by Paul Mladjenovic.
Coyright 2010. Paul Mladjenovic. All rights reserved.
www.RavingCapitalist.com
The other day I heard a politician say that taxes must go up so that the federal government’s deficit can go down. It didn’t occur to him that the primary reason that the deficit is high is directly due to spending.
Too many people confuse the terms “tax rates” and “tax revenues”. They are frequently used interchangeably but they are distinctly different things. In addition, many politicians have the erroneous idea that increasing tax rates will increase tax revenue. Let’s clear this up (especially in this election season).
TAX RATES ARE (FORCED) PRICES.
TAX REVENUES ARE WHAT ARE RECEIVED WHEN THOSE PRICES ARE PAID.
Very crucial difference! It is a similar difference in the rest of the economy. When a company that sells, say…food, that product will have a price. Say that it is $1.00 for a can of beans. If they sell 5,000 cans of beans that month then we say that they had gross revenues from this particular product of $5,000 (5,000 cans times $1.00). So far so good? By the way, just to keep it simple everything else in this example is immaterial (the quality of the beans are the same and so forth).
Let’s say that the market for the can of beans is competitive (many other companies sell beans too) but the company decided to raise the price of their can of beans to $1.50. Presume that the economy is slow and that their competitors decide to “hold the line” and keep their can of beans to only $1.00. Now what do you think will happen?
Unless you are an economics professor in college, you probably got that one right…
The company with the $1.50 can of beans will see shrinking sales in that competitive environment. Say that their sales fall to 3,000 cans. Now what? Their new gross revenues fall to $4,500 (3000 cans x $1.50 per can).
This is an example of prices going up but the ending result (gross revenues) going down. Of course, keep in mind that in a free market, the prices are voluntary…consumers don’t have to accept those prices. They can go certainly elsewhere. This is the main reason why in a bad economy, companies tend to cut prices so that they can maintain (or possibly increase) their revenues.
Many economists (unfortunately) forget this very simple, real-world dynamic. An economy is made up of consumers and producers and their transactions are voluntary. In a competitive, free market, businesses (producers) can’t force consumers to pay their prices. In taxes, however, the whole point is FORCE.
Many politicians, bureaucrats and media pundits think that if you increase tax rates, you can increase tax revenues because the government can FORCE people to pay those tax rates. Again, economists forget that those tax rates are not paid by “machines”…they are paid by people. People can change their behavior (and usually do) when given certain incentives and dis-incentives.
When you raise TAX RATES, you ultimately encourage people to find creative ways to not pay those tax rates. Some ways may not be legitimate (such as tax evasion), but many ways are perfectly legal. Tax avoidance is legitimate and most people will seek every possible legal way to avoid paying taxes.
Here are some examples:
1. People will work less to lower their taxable revenue to lower tax brackets
2. People will seek tax-free income to minimize income taxes
3. People will delay the sale of assets to avoid capital gains taxes
4. People move to lower-tax jurisdictions (either states or countries)
5. Fill in the blank (you may know your own example).
Then there are the “unintended consequences” which lower tax revenues:
1. A struggling business is hit with a higher tax bill. To stay in business, they lay off some employees. These employees stop paying income taxes because they are out of work. The end result for government is that tax revenues plummet.
2. the entrepreneur that avoids business expansion because that would increase costs (higher business taxes and payroll taxes). Jobs that would have been created ultimately do not. Tax revenues from newly-paid employees never materialize.
3. The affluent person that would have sought a profit by investing in a business enterprise is discouraged by the costs and risk associated with higher taxes. They seek the relative tax-free safety of municipal bonds and forego investments that could have yielded higher tax revenues for the government.
4. Again, fill in the blank. You can think of other examples too.
Now take the above examples (and many others not mentioned) and multiply them by millions of people (and businesses). Now do you get the picture?
Economies are not “simple, static machines” that neatly and predictably respond to the government’s coercive efforts (be it tax policy or otherwise). Economies are complex, organic and dynamic. The players in them are thinking, acting human beings that will respond to incentives and disincentives (again, taxes or otherwise).
Understanding this then makes other events seem very plausible. Understanding this and studying the history of taxation bears a very loud truth:
All things being equal, higher tax rates generally yield less tax revenues.
All things being equal, lower tax rates generally yield higher tax revenues.
Feel free to pass this along to your favorite politician. In the coming issues of the Prosperity Alert, we will cover ways to cut your taxes and keep more of your money (more details about the Prosperity Alert are at www.RavingCapitalist.com).
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Paul Mladjenovic is the author of "Stock Investing for Dummies" and a national educator on investing, taxes and home business strategies. His newest publication on saving big on taxes will be available by October 2010. The full details will be in his newsletter, the Prosperity Alert. Get it free at...
www.RavingCapitalist.com
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START SAVING THOUSANDS ON YOUR TAXES!
Hint: a Home business will help. To learn more about
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Friday, August 27, 2010
Thursday, April 22, 2010
Raising taxes is stupid, stupid, STUPID…and what to do
By Paul Mladjenovic
Copyright 2010. Paul Mladjenovic. All rights reserved.
The rumblings coming out of Washington and out of many state capitals is about growing deficits and many politicians and commentators are talking about raising taxes. The talking points include…
1. Many states are talking about raising tax rates to increase their revenue.
2. Unless renewed, federal income tax cuts are set to expire Jan’11: Higher taxes next year.
3. More politicians are talking about instituting a European-style VAT tax.
Of course, many of the politicians and pundits will find some bonehead economist that either thinks raising taxes is a “good idea” or a “painful necessity”. What nonsense! Any economist that thinks that raising taxes in the midst of the worst economic conditions in our lifetime is a good idea should be fired for incompetence. This “economist” is better off in a new job where he can say things like “Would you like fries with that?”
All the government deficits in our country (Federal, state, etc.) have not been due to a lack of taxation.
GOVERNMENT DEFICITS ARE DUE TO EXCESSIVE SPENDING. PERIOD!
Government at every level gets sufficient revenue to run its necessary operations. The problem is that politicians spend and spend and spend to increase their elect-ability. They spend money to curry favor with public unions, influential corporations and many that simply want the fruits of other people’s labor. Look… government officials over-spend money freely because it is NOT their money. They over-spend because money from taxes does not come voluntarily…
“TAX MONEY” IS MONEY PAID DUE TO FORCE.
When politicians run deficits, they have no constraints or incentives to shrink spending. Why should they? If they have a revenue shortfall, they know all they need to do is to FORCE TAXPAYERS TO PAY MORE.
You now come to the biggest difference between a business and government. Business is a “voluntary” entity; if a business wants your money, it must please you enough so that you VOLUNTARILY give it money. Business must provide goods and services to survive and make a profit. Consumers are not forced to buy these goods and services from any particular business; remember that there is choice and competition. In the free market, the one paying has the greater power.
Government, on the other hand, is a “coercive” entity. In government finance, the one paying to support the government (the taxpayer) does not have power. If a taxpayer gets frustrated and feels that taxes are too high…well…too bad! The government doesn’t care and they don’t have to care because…again…the money they get is through FORCE.
The problem for government is that at the personal level, taxpayers are not stupid. They will not sit idly by and willingly get plundered. Taxpayers will find legal (and sometimes illegal) ways to hold on to the fruits of their labor. The most common responses that over-burdened taxpayers do are…
1. Employ tax-fighting strategies and hire experts to decrease their tax burdens.
2. Work less!
3. Produce less!
4. Leave! In recent years, high-tax states have seen a growing number of taxpayers go elsewhere.
5. Fill in the blank___________________. People can get creative with tax avoidance.
This is where the stupidity of tax increases becomes obvious to all. Tax increases unleash lots of unintended consequences. People spend more of their time and effort figuring ways to escape punitive taxes rather than using the same time being productive and innovative in more sensible economic pursuits.
Government officials keep seeing time and time again that increasing tax rates does NOT result in more revenue. These near-sighted officials don’t realize that higher tax rates punish economic growth and job creation. When businesses and employers are struggling with high tax rates and stringent compliance regulations and paperwork burdens, they don’t have the ability to hire (or keep!) employees. Money that is forcibly shifted from the private sector to the public sector only makes the revenue situation worse, not better for government.
When you hurt the private sector, you are killing the golden goose. A or struggling or shrinking private sector ultimately means less revenue for government, regardless of how high tax rates go. It becomes a vicious cycle. The end result is that government deficits become unmanageable and sources of tax revenues are sucked dry and then there is no choice but to reduce the size of government…either by consent or by the force of financial collapse. Had the reduction of government happened much sooner, much economic pain would be avoided.
Keeping tax rates low is not just good for taxpayers. Ultimately it is good for government as well. In turn this is good for those dependent on government assistance. It is no coincidence that most of the very-high tax rate states have the deepest deficits while most of the states that are in fairly good shape have relatively low taxes. A good example of this is the comparison of California and Texas. California has high taxes and high spending and it is in danger of collapse. Overall, Texas has low taxes yet it is in good shape given today’s economy.
The bottom line is that raising taxes…
• Does not increase revenue
• Is not moral, ethical or practical
• Does not make any economic sense
• Is bad for the private sector
• Makes matters worse…not better.
Seriously, how can you grow and sustain a prosperous economy if you keep taking more and more money from production (the private sector) and forcibly shift it to consumption (the public sector)?
In a word, raising taxes is STUPID. But until common sense returns to Washington and the state capitals (don’t hold your breath!), we as consumers and taxpayers must deal with it.
What to do…
1. Find ways to cut your taxes. I have recently set up www.Cut-Taxes.blogspot.com to address this. I will keep adding tax-fighting resources and I will alert folks through www.twitter.com/paulmlad.
2. Start a home business. A home business is a great way to save big on taxes! This is why I have taught a class on starting a home business for over 20 years since I think that a home business is a powerful financial planning & wealth-building tool. You can find my class at www.SuperMoneyLinks.com. There are other ways, of course, but starting a home business can be easy and inexpensive to do.
3. Vote for low taxes. I don’t care which party or person you choose, just make sure that on the singular issue of government fiscal policy that they are STRONGLY in favor of lowering taxes and government spending. The National Taxpayer Union (NTU) is a good place to start and they are at www.ntu.org.
A good example of a pro-taxpayer, pro-smaller government candidate is one of my favorite real estate experts, David Corsi. I have known him for over 20 years and guys like him are badly needed in the rat-infested halls of Congress (Dave’s site is www.CorsiforCongress.com...check it out).
The NTU compiles more information on what politicians and candidates are doing in regards to tax matters. Get their free email alerts. Be informed for the coming election.
Look… it is crisis time for our nation. The economy is struggling big time yet…federal and state governments are lavishly spending at mind-boggling levels…the worst in our history! Economic pain is certain now.
Even if tax rates were raised to 100% and they also pulled out the gold and silver fillings in your kid’s mouth, they would STILL be trillions in the hole! The profligate and irresponsible spending has gone beyond disgusting and raising taxes will NOT help government but it definitely WILL HURT the economy and those that support government…millions of honest, hard-working taxpayers like you and I.
It’s an election year… tell them “NO” to raising taxes.
Copyright 2010. Paul Mladjenovic. All rights reserved.
The rumblings coming out of Washington and out of many state capitals is about growing deficits and many politicians and commentators are talking about raising taxes. The talking points include…
1. Many states are talking about raising tax rates to increase their revenue.
2. Unless renewed, federal income tax cuts are set to expire Jan’11: Higher taxes next year.
3. More politicians are talking about instituting a European-style VAT tax.
Of course, many of the politicians and pundits will find some bonehead economist that either thinks raising taxes is a “good idea” or a “painful necessity”. What nonsense! Any economist that thinks that raising taxes in the midst of the worst economic conditions in our lifetime is a good idea should be fired for incompetence. This “economist” is better off in a new job where he can say things like “Would you like fries with that?”
All the government deficits in our country (Federal, state, etc.) have not been due to a lack of taxation.
GOVERNMENT DEFICITS ARE DUE TO EXCESSIVE SPENDING. PERIOD!
Government at every level gets sufficient revenue to run its necessary operations. The problem is that politicians spend and spend and spend to increase their elect-ability. They spend money to curry favor with public unions, influential corporations and many that simply want the fruits of other people’s labor. Look… government officials over-spend money freely because it is NOT their money. They over-spend because money from taxes does not come voluntarily…
“TAX MONEY” IS MONEY PAID DUE TO FORCE.
When politicians run deficits, they have no constraints or incentives to shrink spending. Why should they? If they have a revenue shortfall, they know all they need to do is to FORCE TAXPAYERS TO PAY MORE.
You now come to the biggest difference between a business and government. Business is a “voluntary” entity; if a business wants your money, it must please you enough so that you VOLUNTARILY give it money. Business must provide goods and services to survive and make a profit. Consumers are not forced to buy these goods and services from any particular business; remember that there is choice and competition. In the free market, the one paying has the greater power.
Government, on the other hand, is a “coercive” entity. In government finance, the one paying to support the government (the taxpayer) does not have power. If a taxpayer gets frustrated and feels that taxes are too high…well…too bad! The government doesn’t care and they don’t have to care because…again…the money they get is through FORCE.
The problem for government is that at the personal level, taxpayers are not stupid. They will not sit idly by and willingly get plundered. Taxpayers will find legal (and sometimes illegal) ways to hold on to the fruits of their labor. The most common responses that over-burdened taxpayers do are…
1. Employ tax-fighting strategies and hire experts to decrease their tax burdens.
2. Work less!
3. Produce less!
4. Leave! In recent years, high-tax states have seen a growing number of taxpayers go elsewhere.
5. Fill in the blank___________________. People can get creative with tax avoidance.
This is where the stupidity of tax increases becomes obvious to all. Tax increases unleash lots of unintended consequences. People spend more of their time and effort figuring ways to escape punitive taxes rather than using the same time being productive and innovative in more sensible economic pursuits.
Government officials keep seeing time and time again that increasing tax rates does NOT result in more revenue. These near-sighted officials don’t realize that higher tax rates punish economic growth and job creation. When businesses and employers are struggling with high tax rates and stringent compliance regulations and paperwork burdens, they don’t have the ability to hire (or keep!) employees. Money that is forcibly shifted from the private sector to the public sector only makes the revenue situation worse, not better for government.
When you hurt the private sector, you are killing the golden goose. A or struggling or shrinking private sector ultimately means less revenue for government, regardless of how high tax rates go. It becomes a vicious cycle. The end result is that government deficits become unmanageable and sources of tax revenues are sucked dry and then there is no choice but to reduce the size of government…either by consent or by the force of financial collapse. Had the reduction of government happened much sooner, much economic pain would be avoided.
Keeping tax rates low is not just good for taxpayers. Ultimately it is good for government as well. In turn this is good for those dependent on government assistance. It is no coincidence that most of the very-high tax rate states have the deepest deficits while most of the states that are in fairly good shape have relatively low taxes. A good example of this is the comparison of California and Texas. California has high taxes and high spending and it is in danger of collapse. Overall, Texas has low taxes yet it is in good shape given today’s economy.
The bottom line is that raising taxes…
• Does not increase revenue
• Is not moral, ethical or practical
• Does not make any economic sense
• Is bad for the private sector
• Makes matters worse…not better.
Seriously, how can you grow and sustain a prosperous economy if you keep taking more and more money from production (the private sector) and forcibly shift it to consumption (the public sector)?
In a word, raising taxes is STUPID. But until common sense returns to Washington and the state capitals (don’t hold your breath!), we as consumers and taxpayers must deal with it.
What to do…
1. Find ways to cut your taxes. I have recently set up www.Cut-Taxes.blogspot.com to address this. I will keep adding tax-fighting resources and I will alert folks through www.twitter.com/paulmlad.
2. Start a home business. A home business is a great way to save big on taxes! This is why I have taught a class on starting a home business for over 20 years since I think that a home business is a powerful financial planning & wealth-building tool. You can find my class at www.SuperMoneyLinks.com. There are other ways, of course, but starting a home business can be easy and inexpensive to do.
3. Vote for low taxes. I don’t care which party or person you choose, just make sure that on the singular issue of government fiscal policy that they are STRONGLY in favor of lowering taxes and government spending. The National Taxpayer Union (NTU) is a good place to start and they are at www.ntu.org.
A good example of a pro-taxpayer, pro-smaller government candidate is one of my favorite real estate experts, David Corsi. I have known him for over 20 years and guys like him are badly needed in the rat-infested halls of Congress (Dave’s site is www.CorsiforCongress.com...check it out).
The NTU compiles more information on what politicians and candidates are doing in regards to tax matters. Get their free email alerts. Be informed for the coming election.
Look… it is crisis time for our nation. The economy is struggling big time yet…federal and state governments are lavishly spending at mind-boggling levels…the worst in our history! Economic pain is certain now.
Even if tax rates were raised to 100% and they also pulled out the gold and silver fillings in your kid’s mouth, they would STILL be trillions in the hole! The profligate and irresponsible spending has gone beyond disgusting and raising taxes will NOT help government but it definitely WILL HURT the economy and those that support government…millions of honest, hard-working taxpayers like you and I.
It’s an election year… tell them “NO” to raising taxes.
Friday, April 16, 2010
Resources for Tax-Cutting
Hello!
DO YOU PAY TOO MUCH IN TAXES?
The answer is a resounding YES. Directly & indirectly, most (yes MOST) Americans pay OVER 50% of their income in taxes. We believe that you should lower your taxes because that is good for you and the economy.
This blog is set up to help you save on your personal taxes. Peruse the links and resources available here because you should find ways to keep more of the fruits of your labor!
I wish you much tax-cutting success!
Regards,
Paul Mladjenovic, CFP
www.ProsperityNetwork.net
www.SuperMoneyLinks.com
www.Mladjenovic.blogspot.com
DO YOU PAY TOO MUCH IN TAXES?
The answer is a resounding YES. Directly & indirectly, most (yes MOST) Americans pay OVER 50% of their income in taxes. We believe that you should lower your taxes because that is good for you and the economy.
This blog is set up to help you save on your personal taxes. Peruse the links and resources available here because you should find ways to keep more of the fruits of your labor!
I wish you much tax-cutting success!
Regards,
Paul Mladjenovic, CFP
www.ProsperityNetwork.net
www.SuperMoneyLinks.com
www.Mladjenovic.blogspot.com
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