of course the good politician makes sure these crony capitalists are only profitable with their help.  Because the less they need their special favors the less of their cash and perks find their way to Washington.

Higher Tax Rates ultimately Reduce the Amount of tax Dollars Collected

Politics is nothing more than a ballet of leverage.  Who has pull.  Who can use it best.  And who is willing to screw the little guy.  You use the poor and disadvantaged to win elections.  But you do everything within your power to keep them poor and disadvantaged so they can keep helping you win elections (we’ve been fighting a war to end poverty since LBJ‘s Great Society of the 1960s and we haven’t won it yet which should tell you something).  You use crony capitalism to enhance your wealth and wellbeing.  But you make sure this corporate welfare only serves one person.  You.  So you don’t necessarily want to see your crony capitalists doing well in the free market.  Far from it.  For if they can do well without your help they’re not going to stay your bitch.

So, to succeed in politics you need to do a couple of things.  You need to redistribute wealth from those who create it to those who don’t.  And form mutually exclusive relationships with crony capitalists.  We call it tax and spend.  And legislation.  They use the progressive income tax system to spread the wealth.  And write legislation that rewards their friends while punishing the enemies of their friends.  Taxes for revenue.  And legislation for power and wealth. 

But the revenue is never enough (as the deficits show).  Despite the progressive income tax system.  Where, in the name of fairness, the richer you are the more taxes you pay.  And the poorer you are the fewer taxes you pay.  But keeping as many people as poor as possible has its drawbacks.  The more poor there are the fewer there are paying taxes.  Which requires raising taxes on the non-poor.  The rich.  And the middle class.  Which has a real big side affect.  After a point, higher taxes reduce economic activity.  It’s the law of diminishing returns.  The higher tax rates ultimately reduce the amount of tax dollars collected.  So they consider other sources of revenue besides the income tax.  Money that is ‘outside’ of the economy.  Money that’s ‘parked’.  Untouched by income and excise taxes.  Such as estates of the dead.  And the wealth of the living.  There is an estate tax.  But no wealth tax.  Yet.  And, oh, do they want one.  Like in some European countries.  Because the rich don’t work.  They invest.  They don’t live on income.  They live on ‘investment’ income.  Capital gains.  Which is taxed at a lower capital gains rate.  Not the confiscatory rate of the progressive tax system.  Worse, as the government sees it, they only pay taxes on their capital gains.  Not their capital.  Their wealth.  And that’s a lot of money parked outside the economy that they want a piece of.

Something ‘outside’ the Economy to Tax

But a wealth tax has its problems, too.  You can move wealth.  If you tax wealth the wealthy will just invest their wealth elsewhere.  Like rich Europeans have done.  No.  They need something better.  Something the rich can’t escape.  And, ideally, finding something ‘outside’ the economy to tax.  Something like the Las Vegas model.  The casinos in Vegas bring a lot of money into the city.  The casinos are very profitable.  And Las Vegas and Nevada profit well, too (before the subprime mortgage crisis, at least).  Many other cities have tried to cash in on these fat profits but have failed to match the success of Vegas.  Caesars Windsor is doing well because it is in a smaller city across the border from a larger metropolitan area.  A metropolitan area with a lot of people.  And if just a fraction of them crossed the border it would swell the Windsor economy.  And like Vegas, Windsor does have a little vice to offer.  A bit of the naughty that you can’t get in that metro area.  For the good people of Metro Detroit have a higher legal drinking age.  They don’t have gentlemen’s clubs with nude dancers that serve alcohol.  And prostitution is illegal.  But all of these things (to a certain extent) are available in Windsor.  Just across the border.  Where, like Vegas, what happens in Windsor stays in Windsor.  Plus Windsor has an active nightlife.  Safe streets.  And a touch of an international flair.  The money poured into Windsor.  When Detroit finally added three casinos to get a little piece of that action that’s what they got.  A little piece.  The casinos were money makers.  But Detroit did not enjoy the boom that Windsor did.  Why?

Windsor did well for the same reason Vegas did well.  They’re both destination cities.  People travel to them.  They’ll fly there for a vacation.  Or cross an international border for a night out.  These are the people spending and losing their money in these casinos.  Not the good people of Windsor.  Or the good people of Las Vegas.  It’s outside money coming into the local economy.  Which is a net add.  The problem Detroit has is that it’s not a destination city.  It’s cold in the winter.  It’s suffered blight and decline.  And still has a reputation as being unsafe.  People aren’t going there.  It’s just the people already there that are gambling away their money.  These people are just going out to dinner less.  Going out to fewer movies.  Going out to fewer clubs.  Etc.  The problem in Detroit is that there is no new money coming into the economy.  All that casino money was just local money people were spending someplace else in the local economy.

Despite what they say, politicians know high taxes don’t stimulate economic growth.  It just transfers money from one person to another to spend.  There’s no net gain.  Like in Detroit with their casinos.  They would love a wealth tax.  But the rich could easily avoid it by moving their wealth.  But there is something that even they can’t avoid.  Taxing energy.  Rather, the emissions created by energy.  In the name of combating global warming.  Cap and trade.  Emissions trading.  Making people buy ‘permits’ for their emissions.  That can be traded.  Creating a permit exchange similar to a stock exchange.  Governments forcing private entities to buy ‘shares’ of pollution.  Brilliant.  Because you can’t escape the use of energy.  It is a part of our very existence.  So you can’t escape it.  And the Europeans have taken it to the Las Vegas model.  The European Union (EU) will force international airlines flying into EU airspace to pay in essence an extralegal tax.  Which is the greatest kind of tax a government can use.  A tax whose full benefits will go to their constituents.  But a not a dime of which their constituents will pay.  If you put this to a referendum, the people will pass it.  Because people will have everything to gain.  And nothing to lose.  Other than the trade war such an extralegal tax would most likely provoke.  And the accompanying economic crash and withering recession.

In the mean time, though, the ruling elite, the new aristocracy, will be able to maintain their privileged lives.  Mingling with the beautiful people.  The fabulously rich.  And A-List celebrities.  Which is really all they care about anyway.

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