Saturday, March 13, 2010

Taxation and Our Government (Reprinted)

Here is an edited reprint from  August 12, 2006. Back then, what I was suggesting, seemed absurd to a lot of visitors to my blog. Today, it seems to fit in line with last week's news of  Kansas City's massive school closings.

Every day you hear some Congressman talking about taxing the rich, and more welfare reform for the poor. If we go back in history to the times of Rome and Greece, every male owed one month of labor to the state. The state did not classify people as poor. You either came up with someone to work for you or you did the month of labor.

Now let’s advance several thousand years. Today in the US, we have the rich, the middle class, and the poor. We know the poor don't pay much in taxes. The middle class is the real bread winner for the government. Then we have the rich. They don't really have to pay taxes either. Once you make the money, you can't be taxed on it a second time. We do have people that make over $100,000 a year working two and three jobs with the wife's wages added in, and these people are considered the rich that need to be taxed, neat huh?

Another item to consider is real estate taxes. Real Estate is visible wealth and is taxed as such. So if your house value triples in price, your house taxes also jump--California is an exception. Prop 13 limited the increase to a small yearly amount based on purchase price. That’s little consolation if you bought in the last two years. Notice that it is the Want-To-Be-Rich group of home owners that pay a disproportional part of their income in real estate taxes. And hey it’s all tax deductible. But lose your job and have no income, deduct it from what?

Back in the 1920's local governments had been spending their new found wealth. Then in the 30's with the collapse of housing, the tax base for local communities collapsed. Schools closed because they couldn't meet the payroll. Here is a quote from "The Great Depression"  pg. 93 by David Shannon.

People never enjoy paying taxes. With the lower incomes of the depression came widespread demand for retrenchment and lower local taxes. Indeed, many citizens and property owners were quite unable to pay their taxes at all.

Since a large part of the revenues of local government is spent for public education, it was perhaps inevitable that the tax crisis should produce cutbacks in the schools. Many communities decreased their school spending severely. In effect, they passed the burden on to the teachers, the students, or both.

So we have the rich, the middle class, and the poor. The only ones that have lost their way are the middle class. These are the people about to enter a new world, called bankruptcy.

Another compounding factor back in the 1930's was the legislative stupidity that figured "If you raise taxes and fees, it will bring in more income." Well, to their surprise it brought in less. Unfortunately, intelligence is not a prerequisite when running for public office.


Tyrone said...

Some would say (me included) that if you pay taxes on it, you don't really own it. If the tax amount is low enough, you could call it negligible. I call the taxes on those $500K cracker-jack boxes, crippling.

AIM said...

Cutting taxes has a multiplier of 3, Raising taxes actually drops revenues for the government. History has shown this to be true over and over.

The government is our nemesis. In general politicians don't solve anything, they have a completely different agenda from actual concern for the future and growth of our nation. They are playing "some other game".

Man has to figure out how to live and build his life despite his government, which will continue to thwart him throughout his life.

Hopefully we are evolving towards a point where we can some day have the equivalent of the Magna Carta in our relationship with our government. Govmt needs to be small, tend to infrastructure and basic regulations only, defend our currency and our lands, and STAY OUT OF THE PEOPLE'S BUSINESS!!!!


Anonymous said...

The schools in Alameda, CA are facing cutbacks. The solution proposed by one memeber of the school board- Close two perfectly good high schools, and spend millions of dollars to build a brand NEW high school for everyone to attend.
And these people are running our schools??

Anonymous said...

Pensions for public employees will bankrupt most cities and school districts in Ca. within 3years.see

Jim in San Marcos said...

Hi Tyrone

Don't forget mello roos. So that would be about 5k in property taxes and 4k for the not so mellow tax ruse.

Where does that leave room to fit in the mortgage and car payment?

Jim in San Marcos said...

Hi Aim

I think that we could get our wish of smaller state governments. Nobody is willing to work for free.

At this point in time, there are too many people waiting in line for the free ride. Health care could make the line even longer.

This problem will solve itself. If everyone stops making stuff and the government keeps printing money, we'll run out of things to buy with our printed money.

You make a valid point, there is no reason for government to get bigger, they don't make anything, and the cost comes out of our pockets.

AIM said...

We're in recovery now. Our great government economists and Mr. Bernanke have pulled us back from the brink and prevented another Great Depression. The White House and Congress have done a fine job. Consumer purchasing is going up. Soon we'll have jobs again, homes will begin to appreciate, the stock market will continue its bull market, all will be well and stable.

This is the message from our politicos and their fawning news media.

But oh, what dark and insidious monsters are lurking beneath the surface... the thin veneer created by government/media... they will soon break through and devour us.

The circumstances of our country is the equivalent of reading a satire peace or a comic book.


AIM said...

correction: satire piece

Jim in San Marcos said...

Hi Aim

I agree. The irritating thing is if we are right, we get to suffer along with everyone else.

I'm doing my taxes right now and Turbo tax says I can save money by putting $9,000 into an IRA for me and the wife. I am thinking pay the tax and invest their suggested amount in gold and silver. The government will only borrow the IRA money and give me 3% with 12% inflation.

Silver looks like a better buy right now. The $1000 face, bag of silver US coins weighs about 80 pounds so it isn't easy to steal. Silver coins are a nice way to go. A thousand dollar bag of fifty cent pieces goes at a little premium, but, it is well worth it. It is real money. You can't say that for the crap coming out of the mint today.

We have hit the iceberg. This blog is about a depression that had it's roots in 2006. The Titanic was unsinkable. From here, we can only mumble about history repeating itself. Hold on and enjoy the ride, it will be a little bit different this time, not that we will notice.

Take care and thank you for your comments.

Anonymous said...

Putting $9,000 into an IRA isn't the problem. It is trying to take it back out. It is added as income to regular pay, which can put one in the highest tax bracket plus subject them to AMT, plus the 'higher income' can remove you from participating in any stimulus programs, such as house tax credits. Add another 10% penalty (even if you need the money due to job loss), and add state taxes, and your IRA becomes a givaway program to the government.

For anyone under 50, its a really bad deal, all the way around. Hold out until retirement, and there won't be much left. Redeem it early and the government takes most of it.

Jim in San Marcos said...

Hi Anon 12:12

How right you are. Congress actually thought up the idea not for our good, but to make it easier for government to borrow money at a lower interest rate. The incentive to save to avoid taxes, meant that the money was available to be borrowed by the Fed and inflation is the result. Social Security and your IRA are government IOU's.

It doesn't mean, you don't play the game; from age 55 on, the contributions are a nest egg for your wife.