Posted on 05/13/2015 12:21:50 PM PDT by concernedcitizen76
Labor and minimum wage
Per recent U.S. Bureau of Labor Statistics (2013), there are 75.9 million hourly-paid workers in the USA, and 96% of these earn more than the federally established minimum wage of $7.25 an hour.
Only 2% of 75.9 million hourly-paid workers make $7.25 per hour. The other 2%, in legally exempt categories such as tippable food service or full-time student jobs, may earn less than minimum.
Half of minimum wage workers are 16-24 years old; half of those are teenagers (16-19). Sixty-four percent of minimum wage jobs are part time.
Why is the left obsessed with raising the federal minimum wage if only a tiny sliver of the hourly-paid workforce work at this wage level? Though the left couldn't care less about teenage hamburger flippers, order takers, and sundry clerks who may be let go or replaced by machines because of hikes in minimum wage, government and union labor contracts build in automatic wage increases pursuant to federal minimum wage hikes. Raising the minimum wage, therefore, has a significant multiplier effect in rewarding union and government sectors who feed the political bosses.
However, there is no free lunch. Government mandated surges in labor costs 1) accelerate the rate of automation, 2) increase unemployment, 3) decrease employee benefits, 4) expand social service and welfare rolls, 5) increase part-time over full-time employment, 7) stress small businesses, and 6) press companies to move plants overseas to stay competitive. Inflationwise, higher costs of labor are passed on to consumers as higher prices for U.S. goods and services.
Income tax
Per latest IRS reporting (2011), the top 1% of earners paid 35% of all federal income taxes collected, though they earned 19% of all income. The top 10% accounted for 45% of all income, and paid 68% of all federal income taxes collected. The bottom 50% earned 12% of the income pie and forked over only 3% of the income tax burden. Add in state income taxes, and the disproportionate burden shouldered by the top tiers is even heavier, especially, in high tax states like California, Connecticut, and New York.
The politics of envy
The 442 American billlionaires on the Forbes list have an average net worth of $4.236 billion for a grand total of $1,872,312,000,000. Suppose that, in a leftist frenzy of envy, the feds confiscated the net worth of all 442 billionaires. That enormous pile of loot would fund the U.S. federal government for only six months. Six months. This very act of government confiscation would shake world markets like a Richter 9.5 earthquake. Up in smoke goes the full faith and credit of the USA, source of the international reserve currency. A trusted haven for private capital no more. The seismic confidence shattering event would unnerve overseas and domestic investors, and move bond-rating agencies to further downgrade Treasury debt. U.S. bonds and dollars would plummet in relative value; interest rates would soar; stocks would plunge. The pace of dethroning the USD as the world reserve currency would quicken. In the aftermath of these dominoes falling, there is socio-economic dislocation and misery. As George Orwell observed, "So much of left-wing thought is a kind of playing with fire by people who don't even know that fire is hot."
Corporate income tax
The U.S. has the dubious distinction of having the highest corporate tax rate (40%) of any nation on earth. This puts U.S. corporations, large and small, at a significant competitive disadvantage versus foreign counterparts. Ireland, for example, has attracted numerous offshore firms with a 12.5% corporate tax rate.
Corporate tax rates USA 40% EU 24.83% (ave.) OECD 27.67% (ave.) Asia 29.97% (ave.) Latin America 29.07% (ave.) Canada 26.5% (reduced from 43% in 2000)
The European Union (EU) consists of 28 member states located mostly in Europe proper. The Organization for Economic Cooperation and Development (OECD) is a trading group of 34 industrialized countries including the USA.
Who pays the corporate income tax? Not the corporations, to be sure. The corporate income tax is an expense passed on to consumers as higher prices for their goods and services. A lower corporate tax expense usually translates to lower prices given market competition. This is basic market economics, although the left, under the pretense of "fairness," much prefers government skimming off the top notwithstanding that lower prices for goods and services are a boon to the greatest number of people.
Capital gains tax
The USA owns the 6th highest marginal capital gains tax rate (28.7%) in the list of 34 OECD countries. Nine OECD nations do not tax capital gains.
Killing the golden goose
In a capitalist economy, the private sector is the engine that produces goods and services for which there is consumer demand in an open, competitive marketplace. Government arguably has a role as impartial referee in the private economy and keeper of a safety net for those truly unable to do for themselves. However, heavy-handed interference and overregulation in the private sector pummels the golden goose. Government redistribution of wealth that punishes the productive and rewards the nonproductive delivers the coup de grace and demoralizes both groups. A wise government wields a light hand and knows where to strike the balance so that the private sector can thrive within the bounds of the social contract.
The example of Hong Kong
The power to tax is the power to destroy. Overtaxing any good or service destroys the incentive to produce it or drives it into the black market. Overtaxing the capital that is the motive force of private sector industry and employment is destructive to economic health and stability.
The city state of Hong Kong is home to 7.3 million people crowded onto 426 sq. mi., one-third the size of Rhode Island. Most of Hong Kong is mountainous and otherwise non arable--with scarcely any natural resources and no crude oil or natural gas. And, yet, Hong Kong's GDP (PPP) per capita is $51,494, about equal to the USA, a nation of 320 million and 3,536,855 sq. mi.
In 1947, under British rule, Hong Kong instituted a flat income tax of 10%. Currently, income is taxed at 15%. Corporate profits are taxed at 16.5%. In Hong Kong, there is no tax on dividends, interest, or capital gains. No inheritance or gift taxes. No VAT, GST, or any other sales tax. Income earned outside Hong Kong is not taxed.
The continuing Hong Kong economic miracle is a product of 1) the work ethic, 2) the durable legacy of a British legal system, and 3) enlightened tax policies.
If the USA, which is endowed with a work ethic and British legal legacy, had adopted the Hong Kong tax model, America would be an immensely prosperous, socially secure economic Titan not weighed down and threatened by $18.2 trillion of national debt, $210 trillion of unfunded federal obligations (Kolitikoff), and a tone deaf federal government of gargantuan size, ferocious appetite, and systemic corruption.
Immigration
Since 2000, more people have immigrated to America legally than at any 14-year period in our history--a million per year. Numerous countries have very restrictive immigration policies and controls. For example, if America emulated Mexico's rigid immigration rules, visa overstayers and the millions of illegal aliens here would be summarily deported. Most Americans are not anti-immigrant. However, 90% of Americans believe illegal immigration is a serious problem, and 67% want expedited deportations. They understand that millions of illegals from impoverished, unstable countries are taking jobs from citizens, bringing in contagious diseases, burdening schools and hospitals, impacting crime rates, straining local and state budgets, and increasing federal spending on social programs. Mixed in with the flood of illegal aliens are foreign terrorists crossing the porous border with relative impunity. Only an administration and a Congress unconcerned by attacks on national sovereignty and the endangerment of its own citizenry would permit this.
Federal budget
The so called "entitlements" (Medicare, Medicaid, other health care, Social Security, CHIP, welfare programs and other benefits) plus interest on national debt consumed 66% (59% + 7%, respectively) of the FY 2014 $3.5 trillion federal budget.
The Congressional Budget Office (CBO) projects an 85% growth in annual federal spending over the next ten years caused by ballooning entitlement expenses and interest on debt. Obamacare alone will add $1.8 trillion to the expense column between now and 2024. (Most Obamacare sign-ups have been directed to CHIP and Medicaid, which are welfare programs.) Current artificially low interest rates will inevitably rise. CBO projects net interest on ever burgeoning debt to swell to 12% of the federal budget by 2024. That's $1 of every $8 of taxpayer or borrowed money going to pay just the interest on the national debt.
Meanwhile, defense spending has been falling as a percent of GDP. In 1965, defense spending was 7.2% of GDP. In 2014, defense spending amounted to 3.5% of GDP. On the other hand, entitlements plus interest on debt grew from 5.7% of GDP in 1965 to 14.3% of GDP in 2014.
Even in the rosy scenarios, annual federal deficits will hover around $500 billion for years to come assuming the hard-boiled lessons of Economics 101 don't derail the train or blow down the house of cards before then.
If the U.S. government were a corporation subject to GAAP and SEC regs applicable to non-private business entities and their principals, hundreds of members from at least two branches of government would be in legal jeopardy. Many would qualify for prison terms for numerous fiduciary lapses and financial crimes such as fraud, insider trading, and operating a multi-trillion dollar Ponzi scheme.
That’s one heck of a graphic you posted at the top.
I was just having a similar discussion yesterday.
I stated that in all likelihood the Fed can manage this until things slowly pick back up or evolve into whatever comes of the reaction to excess regulation & taxation.
But what they cannot manage is the effect of an outside stimulus.
What I read portends a very bad morning once Americans awake and find the delicate fabric holding the economy together being torn asunder from events the night prior while we were sleeping...and I sense that that day will come right soon. Perhaps not just that quick, but still...
Interesting post. It brought to mind two influential thinkers, economist Herb Stein and writer Nassim Taleb.
The late Herb Stein (the popular speaker Ben Stein is his son) immortalized “If something cannot go on forever, it will stop.”
It’s often restated by a particularly sharp CNBC host as, “Trends that can’t continue, won’t.”
In FedSpeak, perhaps, “The trend is your friend until it isn’t.” :-)
In his book, “Fooled by Randomness,” Taleb theorized that almost everything can be explained by “black swan events,” a term he coined. Blacks Swans are singular events that are extremely rare, have extreme impact, and are not foreseen, but radically change the existing paradigm. The asteroid that killed off the dinosaurs, attack on Pearl Harbor, 911 are examples on a macro scale. On a blessed note, Jesus Christ was a black swan event. Personal lives have black swans, too. For millennia, black swans were unknown and thought not to exist. The Romans joked about someone seeing black swans as we would joke someone seeing pink elephants. Then in the 17th century, a Dutch explorer found proof of a black swan.
The political class are heavily into the generational theft game, “We Max Out Now. Let the Unborn Pay Later. We’ll be Dead, Anyway.” Mark Levin’s next book is about this very subject.
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