What You Don’t Get With Taxes

For years I didn’t worry much about taxes. After all how much did I pay? Not much considering the sales or value added tax which can be easily evaded in Nepal if you don’t take a receipt for the transactions. But then one day I started getting responsbile and earning. Imagine my horror when 15% was taken away from my first salary as a tax contribution! I went back to my school days where I had memorised ‘Tax is a compulsory contribution made to the government in order to enhance the government’s capacity to perform welfare functions’. On the day of my first pay check, I finally began to ask – ‘What welfare function?’

I live in a country that has no drinking water supply, let alone luxuries like proper roads and electricity. My parents never favored public school. Why would they? The public schools rarely open thrice a week and even then its rare to find teachers. So yes I was pretty mad when the government in the name of welfare started taking my money. I earned that money with a lot of hard work and I am not ready to accept payment of that money to an irresponsible third party who think they know how to spend my money better than I do. This is what this blog is about. This is my fight against a system which tries to block my incentive to earn more simply by saying that the higher I earn, the larger amount of tax I have to pay! Ask any child and they will tell you how ridiculous this whole notion of taxation is especially that of a progressive taxation system. So I am very firm in my beliefs: I will pay taxes only minimally to help the government maintain law and order in the country and conduct foreign policy. Paying anything to the government besides that is simply a waste of my money and I don’t like wasting my hard earned money and I guess you don’t too!

Related links:
http://www.taxpayersalliance.com/
http://www.beltoday.com/
http://www.taxthefish.com/

The Tax Relief Program Worked: Make the Tax Cuts Permanent

Tax relief worked. It put the federal tax burden on track toward its historic norm. Combined with an aggressive monetary policy, tax relief helped to restore robust economic growth following the Clinton reces sion and subsequent shocks early in the decade. It pro duced a more growth-oriented tax policy for the long term, helping the economy to weather current storms arising in the housing and capital markets. And it made important strides toward fundamental tax reform.

The 2001 and 2003 tax cuts will expire at the end of 2010 unless Congress acts. Congress should act quickly, making the tax cuts permanent, and then pur sue additional pro-growth tax policies. Many major trading partners, including France, Germany, and other countries throughout Europe, are looking to lower tax rates and reform their tax systems to become stronger competitors, while other economic power houses such as China and India are bursting onto the scene. Standing still is not an option unless the United States is willing to lose ground consistently and persis tently in the international economy.

Tax Relief as Economic Stimulus

The economic boom of the late 1990s was driven by many factors, one of which was a major bubble in the equity values of information technology compa nies. This was clearly reflected, for example, in the tech-heavy NASDAQ stock index that averaged 1570 in January of 1998; peaked more than three times higher at 5049 on March 24, 2000; and averaged only 2577 in all of 2007. The popped bubble led to a con tracting economy in the third quarter of 2000 and again in the first quarter of 2001. The Clinton reces sion greeted the new President.

The correct policy response involved stimulative monetary and fiscal policies. The Federal Reserve lowered the federal funds rate from 6.5 percent at the start of 2001 to 1 percent by late spring of 2003. President Bush campaigned in 1999 and 2000 on a well-crafted program of individual income tax relief. Congress responded quickly, allowing the President to sign the Economic Growth and Tax Reform and Relief Act of 2001 (EGTRRA) on June 7, 2001.

The 2001 tax relief bill was supposed to strengthen the economy partly through the simple expedient of lowering tax burdens. A contributing factor to the 2001 recession was the oppressively high levels of federal tax extracted from the econ­omy. In the 40 years prior to 2000, federal tax receipts averaged about 18.2 percent of gross domestic product (GDP). In 1998 and 1999, the tax share stood at 20.0 percent, and in 2000, it shot up to tie the previous record of 20.9 percent set in 1944.

Regrettably, Congress chose to phase in much of the tax relief over the ensuing years, depriving the economy of a much-needed immediate tax stimu lus. Tax relief in 2001 amounted to only about 0.8 percent of GDP, leaving the tax share at a still heavy 19.8 percent. Even by 2002, the tax share remained just below the modern norm at 18.2 percent despite the drop in tax receipts from a weakened economy. Furthermore, little of the tax relief that really would have helped, such as cutting individual income tax rates, had yet taken effect. Not surprisingly, espe cially in light of the September 11 terrorist attacks and subsequent corporate scandals, the economy struggled into 2002.

See more of this article from the Heritage Foundation.

What Will They Tax Next?

What the Flat Tax Gets You

Check out this awesome guide to the flat tax located here.

Source: Hoover Institute

How to Plunder a Nation!

Source: AfricanLiberty.org

Public hearings of Ghana’s Parliamentary Public Accounts Committee have left many Ghanaians and Africanists in awe. The shocking revelations of massive looting of tax payer and donor money by almost all government agencies completely drowns the apparent cacophonous economic gains chalked in the last seven years. But it is not surprising that public office holders have become sophisticated in the art of plunder. It is abundantly clear that pillaging national resources have been legalised by ineffectual laws and unconcerned prosecutorial bodies. So an official can purchase 114 vehicles at over $1.5 million and can’t provide documents covering such expense. Others can forge tax returns receipts and pocket tax proceeds. Worse still incriminatory evidence could even vanish from legal vaults and still have their managers at post.

Rather than arm existing organs that can fight corruption with teeth, the executive machinery has through sleuth of hands established surrogate bodies that will only act upon complex evidenced-based leads to exposing hard core corruption. Bizarrely, these bodies were hitherto housed in the belly of the seat of government.

Sadly, in the midst of such naked thievery, stomach-dependent state deputies peddle their trade of defending gross blunder with a deluge of statistics of corrupt acts of predecessor governments, as if public governance hinged on which government stole least from its citizens.
Such is the terrain of accountable governance across much of sub-Saharan Africa while we embarrassingly bask in delusory accolades of leading development in the 21 st century.

But there is a hand that feeds this festering sore- foreign aid. Recently, U.K Premier Gordon Brown called on his Western counterparts to lead the moral crusade to increase aid to developing countries in order to make national health systems in poor countries work. Yes, money is needed to ensure that drugs are delivered to national health centres on motorable roads and pay health professionals who provide care. But why subsidise a national health scheme that collects premiums from citizens but hardly accountable to health delivery agencies? Why give money to the health sector when a quarter of what is stolen by politicians could have increased the number of HIV/Aids patients on antiretroviral treatment from the current 10,000 (out of an estimated 70,000) to 20,000 considering that it costs only US$6 per Aids patient per month. Appallingly, only a little over 380 patients are actively accessing antitrovirals simply because they are poor, and sadly the safety nest to which they contribute taxes, however meagre, get plundered.

As if this reckless waste of public funds is not enough, the time and energy of ordinary Ghanaians get sapped into navigating a web of state-imposed impediments to starting and maintaining a business. It is true that 70 per cent of Ghanaian businesses are small-scaled and run operations without recourse to formal certificates of incorporation. However, governments some times employ force to exact tolls and taxes from these operators who were originally disenfranchised from formalising their businesses, not to mention the high cost of capital and other pricey factors of production. Eventually, as indigenous businesses get overwhelmed by local barriers, they resort to importation of cheaper products in order to survive. Every citizen is proud of what his nation can produce. But the same citizen will shy away when the local produce is priced above his monthly income and has inferior design features or contents.
Rather than pressurize government to lower barriers to local production, some ignorant business men have fallen for cheap propaganda against imported products. The usual claim is that imports weaken local capacity by rendering factories redundant. However, such redundancy could have been saved if factories and other state-owned institutions had an injection of capital from thieving public officials and were properly managed. Amazingly, the government understands economics very well and would usually outsource production of essential products such as textiles, printing of educational books and football tickets to foreigners who can produce at much lower costs. Disregard the fact that such outsourced contracts attract decent kickbacks. Only the government looks on while ordinary citizens helplessly struggle to overcome barriers to efficiency.
We don’t have to be schooled in the skills of fingering corruption when we do have the opportunity to institutionalise mechanisms that should minimise or prevent it. If only governance was properly decentralized to engage ordinary citizens who will decide what their taxes should be used for; if only faulting public officials could be severely punished and make corruption less attractive; if only working citizens, from the President to the messenger could be treated equally before the law, we don’t have to brood over the sorry state of governance in Ghana, a country many in Africa look up to for leadership, at least politically.

(2007-11-05)
Available at : http://ghanaweb.com/GhanaHomePage/features/artikel.php?ID=133300

The Laffer Curve and You

Why We All Benefit From Corporate Profits

1. They encourage entry into the market and create competition (because everyone and his company wants a piece)

Business loves profits. The public loves competition. The good news for economic matchmakers and the public alike is that the two often combine in a highly successful union. High profits encourage new businesses to enter the profitable industries, and the entrance spawns competition.

This elementary piece of common sense is also an economic law that states that high profits, in general, tend to encourage competitive entry into a market. Where profits are made, in other words, competition generally follows. This is a good thing.

But it’s not always the case, of course. Our sharper readers would be thinking of oil companies, who are currently raking profits, yet we see few start-up oil companies. Here’s the answer. The reason for this is that the oil market is over-regulated, from development, through production, and into retail sales. The entry costs in the oil industry are extremely high. Corrupt African dictatorships must be bribed and greased for access to precious resources, overweening regulations from the EU and the US nag your every move, Latin American nationalization threatens from Left and Right, and most notably, reactionary Arab and/or Islamist governments who happen to sit on the plurality of the world’s known oil reserves. Companies who dare to enter the market under these unsavory conditions also face competitors who have successfully funnelled billions of dollars over decades to influence the lobbyists, legislators and leaders who created and maintain those high entry costs. This is why high profits for companies aren’t spurring entry into the oil market – entry is just too difficult as it is.

But nearly everywhere else, the profit motive wins, and new companies jump in. And where money is made, capital then flocks. The increased competition creates more choice, better quality and lower prices for consumers. But you’ve all had the economics lesson before.

But even those who failed economics can get this one. Once one company makes bank, everyone else wants a piece.

2. The profitable ones can eat recessions for lunch

The ability for an economy to survive a recession is substantially reliant on the value and profitability of its companies. Example: Declining sales for a year don’t hurt when you’re coming off of a decade of solid profit growth. Large profit margins mean fewer sales are necessary to sustain the investment (see point 3) that the company currently makes, avoiding the necessity of nasty cost-cutting measures like downsizing. (Are you listening, Michael Moore?)

Every kindergartner knows that the opposite of profits, i.e. loss and bankruptcy, harms many people. Employees lose their jobs, businesses lose customers, and government loses revenue. Avoiding these losses, by the same principle, demonstrates how profits are beneficial.

American “blue chip” stocks are those of companies generally thought to be relatively risk-free investments nearly guaranteeing any investor sustained share gains, no matter what the economic conditions. What’s the secret? Profitability secures the luxury.

3. Where do you think wages, investment and research come from? A stork?

Every expense that the public would like businesses to freely make – research and development, sustainability, wages, vacation pay, health insurance, graduate school for employees, ad infinitum – all require the surplus revenues to support them. (These revenues are called profits, for all you business students out there.)

Like all great economic principles, the socialists have implemented policies ignoring it to disastrous results. An example occured in the oil industry, of course. (The oil industry is also where socialists reinvented the American definition of “queue” by implementing price controls on gasoline to atrocious results, you’ll remember.) The Crude Oil Windfall Profit Tax of 1980 was a worthless Marxist experiment not dissimilar from the 2006 prescription of the American Left: slap an extortionate tax on oil company profits. After all, as Bill O’Reilly would remind us, it’s just not right.

The results were predictable. According to a study published by the Congressional Research Service, the tax discouraged investment in the American oil industry so severely that US oil production declined 3 percent to 6 percent as a result, and foreign oil imports grew 8 percent to 16 percent accordingly to fill the gap. There’s a headline: “Oil Company Profits Shown to Reduce Dependence on Foreign Oil.” Almost. But it does confirm what common sense implies – that companies must make money to spend money, whether it’s new technologies or employee perks.

4. Don’t hate, participate

Investment in a company is the easiest way for any Average Joe to enjoy a piece of corporate profits. Profitability increases the current market value of a company as well as its future expectations, which drives up the stock price of the profitable company. Why deride it, socialists, when you can make money off of it yourself?

Yes, we can see the NYSE ad campaign now: “Hey socialists, invest in the stock market. You can take a corporation’s money as soon as it makes it. It’s the most efficient form of simultaneous taxation and redistribution to enrich yourself that has ever been devised by the mind of man! Come and get it, comrade!”

The reality is that high profits certainly benefit investors, but it is also that anyone can be an investor and also benefit. If none of the other points in this editorial were valid (not likely), this one would remain so. No matter the social value of profits, they will always directly benefit anyone who simply invests in the company who makes them.

Let’s end the class warfare and just get rich off of other people getting rich. It’s the American way, after all.

In the end, we don’t care much what’s good for the companies. We just notice what is good for us.

For the Past Six Months, You’ve Been Working For the Government

July marks the beginning of the first day you start making money for yourself
Joe Holmes

Every hour worked, every item purchased… money is always going to the government in the form of taxes. As we approach the half-way point of the year we should celebrate – celebrate the fact that we are now earning money for ourselves. The first six months of the year, you have been a slave to one government or another. Now you are in the clear. What do I mean exactly?

The average American pays roughly 50 percent of his income in the form of various taxes each year. From income tax, to sales tax, to gasoline tax, to property tax, roughly half of your income goes to Big Brother. Despite the trillions of dollars the government takes in each year and the millions of government employees, approximately one in six Americans has no healthcare, social security’s future is uncertain at best, my street has potholes, we are losing the war on terrorism, and nearly a third of the country’s youth are failing to graduate high school. Now there are two responses to this failure – we need more government or we need more individual accountability.

Ronald Reagan once stated that the government’s view of the economy could be summed up in a few short phrases “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Despite Mr. Reagan’s accurate witticism, the federal government expanded in size during his presidency. Also, President Reagan left out the second half of the quote relating to his government’s view of society… If it is pregnant, commandeer it. If it is gay, condemn it. If it does drugs, jail it.

The government continues to consume vast quantities of money while producing relatively little. Since the government has largely failed in providing key services such as healthcare, retirement, and competitive education, perhaps these areas of life should be left to personal choice. Public education should be an option for parents, not a financially induced requirement. Similarly, social security should be available to people who know they are irresponsible and incapable of planning for their future, but should be waived by people who feel that a private, personal retirement fund would more accurately meet their needs.

While government is an essential component of an advanced, free, capitalist society, it should only provide services that it is has a competitive advantage in – things such as national defense, the rule of law, police and fire services, and roads. It is time to trim the fat; for too long the government has been involved in every facet of American life. There will be haters, of course, the millions of government employees, the irresponsible individuals who banked on social security alone- but we must toughen up. The United States is a super-power because of its dedication to individual liberty and personal autonomy. When 50 percent of our income goes to a government that is largely incompetent and inefficient, it undermines the very qualities that have led to our advancements.

Government will never be able to cure our social ills. These are questions we must all face for ourselves. Social discourse should emphasize the importance of education and planning for our futures, but we can mandate it. Even if the government were successful in providing the myriad of services that it seeks to provide, the victory would be cheap. We would simply be slaves serving a master. So long as we value personal choice and accountability, we must fight to keep the government out of areas it doesn’t belong. Always remember, for more of our nation’s history than not there was no federal income tax, there was no welfare system, there was no minimum wage, and there was no social security. Since it is finally the day we start making money for ourselves in 2007, think about the fundamental questions that have plagued man’s thought for thousands of years – what is the role of the individual? What is his duty to the state? What is the state’s duty to him? You may very well find that your answer is not the direction we are heading towards.