Saturday, April 20, 2019

Future Government Taxes

Government Think Speak:
“If you are rich, we need to redistribute your wealth”
“If you are poor, we need to give you more to make you whole”
“America the country where you can rise from poverty to wealth”

What is wrong with this vison?

The real vision: poor people have no money; they spend everything they earn. They hate “Rich People.” The only difference between poor people and rich people is that if you can save $100 dollars a month for your whole life you will get rich.

Through out history people always got old by accident. They didn’t start saving for retirement until it was too late. Getting old is a very slow gradual process.

A basic fact of life is that most people want to enjoy life now, whatever the cost, and pay for it later. This will leave the worker with zero savings. It is no surprise that the Federal Government employs the same philosophy. And we have a 22 trillion-dollar deficit to prove it.

As we approach retirement, not everyone ends up poor. Some people decided early to save money and over time and became rich. Many people reach retirement with savings. Now back in the 1960’s the government needed more money to borrow and they created the 401K retirement program. This program was not for the average citizen to save more for retirement as everyone assumed, rather it was a plan to make more money available for the government to borrow.

Government Social security is a false hope for many. Why save for retirement when you have Social Security? I think many who retire now realize that Social Security is not enough to pay the bills.

So, the rant “Tax the Rich,” makes sense. The government needs more money to fund all of its programs. It used to only tax earnings and investment income. The government has pushed that to its limit. The big reason the government reduced the top income tax rate from 90% was because it generated no income. As a taxpayer, when you get to the 90% tax rate, why work an hour at say $100 and only get to keep $10 of it? Tell me that the people passing the laws understand economics.

Now to tie this all together, Big government needs more income in some form of Tax. They need real money not printed dollars. The only place that can provide the money is from people who have saved up over time; the retirees. These are the rich people, and notice that you can only tax their income as they earn it. Once the tax is paid, they owe no more. So, at that point, how do you tax the rich? The government already taxes their toys.

I really have no answer as to how government will get its hands on the money. The democrats have murmured about a wealth tax of 12%. The government could link your private pension in some way with Social Security—i.e. no social security if your pension is over 50K a year. Government mandated health insurance could bring in $5,000 a year per person (people age 18 to 65). A retirement tax of say 30 percent on your pension (I really see this one working) (people would be too old to complain) (government is in line before the rest home costs). A non-citizen tax of say $10,000 per year per family could be a real good one (pay or face deportation).

The thing we need to be very aware of is that the country is going broke. And it cannot be blamed on the Rich. They pay most of the taxes. What we as a people need to realize is that any money raised by the government has to come from people who haven’t spent it yet. We are just about there. Visible assets are taxable. If you have money, the government wants it, you do not have to be rich to have it taken away by them.

Gold, Silver and Platinum appear to be three ways to hide your wealth right now. Interest rates are so low, that they are meaningless. Holding precious metals is not much of a risk considering that inflation has not truly reflected the ridiculous amount of printed money in circulation. I am not really trying to plug precious metals, but there are ways to transfer your wealth when you die to avoid probate and taxes. Precious metals in a safety deposit box is one of them. Forming a living trust for your home is another. You need to be aware of how the government wants to claim a tax on what you have worked your whole life for.

Remember one thing “Tax the Rich,” can be rewritten “Tax the wage earner.” The real rich don’t work so they don’t have any income taxes to pay. Anybody can get rich if they save their dollars, the trouble is, it takes planning for the future and many don't think that far ahead.


Sackerson said...

I think the way forward is to increase numbers of people in employment and the wages of ordinary people, which is what I think Trump set out to do. By spending rather than investing, people then generate demand for each other's goods and services, the velocity of money increases and so does the tax take.

Btw (as I expect you know) less than half of Federal tax is from earned income, and the top 1% of earners pay c. 37% of it:

Jim in San Marcos said...

Hi Sack

Thank you for the links. The data can be very misleading. On the first link, the pie chart is correct, but what they do with the collected money isn’t shown. Congress has been taking the payroll taxes which are for Social Security retirement and borrowing the money for the last 50 years. There is no money in the fund, just a bunch of IOUs’. Its kind of like your neighbor taking all of your savings and you have a piece of paper saying he owes you.

The other thing that is very misleading on the second link, is where they break down “50 percent pay so much etc.” Looks great. The trouble is over 50 percent of the population pays no Federal income tax. They are not even a part of the calculations. Right now, collections are at about 3.5 trillion and the government is spending 4.5 trillion. If you just count income taxes paid, it’s about 1.5 trillion dollars and that is with only half of the country putting money in the pot.

Realistically we need another 1 trillion to balance the budget, to kick the can down the road (No infrastructure replacement, like water, sewer, roads and electrical). If interest rates went to 8%, the US could not pay the interest on the 22 trillion-dollar deficit from collected taxes.

Indirectly I am suggesting that the government is going to have to “creatively” tax those with money in a large way to keep the nation solvent. Maybe tax visitors who stay more than a year. Double the tax rate or spend a lot less on government (great ideas to get re elected).

I think your suggestion of increased employment has a chance of working at the expense of the rest of the world. It is less painful than anything I have suggested. It will take a few years for the effects to set in. I hope you are right.

Sackerson said...

Thanks for your considered reply. I think the UK government stole the social security fund to pay for WWI.

Increased employment doesn't have to be heavily at the expense of the rest of the world - I think a lot of problme shave been caused by the rate of change, not change per se. The flood of money into China has not been entirely beneficial for the Chinese, either - massive inequality, speculative building boom, ancient villages uprooted by developers, corruption... We can all get slowly better off if things are managed sensibly.

The fly in the ointment is the group of people pushing lightspeed globalism because it makes them insanely rich. GATT, WTO, TiSA etc are all devices to cut down the protections and let capital zoom around the world in a most destabilising way.

That's why I think Trump has a handle on the problem, despite his faults. No wonder the US Establishment hates him.

dearieme said...

"I think the UK government stole the social security fund to pay for WWI." That sounds like pub history to me. Notionally the National Insurance Funds are in rude health - but in reality the money has all been "lent" to the government, so is essentially fictional.

It was Nye Bevan who said "The secret of the National Insurance Fund is that there ain't no fund".

dearieme said...

As far as my reading goes, what will bankrupt the federal government isn't the need to pay for Social Security, but the need to pay for Medicare and Medicaid. So naturally politicians are competing to see who can promise the most expensive medicare for all.

Jim in San Marcos said...

Hi dearime

I got a good laugh on the National Insurance fund secret. I think you are right, the health care part is going to do us in. ObamaCare was meant to destroy the insurance industry and then tax each and everyone of us $5,000 a year for health insurance. It would have ended up just as your National Insurance fund--borrowed by the government.

Yesterday they said Social Security would go broke by 2035 and that in 2020 they would have to dip into the Social Security reserves of three trillion dollars. The only trouble is that Congress borrowed that money and spent it. I guess if you are a book keeper, it all adds up somehow.

Sackerson said...

@dearieme: as ever, a stimulating intervention. In this case, pub memory is flawed but not altogether wrong: there are connections to the Great War and Lloyd George.

The latter appointed Sir Eric Geddes in 1921 to recommend government savings to deal with the huge (nearly tenfold) increase in the national debt since 1913/14. In 1922/23 Defence was cut by c. £78 million and overall social (education health unemployment etc) spending (which had been made more generous after 1918) by c. £24 million.

In 1925, on the advice of the Bank of England (they have a history of bad advice, then) Chancellor of the Exchequer Winston Churchill returned Britain to the Gold Standard, overrating the pound and so making exports more expensive. This affected trade (and also reduced business owners' reinvestment in their equipment.) Time for more cuts, including the government's contribution towards the Unemployment Fund (to take effect in 1926), to which working men and employers also paid via approved friendly societies. The government's savings on unemployment costs were estimated at £5,590,000:

Then came the Great Depression and a further reduction on the government subvention to the Unemployment Fund in 1931.

War is expensive.

Sackerson said...


dearieme said...

"War is expensive." It certainly is. Apparently the British achievement of eventually paying off the government debt taken on to fight the Napoleonic Wars while avoiding inflation through the relevant period (most of the 19th century) is pretty much unique in history. Should I infer that the only way to pay off large government debts honestly is to stage the world's first industrial revolution?

One alternative is the German solution - run a hyperinflation. Or the Western Roman Empire solution - cease to exist. Or the solution of many countries: default. Presumably all the debt of Ancien Régime France was defaulted on? What happened to the debt built up by the US Civil War?

I imagine that politicians in developed countries will aim to cope by running inflations while persuading themselves that those will never ever turn into hyperinflations. Absolutely not, dear boy. No risk of that at all.