Sunday, September 23, 2007

Calculating the Inflation Tax

This bit about government wanting to tax the rich has always puzzled me. In ancient Rome, if I remember my history right, every male was taxed. They had to give one month of labor to the government each year, or pay someone to stand in for them. The Romans were able to build a lot of roads. Notice that there wasn’t the concept “I can’t pay, I don’t have the money.” They wanted your ass and you were theirs for one month. As a government, you couldn’t go out and “print” another tax payer (worker).

When you fast forward to today, Congress’s idea of “Tax the rich,” is tax the guy making over 100K per year. Notice we are not taxing the rich people that don’t have to work. We are taxing people earning money. So if you work 3 jobs and are killing yourself, you pay more tax. If you are pimping, selling drugs or other illegal things, you pay no tax. If you don’t have enough earned income, you also pay no tax. In essence Congress taxes people more for working over 40 hours.

Examine the increase in the price of oil to $80. It is the equivalent of a $1,000 bill for every car owner who consumes 3 gallons per day. The census for 2004 lists 243,023,485 cars in the United States. Extend that forward and we get 243 billion dollars. Our government collected 2.2 trillion in taxes in 2006. This rise in oil prices is equivalent to 10% of our present tax base. With this tax, EVERYONE pays.

When it reaches into everyone’s pocket, it is inflation. The result on the economy is a contraction of discretionary purchases; movies, restaurants, Starbucks, fast food etc. As the price of oil rises, many countries face the prospects of recession. Oil taxes are across the board and affect everyone; especially those that can least afford it.

Notice, this whole computation didn’t take an office full of economists to calculate. It’s pretty basic math. Now, all Congress has to do is re-introduce the $1000 bill into circulation. The phrase “Banana Republic” comes to mind for some reason. “Chiquita Ben” Bernanke to the rescue! We’re going to drive to the poor house in style, mileage be damned!


Anonymous said...

"They wanted your ass and you were their’s for one month."

The word "theirs" does not contain an apostrophe.

Stop with the gratuitous apostrophes!!

Jim in San Marcos said...

Hi Anon

The apostrophe fit when I first wrote the sentence. The structure was so bad that I rearranged the sentence.

Thank you for pointing out the mistake.

Anonymous said...

I'm wondering why Anon feels he must be so anal about the misuse of an apostrophe. Why is that? A truly constructive comment pertaining to the topic at hand would have been a much better use of anon's time.
("anon's" that correct usage?)

Anonymous said...

Hey Anon 9:33, how about easing up on the nit picking. You are going to fool around and piss Jim off, and then where are you going to go to get this kind of level-headed insight?

Jim in San Marcos said...

Hi All

Thanks for defending me. Anon was really doing me a favor, I would hazard a guess that he is an editor for a newspaper. Plus in order to find mistakes, he had to read the column.

Usually I get errors pointed out to me with the email link at the bottom of the links column.

I could have just deleted Anon's comment after I corrected the error, but I would not have been able to thank the guy.

The really funny thing about this, is that I have a Degree in Journalism from Syracuse University class of '71. So I really don't have a leg to stand on.

Thank you all for your input, Anon can be my "Editor," it's a gratis position --no pay.

Bill said...

Anonymous said...

"They wanted your ass and you were their’s for one month."

The word "theirs" does not contain an apostrophe.

Stop with the gratuitous apostrophes!!

Get a life! Anonopuss

Unknown said...

Apostrophe abuse drives me nuts. When in doubt, leave it out.

Anonymous said...

I will never mention anything about redundant!! points and would like to point out that some of the greatest lies dont even require words without ‘, only numbers….lol

Anonymous said...

I agree with the overall point, but doesn't movie spending actually go up in tough times?

The substitution effect is such that movies are a cheaper form of entertainment (say than trips or concerts or what not), and people do more of them in tough times.

Jim in San Marcos said...

Hi Anon 6:26

I think when you stop buying $1,500 basketball tickets the alternative is movie tickets. Remember that movie theaters don't make money on the movie, but rather the snacks and drinks.

Is the customer going to taper off on refreshments? If so, that could be a major ding on the movie theater's bottom line.

When you really examine movie viewing, the way it is done, has changed so much in the past few years, that it is no longer a predictable item

Unknown said...


I have enjoyed reading your blog for the past couple of months.

I came across a piece in the "normal media" that I thought was interesting, and was wondering what your 2 cents on it was.

Anonymous said...

Please correct me if I am wrong, but wasn't the "Tax Cuts" of 2001 targeted to mainly benefit the very top income earners? Not "$100,000 3 job workers"? Pretty sure it was.

And I am also pretty sure you can't find ONE such worker. Now, a business person with three businesses that earns $100,000/year, yes. I know one very personally. But that is not a "worker."

Didn't that top group take in almost 90% of the "tax cuts"?

Didn't we go into recession immediately, before 9/11/01? Pretty sure we did. Yes, certain of it.

Wasn't the budget balanced, and we were actually paying down on the principal on our National Debt 1/1/2001?

Wasn't a Euro 79 cents then?

Didn't the Democratic president and the Republican congress find a way to balance the budget, through the use of budgets?? Isn't that called "making a commitment?" Pretty sure it is.

So, the present administration, together with the same Republican congress that had previously known how to craft a balanced budget and make a commitment, threw the budget out of balance by cutting income (2001 Tax Cuts), and not corresponding spending cuts (indeed, just the opposite occurred), and now it is "whacky theory" to simply state let the damn sunset SET, implement the Sunset Rule, and balance the damn budget again?!?!

If so, then what in the world did the Republicans put the Sunset clause in for?????

Not really a mystery, as far as I can tell.

Coupled with Greenspan's interest cuts (again, punishing the savers in our society: low interest paid and a falling dollar from interest cuts double whammy) and his creative accounting of placing unqualified applicants into mortgages they would never be able to afford (which is why there were guidelines in the first place, Sir Alan) and your simplistic "$100,000/year three job worker" strawman needs some work, my friend.

It has nothing to do with the reality of the situation: Taxes won't hurt Warren Buffett, he was paying them before the cuts and succeeding quite well and please, go ask him how he felt about those 2001 tax cuts. "Like he needed them" was what I heard him say.

"Taxing The Rich", could you please supply ONE specific example of the politician that so stated?

Not likely you'll find one in D.C.
Or, we can discuss apostrophe placement.

Jim in San Marcos said...

Hi Itrand

That article touched home. I had a student loan when I graduated ($4,000--$70 per month payments) I couldn't take a job in my major because they didn't pay enough for me to survive and make the payments.

Another thing to consider, is that Colleges don't advise students about career majors that have reached an over saturation in the job market. They want their classes full

Jim in San Marcos said...

Hi Farang

The point I was trying to illustrate, was the fact that rich people don't pay tax. They don't have to work. Warren Buffet chooses to invest his riches so he does pay tax, it's his choice. What I was suggesting was the idea that everyone owes the government one month of labor, or the wages necessary to pay someone to take your place. Everyone pays, there is no free ride.

If you ever compute your taxes, you will find out that the rate of taxation increases as you earn more. My point was that when congress wants to tax the rich, it is the class earning above $90,000 that they pick on. The concept of "tax the rich" sounds great but it has a rather funny ring to it when you examine who they are referring to.

You can't blame this mess on Greenspan. Congress will try, but they're the ones who wrote the checks and rewrote the banking laws that got us to where we are now.

Anonymous said...

California resident, live in a modest house, we put away 10+% for retirement and another 10% into savings (what we're supposed to do, right?). We have money in the stock market, intended for retirement (started saving late, tax laws limit how much we can put into 401k and that's not enough). When we sell a stock in our portfolio, our taxes go up, even though it's not spending money. We're somewhere close to the $100k/yr. working slug you're talking about. AMT guarantees that we'll pay through the nose - 10% to California, 25-33% to the feds, 8% for social security, plus another 8% self-employment tax. That's 59% tax, and the State of California wants to raise taxes 12% to cover Universal health care. Long term capital gains cost us minimunm 30% in taxes, plus pushes our wage income into a higher bracket.

$100k/yr. working stiff is not a straw man. It's reality for middle class in high cost-of-living states like California and New York. Our house is under 1300 square feet, we have one new car (paid cash, needed it), don't take expensive vacations, eat out 1x/month or less. It's a big deal if we go to a live show, and we don't make a night of it. We're secure - we have insurance, little debt (housing only), and have 6 months' living expenses put away plus a little more.

On the other hand, my SIL lives in a house her parents provide, drives a car they gave her free, works a lightweight job, and doesn't "waste" her money on health insurance, savings, 401k, or life insurance. The government GIVES her money to keep smoking, put her kid in a private school WE couldn't afford (Earned Income Credit), and gives her kid free health insurance. If she's happy, good for her, hope nothing happens to leave her kid sick, orphaned, and broke. But there's something really wrong when she invites me to go gambling and I - the supposedly "rich" relative - can't afford it, and she can, and the government dings US for more and GIVES her more. There's a huge disincentive for responsible folks to stay responsible, and there's such a large safety net that irresponsible folks needn't worry.