Posted on 04/11/2012 5:01:24 PM PDT by zencycler
LET'S FACE IT - YOU CAN'T TAX THE RICH.
....I'm waiting for the politicician who can clearly and effectively communicate this simple economic truth.
If we define "rich" as those persons who run businesses which ultimately control the wages earned and prices paid by the non-rich, then ALL government costs will, in one way or another, get passed on to those who do not have this control.
They - the non-rich - will either pay this cost directly in the form of taxes, or indirectly (passed on) in the form of higher costs and/or lower wages.
To Illustrate:
I am a rich person, and I have $1,000,000 (I wish).
I can either put that in Treasuries and earn a low risk-free, effort-free return on this money, or I can start a business, take a risk, but probably get a much better return.
So I start a business. Now, using my $1 mil for operating cash and other assets, I can run a business which brings in $4 mil in revenues from my customers and incurs $3.88 mil in salaries, other expenses AND TAXES, leaving me with an average $120,000 net income every year (on average).
Since this net income represents a 12% return on my $1 mil investment, I am happy with my decision, and I will keep my business running. My Income Statement looks like this:
Revenues....................................$4,000,000
Expenses (Including Taxes).........3,880,000
Net Income......................................120,000 (12 % return on my $1,000,000 investment)
But I just found out that my taxes are going to go up, which will lower my projected net income next year from a 12% return to a 6% return. So now I must decide between the following options, the first three of which may or may not be feasible:
1. Try to increase revenues by charging customer more (on a side note, it's funny how everyone understands that charing customers more may NOT result in more revenue, but many don't understand that raising taxes may NOT result in more revenues to the government).
2. Pay my employee's less, or make cutbacks and have those employees I retain work harder for the same pay.
3. Take my business overseas to a lower tax, more business friendly country.
4. If all else fails, I can close my business, sell my assets, and use the money to invest in treasuries. After all, if I'm going to make a low return on my investment, it may as well be done risk-free and effort-free. (Note, if I close my business or move it overseas, then my competitors will likely be able to hire my out-of-work employees for less than I was paying them).
In all cases, the cost of my tax increase was shifted to either my non-rich customers or my non-rich employees.
So why is this simple concept so hard for some to grasp? Well, my theory is that many of those who detest and/or envy "the rich" just NEED TO BELIEVE that there is something which government can do to take more money from the rich. So their belief, their hope, their faith, their "religion" it that this must be possible, and they'll blind themselves to all economic science and reasoning which contradicts their religion.
But unless the government becomes truly fascist, and takes away all freedoms and choices from business owners, then the reality is that taxing the rich does nothing more than shuffle the deck, leaving the rich and non-rich in the same position, at the end of the deal.
Other options:
Cash, undeclared income
1099 IC employees, illegals
The rich cannot be taxed on income.
They can defer or obfuscate income.
One reason to oppose the fake noncollectable taxes is because the governments spend based on projected revenues.
Guess who covers the spread between spending and collected revenues?
The one segment that pays taxes but cannot defer income:
The Middle Class.
Obama made 1.7M and only paid 26% , that’s 9% less then the Bush Rates!
The entire TAX code is nothing but a list of waivers, the taxes are noncollectable on those with the ability to hide, defer or obfuscate income.
When, in fact, they are taxing the gullible unwashed masses, who do not comprehend the sleight of hand.
Sure you can. Redefine rich. 1 cow = proletariat peasant, good.
2 cows = rich kulak. Execute if found to be hiding assets.
They can, but not enough to make any difference to the debt or deficit. Obama is admitting the tax policy he’s following is totally punitive. Not designed to cover expenses, totally about what he think a is “fair”.
Sure you can!
You just can't do it with an "income" tax. If we had a tax system based on consumption rather than income then it would be an ENTIRELY different matter!
We can and do tax “the rich” all the time. The top few percent pay the majority of the taxes. But the middle class is always going to shoulder much of the burden merely because of numbers. There’s too many of them for it to be any other way.
The same principles apply to a consumption tax, it just means that the required rate of return on running a business would be higher, in order to cover the projected taxes owed by business owners on both their business AND non-business spending.
The “rich” would also have the means to evade that tax by spending and/or moving overseas.
Taxing the rich, by whatever means, results in the rich using whatever means they have (lowering wages, increasing costs, changing investing/spending practices and/or moving) to evade or pass on those taxes. Since the rich can do this, but the non-rich (as I define them) cannot, then the rich may pay, but ultimately do not bear the burden of taxes.
But if you’re a politician, you can endlessly talk about it and convince stupid people to vote for you because you’re a “man of the people”. All the while you and all your cronies are exactly the kind of people that you rail against.
It’s called populist rhetoric.
Works very well on a huge swath of the population.
One problem I have with your theory is that an ordinary business cannot pass on 100% of any cost increase. Saying they could raise prices raises the question as to why they didn’t just raise prices before incurring the new cost.
If everyone could simply pass their taxes on to someone else (businesses to customers, employees to employers, etc.), then maybe no one really pays taxes? We know better than that.
In fact, anyone who could actually pass on an additional expense would not object to incurring the additional expense. And, we know better than that.
People who own small businesses understand this type of issue very well. They understand that they can only spend what is earned in Revenue. If they borrow and spend, i.e., “out in front of their revenue”, they will need to either increase revenue in the future or cut expenses in order to then also serivce their debt.
Even people who work for small businesses have some of this understanding, since they work for an operation where management is the owner or close to the owner and is very concerned with profit and loss. It’s usually rather difficult for employees to “hide” in small busiensses, where in large, publicly-held corporations, it seems like one could simply sign up for a paycheck and sit in a broom closet all day and one would get paid. Small businesses generally do not have endless budgets loaded with money to waste, as, say, the GSA does on Vegas trips.
IMHO, the more small business, the better for the nation. Really, any nation. That is what why Europe can’t get out of debt; the idea of entreprenuerialism is a rather foreign idea to them. “Cashing in”, making fast money, and other romantic notions may exist there, but by and large they love the idea of large businesses that are either nationalized, or quasi-nationalized, or so big they seem nationalized. Most of the entrepreneurially-minded folks came to America.
IMHO...
In my post I did say that some choices may not be feasible ... for the very reason you mention.
Business keep prices low and wages high in order to compete for customers and labor in the open market. Decision are made based on known factors, which include the tax rate, and their required rate of return.
Business generally won’t raise prices on customers unless their competition is doing so also, which normally wouldn’t happen UNLESS there is a substantial economic change, such as raising the corporate income tax.
But again, if raising prices or lowering salaries was not feasible, the business could always shut down. So as I said, you can try to tax “the rich”, but those with the means to make many choices will find a way for the burden to fall on the non-rich.
Regarding your last two points.
I never said “everyone” could pass it on. I said “the rich” could. Not every small business owner is rich. Those who are not may not be able to afford to shut down their business and might have to settle for a lower return on investment as if the tax could not be passed on.
These non-rich owners are also the ones who would complain the most about raising the corporate tax rates. The rich won’t care as much, since they know they can either re-shuffle the deck, or find another game.
Can’t tax anyone while robbing them and/or regulating against their efforts to start production businesses, and much domestic manufacturing is necessary for large amounts of sustainable revenues. We know where this debt regime is going. Good post, BTW.
It shouldn’t matter.
If the country went back to Constitutional government , tariffs would fund the government and no one would be taxed on their income.
It’s easier to think about it like this: You can confiscate all the assets and wealth of the top 2,500 richest people in the US and you won’t get enough money to run the federal government (forget state and local) for 60 days.
And you won’t have that money to tax or take again.
This is why “taxing the rich” always TRICKLE’s down to us all.
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