Representation Without Taxation Doesn’t Work Either

Today being tax day, it seems a good time to remind ourselves of some key figures. Most Americans give at least a cursory look at their household budget monthly as they pay their bills or perhaps weekly if they’re in the tough position of living paycheck-to-paycheck. But, few stop to review their country’s financial state even once a year. Perhaps that should become a tradition on tax day. After all, Americans would call their cell phone provider and dispute a $10 unexplained charge; so why do they continue to pay thousands each year without asking why or where it’s going?

So here it is, the federal budget for the next ten years, as laid out by President Obama. Be sure to note, it is displayed in billions of dollars.

Allow me to round some figures off in summation: This year, the federal government will take in $2.2 trillion while spending $3.7 trillion (a $1.5 trillion deficit on top of the existing $11 trillion federal debt). Notice they expect the best year in the next ten, 2014, to still be a net loss of $706 billion, even if some wild optimism on Washington’s part comes to fruition.

This is the equivalent of an American family that earns $100,000 per year spending $168,000 while carrying $600,000 in debt; writing IOUs for the $68,000, and planning to do the same thing each of the next ten years and beyond. None of us would do that, so I can’t believe there’s a person in this country dumb enough to think the government’s numbers work, but there is. In fact, there are millions of them. A few of these work in the Lame Stream Media and will go on TV tonight and deride their fellow citizens who are at rallies all over the country today protesting this very spending lunacy, even though it seems the protesters are the only ones paying attention.

But how can millions of people who think the government’s budgetary suicide is ok? Well, that’s easy – 47% of all Americans pay NO FEDERAL INCOME TAX! Put simply, these people have no skin in the game. They are too short-sighted to realize that at the very least, their kids might some day have to pay this bill; or much worse, that a financial default by this country will mean financial pain for all – especially those who currently live off the taxpayer’s largess. Still, come election day, they have the same voting power as those footing the bill, and therein lies the problem. As Ben Franklin so accurately said, “When the people find that they can vote themselves money, that will herald the end of the republic.”

Taxation without representation was cause for a Declaration and War of Independence. Turns out representation without taxation doesn’t work so well either.

More Jobs Headed Offshore Thanks to Obama Tax Plans

This is the kind of cause and effect of policy that liberals just don’t seem to understand. You can’t run around the world bowing down (literally) to every bully nation state and expect them to respect you and magically change their behavior because you were nice to them. And, you can’t increase corporate taxes just because you believe the corporations can afford it and expect there to be no implications. Affording it and being willing to pay it are two different things (another idea the left seems unable to grasp). But, don’t take my word for it; listen to what the CEO of Microsoft said this week:

It makes U.S. jobs more expensive. We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.

Right now – and for that matter any time – this country needs every job it can get its hands on, especially good paying tech jobs such as those at Microsoft, but this administration once again displays its complete lack of common sense by continuing to make it more and more punitive for companies to do business in this country. Ireland provides us with a wonderful lesson in the benefits of reducing corporate taxation to stimulate an economy. In the mid 1980’s Ireland’s unemployment was running rampant and standard of living was only 63% of that of their brethren in Great Britain. The Irish government got aggressive, lowering the corporate tax rate to a paltry 12.5% (the U.S. employs a tiered system that can be as high as 35% by contrast).

The change has been breathtaking. Over the next 20 years the Irish economy grew employment by 50% -that’s the equivalent of 68 million new jobs in the U.S. (not possible of course, but places their accomplishment in perspective) – and as a result, of course, tax revenues went WAY UP. Ireland is now a country attracting businesses and immigrants as opposed to the nation it was in the mid 1980s, withering away to nothing.

In today’s global economy it is beyond short-sighted and bordering on economically suicidal to attempt to squeeze these companies for more of their hard-earned profits. Every day, there are fewer and fewer reasons for them to continue to pay the exhorbitant costs of doing business in the United States. The cause of high costs and high taxes leads to the effect of lost jobs and lost tax revenue. The sooner the left comes to understand this basic and obvious principle, the sooner this government can begin to implement tax policy that will give the American people a fighting chance at a prosperous future.

How Much Does the Government Get?

Lately there has been a lot of discussion about the wealthy needing to pay more taxes. This always raises the question for me, why don’t the people doing all this talking make a donation to the welfare program of their choice if they feel so passionately about it? But, nope, they want to force others to do something they aren’t willing to do themselves. Then there’s the recent rash of the President’s nominees who were discovered to have not even met their minimum tax obligation, let alone paid any extra – they want to raise taxes on others, but they won’t even pay their own? Something seems wrong here.

But, I digress. The topic for today is how much does the government actually take from every dollar you or I earn, so let’s take a look. I will start with a nice round $100,000 in salary to make things easy. Now assuming you’re not self-employed, your employer will be paying 6.2% of your salary to Social Security and 1.45% to Medicare. That’s $7,650 above and beyond the $100,000 that your employer has to cough up in your name (keep that in mind the next time they turn you down for a raise – they could have paid you another $600 a month, but it went to the government). Of course, you have to match those contributions via Soc. Sec. and Medicare withholding, so that leaves you with $92,350.

Don’t get excited, we’re just getting started. Let’s move on to the big leagues – income tax. If you’re single and have no children to claim, the government will take a bite to the tune of $20,124 in income tax withholding (maybe they should call it hold-up instead of withholding) leaving you with $72,226. Next, your state will take a bite. In my state of Massachusetts that bite will cost you 5.3% or another $5,300 leaving you with $66,926. If you live in one of the major U.S. cities you’ll likely get hit with a city income tax as well, but we’ll leave that alone for now. So, to this point the government has received $40,724 and your clutching $66,926 of your hard earned money.

But, we’re not finished, not even close.  Here are a few more taxes most Americans pay and to generalize I’ve used the amounts I paid in 2008 as examples:

• Property tax – $3,100
• Communications (phone, cable, cell phone) -$138
• Gasoline (average 35¢/gallon -18.4¢ goes to the feds, the rest to your state) – $263
• Sales tax (assume 5% and $10,000 a year in purchases) – $500

There goes another $4,001 leaving you with $62,925.  But, there are still more taxes. Capital gains is a fun one; it’s where if you manage to save some of these after-tax dollars, and are brave enough to invest it, and are lucky enough to make a little profit, they have the audacity to take a percentage of that too! There are cigarette and alcohol taxes, travel taxes (many times 10% or more on hotels, airfare, rental cars, etc.), and the list goes on and on.

So, in the end your $100,000 salary nets you roughly $60,000 and your government rakes in $47,650. Seems like a pretty good deal for them since you did all the work. But, here’s the best part… You or I must find a way to pay our bills and save for retirement out of the $60,000. But, the government doesn’t bother with any of that; instead, they spend Trillions more than they take in resulting in a national debt that you will someday end up paying for. Better put some of that $60,000 aside just in case!

Shouldn’t We Have Seen This Coming?

The new tax policies haven’t even taken effect yet and already the tax avoidance maneuvering has begun. In a Reuters article this week it was reported that, “A wave of energy companies has in the last few months announced plans to move to Switzerland — mainly for its appeal as a low-tax corporate domicile that looks relatively likely to stay out of reach of Barack Obama’s tax-seeking administration.” Gee, I never would have expected that.

Common Sense tells you that when you raise taxes the incentive to avoid taxation goes up.  The greater the incentive (higher taxes) the greater the lengths companies and individuals will go to avoid them.  Let me emphasize my point through some good old fashioned exaggeration…

Most of us pay 10-20% of our wages in income tax (I’m referring to the net number after deductions – more on taxation another time), and the vast majority of us don’t go to any exceptional lengths (certainly not any illegal lengths) to avoid paying those taxes.  Now imagine that beginning in 2010 your tax rate was 80% or 90% or even 99% (of course I’m exaggerating, but do you see where this is going), what would you do?  Call me crazy but it seems quite obvious; a person would either get very creative in avoiding taxation or simply throw their hands up and stop earning all together cause what’s the point, right?

So, in the end the argument isn’t about whether to tax the rich or tax the poor or tax corporations.  Those are the proverbial weeds the politicians try to mire you down in to obscure the real story.  And what’s that story?

THEY’RE SPENDING MORE THAN THEY’RE TAKING IN!

And they’re doing it EVERY YEAR!

The real discussion that needs to take place is how to raise the necessary revenue (and we better start reducing that “necessary” number) yes fairly, but more importantly, effectively.  If you raise taxes and taxpayers change their behaviors to avoid the tax, a government can actually end up generating less revenue rather than more.  If the government raises taxes on corporations such as the energy companies mentioned in the Reuters article and those companies move overseas the tax increase that was sold to the American people as a solution actually makes things worse.  The Treasury loses the tax revenue they were collecting.  Americans working for the companies are likely to lose their jobs and the Treasury loses the resulting income tax.  The real estate these companies were renting in the U.S. is now vacant leading to lost income for the landlord, or lost property tax revenue for the local community or both.  And the list goes on and on and on and on with a trickle down effect of lost jobs and lost tax revenue on all the supporting services that surround a major employer – gas stations, restaurants, coffee shops, etc. etc.

So, the next time you hear a politician tell you that they’re going to fix everything by raising taxes on somebody else, stop and think for a minute about what the consequences of that tax increase might actually be.  Because, I’m telling you, people with Common Sense should see this stuff coming!