Archive for the ‘taxes’ Tag
The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group, but for all groups.
This is an ongoing series of posts on Henry Hazlitt’s Economics in One Lesson. You can access the Table of Contents here. Although written in 1946, it still touches on many of the issues we face in 2017, particularly the fallacies government economic programs are built upon.
Remember, there is no such thing as a free lunch. Tax dollars come from people and businesses who would otherwise have used to those dollars to do something.
Henry Hazlitt doubted greatly that the wealth created by government spending would fully compensate for the wealth destroyed by the taxes imposed to pay for that spending.
It is not a simple question … of taking something out of the nation’s right-hand pocket to put into its left-hand pocket.
While the government spenders want us to believe that if they only take, say, 25% of the national income from private purposes to spend on public purposes, they neglect to mention that they are taking money from A in order to pay it to B. It’s not simply moving data around in a bookkeeping ledger. Yes, B is helped by the transfer of wealth, but A is harmed by that loss of income.
In our modern world there is never the same percentage of income tax levied on everybody. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds.
This affects business policies. Businesses that have less money to invest don’t expand their operations — or only expand into areas with minimal risk because they lack a savings cushion. This deters other observant people from starting new enterprises. Old employers do not provide more employment or better wages and others decide not to become employers at all.
There’s a similar effect on personal incomes taxed at 50-90 percent. People question whether they should work six, eight or 10 months a year for the government when they only take home six, four or two months of income to their families.
Additionally, the capital available for risk-taking itself shrinks enormously because it is being taxed away before it can be accumulated.
[C]apital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.
Hazlitt recognized that some taxes are necessary to provide government functions that safeguard private production.
When the total tax burden grows beyond a bearable size, the problem of devising taxes that will not discourage and disrupt production becomes insoluble.
In other words, government should only spend on a very few needed services … roads might come into that … because if it takes too much from the private sector, eventually it destroys the private sector.
Here’s an interesting graphic I ran across recently. Pink/magenta is negative (loss) while green is positive (gain). You can assume that Alaska and Hawaii are outliers because our migration rates are affected by not being attached to the contiguous 48, but take a good look at the states that are losing the most population and related income. Mostly high tax states. And then look at which states are gaining the most population and related income. Yeah ….
There are generally two types of workers in this world.
There are people who are risk-adverse who work for someone else, who move on to other jobs when the company is struggling or going bankrupt. Chances are good they’ll find a better job with the competitor who just ran their former boss out of business.
Then there are entrepreneurs who leverage everything to build a company that employs the risk-adverse. These entrepreneurs risk losing everything in order to build their businesses. When the company tanks, they lose their homes, their cars, their savings, their retirements, their everything. With great risk comes the potential for great profit or crushing failure.
I’m risk adverse. I make a modest income by working 40 hours a week and I invest in “safe” things like my mortgage and retirement account. Maybe if I have a little extra, I buy some stock, but that’s as risky as I’ll ever get because I like my current life too much to risk losing everything on a huge gamble.
My father-in-law was a gambler. Instead of bellying up to the Blackjack table in Vegas, he bet everything on a company. And it paid off in millions of dollars of income … for a while. At least three times in the 33 years I’ve known him, he’s lost everything and had to start all over. This time, he’s 74 years old and he can’t do it. He’ll live the rest of his life on $1600 in Social Security income while the people he employed will find other jobs with the competitors who ran him out of business by being more competitive.
Brad and I agree that we owe Leo nothing except the offer of a bedroom if he’d like to come live with us. We don’t have a lot of money, but we have a house and we are willing to share. He made millions and he didn’t save any of it for his retirement. That’s the choice he made and the consequences he should assume.
We also agreed — back when Leo was rolling in dough — that he owed us nothing. His income was his income and he didn’t have to share with us because we didn’t earn his wealth. There were some really expensive (but not useful in Alaska) Christmas gifts that came our way at times, but we have gotten what we own currently by the sweat of our own brows through the jobs that we worked.
If we owe anyone anything (besides the bank — note to self, the mortgage is due again), it’s our employers for employing us. They could have hired other people. They didn’t have to employ us.
There are a lot of people who think that “the rich” owe them something because they are not as wealthy as “the rich”. I disagree. My husband is a construction worker who has become a small business owner. Every employer he’s ever had was “rich” compared to him. They were “rich” because they owned a company that made enough money to support themselves and some employees. Now, when you divided all that “wealth” up among the employees and the overhead, it might actually be that the “rich” boss took home less money than the inividual employees. In fact, Brad has actually worked for that guy a couple of times. The company was “rich”, but the owner wasn’t … not yet, anyway.
Several of those companies are gone now because their owners got tired of being risk-takers and decided to join the ranks of the risk-adverse. In fact, I work with that guy now. Others of those guys have since become “rich”. They own nice houses and drive nice cars while also owning a successful business.
And what is wrong with that? They earned it by working for it.
Most “rich” Americans did not start out in the wealth-class nor did they get there by lucking into being the CEO of a Wall Street investment firm. https://www.gsb.stanford.edu/insights/joshua-rauh-what-forbes-400-list-says-about-american-wealth. Most US “millionnaires” are folks like my sister-in-law.
Amy grew up in a middle-middle-class family. Her father was a road engineer. She gained the benefit of his income in that he paid for her college education. She took that education and got a job as an accountant. When her first husband dragged her into an investment scheme that took the house she’d paid for,and all of their savings and created a debt crater the size of Detroit, she dumped him, kept her full-time job, moved into an apartment in a scary neighborhood, borrowed some money from her parents to pay for schooling so she could get her CPA and started killing her half of that debt. Within five years and at the age of 32, she was working for a nice salary (because she has highly sought after skills), had paid off the debt, repaid her parents for the loan, closed on a small home and begun saving for retirement because Ronald Reagan had let all of us know that there was no actual money in the Social Security Trust Fund. Until this decade, she never made more than $60,000 in annual income. She has made judicial investments in the stock market and mutual funds and she’s participated in her employers’ 401K programs. She’s got a good BS meter and she’s guessed the market a couple of times to avoid a huge crash.
She now has about $1.7 million in her combined retirement accounts. She got that by being debt free except for her mortgage for the last 40 years (she’s been mortgage free for almost 20 years now, but that was my brother’s contribution to the marriage). She has relentlessly saved 15% of her income for retirement. Careful investment strategy and the law of compounding interest did the rest.
She is a millionaire and, by extension, so is my brother. At least I shouldn’t have to worry about him needing to move in with me. She plans to live off the interest of her accounts and she may well need all of it because her mother is pushing 100 and still lively and living on her own.
And yet, in this world today, there are many people who would like to take 50% of that savings account to “give to the poor” because it’s just “not fair” that Amy has so much money and others do not.
She EARNED it by working for it, so why should she be forced to share it with others?
She doesn’t owe me a thing and she knows me, so why is there an assumption that she owes strangers anything?
We all know the story of Robin Hood. During a time of great income inequality, he robbed from the rich to give to the poor.
You see, that’s justice!
No, not really. Our interpretation of the legend of Robin Hood (which is likely based on some real persons) has been thoroughly warped by the propagandists. Go and read an older version of the story (mine dates from the 1880s). The story my grandparents learned had all the same essential elements but the interpretation was completely different.
Young English lord, Robert of Loxley, is pushed off his land by a greedy king. He takes to the forest, where he finds lots of other men of more modest means who have been forced out from under the law for various acts of living. They start attacking caravans and giving the money to villagers. Eventually, they cause the downfall of the sheriff who is working for the king.
My grandparents lived before the United States IRS existed, when the federal government made due with excise taxes on imports and whatever the states felt like sharing from their revenue.
So the real historical story goes like this —
Under Prince John, England had instituted a slate of crushing taxes to pay for the wars King Richard loved so much, but also, a sizeable stream of that money went into the coffers of the Roman Catholic Church to assure they would open the door of heaven for the crusaders (Richard being a crusader). The government of England was taxing a prosperous people into poverty. In the earlier tales, Robin was a yeoman — one of the rising middle class — who was taxed into outlawry. In later tales, he’s a lord who was made ignoble because he made the mistake of disagreeing with the greedy Sheriff of Nottingham, who was the area tax collector. As one of the victims of this heavy taxation, he took his revenge by robbing the tax caravan.
If one believes that Robin Hood had previously been a minor noble, then Robin of Loxley had been one of the “rich” prior to his becoming an outlaw, a title the government placed on you that had nothng to do with whether you committed crimes or not. Robin’s robbery had nothing to do with who was rich and who was poor. That whole “robbed from the rich to give to the poor” is a later addition. He robbed the tax caravan. Taxes were gathered by the government (represented by Prince John and his Sheriff). The taxes came from the villagers — some of whom were poor and some of whom had been a great deal more prosperous before Prince John’s tax collectors had shown up. The taxes were coerced from them by a combination of the government (Prince John) and the Catholic Church (many priests at the time acted as tax collectors) and the Church took a large stipend from the crown. The Roman Catholic Church acted as the “charitable” arm of the government. Consider it the Medieval equivalent of the Department of Health and Human Services. Of course, the RCC gave its “charity” to those they felt deserved it.
Robin stopped the tax caravan, took the taxes back and returned it to the people they had been stolen from. The original Robin Hood tales of the Middle Ages celebrated a renegade who rose up against property-rights violations and taxation abuses. His archenemies were not private traders or bankers, but the local government tax collector, the Sheriff of Nottingham, and the power-grabbing ruler, Prince John. The Roman Catholic Church objected because they weren’t getting their stipend either. How were they going to help the poor if the taxes didn’t get to them?
The people who had had their taxes returned to them no longer needed the Church’s “charity”. They were no longer “poor” because their income was no longer being stolen.
It really wasn’t until the modern era that people foolishly came to believe that government was the answer to our problems. It used to be understood that the tax collector was coming to take money from you that would enrich him or his employer while impoverishing you. Nothing has changed about that reality except your perception.
My Turn: Too much risk with house minority positions as Medicaid expansion questions loom | Juneau Empire – Alaska’s Capital City Online Newspaper Leave a comment
The battle in the Alaska Legislature explained.