The Great Tax Con Job

Great essay! This is exactly what I have been trying to say for years but he says it nicer.


>Somebody living on a million dollars a year but earning five million after taxes, can sock away four million in a Swiss bank. If his taxes go up enough to drop his after-tax income to only three million a year, he's still living on a million a year, and only socks away two million in the Swiss bank. His "disposable" income goes down when his taxes go up, and vice-versa. (Technically, the word is "discretionary" income for after-tax, after-living-expenses income, but "disposable" income has become so widely used as a phrase to describe discretionary income I'll use it here.)

>The Rich Person's Tax Effect is the one that virtually all Americans understand -- and, oddly, most working class people think applies to them, too (this is the truly amazing part of the con job referred to earlier).

>But it doesn't.

 

There is so much wrong with this article from an economics perspective that I do not know where to begin.

The idea that tax cuts create bubbles is outright crazy and insane. Overspending and government spending creates bubbles. You cannot create a bubble when people have more money, you can create a bubble. You cannot have a bubble without spending. The problem with the 80's was not the tax cuts, but the spending. This was also the problem in the Bush era and is currently the problem in the Obama Administration. If you notice, the crash during the Reagan years was not long lived. Why? Once again they allowed businesses freedom to invest freely and they did little to prop up failing businesses. This is a lesson Obama and Bush should have learned and we probably would be out of the recession by now. However, tax cuts do not create bubbles, overspending and government spending does.

I studied the disaster in Greece extensively and the same people who are telling us the problem with our tax rate is that it is too low also says that Greece's problem are a result of mere fraud. However, they do not recognize that the tax rate in Greece is so high that it is destroying businesses. Businesses are then hiding money (or leaving the country) in order to stay afloat. Thus, the GDP in Greece is artificially low. Then the Government failed to reign in spending which caused the collapse. Fraud is not the problem but a symptom of the problem.

In our case, easy money being given to organizations and people who could not afford it has cause a major problem. In fact, it was not tax decreases that resulted in the bust, but it was bribing people to act a certain way and making it easy to over-invest. It was more beneficial to go into debt than to save. Thus, one minor bump in the road resulted in a major catastrophe.

On the issue of taxes. Increased taxes only hurt the lower incomes. Yet, notice his statements do not include a couple of things. Increased taxes will see higher inflation (which is also a tax) and will also discourage and reduce savings. The one element to prevent disaster, savings, is now discouraged because of higher taxes and higher inflation. Rather, debt spending seems better because you lock in the inflation rate. In essence, higher taxes cost more in the long run. Thus, people like me who try to save money to pay for major purchases has less buying power than those who go into debt. However, this will cause the bust as it did recently.

The solution! Lower taxes which will help keep inflation under control and encourage more people to save (if you keep borrowing in line with savings) then people like me can save up money and have greater buying power than those in debt. That means, a person making $75,000.00 truly is making that money rather than having inflation cut their rate and would reduce cost of goods. With higher taxes, a person making $75,000.00 will have to pay more for goods and services and more money in taxes whereby they would make less money in the long run. If they are encouraged to save, then their $75,000.00 could have more buying power than it currently enjoys and could infuse a better economy without a bust because the economy is better capitalized. You can't bust if you don't overspend or spend to prop up a segment of the economy that cannot sustain itself.

In the Great Depression, it was over capitalization. In Reagan, it was the dramatic reduction in the interest rates that spurred the economy but caused over investments. In this era, it was the easy money for just about anyone wanting a house. All of this resulted in the great falls we have seen. Oh, and no one mentions the fall of the late 70's of the late 90's. Again, Government intrusion in the private sector created a bubble that busted.

 

>Then you should support the Automatic Electronic tax!!!

I do. Eliminate folding cash and start with a 1% electronic transfer tax. Cancel all income taxes. See what happens. Can't get much worse.

 

>In the Great Depression, it was over capitalization.

Please explain.

Seems to me that the crash and the depression were two separate issues. The crash might have been caused by over capitalization but the depression was caused by insufficient cash and credit in circulation. Back then half the economy was food production and the farmers could not get credit to get them through the dust bowl years.

 

Wasn't this the unofficial slogan of the Obama 2008 campaign?

Not too successful...

When "can't get much worse" is a selling point...run.

 

Listen....we all know we are in a Unemployment crisis situation....so why not cut the payroll taxes that are up around 15% and give employers the intensive to immediately hire people. Now why isnt that being done?

 

Paul3144, you really should start participating in all these threads that you start.

As it is you seem like nothing more than a driveby poster.

How about expressing your own thoughts on the topic?

 

All of the old dinosaur media is losing money - especially the liberal owned ones.

Are they trying to buy respecability too?

 

Over capitalization, in the context of my entire post, includes over investment of fake funds that are not saved funs, but borrowed funds. This was for speculative purposes. Capitalizing is not a bad thing, i encourage it. However, I discourage it when individuals and groups over capitalize through unsaved funds.

The dust bowl was bad, however the dust bowl did not lead to the depression as it occurred after the great stock market crash. While it did hamper the recovery and probably made the depression worse, it was not a cause of the great depression.

 

In other words,caused by buying stocks on margin. OK. In theory we can't blame this depression on that.