Our US Government taxes:
Re: Savings and Investments
The worst tax government can levy is inflation of its currency. Money we saved and invested becomes worth less and less as the purchasing power of our currency progressively degrades in both domestic and foreign markets.
When government expands the domestic money supply to spend money on anything, the consequences affect everyone. Our money buys less when government buys products and/or services from companies or people with money that the government did not collect or borrow from its own citizens.
When government competes with its citizens or their employers for limited supplies, the price goes up to balance supply with demand. If government installs price controls, the result is shortages and rationing.
Government also inflates the value of its currency against foreign currencies when it uses money it did not collect from its citizens for:
- Purchases with foreign entities,
- Grants and loans to foreign entities, and/or
- Military and emergency relief actions.
We give foreign entities the power to buy things we produce or own with our own money when:
- We purchase imported products for more money than we sell to them,
- Our government’s money outflow to foreign economies is not covered by export surpluses, and
- Our government gives money to foreign governments as grants in aid.
Our exporters suffer when our government:
- Imposes taxes on US corporations,
- Imposes restraints that stifle work force productivity and ability to compete, and/or
- Allows foreign governments to hamstring our exports by unfair tariffs and subsidies.
When our exporters suffer:
- Jobs are lost,
- Investment capital is lost, and
- Government revenue is lost.
The combination of the above causes economic recession, high unemployment, inflation, and foreign ownership of our nation’s economic assets that power our economic engine. Some call this “stagflation.” Farmers call it “eating your seed corn.”
Re: Income and investments
Corporate income taxes are not income taxes. They are a hidden sales tax borne by a company’s customers and an investment tax upon corporate earnings. After-tax earnings directly affect the market value of corporate stock. They also limit the dividend yield of shareholder investment. Foreign customers of a US corporation do not want to be US taxpayers. If they can get what they want for the same value with less expense elsewhere, they will do so. They have no loyalty; they have interests . . . THEIR’s.
Government actually taxes Investors of C corporations more than once. Government taxes earnings on the corporate level first, and again at the personal level as dividends. If the investor sells stock, the investor pays a capital gains tax. This is a tax on the increase in the stock’s value, not adjusted for currency inflation. The government “double-dips” corporate stock sales because the investor pays tax on the inflation of the currency AND the real-dollar growth of the stock’s market value. S corporations and limited-liability partnerships (LLCs) are taxed once, but government taxes the partners on their ownership share of the corporate earnings, not the cash distributions. If they also are employees, their payroll is taxed for FICA, FOAB, FUTA and SUTA on both the corporate side and the personal side. Producer cooperatives distribute patronage dividends, which lower the cost of goods sold of the producers, thereby increasing the producer’s corporate tax liability.
Personal income taxes vary by State, but all are some form of a “progressive” income tax. I use the word “progressive” in a limited definition. A taxpayer’s tax rate increases as his or her adjusted gross income increases beyond a gauntlet of ever higher thresholds. All of the USA personal income tax is paid by only about 52% of the adult citizens of the USA. Some citizens actually receive money instead of paying little or nothing. This negative income tax is called “earned income credit.”
The wealthier citizens can afford the smart tax lawyers and accountants that know how to defer at least part of their tax liability through tax shelter investments. Our US and State tax codes are riddled with exclusions, deductions, and rate exceptions. It also contains provisions that penalize the bottom 98 percent of the population. In a word, our tax code is a mess. That is why we have all of those tax preparers to figure out what we owe. Even they cannot keep things straight.
Ok, so we can eliminate “progressive” with a flat income tax . . . right? No, because the flat tax is calculated on the earnings over a base amount. Also, the devil is in the meaning of “adjusted” gross income that forms the basis for the flat tax.
Re: Purchase taxes
Purchase taxes are a “regressive” tax. People with lower incomes use more if not all of their income than the wealthy people to purchase goods and services. Some of the cost of their purchase is a hidden tax paid by the supplier or retailer and passed on to the customer. Examples are fuel taxes related to shipping cost, property taxes on the real estate, and commercial inventory taxes. Some items are surtaxed. Examples are luxury taxes on jewelry and excise taxes on medical devices.
The most insidious purchase tax is called the value added tax or VAT. This is a combination of an inventory tax and a sales tax at every level of the supply chain. All but the final retailer portion of the sales tax is hidden in the purchase price. A sales tax is not due until an end-user that is not tax exempt buys something. Under the VAT, the manufacturer pays a sales tax on everything they buy to make something and it is due when they buy it, not when the end-user buys it. If the supplier who sold it to them paid a VAT, the purchaser can deduct the supplier’s tax. That is why it is called a value added tax. A supply-chain purchaser pays the VAT on the value they add to the product’s sale price, not the entire purchase price. The end-user is unaware that as much as 13% of the cost of the purchase is a hidden sales tax paid in advance by the supply-chain manufacturers distributors & retailers. The accounting services required to calculate, audit and collect this tax are an awesome burden on corporations.
Think this is bad? It gets even worse when municipalities, counties, school districts, transit authorities, waste management districts, park and recreation districts, metropolitan whatever, and even water management districts get their hand into the sales tax till. In Minnesota (for example), one has to lookup their street address and zip code to discern which combination of taxing authorities are legal recipients of their sales taxes.
Add to the above confusion, and we look at the exclusions. Some jurisdictions tax everything. Others exclude things like food and/or clothing and/or personal services, except for so-called “luxury items” subject to excise taxes that may or may not be included in a sales tax. In other words, taxing authorities use different market baskets to define which items are taxable and which are not taxable. Also the tax jurisdictions have no common boundaries within boundaries. Do you perceive a hint of political chaos here? How can anyone logically compute their tax liability for a tax law that is illogical at its core? Can you envision a small business selling something like jewelry on an Internet mall that has to collect and file tax returns on thousands of taxing jurisdictions in multiple States?
The responsibility to pay sales tax lies on the shoulders of the purchaser. However, purchasers do not willingly pay sales or use taxes if they can get away with it. Given its complexity, they wouldn’t even know how? Government cannot do much to enforce these taxes without the cooperation of the suppliers. If people exchange services through a barter arrangement, they are legally liable to pay income tax on the market worth of their personal services. Who defines how much these taxable services are worth? Does something smell really rotten in the woodpile or is it just my imagination?
Another Insidious Tax Idea
An even more insidious tax that our US Senate is pondering is the transaction tax. This taxes bank deposits, withdrawals, loans, credit card swipes, and other cash-valued transactions that flow through the banking system.
Other hidden purchase taxes are excise taxes built into travel, restaurants and hospitality services. Examples are the room tax, on-sale liquor taxes, home improvement inspection licenses, and supplementary sales taxes in areas near sports stadiums or downtown establishments. Airline passenger tickets, telephone service, parking meters and fees of all types and flavors also tap our wallets without mercy.
The largest and most noticeable ownership tax is the homeowner property tax. Others are personal property taxes, such as your automobile license fees that are based upon the car’s value. California has the mother of all combinations of personal property taxes. They even tax fruit trees planted on your property. If the new health care law continues to be deployed, investment earnings will be taxed annually, even if they are in a Roth retirement account.
In Oregon, a homeowner can be fined for collecting the runoff water from the house roof to water their garden. The State “owns” the water that falls from the sky. In Minnesota, the State owns all mineral rights for any property within the State boundaries, except for Federal and Native American reservation land. The State can tear up your land to mine for minerals and oil, and leave the mess for you to clean up after they are done, with no compensation whatsoever.
The death tax ruins family farms and family-owned businesses. Owners must use legal tools to protect their estate from taxes. Estate taxes may consume to up to 80 percent of the estate’s net worth. Otherwise, the heirs have to sell just to pay their taxes. The deceased’s surviving spouse and heirs lose everything. Two-legged vultures love to read the obituaries. They keep lawyers busy forming Crummy trusts, testamentary trusts, corporations, uniform gifts to minors grants, and even living charitable trusts to avoid estate tax liability. Some call this “doing the right things for the wrong reasons.”
The automobile license grants the right to drive on a public roadway. Road tolls add to the expense. Need a dumpster for construction trash? There’s a tax for that. Need to practice a professional service? Pay for the certification first. Need to save property taxes? Tax increment financing is the answer, but you may need to hire a “consultant” related to a commissioner or city council member to get that done. Need an exception for a zoning ordinance? There are fees for that. Our government even wants to require farmers to have class A licenses to drive their tractors on their own land. They also must comply with over-the-road trucker regulations such as driving logs.
There is no limit to the government’s revenue raising mischief to support more spending. Government must be held accountable to their constituents. Government also must be contained within its legitimate role by rule of constitutional law. There is no such thing as a fair tax. If you don’t believe me, ask any taxpayer.