Higher Taxes Won't Reduce the Deficit

Politicians claim we need to raise taxes to reduce the deficit, but history shows that higher taxes have always lead to even higher spending.

In the late 1980s, one of us, Richard Vedder, and Lowell Gallaway of Ohio University co-authored a often-cited research paper for the congressional Joint Economic Committee (known as the $1.58 study) that found that every new dollar of new taxes led to more than one dollar of new spending by Congress. Subsequent revisions of the study over the next decade found similar results.

We've updated the research. Using standard statistical analyses that introduce variables to control for business-cycle fluctuations, wars and inflation, we found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.

The only option left is to cut spending, but we already knew that, didn't we?

Keep It Simple Stupid with a Flat Tax

A Brief Guide to the Flat Tax, by Daniel Mitchell, Ph.D.

These major features of a flat tax are:

A Single Flat Rate. All flat tax proposals have a single rate, usually less than 20 percent. The low, flat rate solves the problem of high marginal tax rates by reducing penalties against productive behavior, such as work, risk taking, and entrepreneurship.

Elimination of Special Preferences. Flat tax proposals would eliminate provisions of the tax code that bestow preferential tax treatment on certain behaviors and activities. Getting rid of deductions, credits, exemptions, and other loopholes also helps solve the problem of complexity, allowing taxpayers to file their tax returns on a postcard-sized form.

No Double Taxation of Saving and Invest­ment. Flat tax proposals would eliminate the tax code's bias against capital formation by ending the double taxation of income that is saved and invested. This means no death tax, no capital gains tax, no double taxation of saving, and no double tax on dividends. By taxing income only one time, a flat tax is easier to enforce and more conducive to job creation and capital formation.

Territorial Taxation. Flat tax proposals are based on the commonsense notion of "territorial taxation," meaning that governments should tax only income that is earned inside national borders. By getting rid of "worldwide taxation," a flat tax enables U.S. taxpayers and companies to compete on a level playing field around the world.

Family-Friendly. All flat tax proposals have one "loophole." Households receive a generous exemp­tion based on family size. For instance, a family of four would not begin to pay tax until its annual income reached more than $30,000.[6]

Consumption-Based. A tax code that does not discriminate against saving and investment is con­sidered a consumption-based tax system, regard­less of whether taxes are deducted from the paycheck or collected at the cash register. In this respect, a flat tax is a type of consumption tax. The difference between a flat tax and a national sales tax is where the tax is collected. A flat tax is levied on income-but only once and at one low rate-as it is earned. A sales tax is levied on income-but only once and at one low rate-as it is spent.

Last year, 47% of Americans paid no federal income tax. However, they did not get off scott free-- no, their labor became profit for their employer, and that profit became tax revenue for the federal government, through business and high-income taxes. That means they do not even see a price tag on how much of their labor ended up going to taxes.

With the flat tax proposal above, many of this 47% would have to pay taxes. However, since their employer would be conceivably taxed much less, he could afford to pay his employees more.

But the real reason I like the flat tax is that I think people should see the price tag of the government they have, because the more people know how much it costs, the more they will demand accountability.

Thomas Jefferson believed that an informed electorate was necessary for democracy to succeed, as he wrote to a friend:

" ... whenever the people are well-informed, they can be trusted with their own government; that, whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights"

What information could be more important, more basic, than the actual price each of us must pay for our the government?

The Illusion of Taxes

Oddly, taxes have almost nothing to do with the way the FedGov's finances work.

This was also the case during the WWI time period. In fact, the entire point of taxation is to divert attention from what is actually happening financially. Because if people understood that, there would be a revolution by morning.

No practicable amount of taxation could possibly come close to allowing the United States government to honor its financial obligations. Anyone who can add knows this. And most of those "obligations" are simply empty lies and promises to the public. Empty promises traded for obedience.

A tiny minority of Americans pay the overwhelming majority of taxes....And yet this tiny minority of taxpayers receives far more in special privileges from the government than it pays in taxes. Essentially they own the government at rather affordable prices with really massive return on investment. A single dollar sent to D.C. can result in hundreds if not thousands of dollars extracted from the public in return. Perhaps not necessarily extracted in cash (although this is often the case) perhaps extracted in terms of obedience.

And so the overwhelming majority of Americans who "pay no significant amount of taxes" pay with something else. They pay with their lives. The entire economic structure of their lives is being centrally managed for the benefit of others.

Our economy is being run in a manner which centralizes money and power while preventing capital formation and destroying real wealth and prosperity.

The greatest threat to "the rich" is not taxation but rather competition from the emerging middle class. This is, after all, what destroyed feudalism in Europe.

The entire point of "socialism" or "fascistic corporatism" is to consolidate the power of the State and protect the rich and powerful from emerging middle class competition.

The point is to turn a human being into this:

[written by Glasperlenspieler]

IRS Facing Rising Threats

Joe Stack's murderous plane crash certainly garnered the most media coverage, but it was hardly an isolated incident.

There were 1,200 threats and assaults against IRS employees from 2001 to 2008, resulting in 195 convictions, according to officials. J. Russell George, the Treasury inspector general for tax administration, said threats that once averaged 170 or so a year are now up to about 900.

Some recent examples: a man in tax trouble hired someone to kill an IRS employee in Tampa, Fla.; an Alabama man tried to use his car as a deadly weapon by driving into an IRS building; and two arsonists in Colorado Springs, Colo., used a sledge hammer to break into and then torch an IRS building.

Some threats are so serious that armed escorts join IRS employees at meetings with potentially dangerous taxpayers.

A growing number of citizens are lashing out at the IRS for perceived injustices and incompetent governance.

This is only the beginning. As the government spends us deeper into debt, and continues its steady encroachment on our freedoms, more people will be driven to violence.

With two misguided wars, a string of corporate bailouts, and a central bank more concerned with lining bank executives' pockets than protecting the value of our currency, our government is losing its citizen-bestowed mandate.

It is becoming obvious who the government is working for, and it clearly isn't us. So why, many will ask the IRS, should we have to pay for it?

No-Win Situation

When it becomes obvious the game is rigged, people stop playing by the rules.

Hoskins told News 5's Courtis Fuller that he issued the bank an ultimatum.

"I'll tear it down before I let you take it," Hoskins told them.

And that's exactly what Hoskins did

The Moscow man used a bulldozer two weeks ago to level the home he'd built, and the sprawling country home is now rubble, buried under a coating of snow.

When the state fails to provide justice, Americans take it into their own hands.

It isn't pretty, but stories like this will become more common as Americans lose faith in their institutions.

[via VoxDay]

How High Taxes Impede Wealth

Between 1999 and 2004, New Jersey experienced strong growth in the wealth of its citizens:

During those five years the Garden State had a $98 billion net influx of capital due to wealthy households moving into the state, and it enjoyed a corresponding $881 million increase in "charitable capacity."

The Garden State was blooming. Then the trend reversed. From 2004-2008, author John Havens found "a large decline in the number of wealthy households entering New Jersey" as well as "a moderate increase in the outflow of wealthy households leaving." The result: a net decline of $70 billion in household wealth while the "expected giving" became a net outflow of $1.132 billion.

So what happened in 2004? The study doesn't purport to explain what caused the wealth movements. But the state's most notable economic policy event that year was an increase in its top income tax rate to 8.97% from 6.37%, on incomes starting at $500,000. That's a 40% increase.

In America, the wealthiest 10% pay 68% of the taxes. If you raise their tax rates too high, they will take their money and leave. Then, to pay for the various entitlement programs we have created, tax rates on the middle class will have to go up, until there is no more middle class.

I don't want to find out what happens next.

China: Bow Down To Your Lender

China is now using its role as our lender to influence the terms of our health care reform:

In a July meeting, Chinese officials asked their American counterparts detailed questions about the health care legislation making its way through Congress. The president’s budget director, Peter R. Orszag, answered most of their questions. But the Chinese were not particularly interested in the public option or universal care for all Americans.

“They wanted to know, in painstaking detail, how the health care plan would affect the deficit,” one participant in the conversation recalled. Chinese officials expect that they will help finance whatever Congress and the White House settle on, mostly through buying Treasury debt, and like any banker, they wanted evidence that the United States had a plan to pay them back.

Who would have thought health care reform could become a national security issue?

The Chinese are getting skeptical about our ability to pay them back. Perhaps they will need to teach us a lesson in capitalism, which would be ironic to the max.

Health Bill's Medicare Cuts are Wishful Thinking

The Democrat Health Plan now working its way to the Senate is being marketed as deficit reducing, despite its $1.2 trillion price tag. The plan will be paid for by increased taxes and reduced Medicare payments.

Specifically, the plan calls for $426 billion in spending cuts and $572 billion in taxes, and is projected to net a $104 billion deficit reduction over 10 years.

The proposed cuts are likely to be short lived, as Congress has a history of proposing Medicare spending cuts, then abandoning them as medical interest groups turn up the heat.

Under both Democrats and Republicans, Congress repeatedly has waived curbs it has tried to place on spending. It has given back other savings from the 1997 law to hospitals, skilled nursing facilities and other providers, most notably in 1999. More recently, Congress has twice switched off a cost-saving trigger that was contained in a 2003 bill establishing a Medicare prescription-drug benefit. Congress also frequently has waived budget resolution limits, as well as pay-as-you-go rules requiring offsets for tax cuts and entitlement spending.

Since 1997, Congress has passed five Medicare spending cuts, only to repeal all five shortly after they went into effect.

A plan that cuts Medicare spending by half a trillion dollars is wishful thinking. Do not be fooled.

Obama Redefines the word 'Tax'

Obama and Stephanopoulus disagree over what a 'tax' is.

"Under this mandate, the government is forcing people to spend money, fining you if you don't. How is that not a tax?" the host asked.

Obama responded: " No, but -- but, George, you -- you can't just make up that language and decide that that's called a tax increase."

Nice try, but socialized medicine will require higher taxes, no matter well you can spin.