President Obama is Good for Wall Street but Bad for Main Street.

Posted by PITHOCRATES - December 8th, 2013

Week in Review

The unemployment rate fell from 7.3 to 7.0 in November (see Table A-1. Employment status of the civilian population by sex and age).  With the government reporting 203,000 jobs created.  The economy must be turning around.  Things are getting better.  Especially for rich people (see Not fully inflated posted 12/7/2013 on The Economist).

TALK of bubbles is in the air again. The Dow Jones Industrial Average has hit an all-time high. A loss-making technology firm (Twitter) has floated its shares on a flood of investor demand. Private-equity groups are buying companies using amounts of debt not seen since 2008. A record price (more than $50m) has just been set for a penthouse in Manhattan. A triptych by Francis Bacon became the most expensive piece of art sold at an auction when Christie’s flogged it for $142.4m last month. Robert Shiller of Yale University, who correctly identified bubbles in tech stocks in the late 1990s and in property in the 2000s, has expressed unease about giddy American share valuations.

All this suggests that wealthy investors have become increasingly confident.

The rich sure are getting richer under President Obama.  But that’s Wall Street.  Where if you have friends in Washington you do well.  And Wall Street has a lot of friends in the Obama administration.  But what about Main Street?  How are the rest of us doing?  Who don’t have friends in Washington looking out for us?  Well, when President Obama took office there were 80,507,000 that were NOT in the labor force.  Under the economic policies of President Obama this number rose to 91,273,000.  Meaning that President Obama has destroyed 10,766,000 jobs since he became president.  It will take another 53 months at this pace to replace the jobs President Obama’s policies destroyed.  Or 4.42 years.

This is how Main Street is doing.  Not good.   Unlike the rich.  Who are doing very well buying and selling assets by borrowing cheap money.  Courtesy of the Federal Reserve’s quantitative easing.  Basically printing money.  Making more of it available to borrow.  And because there is so much available to borrow interest rates are near zero.  Allowing the rich to borrow all the money they need to buy and sell assets with.  And as the Fed devalues the dollar it takes more of them to buy those assets.  Allowing the rich to reap huge profits when they sell.  Following the simple strategy of ‘buy low’ and ‘sell high’.  But that inflation also raises the prices of our groceries.  Which consume a larger portion of our paychecks.  Which makes us, those on Main Street, poorer.

President Obama.  Good for Wall Street.  Bad for Main Street.

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People sign Petitions to Secede from the United States following President Obama’s Reelection

Posted by PITHOCRATES - November 15th, 2012

Politics 101

Wealth Redistribution requires High Taxes to get the Wealth from those who Create It which reduces Economic Activity

President Obama’s reelection has left the nation bitterly divided.  President Obama won only 50% of the popular vote.  Down from 53% in 2008.  So the president has become less popular with the American people.  No surprise, really, with one of the worst economic recoveries in history.  Despite the trillions in new spending to stimulate economic activity.  Which didn’t stimulate economic activity.  People concerned about this anemic economy are in the other 50%.  Those who didn’t vote for keeping Obamacare law.  Those who didn’t vote for a massive increase in regulatory powers over the private sector economy.  Those who didn’t vote to raise taxes.  Those who didn’t vote for continued record deficits.

With every contentious election some people will say they will move out of the country if their candidate loses.  Few do.  Although some rich people are doing that now.  As they feel they have a bulls-eye on their back.  With the whole Occupy Wall Street thing.  The 99% against the 1%.  The clarion call to get the wealthy to pay their fare share.  Even though the top 10% income earners are already paying some 70% of all income taxes.  So no doubt the wealthy are concerned.  Wondering where this will all end.  Higher income tax rates?  A higher capital gains tax?  A wealth tax?  Confiscation of all earnings over a ‘fair’ amount?  Who knows?  The sad thing is that these things don’t really seem farfetched.  For there is an angry mob out there.  Stirred up by those on the far Left.  Who is telling them that the only reason why they don’t have everything they want in life is because these rich people have taken it away from them.  And that these oppressed should rise up and demand egalitarianism.  Wealth redistribution.  From those according to ability to those according to need.  Which they are.  Because it’s only fair.

Of course wealth redistribution requires high taxes to get the wealth from those who create it.  Higher taxes, though, are a drag on the economy.  And leads to higher unemployment.  So it’s just not the wealthy worried about where this advance of liberal, anti-business policies will end.  Up to 50% of the population voted in favor of the wealth creators creating wealth.  And jobs.  Something most of the people want.  As already high unemployment will only get worse with another 4 years of anti-business policies.  As well as leading this country closer to a European-style social democracy.  That economic system favored by European countries currently wallowing in a sovereign debt crisis that appears to have no end.

If the Nation broke down into Two Confederacies Steve Jobs would probably have moved to Conservative America

So people are concerned about the direction the country is going.  So concerned that there are actually secessionist movements popping up across the nation.  Where people are signing petitions to advance the secession of their state from the union.  For the growth of federal power has far exceeded the limits envisioned by the Founding Fathers.  And the federal government is only going to get bigger.  European big.  So big that even Alexander Hamilton would have joined his sworn enemy, Thomas Jefferson, in opposing this federal power grab.  For Jefferson’s greatest fear appears to be coming true.  The federal government has reduced the states to little more than federal districts of a consolidated federal nation.  Where all power is consolidating in Washington.  In the hands of a few people.  Who rule over the masses.  Much like a monarchy.  The kind the Founding Fathers fought against to win their independence.  Something this other 50% understands.  Which is helping fuel these secessionist movements.

So people in some states with a historical understanding of our Founding are concerned.  And they’re signing petitions for secession.  While the Left mocks them as whiny sore losers.  When they threaten to leave the union Jon Stewart on the Daily Show mocked them with a line from Willy Wonka & the Chocolate Factory:  Stop, don’t, come back.  That Gene Wilder delivered in a tone of voice that basically said, “Go and good riddance.”  Much to the delight of the Daily Show audience.  Not fully understanding what that would mean.  For it wouldn’t just mean that they would get a country of free health care, birth control, abortion, legal marijuana, gay marriage, open borders, etc.  The Liberal utopian dream.  No, succession would probably result in regional confederacies.  The Northeast, the Midwest and the West Coast would probably join together in a liberal confederacy (Liberal America) where they pass all their liberal policies.  While the remaining states would probably join together in a conservative confederacy (Conservative America).  Which would pose a great problem for the Liberal America.  How?  In a word, egalitarianism.

Business owners who oppose excessive regulations and taxes would probably pack up shop and move to Conservative America.  If they weren’t there already.  So you would have a net movement of businesses, and jobs, from Liberal America to Conservative America.  Where government policies are less anti-business.  Even the liberals would admit this would happen.  As they blame business for outsourcing jobs to foreign countries to escape the high cost of regulatory policies and taxes.  So businesses will move.  Leaving a reduced tax base behind.  Where fewer workers would be paying all those taxes to give everyone all of those free government benefits.  And the best and brightest of our entrepreneurs would head to Conservative America, too.  For they will go where it is easier to realize their dream.  If the nation broke apart into these two confederacies it would be highly probably that if he were alive Steve Jobs would move to Conservative America.  Just as he outsourced his manufacturing to more business-friendly China.  Don’t think this would happen?  Well, it would.  Because it has always happened in the past.

If America divides into Two Confederacies People will flee the Liberal Paradise for Jobs in Conservative America

At the end of World War II the German capital, Berlin, lay in Soviet occupied Germany.  What became East Germany.  Berlin, however, was occupied by the Soviets, the French, the British and the Americans.  Giving those living in Berlin access to the West.  As long as they got to the French, British or American sectors.  Which became a real sore spot for the Soviet Union.  Because East Berlin was a communist paradise.  Located in East Germany.  Also a communist paradise.  The height of egalitarianism where the state provided everything for the people.  It was everything the American Left wanted.  But nothing those living there wanted.  East Germans headed to Berlin en masse to escape to the West.  Especially the best and brightest.  It was a brain drain of the East.  So the Soviets did the only thing they could do.  They built the Berlin Wall.  To prevent their people from escaping their Communist paradise.

West Berlin bounced back after the war quickly.  Becoming a rich and exciting city to live in.  Because they had free market capitalism.  Providing a business-friendly environment.  That created jobs.   While across the Berlin Wall people were stuck in time.  In a dark and dreary existence.  Where they waited in line for their basic needs.  Often hungry.  And cold.  With nothing to look forward to.  For the government didn’t allow anyone to leave their paradise.  Why?  Because the few who did rarely went back.  So they worked.  And sat at home.  Dreaming of how to get past that wall.  To freedom.  And a better life.

If America divides into two confederacies people will flee the Liberal paradise.  For jobs in Conservative America.  Leaving Liberal America with a reduced tax base.  Making it harder to pay for all of those government benefits.  As the benefit-consumers will flock to Liberal America for all that free stuff.  But the people who pay for all of that free stuff will be going the other way.  So fewer people will be paying for more stuff.  Which, of course, will make it impossible to provide all of that free stuff.  Unless Liberal America also builds walls to keep their people from fleeing their utopia.  Keeping the wealth creators on their side of the wall.  So they can tax them.  To pay for their Liberal paradise.  Which will have a close resemblance to East Berlin.  So the liberals should be careful what they wish for.  For if these states secede life will get worse for those dependent on government benefits.  How worse?  Behind the Iron Curtain worse.

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The U.S. Starting to Chase the Wealthy and Job Creators out of the Country like the French

Posted by PITHOCRATES - May 13th, 2012

Week in Review

It’s just not the Socialist Hollande in France scaring the wealthy and job creators out of their country.  It’s happening in America, too (see Facebook’s Eduardo Saverin Joins Americans Renouncing Citizenship by Enjoli Francis posted 5/11/2012 on ABC News).

In 2011, billionaire Facebook co-founder Eduardo Saverin relinquished his U.S. citizenship and joined nearly 1,800 other Americans to do it last year — up from 235 in 2008…

Those in the expatriate community said that although Saverin’s move was likely a financial one — he paid an exit tax on the capital gains from his Facebook stock but the stock is now tax-free — they said expatriates who gave up their citizenship were driven by other factors.

Phil Hodgen, an international tax lawyer in Pasadena, Calif., said that since 2009, when more than 150 U.S. customers of Swiss banking giant UBS were investigated for alleged tax evasion, the IRS had been going after Americans abroad with foreign bank accounts with a vengeance.

He said that in the last three years, new and old rules had created an enormous amount of resentment — and paperwork expenses — for expatriates…

Peter Dunn, a popular blogger who gave up his U.S. citizenship, said the expatriates he spoke to were mostly standard middle-class U.S. citizens who were ready to retire or who had retired abroad. He said because of these “invasive” rules, they now feared substantial penalties from not reporting their finances correctly.

In an expanding welfare state your wealth isn’t yours.  It belongs to the people.  At least that’s the way governments look at it.  With ever expanding deficits and debt they’re trying to take as much wealth away from the wealthy as possible.  Despite the great things they create for us.  Such as Facebook.  For if it wasn’t for Saverin’s wealth he invested in Facebook we wouldn’t have it today.  But he believed in it.  And took a risk.  With his own money.  The way entrepreneurs do.  Something a lot of people do.  But few ever experience the success Saverin has.  And few will ever take these risks again if they are going to be hounded for the rest of their life by the tax authorities.

Of course those who want to tax the rich will look as these expatriates as the lowest of scoundrels.  Running away with their wealth instead of paying their ‘fair’ share of taxes.  Even though the amount in dollars they pay in one year is greater than most people will pay in taxes in a lifetime.  But these expatriates are the greedy ones.  For not letting us take all of their wealth. 

Of course should someone win the lotto it’ll be a different story.  For though we attack the rich we all want to be rich.  If not we wouldn’t be buying those lotto tickets, would we?  So, yeah, we hate the rich.  Right up until we become rich.  Then all this antagonism against the rich is just a silly misunderstanding.  And those taxes on the wealthy really are too high.  But until we become rich we’ll hate pretty much anyone who has more than us.  Be jealous of them.  And covet what they have.

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Hollande’s Win in France sends a Message to the Wealthy and Job Creators – You are Not Welcomed Here

Posted by PITHOCRATES - May 13th, 2012

Week in Review

The French elections are over.  Hollande is in.  Sarkozy is out.  As are the job creators.  The wealthy.  Who are looking to leave France with their talent and skills.  Because they got the message.  Hollande doesn’t like them.  And he’s coming after their wealth (see France Entrepreneurs Flee From Hollande Wealth Rejection by Anne-Sylvaine Chassany and Jacqueline Simmons posted 5/10/2012 on Bloomberg).

France, the fifth-richest country and home to some of the world’s wealthiest people, including LVMH Moet Hennessy Louis Vuitton SA Chief Executive Officer Bernard Arnault, doesn’t celebrate its affluent. Hollande, a Socialist who once said “I don’t like the rich,” and who plans to slap a 75 percent tax on income of more than 1 million euros ($1.29 million), reinforces the sentiment that in France to be rich is not glorious…

Hollande’s rhetoric against wealth and finance is prompting some in France to consider leaving, and European rivals are welcoming them. “Bienvenue a Londres,” or welcome to London, Mayor Boris Johnson quipped in January. Switzerland and Belgium have been just as warm…

“Seen from abroad, France is the last country where an entrepreneur wants to go,” Marc Simoncini, the founder of French dating site Meetic.com, said in an interview on BFM TV yesterday. “I don’t know of any British person who’s come to set up a business in France. But I know plenty of young French people who’ve gone to London to do that…”

The attitude toward business and wealth creators is driving people away, said Diane Segalen, founder of Segalen & Associes, an executive search firm specializing in top management and board members.

Talent and skills will go where they are welcome, she said…

On the other side of the Channel, Conservative London Mayor Johnson laid out the welcome carpet.

“This is the global capital of finance,” he said. “It’s on your doorstep and if your own president does not want the jobs, the opportunities and the economic growth that you generate, we do.”

Here’s another reason for those who aren’t rich to hate those who are.  Because they won’t just sit there and take it.  These selfish bastards won’t stay in France and continue to use their talent and skill to make great wealth so the state can take it away from them.  You just can’t depend on the rich, can you?  Only those who aren’t rich are caring and decent.  With other people’s money, of course.  For if they won a fortune in a lottery they’d want to pack up their wealth and leave just like everyone else that has wealth.  Because it’s an entirely different picture when it’s YOUR wealth.  Taking wealth from others, why, that’s okay.  But it just isn’t fair to take YOUR wealth.

People need jobs.  And government needs people to have jobs.  So they can pay the taxes that fund their welfare state.  And to create jobs you need people with talent and skills.  To create wealth by investing wealth.  Because that’s the only way you can create jobs.  And tax revenue.  For only someone with a job can pay an income tax.  So it all starts with jobs.  You gotta have them.  And they just don’t spontaneously appear.  If they did France wouldn’t be in the economic mess they’re in requiring a 75% tax rate on millionaires.

This is the future of the welfare state.  High taxation that encourages all those with talent and skill to leave your country.  Leaving only those consuming the benefits of the welfare state.  Without anyone left to pay for it.  Which leads to more government borrowing.  Greater deficits.  Higher debt.  And, well, you can look to Greece to see where it goes from there.

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Labor Costs, Standard of Living, Artisans, Gunsmiths, Specifications, Interchangeability of Parts, Machine Tools and the Assembly Line

Posted by PITHOCRATES - February 15th, 2012

Technology 101

Since the Dawn of Civilization we’ve Waged a War against High Labor Costs

Technology determines our standard of living.  The greater we develop technology the higher our standard of living.  Because the things that make our lives easier and more enjoyable come down in price as technology advances.  So that the great conveniences and comforts of life are available to all.  And not just for the amusements of a wealthy upper class.  For example, who owned and enjoyed the first automobiles?  It was the wealthy upper class.  Exclusively.  Until Henry Ford used all the technology of the day to reduce the price of a car so that a working man could afford and enjoy one.  Changing America forever.

Labor.  The cost of people making things.  This is the cost that holds back the standard of living.  The thing that made the comforts of life affordable only to the rich.  Since the dawn of civilization we’ve waged a war against high labor costs.  To find ways to allow people to create more for less.  The division of labor allowed specialization and a middle class.  Where artisans made things they could trade for other things.  But artisans were artists.  Each thing they made was one of a kind.  And it took time.  A single artisan could not operate at an economies of scale to bring unit prices down.  Which tended to keep their more labor-intensive works more costly and available only to the wealthy class.  And rulers of their civilization.

Great talent was going to waste.  And a great number of people were not living anywhere near as well as the few well-to-do.  To unleash this human capital, to make a better life available to anyone, they had to reduce these labor costs.  Figure out a way to make more for less.  And we took a giant step forward in this direction thanks to war.  One of the great drivers of technology.

Precision Machine Tools allowed the Interchangeability of Parts

Some of our first firearms were works of art.  Built by highly skilled artisans.  Gunsmiths.  Who carefully and painstakingly shaped, fitted and gently filed parts he created and assembled together into a working firearm.  Changed the way we fought wars forever.  They were expensive.  And not all that plentiful at first.  Because it took such a long time for a gunsmith to build one from scratch.  Who was always busy building new guns.  Or carefully and painstakingly repairing old ones damaged in battle.  Shaping, fitting and filing a replacement part into the old firearm and restoring it to working order.

Then someone got a bright idea.  Actually, a few had the same bright idea at various points in time.  If we could standardize these parts by building them to a set of specifications we could mass-produce these parts.  Building the same part over and over again, one after another, following a set of specifications as closely as possible.  And then take these uniform parts and assemble firearms out of them.  Because the parts were uniform they were interchangeable.  Any part could go into any gun.  A worker could just grab these interchangeable parts from piles of identical parts and slap them together into a finished firearm.  Furthermore, we could keep spare parts in our armories.  So we can easily repair parts damaged or broken in combat by simply replacing the broken part with a new part.  Without sending the firearm back to the manufacturer.

Of course, the interchangeability of parts was not possible without the precision machine tools provided.  At first artisans guided their hand tools with a trained eye.  Often securing the piece he was working in a vise and working the tool around the piece.  Machine tools allowed us to spin our work and used a constrained tool to shape it.  Or to constrain our work and apply a spinning tool to drill, cut or shape it.  Using machines to constrain our work allowed us to apply greater forces on our work.  Which advanced metal working.  And allowed us to manufacture things with complex shapes and demanding specifications.  Creating the many thousands of pieces that we ultimately assemble into a finished good.  Allowing us to build more for less.

Computer Controlled Machine Tools and Robots increased the Speed and Precision of Assembling Automobiles

The interchangeability of parts and machine tools led to the assembly line.  Where we assembled things in mass quantities.  From piles of interchangeable parts.  Then Henry Ford made the assembly line move.  Taking mass production to a new level.  Reducing the costs for one of the wealthy class’ most expensive toys.  The automobile.  Bringing labor costs down so far that the final selling price was inexpensive enough for the working man to afford.

Computer controlled machine tools increased the speed and precision at which we made these interchangeable parts.  And robots on the assembly line increased the speed and precision of assembling automobiles.  Which should have reduced the price of cars even further.  But they seem to be more expensive than they need be.  Making many cars today too expensive for the working man.  Making them toys for the rich and well-to-do again.  For technology has reduced costs everywhere in the assembly pipeline but one.  The final assembly labor costs.  Which should have plummeted in the advance of all this technology.  But they haven’t.  Because unions have removed these costs from market forces.  Keeping labor costs higher than market costs.  And in turn pushing the selling price of their cars higher than market prices.  Opening the door to Japanese competition in the Seventies.  And the Japanese stepped in.  Sold a lot of cars.  So many that they would one day even sell more than GM.  Where we come full circle.  One of the countries (the other being Nazi Germany) that changed American manufacturing by pulling it out of the Great Depression changed it once again.

During the war years of the Great Depression FDR set a wage ceiling.  He didn’t want employers paying workers too much.  A bit of a problem when you’re trying to hire the best workers.  So employers got creative.  And, instead, started offering benefits to get around that wage ceiling to attract the best workers.  Following World War II the wage ceiling was gone.  But the benefits lived on.  And are some of the most contentious issues discussed at contract negotiations with the United Automobile Workers (UAW).  Ultimately leading to the great legacy costs that led the Big Three (GM, Chrysler and Ford) to bankruptcy and government bailouts. 

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Obama’s Millionaire Tax won’t Provide Serious Deficit Reduction

Posted by PITHOCRATES - September 18th, 2011

Deficit Reduction is Important Enough to Raise Taxes but not Important Enough to Cut Spending

Hmmm, a Democrat deficit reduction package.  I wonder what that could mean. Spending cuts?  Or tax hikes?  Well liberal Democrats like to tax and spend.  And Barack Obama is a liberal Democrat.  So it must be tax hikes (see Obama to offer his own debt reduction package by Jim Kuhnhenn, Associated Press, posted 9/18/2011 on Yahoo! News).

Administration officials see the task of attending to deficits as necessary but not necessarily urgent, compared with the need to revive the economy and increase employment.

What do you know about that?  It’s tax hikes.  What a surprise.

Translation?  It’s important enough to raise taxes to cut the deficit.  But not important enough to cut spending.  In other words, it will be government as usual.  More Keynesian ‘stimulus’ spending.  Which is code for rewarding political friends and allies.  With taxpayer money.  And more class warfare.  Blaming the Obama recession on Republican tactics.  Namely, responsible governance.

The White House signaled its approach Saturday by highlighting a proposal in the president’s plan that would set a minimum tax rate for taxpayers earning more than $1 million.

The measure — Obama is going to call it the “Buffett Rule” for billionaire investor Warren Buffett — is designed to prevent millionaires from using tax-avoidance schemes to pay lower rates than middle-income taxpayers. Buffett has complained that he and other wealthy people have been “coddled long enough” and shouldn’t be paying a smaller share of their income in federal taxes than middle-class taxpayers.

Coddled?  You tell me if we’re coddling these people.

Compare the numbers.  A $60,000 middle class salary pays a current top marginal tax rate of 25%.  That’s somewhere around $11,000 in federal income taxes.  One of these coddled ‘Warren Buffet‘ millionaires may earn $40 million on a half billion dollar investment portfolio.  Taxed at 15% that’s a capital gains tax of $6 million dollars.  So one ‘coddled’ millionaire pays the equivalent of 3,636 middle class taxpayers.

If you look at it this way, rationally, without your head up your keister, you can only arrive at one conclusion.  You don’t want to raise tax rates on the wealthy.  You want to breed them.  With tax policy that encourages the making of more Warren Buffet-class millionaires.

For each new ‘coddled’ millionaire that’s another 3,636 middle class people that could receive significant tax relief.  How?  Lower tax rates across the board.  The middle class pay less.  And more millionaires pay more tax dollars.  The ultimate goal of tax policy.  If you’re not a liberal Democrat, that is.  Whose ultimate goal is, of course, class warfare.  So you can advance policy that is detrimental to the economy.  But beneficial to growing government.  And rewards political friends and allies.  With taxpayer money.

Business Owners Understand their Businesses and Fiscal Policy and are Tiring of being Cash Piñatas

If you’re of the older persuasion you’ve no doubt heard these arguments before.  And after hearing them all these years they don’t fool you anymore.  If you ever were in the first place.  Still, it doesn’t stop them from trying (see Sorry, But The Republican Arguments Against A “Millionaire’s Tax” Are Just Preposterous by Henry Blodget posted 9/18/2011 on Business Insider).

The rest of the Republican counter-arguments are just silly, self-serving, or obstructionist. Let’s take them one by one, ending with the one that seems most persuasive to reasonable people.

“Taxes are a form of theft.”  This is just ridiculous. It’s like arguing that paper money is illegal.

Government is a necessary evil.  Government takes money earned by others.  To pay for public goods.  Everyone understands this.  What people don’t understand is the bastardization of the meaning of public goods.

A public good is a thing that an individual can’t buy.  An individual can’t buy an army and navy to protect himself.  Or herself.  A private individual can’t buy a fresh water and sewage system for himself.  Or herself.  These are public goods.  We pay for these things with taxes.  Everyone pays a little to enjoy the benefits of these massive and costly things.

But we can feed ourselves.  Provide for our own retirement.  Pay for our own healthcare.  We can do these things.  It may be harder for some than others.  But it can be done.  So these things are not public goods.  But government today treats them as public goods.  Taxing us far more than they should.  So they can curry favor with voting groups.

So buying votes with tax dollars may be legal in the strictest sense.  But it is closer to theft than legitimate tax policy.  And printing paper money to fund even more of this spending is generational theft.  A millionaire tax just facilitates more government spending for things government shouldn’t be paying for.

Here is a list of the arguments Blodget says are typically made against raising taxes on millionaires.  Which he goes on to repute.  But I think the arguments speak for themselves.

  • Raising taxes on millionaires will kill their ambition and discourage them from working
  • Raising taxes on millionaires will punish successful people for being successful
  • Raising taxes is always a terrible idea–the problem is spending
  • Taxes are a form of theft: The government has no right to take our money away
  • Raising taxes in a weak economy will further weaken the economy

These are all true.  People like to point to that top marginal tax rate of 1950s when the economy was booming.  But no one paid it.  People hid their earnings in tax shelters to avoid that 90% rate.  Contrary to popular belief on the Left, they didn’t whistle a happy tune and pay it.  They fought it.  And won.  It was a joke.

High taxes do influence rich people.  They will redirect their wealth from income producing.  To wealth preservation.  When tax rates are high.  Just like middle class people do with their 401(k)s.  When they approach retirement.

If a small business earns $1+ million a year, and the owner “passes through” all this income and pays taxes on it, Obama’s “millionaire’s tax” will encourage this owner to do the following:

  • Pay him or herself less
  • Hire more people or otherwise reinvest the money in the business (so it won’t be taxed)

These moves, in turn, should do two things:

  • Help create new jobs (which will help the overall economy)
  • Help grow the owner’s business, thus increasing his or her net worth

Yeah, it could work out like that.  Or it could go another way.  The small business owner can look at this tax policy as a sign that government has no intention of cutting their irresponsible spending.  Which means deficits will only continue to grow.  Which means there will be more taxes in the future.  As there will have to be if they don’t cut spending.  And baseline budgeting keeps increasing that spending every year.  Not to mention all those off-budget spending obligations.

Now business owners live in the real world.  They have to pay payroll taxes with every payroll.  And deal with other taxes and regulatory costs on a daily basis.  They don’t have the luxury of sitting back and prognosticating how tax policy should make business owners behave.  Instead, they’re acting ahead of policy.  They’re listening to this debate and preparing for the worst.  Even before tax policy changes.  Because if they don’t it may be too late when it does.

So this kind of talk is already keeping them from hiring new people.  They are deleveraging left and right.  Because they, unlike government, understand their businesses.  And fiscal policy.  They see what they are to government.  Big, fat cash piñatas.  And they’re tired of being whacked.

They Need to Tax Millionaires because They’re Making Spending Commitments no Amount of Taxation can Sustain

A millionaire tax.  That’s where it starts.  But it’s not where it will end.

People need to understand why government ‘needs’ to tax millionaires.  It’s not because they haven’t been paying their fair share.  It’s because of record deficits.  And record debt.  Caused by record spending.  Just look at the numbers.

Adjusted for inflation, Ronald Reagan‘s largest deficit was $442.614 billion.  George W. Bush‘s largest deficit was $462.56 billion.  In Obama’s first year in office his deficit was $1,416 billion.  In his second year it was $1,294 billion.  They project it to be $1,650 billion in 2011.  And one thing we know about Barack Obama is that he’s not going into the history books as a tax cutter.  So these deficits aren’t from tax cuts.  They’re from spending.

Because of baseline budgeting this spending stays on the books.  And it will only grow.  And all those off-budget spending obligations are growing right along with it.  Such as the trillions the government owes to the Medicare and Social Security trust Funds.  And on top of all of that is Obamacare just waiting to add to our fiscal woes.  This is why they ‘need’ to tax millionaires.  Because the government is making spending commitments no amount of taxation can sustain.  So they will start with millionaires.  Work their way through the middle class.  Then they’ll have no choice but to start rationing benefits.  Followed by austerity.  Then the anarchy comes.  Like in Greece.

This is why we should not add a millionaire tax.  It will not address the spending problem.  And will only facilitate more spending.  Delaying the inevitable day of reckoning.  And making it ever more painful.

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First the Obama Misery Tour, then on to Martha’s Vineyard with the other Millionaires and Billionaires

Posted by PITHOCRATES - August 15th, 2011

Raising Taxes on the ‘Rich’ to Close the Deficit will put the Country into a Depression

Roll up, roll up for the misery tour.  Roll up, roll up for the misery tour.  The Obama Misery Tour is waiting to take you away.  Waiting to take you away (see Obama kicks off Midwest bus tour with harsh words on the economy by Zachary A. Goldfarb posted 8/15/2011 on The Washington Post).

Obama, who kicked off a three-day Midwest bus tour Monday focused on the economy, cited comments made by Republican presidential hopefuls at a GOP debate last week.

“I know it’s not election season yet, but I just have to mention the debate,” where Republicans said they would not increase taxes under virtually any circumstance, Obama said at a town hall. “Think about that. That’s just not common sense.”

Neither did raising the deficit from $455 billion to $1.65 trillion, Mr. President.  In fact this spending was downright irresponsible.  Your administration spent an additional $1.195 trillion we didn’t have.  And you’re planning to spend more.  We have a deficit problem because we have a spending problem.  Not because people aren’t paying enough taxes.

“You’ve got to send a message to Washington that it’s time for the games to stop. It’s time to put country first,” Obama said, his voice rising. “Some folks in Congress … would rather see their opponents lose, than America win.”

Mr. President, you increased the deficit by 263%.  That is not good for the country.  In fact, one could say that you are the ‘some folks’ you refer to who would rather see their opponents lose than America win.

He called on Congress to pass measures to hire construction workers, a trio of trade bills, an overhaul of patent laws and new tax credits to spur new jobs for veterans.

You had supermajorities during your first two years in office.  You could have passed any legislation you wanted to spur new jobs.  Instead, you made your priority the passing of Obamacare.  Something that did not spur any jobs.  And only will increase the deficit. 

And hire construction workers?  Wasn’t your Keynesian stimulus bill supposed to do that?  Create some $800 billion in shovel-ready projects?  Of course that’s hard to do when 88% of that bill was pork and earmarks.  Sort of a Democrat wish list to satisfy some 40 years of wants and desires. 

Speaking about the national debt, Obama called for an overhaul of the tax code that would force the wealthy to pay more taxes and an overhaul of entitlement programs…

“I’d like to see the ultra-rich pay their fair share,” said…a nurse from Rochester. “He’s got to be a politician, but I’d like to see a bit more push.”

“I think he’s doing a good job. He inherited a very big deficit,” said…a financial planner from Rochester. “He and Michelle are the first residents of the White House to be familiar with both organic food and leftovers.”

The wealthy just aren’t wealthy enough to pay down the deficit.  If you crunch the numbers, and define anyone who earns $159,619 or more as wealthy, you’ll have to raise the federal income tax to an effective rate of 87.6% (see You can’t Reduce the Debt $4 Trillion by Raising Taxes, at least not Mathematically).  That means the government would have to take 87.6% of everything they earn.  That includes the billionaires and the millionaires.  And everyone earning $159,619 or more. 

Is this possible?  Well, if you earn $159,619 annually, that’s $13,301.58 gross pay each month.  After your federal income taxes are withheld, that leaves a whopping $1,649.40 to pay your state taxes, your mortgage, your car payment, your groceries, health insurance, car insurance, gasoline for your car, etc.  Of course, they won’t be able to have these things at this high tax rate.  In fact, they won’t have any money left to spend.  Consumer spending over all would nosedive us into a full blown depression.  Making things even worse than they are now. 

So what is Obama going to do next?

Obama is scheduled to go on a 10-day family vacation to Martha’s Vineyard on Thursday after completing the economic tour.

While many Americans can no longer afford to take the family on a vacation, he will be spending 10 days in the very swanky Martha’s Vineyards.  Where billionaires and millionaires like to vacation.  And get away from the rabble.  Us.

Politicians are Whores who sell themselves to the Highest Bidder 

The johns threaten to withhold their money from the prostitutes in Washington (see Starbucks CEO urges halt to U.S. political donations by Lisa Baertlein posted 8/15/2011 on Reuters).

In his letter on Monday, Schultz [Starbucks Corp. CEO] invited executives to join him in a “pledge to withhold any further campaign contributions to the President and all members of Congress until a fair, bipartisan deal is reached that sets our nation on stronger long-term fiscal footing.”

Men are interested in one thing.  According to all the stereotypes.  And when women want something, they can simply withhold this one thing.  Again, according to the stereotypes.  Eventually the man caves because he can’t live without that one thing.  What a great analogy.  Because all politicians are whores who sell themselves to the highest bidder.  And those buying political favors can simply withhold their money to get what they want.  Which is how government works.  Sadly.

Schultz also urged fellow CEOs to invest in projects or new products that will perk up the economy at a time when fear and uncertainty have made businesses unwilling to invest, consumers unwilling to spend and banks unwilling to lend.

Expand supply in the face of a shrinking demand?  Not a good idea.  Austrian economists call this malinvestment.  This kind of thinking didn’t help ward off the Great Depression.  And it won’t work here.  You create real demand by cutting taxes.  Giving people more money to spend now.  Next week.  Next month.  And next year.  This creates confidence.  Not a one-time stimulus that provides consumers with money to spend one time.  A tax cut will increase demand.  And once consumers are demanding more business will start hiring more. 

I guess a guy who has convinced people to buy over-priced coffee just assumes businesses can make consumers do anything.  But would he open a new Starbucks next to an existing one?  No.  Why?  Because what would probably happen is that each store will have half the business of the first store.  While doubling the overall costs for that business.  So that would be a malinvestment.  So he wouldn’t do it.  Yet he is asking his fellow CEOs to do just that.

Obamanomics has Failed so let’s Return to the Successful Policies of Reaganomics

It’s been about three years.  Record government spending hasn’t done anything but increased the deficit.  And get U.S. credit downgraded.  You can make all the excuses you want.  But eventually you have to answer for your policies.  Obama’s policies have failed.  And left us worse off than we were.

The Keynesian way has once again failed.  Perhaps we should give the Austrian way another try.  Because when Reagan did, those policies worked. 

We tried Obamanomics.  It failed.  So let’s go back to Reaganomics.  At least it has a track record of success.

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