FT218: “The withholding tax is the greatest sin government ever perpetrated against the people.” —Old Pithy

Posted by PITHOCRATES - April 18th, 2014

Fundamental Truth

The tariff was the funding source for most of government for about a century.

Once upon a time there was no federal income tax.  No estate tax.  No gift tax.  No payroll tax.  No capital gains tax.  And no corporate tax.  Taxes we take for granted today didn’t exist a century or so ago.  The country was a lot leaner back then.  People kept most of their money.  And took care of their families.

The federal government used to fund everything thing they did with tariffs.  A tax on imports.  Paid in ports.  As ships unloaded their goods.  Far away from most people.  And few people complained.  Our first excise tax was a different story.  A 7 cent per gallon of whiskey incited the Whiskey Rebellion.  After fighting the Revolutionary War to escape the oppressive taxation policies of Great Britain the people were in no mood for a new tax.  The whiskey tax lasted for about a decade.  Then they repealed it.

This left tariffs as the funding source for most of government for about a century.  But even that grew controversial.  And began the divisions between North and South.  The North protected its industry with protective tariffs on iron products, textiles (wool and cotton) and agricultural goods.  Shipped from the more industrialized Britain.  Which Britain responded to with tariffs of their own.  On cotton and other agricultural products grown in the South.  So the more the North protected their industries the more difficult it made for the South to export their raw goods.

In 1913 the progressives reintroduced the income tax and taxed the rich at 1%.

This wasn’t the only difference of opinion the North and South had.  And their differences resulted in war.  The North was able to win the American Civil War with its expansive industry.  But the war devastated the country.  Especially the South.  Which lost about 8.6% of her population.  To get an idea of what an 8.6% population decline is consider this.  That percentage of the current U.S. population is approximately 27 million.  So the losses the South suffered were similar to what the Soviets lost on the Eastern Front during World War II.

The South may have lost more of its population.  But the North suffered nearly the same number of war dead.  She just had a larger population to begin with.  To run all of that industry that won the war.  America’s first modern war was a costly one.  And one that President Lincoln had to turn to a new source of revenue.  The federal income tax.  Which taxed the rich.  At 3%.  Then it taxed the super rich at 5%.  But after they paid down the war debt they repealed America’s first income tax.

Then came the progressives.  And their taxes.  In 1913 they reintroduced an income tax.  Taxing the rich at 1%.  And the super rich at 6%.  To fund an expanding federal government.  Then came World War I.  To fund the war they increased the tax rate on the rich to 15%.  And the super rich at 77%.  The top marginal rate fell during the Twenties.   But FDR raised it back up during the Great Depression.  Until it reached 94%.  Where for every dollar they earned in and above the top income bracket they got to keep only 6 cents.

Few would be able to write a check on tax day to pay their full tax bill.

Then came all the other taxes.  And they just kept coming. Our tax bill grew to staggering amounts.  Which posed a problem for the taxing authorities.  As people just didn’t keep that kind of money around.  They worked.  They raised their families.  And what little they had left they put into the bank for their retirement.  Making it very difficult for them to pay their tax bill when it came.  Especially when it was 30% or more of their entire income.  So what to do?

The Founding Fathers created a nation out of a tax rebellion.  And then when that nation levied its first excise tax they got a little rebellion of their own.  Being opposed to taxes is part of the American DNA.  So the taxing authorities had to somehow hide the large amount of taxes we were paying.  That is, they had to reduce the transparency of these taxes.  For if you don’t know what you’re paying in taxes you really can’t get mad at paying high taxes.

Enter the withholding tax.  The greatest sin government ever perpetrated against the people.  For it takes our money before we ever get it.  Conditioning us to accept ‘net’ pay as the norm.  And making ‘gross’ pay some meaningless payroll jargon.  Because you can’t spend ‘gross’ pay.  You can only spend ‘net’ pay.  Which is the only pay people care about.  Making it not only easier to hide the soaring amount of taxes people were paying.  But because it’s so easy to hide what we’re paying they could raise those taxes to confiscatory heights.  Because we never have that money in our hands.  We never see it.  It goes from our employer to the taxing authorities.  Which is the only way they could collect these soaring amounts.  For few would be able to write a check on tax day to pay their full tax bill.  As people just don’t keep that kind of money around.

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Disposable Income, Federal Taxes, Federal Debt and our Spending Problem 1940-2012

Posted by PITHOCRATES - February 27th, 2013

History 101

Excessive Federal Taxes reduce Disposable Income which reduces New Economic Activity

The key to economic growth is disposable income.  The more disposable income people have the more economic activity they will create.  So the key to a healthy economy is maximizing disposable income.  And we can do that in a few ways.  First of all we need jobs.  And we can create more jobs with fewer costly regulations.  And lower taxes.  If we make it less costly to hire people businesses will hire more people.  Which they aren’t doing right now.  Primarily because of Obamacare.  Which is so costly to businesses that they’ve frozen new hiring.  And are pushing some full time employees to part-time.  As well as investing in capital equipment wherever they can.  Replacing people with machines.  Because machines don’t incur Obamacare costs, taxes or penalties.

For those lucky few who haven’t been replaced by machines they can earn some disposable income.  Depending on their skill level.  A low-skilled person who never graduated from high school cannot earn as much disposable income as a thoracic surgeon.  So if you want stuff.  And you want to stimulate the economy.  Become a thoracic surgeon.  Or something else that takes years of college and years of on the job training.  And hundreds of thousands of dollars of student loan debt.

But earning a good income isn’t enough.  Because from that income we must pay an enormous amount of taxes.  Greatly reducing our disposable income.  Some of the taxes we can see.  Such as those itemized on our paycheck stubs.  Federal and state income taxes.  And Social Security and Medicare taxes.  But there are a lot of taxes we don’t see.  Such as excise taxes on the things we buy from gasoline to liquor to cigarettes.  And then there are property taxes.  Sales taxes.  And the list goes on.  All of which take a bite out of our disposable income.  Siphoning away real economic activity over the years as the federal government added new taxes.  And increased the tax rates of the old taxes.

The Federal Government came up with the Withholding Tax to Prevent an all out Tax Revolt

When the Founding Fathers ratified the Constitution there weren’t many taxes.  Mostly custom duties and tariffs.  Which was enough to fund the limited government they created.  But ever since the Founding some in the federal government have been trying to destroy what the Founding Fathers created.  And replace it with what they fought so long to get rid of.  A very large government that reaches into all parts of our life.  Like a monarchy.  Where those in the federal government belong to a new aristocracy.  Who are more equal than everyone else.  And live a far, far better life.  If you don’t believe this just check out property values around Washington DC.

With the American Civil War killing a generation of fathers a lot of boys grew up with over protective and doting mothers.  When these boys came of age and entered politics they weren’t as manly as their father’s generation was.  Because they grew up without fathers to teach them to hunt and fight.  Instead, they grew up with mothers who taught them to be more nurturing.  Giving us the progressive movement.  Woodrow Wilson gave us a permanent federal income tax.  And tried to expand the federal government to be more of a monarchy with a powerful executive that can govern against the will of Congress.  And the people.  After World War I we returned to normalcy.  And Warren Harding and Calvin Coolidge gave us the Roaring Twenties.  And the modern world.  Then Herbert Hoover and other progressives caused the Great Depression.  With a crisis too good to let go to waste FDR picked up where Woodrow Wilson left off.  Exploding the size and reach of the federal government.  And the great surge in federal taxes began.  Over the years they added more and more.  Such as these (see Table 2.1—RECEIPTS BY SOURCE: 1934–2017).

Income Payroll Excise and Other Taxes Key

Some of these you are no doubt familiar with.  The biggest bite is the individual income tax.  Something most of us have received our W-2s for and have just prepared our federal income tax returns.  Or are about to.  Dreading it.  Unless we’re getting a refund.  Those who owe money will probably take their sweet time.  As they hate writing a check to the federal government.  Which is why the federal government came up with the withholding tax.  For if people had to write a check for the full amount of their federal income taxes each year there would be an all out tax revolt.  And probably a lot more imprisonment for people not paying their federal taxes.  For no one has that kind of money sitting around.  Which is why the government takes it from you before you can spend it yourself.

Excessive Federal Spending requires ever Higher Taxation and ever more Borrowing to Feed

The big debate in Washington now is the sequester.  And the automatic cuts of the sequester.  Which were proposed by President Obama.  Which Congress wrote into a bill.  And the president signed into law.  In hopes that Republicans and Democrats would come together and find a way to reduce the record high deficit.  The Republicans want to do the obvious.  Cut the spending that caused the record deficit.  Democrats want to do what they always want to do.  Raise taxes.  Saying that we don’t have a spending problem.  That the four years of trillion dollar deficits isn’t because we’re spending too much.  It’s because we’re not taxing enough to pay for that spending.   That rich people aren’t paying their fair share.  But that’s not what you see when you look at the numbers.

Income Payroll Excise and Other Taxes

These taxes are identified in the above table.  As government spending grew so did taxes.  In particular personal income taxes which provide the majority of federal tax revenues.  Which exploded after LBJ’s Great Society added a lot of new federal spending.  And after President Nixon decoupled the dollar from gold in 1971.  Unleashing inflation.  Note that personal income taxes are greater than corporate income taxes.  That’s because there are more people than corporations.  For example, Siemens AG is an international corporation that employs about 360,000 people.  Who all pay personal income taxes.  After personal income taxes comes old-age and survivors insurance.  Otherwise known as Social Security.  And all of these taxes have continued to grow.  Taking a bigger and bigger bite out of disposable incomes.  Putting a drag on new economic activity.  Note that the only falls in federal tax revenue were due to two Democrat-caused recessions.  Bill Clinton’s dot-com bubble burst causing a bad recession in 2000.  And his subprime mortgage lending bubble he started with his Policy Statement on Discrimination in Lending burst causing a bad recession in 2007.  Apart from these, though, the pattern has been more spending.  Not less.  Which would suggest that we do have a spending problem.

Also included on this chart is the federal debt.  Note how it spiked up during World War II.  Then settled down at a constant rate for about 30 years.  Until LBJ’s Great Society spending increased federal spending.  But these massive new taxes weren’t enough.  For that’s when the big deficits started.  Adding on to a growing federal debt.  With the only decline in this growth coming during President Clinton’s presidency.  President Clinton’s dot-com boom (before the bubble burst), the peace dividend from President Reagan winning the Cold War, the Asian financial crisis and Japan’s Lost Decade all helped the American economy shower the treasury with cash.  Putting the nation into a surplus for a year or so.  But that didn’t last.  As federal spending continued to outpace tax revenue.  Culminating with President Obama’s trillion dollar deficits.  With federal tax revenue at the highest since President Bush’s record high just before Clinton’s subprime mortgage bubble burst into the subprime mortgage crisis.  And the Great Recession.

So yes, Virginia, we have a spending problem.  A spending that requires ever higher taxation and ever more borrowing to feed.  Taking an ever bigger chunk out of disposable incomes.  Leaving less and less for new economic growth.  Explaining why the economy has never recovered from the Great Recession.  For President Obama’s policies only increase taxes and the cost of doing business.  And do nothing to create disposable income.

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The Federal Government taxes away about Half of Every Dollar the Middle Class Earns

Posted by PITHOCRATES - August 19th, 2012

Week in Review

Thanks to withholding tax people don’t fully appreciate how high their taxes are.  They know they’re high.  So high that gross pay means nothing to them.  Workers only speak of ‘net’ pay.  Or ‘take home’ pay.  The money they actually get.  Not that strange fictitious ‘gross’ pay on their paycheck stub.  Whatever that is.  And what is gross pay?  Their pay.  It’s their money.  And they would have had it when they cashed their paychecks if their employers didn’t withhold it so they could give it to the government.  And why does the government use the withholding tax to take our money?  Because if we had to write a check at the end of the year for our full tax amount there would probably be a nationwide tax revolt.  Which is why the taxing authorities take that money before it gets into our hands.  Because once it is in our hands people may be less willing to hand it over to the taxman.  Which is probably why the Founding Fathers didn’t include any withholding taxes in the Constitution.  They did not want to make it easy for the government to take our money.

So how high are the taxes on the middle class?  Pretty high (see Government Will Take Almost Half Your Paycheck in 2013 by Patrick Tyrrell posted 8/13/2012 on The Foundry).

A middle-class taxpayer’s income is subject to a 25 percent federal income tax. Then there is the federal Social Security and Medicare payroll tax of 13.3 percent in 2012—5.65 percent of that is removed from the employee’s paycheck, and the remaining 7.65 percent is paid by the employer. (In reality, the employee pays the entire 13.3 percent, because the employer’s portion of the tax does not affect the cost of labor: The employer would pay the employee 7.65 percent more if there were no employer’s portion of the payroll tax.)

So the 25 percent federal income tax plus 13.3 Social Security and Medicare payroll taxes equals 38.3 percent going to federal taxes in 2012.

And then there are state taxes. According to the Tax Foundation, the average state’s income tax rate for the middle-class taxpayer is 4.82 percent, which brings the total to 43.12 percent in federal and state taxes.

In Billy Joe’s Movin’ Out (Anthony’s Song) he says, “You can pay Uncle Sam with the overtime.  Is that all you get for your money?”  The point being is this.  Yes you can give up your Saturday and work some overtime.  But is it really worth it when you can only keep about $0.57 of each additional dollar you earn?  Not really.  Which is why a lot of people who work with their hands will do ‘side work’ for cash under the table.  So they can keep every penny of every dollar they earn.

Or some will work some hours serving tables in a restaurant.  For a little extra spending cash.  I worked with a lady who did.  A devout liberal Democrat.  And part of the middle class.  I asked her if she reported all her tips so she could pay her fair share of taxes on those earnings.  Even though she was a steadfast liberal Democrat voter who always voted ‘yes’ to increase tax rates on others she said the government had already taxed her enough.  So that those supplemental earnings should be hers free and clear.  Of course, that’s not how the tax law works.  You make more you pay more.  She wouldn’t give me a definitive answer on whether she reported all her tips as income.  But it was interesting to hear her say that high tax rates were fair.  As long as she didn’t have to pay them.  Well, her taxes will be going up.  Fair or not.

And it’s going higher, thanks to the nearly $500 billion in tax increases for 2013 that some have called Taxmageddon. In January of next year, the federal income tax rate for middle-class taxpayers is scheduled to rise from 25 percent to 28 percent, and the payroll tax is scheduled to rise from 13.3 percent to 15.3 percent. This drives the marginal tax rate based on the aforementioned three taxes to 48.12 percent. Add in state and local property, corporate, excise, and other state and local taxes, and the percentage of each additional dollar that is taxed hovers around 50 percent.

When half of each additional dollar earned is taxed away, taxpayers experience a disincentive to start businesses or expand existing ones. This leads to fewer jobs being created.

It’s like we divorced our government in the state of California.  And we lost half of everything we earn to a spiteful ex.  Half!  Yeah, that really encourages you to work hard and build your business and hire more people.  So you can deal with the labyrinth of government regulatory compliance.  Lawsuits.  Insurances.  Drug testing.  Sexual harassment training.  All the while hearing the government tell you, “You didn’t build that.”  That you somehow won life’s lottery to riches.  And that you’re greedy for not wanting to pay more taxes.  And for what?  To keep half of every dollar you earn?  It would be a lot easier just to lay off all your workers. Shut down your business.  And go to work for someone else.  And let them deal with these headaches.  Like they did in the Roman Empire as it was collapsing under the weight of her welfare state.  Until the Romans passed laws forbidding people from quitting the work they were doing.

The sad thing is that so many people will vote to perpetuate this binge of taxation.  While they themselves will do everything within their power to avoid paying their own ‘fair share’ of taxes.  While demanding the rich pay more.  Even though the top 10% are already paying 70% of all federal taxes.  The truth is that the rich can’t pay these taxes.  There just aren’t enough of them.  Even if you take everything they earn.  Which leaves the middle class to make up this tax shortfall.  So they take half of everything they earn.  And will continue to take more as their spending continues to grow.  And if people begin to quit the hard jobs because they can’t keep their earnings perhaps the government will step in like the Romans did.  And force people to be doctors.  To run pharmaceutical companies.  To build the next new technology.  It’s happened before to an empire that began as a limited republican government.  So it can probably happen again.  Besides who would have ever thought that the country borne out of a tax rebellion would one day take half of every dollar a middle class worker made?  No one would have seen this coming.  And yet here we are.  Paying half of every dollar we earn to Uncle Sam.

The Founding Fathers would be flabbergasted.  Upset.  And saddened.  To see what had become of their beloved republic.  And their experiment in limited self-government.

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FT123: “It takes both a tax rate and economic activity to generate tax revenue.” – Old Pithy

Posted by PITHOCRATES - June 22nd, 2012

Fundamental Truth

There is an Incredible Amount of Economic Activity behind a 20-Ounce Bottle of Soda Pop 

Have you ever considered all of the economic activity that had to happen before you could buy a cold 20-ounce bottle of soda pop from a convenience store?  First of all, building that convenience store itself required a lot of building supplies.  And construction workers to build it.  People in factories hired people and bought materials to build the food equipment, coffee equipment and coolers.  The people utilities hire make sure the store has access to electric power, gas, water, sewage, telephone and Internet access.  Transportation companies deliver food and merchandise to the store.  Who buy trucks and vans from dealerships who buy them from automotive manufacturers.  They hire drivers for their vehicles and workers for their warehouses.  They buy fuel for their vehicles.  Refineries provide the fuel and they hire people and buy petroleum oil.   Which provides more jobs in the pipeline, railroad, trucking, shipping and oil drilling industries.  Who all hire people and buy things built by other people.

The food and merchandise came from plants that hire people and buy material.  The one brand of soda pop you purchase hires many employees and operates one or more bottling plants.  They buy advertising that provides jobs for others.  They buy cans and bottles that come from suppliers who make them out of raw material that still others extract out of the ground.  These suppliers hire even more people and buy even more materials.  There is label or artwork on the cans or bottles that other people are hired somewhere to provide.  Their offices operate with computers and software built, shipped, installed and programmed by others.  They maintain a web presence which creates further jobs.  Their employees use smart phones the company purchased from others who hire people and material to build them.  And hire even more people to maintain and operate the networks.

And the list goes on.  There is an incredible amount of economic activity behind that 20-ounce bottle of soda pop.  In a vast complex of horizontal and vertical business relationships.  Each providing their little part in the big picture that lets us walk conveniently into a convenience store whenever we want and buy a cool and refreshing beverage in a 20-ounce bottle.  Now multiply this for every product in that store.  And for every store in the country.  Millions of people working in millions of jobs earning a paycheck.  And each paycheck deducts payroll taxes.  Such as Social Security, Medicare, state unemployment, federal unemployment and workers’ compensation.  Each check (in most states) deducts federal and state income withholding taxes.  Some cities even deduct a city withholding tax.  Businesses pay taxes on their earnings.  On their personal and real property.  Just as homeowners pay real property taxes on their homes.  And there’s more.

In 1992 the Middle Class paid approximately 40% of their Total Earnings in Taxes

If you look at your cellular bill there are taxes itemized on it.  When you go to the store you pay a sales tax on most purchases other than food.  Some people even pay a city sales tax.  If you buy cigarettes or drink alcoholic beverages you pay an excise tax.  Or sin tax.  They tax the gasoline you buy for your car to pay for the roads we drive on.  If you buy sugar in the store you’re paying a sugar tariff.  If you make a capital gain on your investments you pay a capital gains tax.  And on and on.  Throughout that complex of horizontal and vertical business relationships there are taxes.  Just as consumers pay taxes throughout their ordinary day.  It adds up.  According to CATO, in 1960 the middle class paid about 30% of their total earnings in taxes of every kind at every level.  In 1992 that number rose to 40%.  And is no doubt rising.

Staying with the 1992 number, this means for every dollar you earn you ultimately can only spend 60 cents of that dollar on you.  The other 40 cents goes to some governmental coffer.  Or looking at it in another way say you gross $800 a week.  Your net pay will be less for the taxes you see withheld from your paycheck.  But when you add the other taxes you don’t see you really only get to spend $480 of that $800 you earned.  Or if you gross $41,600 annually you’ll be paying approximately $16,640 in taxes of every kind at every level of government.  In a word – ouch.

Yeah, we all know that we pay a lot in taxes.  Most of us are just resigned to it.  But with all these debt crises (at the city, state, federal and international levels) it does make you think a little more about all those taxes we pay.  And the cries to get the rich to pay their ‘fair share’.  The amount of taxes the rich pay are even worse.  The percentage numbers may be lower if they pay a lower capital gains tax rate on an investment portfolio, but they are paying from hundreds of thousands to hundreds of millions in tax dollars.  Which dwarfs our $16,640.  Yes, they can afford it more than those less rich can.  But that misses an important point.  Tax rates alone do not make tax revenue.  You have to have a prosperous economy, too.

The more People that are Working the more People pay Payroll, Income, Excise and Property Taxes

You cannot tax yourself to economic prosperity.  For if the number of jobs remains the same while we increase tax rates that will only leave businesses and consumers with less money to spend to create economic activity.  And when they spend less in economic exchanges all those taxes we apply to those economic exchanges will generate less tax revenue.  This is why cities, states and national governments have deficits during poor economic times.  Because there is less economic activity to tax.  All you have to do is some simple arithmetic to see why.

Say there is a city with 250,000 working middle class people.  Each earning on average $41,600.  So each contributes $16,640 in taxes at the various levels of government.  Or $4.16 billion in total tax revenue.  Now say a recession comes along.  And the city suffers 10% unemployment.  Putting 25,000 people on the unemployment rolls.  This will reduce that tax revenue down to $3.74 billion.  Or reducing tax revenue at every level by $416 million.  Just about a half billion dollars in lost tax revenue.  All while government benefits increase at every level to cover those 25,000 unemployed.  Add a second city and that could add up to $1 billion in lost tax revenue.  Ten cities could reduce tax revenue at all levels by $5 billion.  Causing deficits at the city, state and federal levels.  It adds up.  And they cannot make up those shortfalls by increasing tax rates.  Because higher taxes reduce economic activity.  Which is what generates those tax revenues.

Now consider the alternative.  Say the government removed some costly regulations for businesses.  Or they repealed Obamacare.  But only removed some costly regulations while leaving tax rates as they are.  This business-friendly environment would encourage businesses to rehire people.  Let’s say they rehire all 25,000 laid-off employees.  If they did they would, of course, restore that lost $416 million in tax revenue.  Without raising tax rates on anyone.  The point being that you can’t generate tax revenue without economic activity.  So any policy that would discourage economic activity would reduce tax revenue.  For the more people that are working the more people pay payroll and income taxes.  The more people that are working the more money consumers will have to spend and pay taxes on their purchases.  And the more people that are working the more houses they will buy which would bring in more property taxes.  Higher tax rates can’t make this happen.  Only economic activity can.

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FUNDAMENTAL TRUTH #53: “The essence of politics is taking from the many and giving to the few.” -Old Pithy

Posted by PITHOCRATES - February 15th, 2011

That Great Sucking Sound of our Money Leaving our Pockets

All right, here’s the dirty little secret about politics.  Most people enter politics for the money.  They can say whatever they want but when it comes to voting tax increases, guess what?  There are tax increases.  Always.  The amount of money transferring from the private to the public sector is always increasing.  Always.  Congress set up close to half of the federal budget to increase automatically.  That great sucking sound isn’t jobs going to Mexico.  It’s our money leaving our pockets.

Take a look at your check stub.  Compare gross pay to net pay.  Are these numbers almost the same?  Or is the difference closer to a car payment?  A house payment?  Depending on where you are in your career this difference on your weekly paycheck could pay for a nice car.  Add them up in a month and they could get you into that nice house in the good school district.  This is a lot of money.  Ask your grandparents what was the difference between gross pay and net pay on their paychecks.  You’ll probably be surprised.  Because, back then, net pay was very nearly gross pay.

Today, nobody gives gross pay a second thought.  We talk about what we ‘net’.  Because we’re just used to it.  You see, the government (federal, state and local) didn’t just start taking hundreds of dollars out of our paychecks.  It was incremental.  Over a long period of time.  Sometimes coming to pennies a day.  Hard to see.  And just not enough to bitch about.  We may see tens of dollars of our gross pay taxed away over a decade or two.  But we typically make more over that same time.  Again, in the great scheme of things, these are small incremental changes.  Just not big enough for a great number of people to bitch about.

Incrementalism, Progressive Tax Rates and the Withholding Tax

That’s the power of incrementalism.  Baby steps.  Little by little.  Big growth over time.  Like watching grass grow.  You don’t see it grow.  Then one day you have to cut it.  And so it is with taxes.  One day you look at your check stub and realize how much you’re paying in taxes.  You may have never realized you were paying so much.  A progressive tax system keeps the tax burden on the young who don’t make a lot money yet low.  So they don’t see it at first.  And keep voting Democrat.  Not because they want to pay higher taxes.  But because the higher taxes haven’t impacted their lives yet.  When they do start paying more in taxes, that’s when some of them start voting Republican.

So taxes creep up on us.  We don’t see them all that clearly at first because of progressive tax rates.  And the fact we pay them before we see them.  Via the withholding tax.  Which provided the greatest advancement in the collection of confiscatory taxes.  For without it there would be tax revolts when April 15th rolled around and people didn’t have tens of thousands of dollars sitting in their checking accounts to pay their taxes.  I mean, what’s easier?  Getting us to pay our taxes with money we never saw?  Or paying our taxes after having that money in our hands first?  Funny thing about earnings.  Once we have the cash in hand we don’t give it up lightly.

That’s why the government introduced withholding taxes.  It makes getting our money from us easier.  And allows them to raise our taxes ever higher.  Because we pay those taxes with gross pay.  Pay we never get.  In our real world, gross pay is a myth.  It doesn’t exist.  Our earnings only become real at net pay.  Sad.  But true.  So they can increase our taxes a lot more than if we were paying them in full in April.  And do.

Pandering and Patronage

Yeah, but America is a center-right country.  And liberal Democrats on the left are the ones who want to keep increasing our taxes to pay for their Big Government programs.  So how can they?  When America is a center-right country.  I mean, if it’s a minority of Americans that want to raise our taxes to grow government, how do they get the votes to increase our taxes in the first place?

By pandering.  Buying votes.  And patronage.  The power to tax provides near-limitless money for politicians to spend.  The trick is in the getting and giving amounts of money.  You tax the many.  And give to the few.  You tax a hundred dollars or so from each paycheck.  And give hundreds of thousands of dollars to those who can help you win election.  That’s how the tax and spend people win elections.  They give money to small groups in exchange for their vote.  Or legislate favorable legislation for them.  Or put someone from that group in the government itself in an oversight position of the industry there’re in.

A small group by itself can’t make a big difference at the polls.  But you get enough of them, they can.  Luckily for the tax and spenders, a lot of these small groups can be found in the political center.  Which helps pull some of that ‘center-right’ to the left.  And this is how the difference between gross pay and net pay continues to grow larger.  These ‘swing votes’ may pay more in taxes, too, but the special privileges they receive from the government more than makes up for it.

The Little Programs Add Up

We pay a lot in taxes.  And yet you don’t hear too many people complain about it.  Why?  The progressive tax rate plays a role in this.  There are more poor people than rich.  So fewer people pay taxes.  And the withholding tax helps, too.  Because most of us don’t even pay attention to what we’re paying.  But what really helps government is the number of taxpayers.  The total amount of taxes each taxpayer pays can ‘appear’ small.  And the amount each taxpayer pays for a specific program can appear smaller still.  This can get a lot of people to ‘support’ these little programs.  Simply by their passive lack of opposition.

For example, heating assistance for the poor is not a very big part of the budget.  And it doesn’t take much out of your paycheck.  You feel for the poor who can’t pay for heat.  You want to help.  So there isn’t a lot of political action against this program.  It’s like those commercials where you can save a child in Africa for the price of a cup of coffee.  I mean, who wouldn’t feel guilty for refusing to buy one less cup of coffee to save a life?  It’s an effective tactic.  Making people feel guilty for being so greedy that they are unwilling to drink one less cup of coffee.  And no one wants to be seen as this greedy.

But the little programs add up.  You start out by sacrificing a cup of coffee.  But when each of these little programs costs you a cup of coffee, they can add up to a dinner.  A movie.  A night on the town.  A new car.  And they do.  That’s why a lot of people can’t live in the school districts they want to.  Because of the aggregate of all of these little programs.  But we never look at the aggregate.  It’s always one program at a time.  To make the taxpayer feel guilty for their greed.  To break down their will to oppose cuts.  To go along with further tax increases.  And a lot of us do.  Which makes that gap between gross pay and net pay grow ever larger.

Taxpayers and Tax Consumers

But things are changing.  And it’s causing a problem.  The baby boomers are beginning to retire.  They’ll soon be using Medicare.  And collecting Social Security.  So the number of taxpayers will go down.  While the number of tax consumers will go up.  And that changes everything.  The fewer taxpayers will have to pay a larger amount of taxes to support these entitlements as well as all of those little programs.  And this will make it a lot harder to hide these taxes.  To make them appear small.  More people will have to go with less to pay these taxes.  Even those who once did all right during periods of high taxation will have to go with less.  Because more people will be consuming Medicare and Social Security benefits.  And it’ll be political suicide to cut these programs.  Leaving little choice but to cut some of the little programs.  Which will give the patrons of Big Government little incentive to support tax and spend any longer.  Because they’ll see more taxing.  And less spending.  On themselves.

Politics as usual will not work as well as it once did.  Because they will not be able to hide the cost of Big Government any longer.  They won’t be taking from the many to give to the few anymore.  They’ll be taking from the few to give to the many.  Which can’t be anything but a recipe for disaster.

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FUNDAMENTAL TRUTH #5: “When it comes to regretting past choices, liberals lead conservatives when it comes to their vote.” -Old Pithy

Posted by PITHOCRATES - March 16th, 2010

A LOT OF conservatives regretted voting for Richard Nixon.  But not for the reason you think.  If the election was today with everything we know now, conservatives probably wouldn’t elect him.  Even if you take Watergate out of the picture.  You see, something changed during his presidency.  And it wasn’t the voters. 

He changed.  The conservative candidate governed as a liberal.  He embraced Keynesian economic policy (Big Government and big spending to solve all problems).  Deficit spending and inflation led to the end of responsible government (the decoupling of the dollar from gold so they could keep printing money).  If this was the conservative platform going into the election, few conservatives would have voted for the ticket.

This is one type of regret.  Regret at being tricked or duped.  This is when a person’s core beliefs don’t change.  It’s when their candidate changed.  But there is another type of regret.

THE POPULAR CONCEPTION liberals have of conservatives is that they are a bunch of old, stodgy white men.  Out of touch with reality and mired in the past.  Whereas liberals think of themselves as young.  Cool.  Progressive.  Their eyes are open to what the future can be, not to what has been.

Young.  That’s key.  Many liberals are young.  Or, better said, a lot of the young are liberals.  What else can you say about the young?  Many are in school.  Many don’t have a job.  Many aren’t married yet.  Many aren’t raising a family yet.  See the pattern?  They’re young and idealistic, i.e., liberal, because they can be.  When they start working, get married, buy a house, raise children, etc., they find they can’t be so idealistic anymore.

Binge drinking, getting high and bedding coeds was okay in college for you, but you’re not so keen on your daughters following your example.  In fact, you kinda gloss over that part of your life when talking to your kids about your past.  When the weight of being a parent really hits, you begin to regret all the hell you put your parents through.

In college you were all for lowering the drinking age, legalizing drugs, keeping abortion legal, taxing the rich to provide free benefits for the poor (and college students), etc.  As a parent, though, you’d like to see the drinking age raised to 35 and probably voted against allowing medical marijuana.  When you’re working 40, 50 or even 60 hours a week to provide for your family, you start looking at all that withholding tax.  And you’re not thinking about how you’re helping those who need help.  You’re probably thinking things like ‘what the f***’ and ‘get a job you leech’.  And, if you have daughters, you’d probably like to see chastity belts brought back into vogue (even though YOUR daughters will keep their chastity until their wedding night – when they’re 35).

GROWING UP IS a learning process.  Children think they can eat third helpings of cake and ice cream, washed down with glasses of super sweet fruit punch and then run out and play in the hot summer sun.  Those of you who have had to clean up the resulting mess know that eating and drinking like that does not end well.  Children learn, too.  In time.  Until they do, parents watch out for them.

Getting a driver’s license is special.  It severs the chains of childhood.  You can go places and do things.  Without your parents.  You can speed, drive around railroad crossing barricades and hang out on a Friday night drinking beer while driving.  And other dumb things.  There’s a reason car insurance is expensive for young drivers.  Because they do stupid things behind the wheel.  But they learn.  In time.  Until they do, the police are there to help them along.

Then these kids turn 18, graduate from high school, leave home and go to college.  And the party is only starting.  Some things never change.  Students are still binge drinking, getting high and bedding coeds.  And, of course, voting.

WE CHANGE AS we grow.  Children think about ice cream and cake.  Teenagers think about getting their driver’s license.  College students think about partying and trying to change the world (sometimes to enhance their partying).  Parents think about doing what’s best for their kids.  The middle-aged start to think about retirement and holding on to what they have (because most think that Social Security will not be there for them).  The elderly think about their mounting medical concerns and medical costs.

Where we are in the growth process influences our vote.  More kids (teenagers and early 20s) want to lower the drinking age, legalize drugs and tax the ‘rich’ than grownups.  More grownups want to lower taxes and cut government spending than kids.  But grownups were once kids.  They thought and prioritized like kids, too.  So it is likely that many voting conservative today voted liberal when they were a kid.  And they’ve grown to regret some of their votes.

This is the other kind of regret.  It’s when we change.  And realize the consequences of our previous votes.  Votes made for the moment, not the future.  And now that we have reached that future our youth helped to create, it is often not what we want anymore.  But the damage is done.  And it can’t be easily undone.  But you can’t tell this to kids today.  They won’t listen.  Just as you didn’t when you were their age.

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