I will warn you up front. This post will probably twist your brain. You may want to grab a beer before you read this one. In fact, this post is more out there to try to see if I can better express it in writing than I can in thinking. I’d really like your feedback. I’d really like you to think about it. Let’s see if this changes anyone’s mind.
I have posted a few blogs now about why the government needs to be careful about taxing more (even the rich), about how we have the power to tax the rich with our consumer power and how even the arguments for taxing the rich are riddled with logical fallacies. Before I show another interesting thought on taxation, let me throw out this one fact that came to light recently. This Tax Foundation data which comes right from the IRS but is presented neatly is amazing. It shows that in 2008, almost 140 million tax returns were filed. If you just divide the number of returns up evenly and look at the top 1% or the top 1.4 million returns, the bottom return of the 1% had an AGI of $380,354. Certainly a nice amount of money. What is interesting to me is if we took every dollar (AGI) that the top 1% made in 2008), it still wouldn’t be enough to balance the federal budget this year. Every. Single. Dollar. Yikes.
What I want to look at today is the application of morals in our laws. I have had a few discussions on this where the argument is made that morals are the basis of our laws. I would argue that in reality, it is our laws that protect our personal freedoms and personal property that happen to coincide with our morals. Perhaps the lines are simply more blurry. A simple example might be a law against physical harm. Someone who assaults you or someone who kills another is charged with a crime for inflicting personal harm against your or the deceased’s body (property). Most would agree it is morally wrong to inflict that kind of harm against another, but the basis for the law is a property harm. Same with theft. It might be morally wrong, but it is a law because it is a violation of the rights to my property.
Let’s take a clear example of a moral law applied as governmental law that I feel is wrong. I have blogged in the past about gay marriage and how there are many reasons, one of which is protection of contract law, as to why gay marriage should be legal. I think most readers of my blog are going to be in agreement with me that gay people should be able to get married, or at the very least don’t really care. The bottom line is it is two adult people who are consenting to a specific arrangement that by law has special benefits only allowed with one person at a time (right now in MN statute as one man and one woman). The argument from the Republican side is that government has an interest in heterosexual marriage for the health of the state (nation) through procreation. The law doesn’t and I don’t think would be Constitutional if it required procreation, so even if that were true the law couldn’t require that as part of the contract.
Some would argue that being gay is a choice. I don’t really care. Even if it is a choice, the science says it is not a disease (the APA removed it in 1973) so it is a choice a person is free to make. Note: I am not offering my opinion that it is a choice for people to be gay. I am simply saying that choice or not, it is irrelevant in how homosexuals are treated by the law. An adult watching pornography to excess may be harmful to their own health, that is a choice that person can make. I can choose to have a 3rd or 4th beer which many experts would say is harmful, but should the government make it illegal for me to do so? Mormons abstain from all alcohol, but we do not impose their morals on the entire country (and when we did it fail miserably). My point is even the moral choice argument is not a reason to ban something because some morals simply do not violate another’s personal rights or property.
The more compelling or interesting moral argument I want to make is in government taxation and spending. Starting with taxation, the interesting arguments I often hear when making a case to raise taxes on the wealthy and on corporations is the “ability to pay,” “paying their fair share” and “keeping massive profits.” Let’s start with a very basic premise, is it wrong to make money? The question may seem like a straw man question, but it is not because there would be a few people who would probably say we should all make exactly the same amount. OK, so once we’ve eliminated that for the most of us, I ask the next question. Is it wrong to make lots of money? How much is too much money? If you answered there is no amount too much, then shouldn’t the rich pay the same rate as the rest?
However, if you answered that some people do make too much and should contribute more than the rest of us, I want you to think about what kind of judgement that is. Isn’t that a moral judgment? Isn’t the very idea of judging somebody to be too rich or so rich that they should be giving to the poor a concept of morals. That is the internal debate I have whenever the idea comes up about setting a separate rate for those making incomes much higher than me or any of my friends. Who gets to decide what is “rich?” Are we not making a moral judgement? By making that moral judgment from the left (since taxing the rich is a liberal concept), are we any better than those conservatives making a moral judgment on homosexuality?
I do realize that for most homosexual people, it is not a choice (I can’t say all simply because I don’t think the science would even say that). So certainly there are differences in the gay marriage issue and the taxation issue. We have to have some taxation in order to provide police, courts, the military, etc. We can’t have “some” gay marriage. Taxes always have to exist as a part of government and they have to adjust as the government faces national security threats, national disasters, etc. A gay person shouldn’t be denied a free consensual choice just because some find it morally objectionable.
One other thing to consider that makes me very sad about the vote on this gay marriage amendment that also applies to the “tax the rich concept.” The reason we have a democratic republic and not a direct democracy is to filter the majority. We don’t want 51% to be able to rule 49% of the people. It is sad that Minnesota’s Constitution could possibly change if 50.01% of people make it so. Hopefully next session the DFL will be able to pass another amendment proposal that would require a 3/5 vote in both chambers to have an amendment appear on the ballot. It would help to filter contentious issues. At the same time, this filter is also meant to protect those at the top from the majority. When government taxes us, they are taking our money by force (go to jail if you don’t pay). So when we tell the rich they need to pay even more than we do, we in essence are saying we paid you for your product, but now we are taking back that money by force through mob/majority rule. Is that moral? Note: See my previous posts or IRS data. Top 1% of income earners (make over $400,000/year) pay 40% of income taxes and top 5% (make over $250,000/year) pay over 60% of income taxes.
The other part of the concept of taxes hard to reconcile with the gay marriage debate is a whole host of taxation issues that comes with being a married couple. People who are married get special tax treatment (very special tax treatment). If one spouse dies, the other spouse is able to take over all of the property without having to pay the estate tax. We know there are people that find gay marriage morally objectionable. I would imagine there are a few people that find heterosexual marriage to be offensive as well. Should we go by their moral judgment and eliminate the spousal exemption of the estate tax, so the remaining spouse might have to sell the house to cover the 35% the US Treasury wants? The very concept of special tax treatment for married couples, gay or straight, could bring up moral objections from some of our citizens.
The very concept and intent of the income tax when the amendment was passed was to tax only the very top portions of income (in fact only about 4% of the population was intended to pay it at all). But since 1913, we have changed the income tax code to be such a mess of special interests that it has gone from a few percent of income over $1 million to over 20,000 pages of a mess not even the best tax attorneys can understand. Corporations like GE took huge tax credits because they built the windmills. (they still paid taxes, but no where near the 35% corporate tax rate. See #4 here). People like Governor Dayton or Warren Buffet take advantage of income tax free states and set up trusts to avoid taxes, and further avoid taxes by taking income as long-term capital gains which is taxed at a much lower 20% rate.
So yes, large corporations and the very rich often do pay a lower rate than many of us in the middle class. They also pay many more dollars than each year than we ever will in our lifetime. If we feel that they should be paying more on par as the same rate as the rest of us, then it is time to adjust the tax code and put some stability in the rates. It is not the fault of the corporations or the rich person for wanting to keep more of their money. They do it legally. It is the politicians that gave them the key to do it. A simpler tax code with lower overall rates would go much farther in fixing the “fairness” issue than changing the rates every couple of years would ever do.
On the other side of government, we can all agree that there is some waste in the spending. We can all agree to disagree where government should spend the money that it does take in. This is another reason why we need to be careful in how much money we give to government. Whenever government asks for more money by raising the tax rates, it usually means a program is going to be expanded or a new program is going to bee added. I again point you to this video of Penn Jillette I have mentioned before in this blog where he makes a great logical case as to why we need to be careful of the size of government because eventually government will spend money on something we object to. The more we allow government to clash with our own morals, the more we then allow them to impose their own morals on us as well.
So that was alot of information Eric, what are you saying?
Two people in a consensual relationship that choose to get married do so because there is a list of benefits that come with the civil contract as defined by statute. These benefits are a list of standard things you might do with a person you intended on living with for a long time anyway, and are some of the things that people have come to expect from the various religious marriages celebrated for many centuries. By state standards, that’s what marriage is: a standard contract between two people. We don’t allow gay marriage (or polygamy for that matter) based on a mostly moral objection based in a religious belief. There is also an economic objection because of the economic advantage gained by married couples, but the moral objection is by far the largest objection.
When someone gets rich (Steve Jobs, Warren Buffet, Sam Walton), they do it by creating a product or service at a price or service we feel is fair or adequate. It is a private transaction between two people where they exchange their product for our money. When we choose to tax them because of the income disparity, we are making a similar moral judgment that income inequality is unfair. We also make a further moral judgment that if we take more from the rich, they won’t notice it in their lifestyle as much as if it is taken from the middle class making it OK. The only economic argument I have heard made is that we need to equalize income or it stifles overall economic growth. Money has no value unless it is put somewhere.
I do find statistic such as in this article from salon.com showing corporations with massive amounts of cash and large profits yet we don’t see many of them hiring. We can all shake our fists at those companies, but then when we stop at a Bank of America or Wells Fargo ATM on our way to Dairy Queen (Berkshire Hathaway) and make a quick stop at Walmart for milk and bread and maybe some GE CFL light bulbs, we put more cash in those very corporations hands we claim to despise. I would argue to tax them more after voluntarily paying for their product is actually immoral because we are taking money back from them by force we gave them of our own free will.
The differences in the two issues are that in the gay marriage issue, there is no real defined benefit in keeping them from being able to be married. There are some flawed studies from group that are already biased to support the conservative position of opposition, but there is no real negative outcome in allowing a gay couple to marry. In taxing the rich more, we do get to provide more programs to help those in need, build better bridges, provide better education. If we don’t tax the rich more, we are then not passing our moral judgment through the government. As you can see it is a much trickier balance.
Please realize this post is more about getting you to think about your own morality when discussing political issues. We will never get away from morals in the law and in politics since they do intersect often with personal property and personal rights. It is immoral to most people to steal from someone else, but you are also taking their property. It might be immoral to some to drink or do drugs, but when someone drives while intoxicated they put other’s lives and property in danger. We bust some people for drugs, others we choose to ignore their personal use joint. Is that moral or even fair?
My premise is we will continue to discuss and adjust things that will be a necessary part of government such as taxes, spending and the criminal code. When we discuss and decide these issues, we need to be aware of our moral bias and try to acknowledge it and be as fair as possible in balancing morals with rights for every individual. Society has decided government has some role in helping those unable to provide for themselves, and we will continue to discuss the role of government versus the family in those situations.
I will issue an apology for this post up front. I am going to be flirting with some logical fallacies in posing my questions (somewhat rhetorical). I do so only because I have yet to come up with a better way to start the conversation. So I say the questions are somewhat rhetorical because I do feel they do need an answer at some point, but I don’t think they can be answered simply, nor could someone answer them in a short conversation. However, we should be thinking about these questions.
My first question has to do with taxing the rich because of income inequality. I thought about this when I saw this tweet and the accompanying NPR story where the federal reserve is stating income inequality hurts growth. There can be some economic truth to this. I won’t detail it, but let’s assume the truth in the fed reserve statement that income inequality can hurt growth. The immediate response to this is we should tax the rich more to redistribute that money back to the lower and middle class to make the income more equal. This is where I have a problem. Are we really a free country when we have government deciding how much stuff is too much stuff?
(I am separating this since this is somewhat a straw man argument, but meant to provoke thought) If someone has a billion dollars, should we maybe tax their new income at 98% since they don’t really need it, where as maybe we could tax someone just coming out of bankruptcy 0% to help them get ahead? What about if you own a speed boat, a fishing boat, and a pontoon boat? Maybe we should tax you more because you don’t really need 3 boats? Maybe you should pay a fee every year if you own another freezer other than the one on your fridge since you can afford extra food and electricity, you must have extra money. You see how absurd these scenarios are, but that is the point. It might not sound absurd to charge a billionaire more than you, but it is so dangerous to let government with the power of force decide that. What happens when they decide it is a million dollars? $500,000? $150,000? $90,000? What if they decide 300% of minimum wage starts requiring equalization, so at $45,000 they start taking 50, 60, 80% of your income? That is my point, no one can tell me what level is fair, why it is fair, and even if it really even sounds fair once you start putting it that way.
The other part about income equalization is our income inequality is entirely our fault. We have become so entitled to anything and everything we want that we have made the rich very rich. I have blogged on this on a couple of occasions; we have the power to tax the rich. We will have to give up some convenience, perhaps put off some purchases. We might even feel a little pinch in our pocketbook for a little while, but if we buy local, bank local, save money, grow gardens, buy union, buy USA made and avoid those large corporations as much as possible, we would quickly transform our economy and put more money back in the hands of the middle class. When we say the rich are too rich and expect the government to take away their wealth, we are asking the government to take away money from someone by force that we all gave to them voluntarily by buying their products. If you don’t want someone to be rich, don’t buy from someone who is rich.
My other question about taxes in general is how much is enough? We have an aging population, so all of us are going to have to realize that we may have to go with a little less to take care of them. It is simply a matter of fact. Since we produce less in the US, we have less. Our population is aging, and has more needs. They are going to have to spend their savings on their care. People of my generation, we are going to have to help them, save for ourselves, and likely work longer than our parents. We have to change our entitlement mentality and realize we are going to have to sacrifice more for our parents, or grandparents, and our children. But how much of that should be done by the government? And how much do they need?
This is a bit of a straw man question as well because it isn’t easy for someone to answer. But if there is anything I can’t stand is how angry the liberals get with me when I ask them this question. It is an honest question. You can’t take all of a rich person’s money. You can’t take all of my money. We shouldn’t even take most of a person’s money. We should take only what is necessary, and that should be applied judiciously. Not because the rich can’t pay, but because we voluntarily gave the money to the rich by purchasing their product, it is unfair for us to then go reclaim our money by force through the government. So how much should we tax the rich without putting the freedom of the American Dream of becoming rich in jeopardy?
And Now For Something Completely Different
I wanted to put this in because I am often told I am too hard on the liberals. However, I found one of my favorite conservative libertarians falling victim to a myriad of logical fallacies recently, and it is only right I call him out on it.
Jason Lewis does a national radio show out of the Twin Cities. He is not quite as harsh as alot of other conservative radio hosts, so I have listened to him for about 6 months now and have found him entertaining and also educational. He does have a good grasp on economics and tends not to fall into the social issue agenda much as he feels those are issues left to the states to decide as he is a big states’ rights person. However, because of his long-time relationship with the Republican Party, he has become friends with Michele Bachmann. He actually was the one who introduced her at her event formally announcing her presidential run. I have serious concerns as this has clouded his judgement.
The big issue I take with Michele Bachmann is her intellectual dishonesty. I personally do not believe in a personal god, but because the case for god is an unknown I don’t have a problem with people having a faith or believing in religion. I do however have a problem when people who claim to be intellectual cannot reconcile religion and science. Ms. Bachmann believes that intelligent design should be taught in science classes. Even the Catholics have been able to reconcile the biblical story and the theory of evolution, but many Christians still want to deny decades of science and believe their non-scientist pastor that the earth is only 6000 years old and that we just appeared instantly on earth.
Where Jason Lewis goes wrong is he tried to compare it to the teaching of climate change. He calls climate change a “faith-based” movement in which only one side is taught in schools and even though “the science” says otherwise we don’t let that science in the class. But we can’t let a little bit of “faith-based” theory into the biology classroom. This fails on a couple of levels. First, climate change is not a “faith-based” movement. It is a working theory in the scientific community. I will grant him that the role of humans can be exaggerated (i.e. a political agenda) in the classroom. Mr. Lewis admits he is not a scientist, so he doesn’t understand that the issue is still being studied and debated, and thus it should be presented that way in the classroom. Evolution is different. Although very minor details such as biological classifications are being debated and new discoveries do sometimes shift the evolutionary tree slightly, the overall theory is sound and has held up for 150 years through thousands of examples. There is no controversy in the theme. The same with the age of the earth. There are some details and questions on the scales of a few million years, but that amounts to less than 1% of the 4 billion year age of the earth.
So, Mr. Lewis – although I have normally trusted your logic, you are failing miserably in your support of Michele Bachmann. She does have fairly sound economic policy and seems like a nice person, but she also has admitted an underlying social agenda and religious agenda that undermines her intellectual integrity. It is one thing to have faith to guide you, it is another to have faith to lead you. The entire premise of her campaign is illogical, and I hope before too long you will see that to and not let your friendship with her blind you to that fact.
A couple months ago, I posted a blog about how we hold the power to tax the rich. The basic premise being if we all stopped buying products and services from large corporations, those companies would quickly go out of business. Imagine what would happen to Walmart’s profit margin if for one month we all bought food from a farmer’s market, used washcloths after our bathroom visits and just washed laundry more often, skipped the coffee and soda, and found alternatives to all of the products we might normally get at Walmart or Target. Now if we continued that, that farmers and local grocery stores would have to expand and hire more workers. Your local coffee shop (and not the large chains) might open a second location. After a few months, the economy would be shifting dramatically. We would all have to put up with having less for awhile since it would be a bit more of a drain on our wallets, but the rich would no longer be rich. Note: Just remember that most of us with retirement funds are likely invested in these large corporations through our mutual funds within our 401(k) accounts and similar vehicles. If they fail or go bankrupt, it could be a hit to your retirement funds. The economy and the rich are more connected to us than you think!
This subject came back into my mind because of the debate in Minnesota over raising taxes on the top 2% of income earners. The justification from the liberal side is that the top 5% of income earners in MN pay less than the rest of Minnesota pays. See how easy it is to twist this stat? It is true in a sense, but the base truth is the top 5% of income earners in MN pay 43% of the income taxes collected. So yes, the other 95% pay 57% of all taxes, but does that really translate to that 5% not paying a fair share? The simple analogy is if 20 people have a $100 bar tab, and 1 person pays $43, the remaining 19 people pay $3 each. Not bad considering you each had a $5 drink. Also, in MN, the bottom 30% pay no net income tax. So in the bar analogy, 1 person pays $43, 13 people pay about $4.39, and 6 people pay nothing. So you can see that only one person in that group of 20 paid more than what they got in return, everyone else paid less than the cost of their drink.
You will see the question in the comments of this article is “where are the jobs?” Liberals often question the idea of trickle-down economics (the more formal economic term is supply-side economics). I’ll start by going back to the idea of the Laffer Curve. The premise of the Laffer Curve is that there is a point in taxation that starts to stifle economic growth and actually brings in lower tax revenue than a lower rate would. It is very common sense at a basic level. If the government taxes at 0%, it collects no money. If it taxes at 100%, it collects no money because no one will work for free. At 99%, the government still gets very little because no one wants to work for only 1% of their total pay. The idea is that there is a “sweet spot” where the government maximizes revenue and yet few business decisions are based on tax policy. I had a discussion on twitter with University of Minnesota professor Bill Gleason about this a few days back, and he sent me an article “debunking” the Laffer Curve. The best part is the article says it debunks it but than admits in the body of the article the Laffer Curve does work (under certain circumstances). If you read the full Laffer Theory, Art Laffer says the maximum is not easy to find, and changes over time as well as changes with circumstances. It is more important to understand the Laffer Curve so that we are more judicious in our decision to change tax policy.
One other interesting piece of information that come across Twitter this morning was a piece from thinkprogress.org. The piece was a chart showing states that had spending decreases lost jobs, while states that spent more money had a small gain in jobs (on average). But to put a skeptical eye on any statistic is important so I thought I should point out something interesting.
- Two states that caught my eye right away are Texas and South Dakota. They had some of the highest gains in employment (with their spending increases). These states also have no income tax.
- North Dakota would be considered an outlier, but interesting that we loosened some drilling regulation there and they can’t even build enough houses for all the people going out there to work the oil drills.
- Montana increased spending almost 50%, and got a less than 1% gain in employment. North Carolina had a 30% cut in spending, and only lost about 2% in employment.
- You might also notice the cluster of states at or near zero increase/decrease in spending – more states are above the line of employment gain than are below it.
- These numbers are inflation adjusted, so you could adjust the 0% line of spending to the right a bit. If you were to look at this in real dollar spending, the picture of how government spending affects jobs becomes even less clear.
- “…what I’ve done throughout this campaign is to propose a net spending cut.”
- “Every dollar that I’ve proposed, I’ve proposed an additional cut so that it matches.”
- “We need to eliminate a whole host of programs that don’t work. And I want to go through the federal budget line by line, page by page, programs that don’t work, we should cut.”
- “And we are now looking at a deficit of well over half a trillion dollars…we’ve got to take this in a new direction, that’s what I propose as president.” (Note: this year’s deficit is about $1.5 trillion)
I’ve brought this up in a couple of previous blogs, but I thought it deserved its own special spot. Roger Ebert wrote an artice about the “one-percenters,” which is irritating in itself because I am sure he has much more money than I will ever have, so I don’t know what he has to complain about. But, he is a professed liberal/progressive, so his viewpoint isn’t surprising.
Let me start with making sure everyone knows my political affiliation. I used to believe everything the democrats fed me. Now I best align with the libertarians, which does have a tendency to lean to the republican side except the reasons for supporting policies is usually different than the republicans. An example of this paradigm is in the Planned Parenthood funding. Republicans wanted to cancel funding for Planned Parenthood because they support abortions. Democrats wanted to keep it because of the need for women’s health care for the poor. Well, republicans are wrong because: 1) Abortions only account for about 3% of Planned Parenthood’s funding, and 2) Abortions should at the very least be an option when the health of the mother is at risk, otherwise you could be leaving that unborn child and the already born children without a mother which isn’t a good option either. Democrats are wrong because we now have Obamacare. Anyone eligible for Planned Parenthood should easily qualify for Medicaid or several other programs under the new health care law. If Obamacare covers everyone, then we don’t need a separate program like Planned Parenthood. So the libertarian (and I would say logical) choice is Planned Parenthood doesn’t need federal funding because there are other existing federal programs that take care of those mothers anyway. It saves money and reduces overlap of services. So you see, the solution lines up with the republican point of view, just for a different, logical reason.
To get back on topic….taxing the rich. I’ve written previously about how no matter how high the top tax rates, the collections as a percentage of GDP have never been over 20.6%. Certainly there is a tax rate that could be too low, meaning a point where a higher income person would be willing to pay more without working to avoid taxes but not collected (simple example, 0% taxes means $0 tax income which I think everyone understands some form of tax is necessary). However, there is some point when taxing the rich becomes an impossible tax, because they have the means to either avoid taxes or simply not work (see more here). So is it really fair that 1% of Americans get 25% of the income? That’s hard to say. The conservative viewpoint is that the top 1% (making 25% of the income) already pay 40% of the tax revenue which is more than the bottom 95% of income earners (I guess that really sucks for those in the top 4.99%-1.001%). The liberals would say that’s true, but they should pay even more as they make more. This is a bit less logical since they pay taxes on a percentage, they do pay more as their income goes up. Whatever your viewpoint – it is true the top 1% are making more than in the past.
How do we tax the rich?
Note: Sorry some of this is almost exactly from another entry, but I wanted to emphasize and expand it.
So to the point of this entry. Stop supporting those businesses that make the rich even richer. Start with daily goods. Buy food from local farmers and your local (union) grocery stores. Buy your soap, toothpaste, toilet paper, and other goods from your locally owned pharmacy. No more big screen TVs, Blu-Ray players, iPods, stereos, etc. No more name brand clothing. If we took those actions, Walmart, Best Buy, Macy’s, and Target would go out of business very quickly.
Stop banking at your large corporate bank and open your checking and savings at a locally owned bank or credit union. Stop investing in your 401(k) and open an IRA CD at your local bank or credit union. In fact, make sure all of your investments, including your union pension, isn’t invested in mutual funds or large companies for that also supports large corporations with CEOs making millions.
Make sure all of the products you buy are made by U.S., union manufacturing. Don’t support corporations such as GM, Chrysler, AIG, etc., that received bailouts. Demand your union bosses stop taking $400,000+ salaries and spending millions on campaigns (which goes to rich politicians) and instead put that money to use protecting jobs instead of buying political favors.
Let’s not forget…this also means no Dairy Queen, no Pampered Chef, no Fruit of the Loom, no Geico insurance, or any of the others owned by Berkshire Hathaway. Also, no McDonald’s, BK, or other fast food. Now Buffalo Wild Wings’ CEO did take a pay cut to $1.9 million this year, so I guess that is up to you to decide if she is too rich or not.
My point is not to make a straw man argument, but to point out that we in the middle class still carry the market power. The source of the wealth in this country is our productivity and our consumer power. If you feel like the rich are too rich, then stop making them rich. We all have the choice. Until you start making a conscious effort to move away from supporting those very rich people you claim to despise, your argument of taxation or criminal action against them for making money holds very little water. You can take away their wealth if you feel their wealth doesn’t justify the product(s) or service(s) they provide by not purchasing those products and services.
Personally, I have completely closed my accounts at Wells Fargo and moved to the credit union I worked for. I shop at Target for my consumer goods (mostly) because I still get a good deal, and Target supports the arts and other causes right here in Minnesota, so I feel like my dollars are not completely wasted. I used to buy Levi’s jeans because they were U.S. union made, but now are made in Mexico. Occasionally, you can find some Lucky Brand that are made in the U.S., but it is hard for me to find ones that fit. I buy meat from the local meat market, and milk is generally local no matter where it is purchased.
I’d like to see some comments – what are you doing to tax the rich?
I have been having the same discussion with several people about the idea of raising/cutting taxes, increasing/decreasing government spending, who should pay what, and other similar iterations of the idea of what the government’s role is with our money. I want to give everyone a quick summary of what is happening (to the best of my knowledge), why it is bad, and then give a few basics of human psychology as to why neither party has a good plan for the future of the government.
The scariest thing right now is that while we sit and do nothing, the government is quickly pushing us towards a stagflation scenario like we had in the 1970s. Take a look at the currency base in 2008 compared to the currency base today. The federal government has added $1.4 trillion dollars to the currency, a 140% increase. Why does this matter? The money supply at its basic level determines the cost of goods. A simple example from a basic economic course uses this example: Let’s say all of the goods sold in 1 year is 10 loaves of bread. Let’s say all of the money available is $100. That means that each loaf of bread will cost $10. If the government now prints another $100 of currency, giving a total of $200 in the economy, the price of bread will be pushed up to $20 a loaf. now certainly there are some other effects, as well as some lag to the pricing as it takes awhile to push that currency into the market, but you can see how in general, adding money to the supply will push up prices. If your wages don’t keep pace, the government basically taxed you without ever having to vote on a tax at all.
So why is the government putting out so much money over the last few years? The truth is they have had to print money to finance the debt. The amount of debt the federal reserve is holding hit another record. Never before has the federal reserve held so much debt as assets. This is because as our debt has approached 100% of our GDP, other nations are beginning to question our ability (or our willingness) to pay them back. So guess what, we are financing our own debt. Wouldn’t it be nice if you could just print up money out of thin air and then borrow it to yourself? That is what the federal government is doing. At some point, no one is going to want to sell us goods, or they will be dramatically inflated in price, so buy your luxuries now (if you can afford them) – because there won’t be too many big screen TVs or the latest fashionable jeans in your future.
The debt itself is also a problem because it diverts money from other investments. People who have money don’t store it under their mattress. It has to go somewhere. So, do I take a risk and buy a corporate bond or do I buy a federal bond that pays decently and can save me money on taxes? When we buy goods from other countries like China, they have to do something with the dollars we send them. Do they buy products back from us, do they invest in American companies, or do they buy our government debt. Up until this point, they have bought our debt because it is a nice, easy, safe investment. By deficit spending, the government is keeping some money out of being invested in companies or products that could increase production, thereby creating jobs and income. Don’t believe me? Even the Congressional Budget Office agrees with this assessment.
Now for the partisan crap. So the GOP is asking for cuts, saying the democrats are spending us into oblivion. They are right. Since President Obama took office, we have added $3 trillion to the federal debt. However, the GOP has just as much or more blame at this point. President Obama’s predecessor, George W. Bush, was also bad, bringing the federal debt from $5 trillion at the start of his first term to $11 trillion in 2008. We simply cannot keep doing this. Again, the CBO agrees with this assessment. Both parties need to suck it up and start making cuts, no matter how bad it hurts. We can’t help anyone if the country goes bankrupt.
I see many of the liberal bloggers I follow saying we should raise taxes, especially on the rich, to get the budget in line. It seems so wrong to take away programs for the poor such as medicare, medicaid, food stamps, etc. The rich should pay more so those people can have a better life. It would be really nice if it worked that way, but it doesn’t. I’m sorry to have to break it to you, but you can only tax so much. As I said in a previous post, no matter what the tax rate has been historically, the government won’t ever be able to collect more than about 18-19% of GDP. It just won’t happen. Why?
Let’s think about this. Let’s say you make $10 million/year. That’s a darn good salary. The government takes $3 million every year for taxes. OK, living on $7 million isn’t too bad. Now the government says we want $4 million. What’s going to happen? Well, I might ask for more money from my employer, or if I own a company I might charge more for my product. I want to live a $7 million dollar lifestyle. So where do those costs get passed? They are passed on to us who buy those products.
Or, maybe I’ve made $10 million over several years, and I have a nice chunk saved up, maybe I’ll just move to the Caribbean and avoid paying the taxes. Then what does the government get? $0. Not $3 million, not $4 million, but $0. That tax increase didn’t work out so well. Maybe I take my company to China, or Mexico, or somewhere with lower taxes. Now not only is my tax money gone, so are the jobs.
Here’s the thing about people and their money. They worked for it and they want to keep it. It would be awesome if rich people would be willing to pay more (and they can, the treasury will accept any money above the normal tax bill). We can only do so much before they take action to avoid working rather than work and see so much go to the government. The rich will only allow Robin Hood to hit them so much before they move away from Sherwood Forest – because they can.
Think of it another way – Let’s say you and/or your family income is $50,000/year. It’s a decent wage, but I don’t think anyone would say you are “rich.” However, one could argue that you are rich. At $50k/year, you are making over 2.5 times what someone making minimum wage is making, even if they work full-time. Maybe you should pay a little more, so that person minimum wage can live more like you. Come on, don’t you think you should help them? I mean, minimum wage is below the poverty line.
The scary part about the above thought is that it could happen. What is “rich?” Should it really be up to the government to decide who has too much and who doesn’t have enough? Maybe you shouldn’t be allowed to buy that second big screen TV. That money could buy 2 months worth of food for a poor family. Maybe you should be limited to a 1200 square foot house – why do you need more room? The extra money could go to house the homeless. I’m not trying to be facetious, I am trying to make a point. I know we can make an educated guess as to what is rich or poor, but should it be up to the government to decide how much is too much? If I am making $50,000 a year now and get a promotion because of my hard work and now make $100,000, should the government take away my extra $50,000 since I didn’t need it before? Do I need it now? Probably not, but it will certainly improve my life.
The other more delicate matter is the idea of someone’s worth. Do you feel a nurse making $30/hour deserves that wage than some 19 year old flipping burgers? Of course. Just as a CEO of a large corporation gets paid big bucks because his/her company makes tons of money for shareholders. Sometimes people are limited by their intelligence, their drive, or any number of factors that make us all individuals. If we all had equal drive and equal intelligence, wouldn’t we all just have built our own Apple computers in our garage? We have to acknowledge our limitations. In fact, some people might simply be poor at managing their money. Why else would 1/3 of large lottery jackpot winners go bankrupt? Sometimes, we can’t save people from themselves. And some people do have more value to society than others based on what they contribute.
Certainly there are people that need help. I’m certainly not saying we shouldn’t help the poor, the elderly, the mentally or physically disabled, but there is a limit to what government can do. It is hard to send money off to the government because we don’t usually see the results. Think of how good you feel when you donate to Goodwill or The Red Cross. That is because we can see the good those organizations do in our community. Because we have allowed the government to take over so many of those roles, we don’t see the effects in our community because it happens behind the veil of government. The bigger problem is because we are forced to pay taxes, it is more difficult if not impossible to hold the government accountable. If I donate to the Red Cross and don’t like the way my money is used, I can donate to the Salvation Army the next year. With the government, I just have to keep paying.
The bottom line is people are self-interested. It is biology. It is in our DNA. We will always try to get more and be better for ourselves and our family. And what is wrong with that? Don’t we want our kids, our family to have a good life? We have to stop acting like rich people are evil for being rich. They might have alot more money compared to many of you, but you have much more than many others as well. Life isn’t always fair. Get used to it.
Here’s how you can make a real difference. Do you hate seeing CEOs of corporations getting rich? Stop buying their products. Quit using your services. I love it when an uber-liberal tries to spout off about these evil rich people and how we need to stop them as they pull into Wells Fargo to get cash from their ATM while wearing jeans they bought at Macy’s and a t-shirt from Wal-mart. Ditch your corporate bank, and visit your local, hometown bank or credit union. Don’t buy from Target or Wal-mart, instead shop your local grocery store. Buy your toiletries from your hometown pharmacy. You do have the power to be rid of rich CEOs. If everyone ditched Wells Fargo or Bank of America tomorrow, they would close down their doors pretty fast. If everyone went with a few less bottles of water and took better care of their underwear and stopped shopping at Wal-mart, they would fold up in short order. Don’t buy a kindle, a nook, a iPad, etc. – buy used books from your locally owned thrift shop or visit your library. Want to support unions? Only buy union made products – clothes, cars, cell phones, televisions, etc. Make sure everything you buy is union. That is how you show support and make a difference.
I think the best path we could take is to simplify the tax code. Quit pandering to every special interest through countless forms and worksheets and make it simple. Base taxes on a flat percentage after exempting the minimum wage. For a couple, that would mean an exemption of about $30,000. I would bet most real middle class would see a tax savings since the exemption would be large than most tax write-offs anyway (mortgage interest, IRA contributions, etc).
We can’t turn the government into Robin Hood. It won’t work. We still carry our animal instincts to do what’s best for ourselves. Let’s not ignore that fact. And please, stop being a hypocrite. You can’t hate the rich and then support their cause by patronizing their low prices or convenience. You can’t act like you want to make a difference, but only make it when it is convenient for you. And please, let’s help each other and our local communities and stop having the government do it for us. Do you want to be in charge of your money, or do you want those in Washington DC controlling it? I’ll pick the former.