Tag Archives: capitalism

Raise Taxes on the Rich?

Spread the wealth. Close the income gap. The Robin Hood effect. Take from the rich to give to the poor. On the surface this seems most admirable, but I am not entirely convinced raising taxes on the rich will do the American people one iota of good. Let me explain.

I work for a consulting firm that earns millions by exploiting the shortcomings of our tax system. There is no perfect system and anyone who has accumulated any amount of wealth has a team of tax professionals finding the “dreaded” tax loop holes for their clients. It’s not immoral either. It is the fiduciary duty of any corporation to do this – to maximize the value of the stakeholders investments. It would be ignorant to believe that any system can be devised in which this can be avoided.

Fact: The best way to eliminate poverty is via capitalism. We want to bring wealth and jobs to this country and keep it here – not drive it away. The only way to do that is to make it advantageous for businesses to do business in America. We do not want our wealthiest citizens to move their wealth off shore, to invest in countries like China and India, to keep foreign bank accounts, or to move their money and jobs away from the people who desire that capital and employment here. Increase taxation aimed at the rich in the name of the social good is counterproductive.

There is a hole in our bucket:
We are a nation in debt. Not because we do not have enough tax revenue, but because we spend too much. We have a variety of social programs and the largest military in the world. The truth is our tax rate is as high as any country in the world – even highly socialized countries (~ 2.5% GDP). An increased tax on the rich will not solve our debt problem, it won’t even slow it down. We have to reevaluate the way we run this country from top to bottom. You can try to fill a bucket as fast as you can with tax dollars, but when the bottom of your bucket is a hole you can never fill it.

The Government Does not Create Wealth:
The Government does not create wealth and it usually does a poor job of transferring it. I think of the Government like a pipe transferring warm water. The water starts out hot, but as it travels loses heat before it reaches its destination. Similarly, when compared to businesses, because of inefficiency and ineffectiveness, the Government loses wealth during the transfer from the top to the bottom. Sometime the deserving never even see the money and those willing to exploit the system abuse it. Businesses’ sole purpose is creating wealth through innovation and production, thus it is the most efficient method to create and spread wealth. Taxation hinders the creation of real wealth.

We Should do a better job managing what we have before asking for more:
If a bankrupt person request a personal loan would you concede? Would you give a horrible co-worker more responsibility if they had already filed multiple times? Would you promote a person not ready for additional responsibility? No.

Similarly why do we advocate giving a Government, already trillions in debt, more of our hard earned money. Our Government has proven time and time again our tax dollars are used to fund foreign wars and pay for services that do not benefit our citizens. When you ask for more of our tax dollars – however noble the gesture – I just can’t agree.

I am the poster boy for the Democrat’s economic model

When I was growing up there were months I would have went hungry had we not had food stamps. There were years our bills wouldn’t have been paid from month to month if it wasn’t for my Mother’s disability check. There were school years supplies were virtually out of the question and new clothes was something I didn’t even ask for. I wouldn’t have had the opportunity to go to school if it weren’t for public education and college was an option for me because the Government helped me pay for it via the Pell Grant.

Today I have a well paying job, no debt, I am an active member in the community, and I am among the most taxed – paying right back into the system of which I received so much. That, I believe, is exactly what the democrat’s economic model is built upon. I can’t deny it – I directly benefited and thrived from it.

On the other hand
On the other hand, some of my earliest memories of drug addicts trading food stamps for cash to buy a crack rock. The truth is for every guy like me there are 10 people abusing the system and never doing a thing with the opportunities presented to them. It is tax dollars gone to waste – a return on investment never realized.

For example, two of my cousins used their Pell Grant money in an elaborate combination of beer, drugs, clothes, nice cell phones, car payments, etc. and NEVER graduated college. Now they are unemployed/underemployed and getting even more tax breaks and payments from the Government. Even my Father has been living off of the benefits of the welfare system for 20 years and has never paid a dime in taxes. I am not proud of any of this.

When I was a kid I saw drug dealers, alcoholics, addicts, and criminals all benefit from the free programs provided by the Government. Free and reduced rent, free healthcare benefits which provided them with prescription drugs they would later sell for a profit, an the list goes on – all this which gives a person further incentive to continue their lifestyle. Why change when you are rewarded for bad behavior?

So what we have is a conundrum. On the one side we have innocent kids like me who are begging for a chance at success. On the other side we have people who are abusing the system and given incentive by the Government to keep abusing said system. What do we do?

I think what the democrat’s model fails to take into account is the folly of man. We are broken, people take advantage, people are generally self concerned, and thrive on incentive. Does this mean we give up on kids like me? Do we stop social programs because some people choose to abuse them?

The Solution
I really wish I had one. Will I advocate to take away all social programs and to refuse help to other children who were born into the same situation as I was? Will I advocate to further make it impossible for a poor kid to have a level playing field? Should those born into wealthy and good families be the only ones who have an opportunity to succeed? Hell no!

What we need is a better system. A better vetting process. Less waste and a change of culture where neighbors and family hold each other accountable for their actions. We need a system where people realize what a great gift has been given to them by being born into America or any society in which being poor is not necessarily a life sentence of struggle. We need to encourage a culture that correctly uses the system in place and doesn’t break or abuse it.

Update: This article is especially interesting and relevant.

Over dependence on the Government

Listen carefully to what this young man has to say about his homelessness. Not just his words, but his way of thinking.

Did you catch it at 7 minutes?

“Money comes from the Governement.”

“There needs to be programs.”

“There is nothing you or me can do about it.”

Are we breeding a culture where we expect the Government to take care of us? Where we can’t do it ourselves? Where we take unreasonble risks expecting the Government to catch us when we fall?

What’s worse is that no one helps. Why?

“If you analyze it. The amount of cars that come by and the amount that give, it’s really horrible…It gets tiring seeing people who are really well off and just don’t give.”

No one gives because almost everyone is under the impression that the Government should take care of it. What are you thinking right now? Is this close:

“There are government programs, there are homeless shelters, I pay taxes for programs to help the homeless…”

We live in a society that is heavily taxed by the Government. Our people expect the Government to take care of us in times of need. Our people do not take care of eachother because they believe Government is supposed to do it. Passing the buck has become natural and guilt free.

The truth is – the Government doesn’t do it. It can’t do it and those in charge care more about themselves than this guy.

Abolish Capitalism?

I saw this on my way to work today in Washington D.C. I found it ironic since it’s in the capital city of a country based around the idea capitalism is good.

I also noticed a group of “hipsters” huddled around a nearby Starbucks pounding a drum no doubt ranting over the evils of American corporatism.

These two incidents happened to closely together today for me not to mention it.

Taxing Amazon.com Purchases: The Good, the Bad, and the Future of Tech

It looks like 12 states governments could be taxing our Amazon.com purchases in the near future.  (I hate you, Government!) That means some of us will be saying saying “goodbye” to tax free purchases on high-end electronics and home goods and cringing at the extra 10% added on to our dreaded subtotal. Cash strapped state Governments are set to collect, but is it worth the cost to the customer and Amazon.com? Methinks not.

How Taxing Amazon Could Hurt Everyone

If Amazon.com is taxed I become poorer and so does every other middle class online shopper.  Taxes like these hit the poor and middle class the hardest too and may actually effect where we shop.

I know I have went to Amazon more than a few times to make large purchases on electronics and other items simply because I knew I could save a few bucks by avoiding the tax (plus Amazon has great prices).  I doubt Mitt Romney considers such things when he’s buying a new laptop or TV.

More taxes also means bad things for Amazon.com.  Many consumers head online instead of their closest retailer to make their purchase just to save a few bucks.  If the Government takes away the cost incentive and we consider other factors such as paying for shipping and waiting for the item to come in the mail (waiting!?) it becomes clear Amazon may take a hit.

How Taxing Amazon Could Help Everyone

On the other hand there is an argument to be made that taxing Amazon.com will do more good than bad.  For one, retailers may see an increase in revenue.  That could mean (maybe) more jobs for the local economy.

Also, since a lot of states are barely making ends meet with their current tax revenues a few million (or billion?) in revenue could mean additional public services.  And while most of us in the middle and upper class may not benefit directly from the tax – some people relying upon State Government services may reap the benefits.  However, it is worth mentioning no State Government has outlined where the extra tax money might go – or who it might go to.

Basically, an income tax on Amazon.com will serve as a transfer payment from the middle class to the poor and to the Government.  It’s hard to say if that’s a good thing or not, but somehow I doubt that anyone (especially the poor) will see much benefit or increased Government service as a result of taxing Amazon.

The biggest loser will undoubtedly be the middle class and Amazon.com.

What this means for Technology and the Internet

Honestly, I think this is bad news for technology and the internet.  Internet companies have long fought problems inherent in online shopping – such as building trust with customers, convincing people to pay shipping costs, and getting past the “I want it now” culture.  Taxes have actually been a safe haven.  The one incentive customers have (not withstanding convenience and choice) to shop on the internet instead of their local department stores.

The internet has long been the new Wild West and taxing Amazon.com is just one more small step to regulate it.  Attempts made by ISPs and the Federal Government to regulate the internet and online communication is just one angle – taxation is another.  I fear that establishing a precedence of taxation on internet sites will only serve, in the long run, as the first step in a long line of techniques to implement further regulation and governance.

Amazon.com has worked for over a decade to be competitive in the marketplace.  It has done so mostly with great customer service and by doing a great job adjusting to market demands.  Only the customer has benefited.  I say leave them alone and let retailers figure out how to compete without the help of the Government.  The rest of us will benefit with lower prices and better service – something more taxes can never promise.


Why Taxation is Necessary

If you have been reading this blog for any amount of time you probably know that I am generally against taxation and especially against increased taxation.  That being said SOME taxation is absolutely necessary.  Necessary for the running of a country and certainly necessary to increase the overall standard of living for everyone involved.

Arguments Against Taxation

There are about as many arguments against taxation  as there are opinions.  Since taxation is not voluntary, but mandatory – people claim it is equivalent to stealing, thus immoral.  People claim the Government creates no value and much of the value of taxation is lost in transfer cost as it runs through the Government – so it’s not worth it.  Others simply claim the market and capitalism could do it all better.  Perhaps some or all of that is true, but I still contend (some) taxation is necessary and beneficial.  Here’s why.

Collectivism is sometimes necessary:

I am the secretary of my Home Owners Association.  We have 184 houses in my neighborhood and of those less than 25% pay the voluntary annual fee of $25.  Yep, $25, a year.  This isn’t a poor neighborhood either – I mean we aren’t rich, but everyone there could afford $25 a year!

The worst part is 100% of the fees collected go back into the neighborhood via landscaping, painting, upkeep, etc.  There is no paying government employees – no nothing!   Yet, despite our best efforts, we cannot get the other 75% of home owners to participate.  Instead they pass the buck and people like me end up donating flowers and pine straw every so often to pick up the slack.  The classic free loaders problem.

Similarly, without a mandatory taxation of the population I wonder what the US would really look like?  Would it be a society where a few responsible citizens do a disproportionate amount of work to pick up the slack of the free loaders?  Would it be a society where everyone’s standard of living was lower because working together was just too much work?  I think the answer is most obviously yes.

While I would never implement a mandatory “tax” on my neighborhood – if the consequences were national – I think almost everyone would agree a tax is necessary and even beneficial.

What I learned in the Third World:

When I was in Guatemala I really began to appreciate the idea of “public good” and the services that are generated via tax dollars.  Sure Guatemala and most of the rest of the third world has a lot more problems (corruption) than taxation, but the lack of services really highlighted a few of the things we have here in America.

For example, Guatemala is one smoggy place.  There is no or little Government regulation or enforcement of air quality control.  There are no catalytic converters on cars and from what I could tell – companies could pretty much pollute uninterrupted.  In America we put a tax on pollution.  Some of those tax dollars go to parks and public facilities (some of it goes to war too, unfortunately) which in turn makes living here better for everyone.

Another thing were public spaces.  Except for the touristy parts of town there were basically no parks nor public facilities.  This hurt the homeowners by driving down prices and hurt everyone else because it simply drove down the standard of living.  At one point we stopped at a station headed to lake Atitlan to get a view of the Lake and Volcanoes.  It was one of the most beautiful places on earth yet this little stop remained undeveloped and un-kept.

A free market thinker might argue that if a profit was to be made on an area then it will be developed – well what about publically used spots like this one.  Maybe this is the perfect opportunity for the Government to develop a non-profitable area to be used for public good.  So next time you are in the Mountains of America and you see a nice little well maintained watch tower – just say “thank you”.

Taxation not Socialism:

The dangers of socialism from an economic perspective are many.  Most notably the fact that it is unsustainable over the long run.  That, of course, is NOT what I am advocating.  Rather I am talking about a system in which the poorest of our society are taken care of (inevitably in a capitalist environment there will be those in poverty – everyone can’t be rich) and society as a whole benefits by the fruits of working together.

Today we spend far too much on military, our social programs are not well run, our political officials are no longer public servants, and we are living in a border line oligarchy.  What we should do is not eliminate the Government, but put it in its place.  That, I think, is an idea we can all get behind.

Are the 1% Paying their fair share?

According to Greg Mankiw when you take transfer payments into account the one percent effectively pays the highest percentage of their income when compared to any other income group.

From Greg Mankiw’s Blog:

Because transfer payments are, in effect, the opposite of taxes, it makes sense to look not just at taxes paid, but at taxes paid minus transfers received.  For 2009, the most recent year available, here are taxes less transfers as a percentage of market income (income that households earned from their work and savings):

Bottom quintile: -301 percent
Second quintile: -42 percent
Middle quintile: -5 percent
Fourth quintile: 10 percent
Highest quintile: 22 percent

Top one percent: 28 percent

The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned.

This is an interesting view of the tax code. Not just what one pays, but more of an income – expenses view. I personally think this is much more telling than just the effective tax rate an individual may or may not pay into the system. I also found this very interesting:

…the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess.

I think that statement might become important later. Especially when we start to frame the middle class as beneficiaries of the state rather than a group paying into it.

Income vs. Market Income

Just in case you were thinking that Mankiw was playing with the definition of income by calling it “Market Income” (I suspected fowl play to adust the statistics) here is a definition:

Market Income: Market income is the sum of earnings (from employment and net self-employment), net investment income, (private) retirement income, and the items under “Other income”. It is equivalent to total income minus government transfers. It is also called income before taxes and transfers.

I have to say, upon further research, using the term Market Income seems pretty water tight.

Thoughts on these findings?