Economics for Dummies or Presidents (But I Repeat Myself)
The Wall Street Journal has uncovered yet more madness in the President’s tardy budget plan:
Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today’s 15% rate.
Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.
That’s nearly two-thirds going straight into Uncle Sam’s pocket, just for sitting there and promising to maybe “go easy on you” next year. Nice work if you can get it. Way to sock it to those mean old corporations, too, Mr. President. And to which I’d like to add: Herp-derp-derp.
The problem is, corporations don’t pay taxes. Not one red cent. They never have and they never will, even if you jack up the corporate rate to infinity-percent-plus-one.
I got this fantastic notion this morning, when I remembered an Econ 101 lecture given by Prof. Walter Johnson at Mizzou twenty-mumble years ago. He was an institution at the university, and punctuated his lectures with, “Money, money, money — I love it!” in his gravelly voice. See, Johnson was something of a Kennedy Democrat, back when Democrats still honestly cared about a growing economy.
During one class he told us the story of the Columbia, Missouri city council getting the idea that there were all these students in town — and those lazy good-for-nothings weren’t paying any property taxes. Why, true and sturdy full-time residents pay property taxes on their homes, but these meddling kids are here most of the year, and all they do is rent. We’ve got to make them pay!
So Johnson gave the council a good talking to. He told them — and I think this is an exact quote — that, “just because someone doesn’t have a receipt, doesn’t mean they aren’t paying taxes.” And then he gave the council his proof.
You know what’s really sad? That you would even have to explain this to any adult.
True but since the exact oposite is taught is government run “schools” and has been for the last 40 years there are only so many “adults” that know what the author says here, and even fewer that can actually understand it well enough to pass these facts on the the younger generation.
Unless we change this current state of affairs this country is doomed.
The number of adults seems to decrease every year.
Sorry to see that this country has elected a child to be our president, but there he is flying all around the country living the high life without a clue. May god bless him accordingly with what he is doing to this country as well as others!
The solution? I call it “The G.E. Rule”, which is that no business should pay more tax than General Electric! Since that would eliminate all business income taxes, (GE pays ZERO), the dividend rate could be the same as ordinary income and the whole “Buffett Rule” goes away, along with all the disincentives Mr. Green points out above. Mr. Vodka is sober as ever when he points out that all business taxes are actually stealth taxes on individuals. Time to make this a campaign issue, and support The G.E. Rule!
Tax policy in the United States is not about revenue or “fairness”, its about government power over your life, control and last but not least, the opportunity for graft from the various governmental representatives who after passing new tax policy, then promise to intercede on your behalf to get you better tax treatment by promising to tax someone else.
This sort of thing is the very definition of a scam.
People who think that tax policy is formed on the basis of “how much revenue we would generate if only we could tax that guy over there…” are missing the point. Its not about how much revenue you would generate to run the services provided by the government, it is about how much a given tax policy will help you generate donations to your campaign treasury.
Try and think like a congressman for a second:
“If everyone pays the same rate, then how do I get these people to donate to my campaign?”
During the Reagan era, we proved that lowering tax rates increases revenue. To you and me, this makes perfect sense. You lower tax rates and what happens? Economic growth! That’s what happens!, which does what? It makes more tax payers! You want to watch a liberals head explode? Tell them that. Show them the numbers and they really freak out. Again, its not the tax revenue number that they are upset about, its that there is nothing a liberal hates more than the idea that you have more of your own money and they have absolutely no say about how you spend it.
Any just today, we got another example (this from the UK) that raising tax rates (on the evil rich!) results in reduced revenues. Who could’ve possibly predicted such a thing? Who indeed.
You are 100% correct, its never about actual numbers its always about particular Fifedoms.
Which is why I ALWAYS oppose any new “name your tax scheme” floated as a solution/alternative an already existing income/property tax.
Because it cant just happen overnight. A new agency will have to be created, along side and parallel to the “old one” thats going to be replaced. This new agency will need staff, offices, and the usual unobtainium bennies package that is standard for Government Workers.
The “switch” cannot happen on say, next Tuesday…it will have to be “phased in” but (be serious) it will never actually occur. The only thing that will be “phased in” will be the NEW tax to support the NEW agency. Duh.
You will inevetably have BOTH to pay, no matter what sweet words they say or promise to get the proposal through. Its always a lie, no Fifedom will ever “go away” without bloodshed. Period.
I am sooo happy most of ours is in tax-deferred. that is insane.
Yes, I knew this, but knowing this somehow doesn’t make me feel better for knowing that those 50 percent of the population who pay no Federal income taxes still paid those taxes in some other form. Maybe it’s a psychological quirk on my part, from being overly sensitive to biological cost shifting, as in draft deferments from having to bleed in war? Doubtless those cold war chicken hawks made some meaningful sacrifices during the Vietnam War, since there are no free rides, I’m just not sure what those sacrifices were. A failure of character development?
The hard part is convincing people that reducing the cost of what they buy by $1 or increasing their income by $1; and then increasing their taxes by 0.50 (or whatever would be necessary for a “revenue neutral” tax code change, given that no corporate taxes will improve both the economy and the political economy); is a net savings for them.
People like hidden taxes. Think of how many people like withholding solely because they get free money in April—or who don’t even make the connection between withholding too much and their free April money.
Politicians love hidden taxes. When they raise the taxes on corporations and those corporations raise their prices as a result, the politicians get to preen about the “greedy corporations” instead of looking in the mirror to see who is truly greedy.
I remember back in the 70′s when every tire ad showed the price, and then the Federal Excise Tax as an addition. Now it never appears, but it’s still in effect. Tobacco taxes and fuel taxes are just folded into the price of the product. I’m sure there are many more, but the government doesn’t want you to know how much of the price of products and services is tax. What we need is a “Truth in Taxation” law that lets you know just how much the government is ripping from your wallet every time you spend money. While I’m at it, I think withholding shoud be eliminated, too. Writing a check each year would probably get even liberals up in arms about taxes. And maybe we could start holding elections on April 16th, as an added incentive for the politicians…
Good point. My local paper reprints a “100 years ago today” story every day.
A while back it was this:
The Pennsylvania Supreme Court ruled today it is ILLEGAL for a local Gasoline Station to post signage that read :
“gas $ .14 per gal. , tax $.13 per gal.”
Must have gotten nationwide, go to any gaspump today and you’ll see a black label with white letters that reads: “price include all applicable taxes” but you’ll never see the amount.
Wait till a “federal sales tax” is created to “save us” from high income taxes…you’ll never even know how much it is, they will follow the gasoline tax model, and we’ll sure as shit STILL have an income tax too.
While I love the idea of a “truth in taxation law”, it’ll never happen. For one thing, it’d be very hard to calculate. I remember thinking about this one day while my house was being built 12 years ago. I signed a contract with a builder who in turn used some of his own employees and a lot of subcontractors to do the job. There was the excavator who dug the hole, then the concrete guys who poured the foundation. Once that was ready, them came the framers, the roofers, the windows guys, plumber, electrician, insulation guys, dry wallers, painters, flooring guys, cabinet guys, trim work guy, cleaners and several others I missed. Each of those subcontractors had to buy materials and paid sales tax, so that was added into their price along with the applicable taxes they paid. All of these separate bills were lumped together by the main contractor who included his taxes and profit into the final price of the house. I then pay property tax on that amount every year. I wondered then how much of the price of my house was taxes passed on by all of the contractors and subcontractors. There’s also the cost of complying with a seemingly endless list of regulations that gets factored into the price. I’ve heard estimates of as high as 40% and I get taxed on that.
Now, multiply complication that by everything you buy and you’ll know why politicians will never pass truth in taxation. Hell, if more people just added up all of the visible taxes they’re paying now, we’d likely have politicians swinging from lampposts across the country. I did that one year and the total came to over $60K when I added federal income tax, social security and Medicare taxes, state income tax, property tax, sales taxes, utilities taxes (electric, gas, water and sewage are all taxed), phone and cell phone taxes, gasoline tax (over 40 cents a gallon in Colorado) and the others I could identify. It was an effective total taxation rate of over 40%. When I hear liberals say I’m greedy for wanting to keep more of my money, I want to punch them in the nose (and other places). They’re the greedy ones – demanding ever increasing amounts of other people’s money to pay for their pet schemes and to enrich themselves.
To hell with them all.
I have been saying this for years and you have no idea how many dolts will give you an argument as to why this isn’t true.
The clearest explanation of this that I’ve seen is “corporations don’t pay taxes, they collect them.” Oh, and liberals DO know economics – unfortunately, it’s all Keynesian. The fact that Keynesian theory hasn’t worked in practice and that it has been seriously criticized (e.g., Hazlitt’s “The Failure of the ‘New Economics’”) makes little difference to them. In general, from their arguments on various issues, facts are of little interest to liberals.
“The fact that Keynesian theory hasn’t worked in practice…”
Neither has Marx, but they keep pushing that like its Gospel.
It aint about what works, its what works for THEM.
The beautiful, and the connected…they preach it loudly to prove their loyalty, and hopefully secure for themselves a place in “the club”, living off the sweat of others.
Obama’s “senior adviser” and sycophant-in-waiting is as brain dead as Nancy Pelosi…
Val dispenses whizz-dom
(last year, Nancy declared unemployment benefits a great source of economic stimulus)
Pelosi said the same. These folks don’t seem to realize that for the government to spend a dollar, it must first get the dollar either from taxes or debt. Thus, they don’t create money, they shift it. Hazlitt’s “Economics in One Lesson” should be mandatory reading for all government officials.
“… does he pass the cost along to Student A?”
Not if you first pass your Rent Control proposal. Of course that doesn’t allow you to get any money from Student A, it just causes the landlord to lose money and the rental property will ultimately turn into a hovel (unexpectedly!). What you really need is a stand-alone “Fleece the Students” bill that taxes the students just for being alive, like ObamaCare, but that doesn’t sound as benign as a “property tax increase” or “a fair healthcare plan”.
The town were I went to college at had such a scheme that was pretty effective.
The city was about half students but the city owned the electric power system. They charged high rates and returned the profits off electric sales to the city budget.
Certainly, the city residents (non-students) had to pay higher electric rates too but I presume either their other tax rates made up for it or the whole city enjoyed expanded city services.
This is so obvious it doesn’t even rise to the level of “economics”.
It’s simple common sense.
Any thinking adult can understand it.
Which expains why only Liberal Democrats support it.
Dependent children of mild intellect, masquarading as “leaders”
At least the Warren Buffet conundrum is clearer after reading that he only pays himself $100,000/year. He pays his secretary, reportedly, somewhere around $170,000-200,000/year.
So, naturally, her rates are higher.
She was, melodramatically enough, featured at Obama’s recent SOTU.
“With the super-high 1977 tax rates of 39.9% on capital gains and 70% on dividends and salaries, federal revenues were 18% of GDP. In 1992, revenues were only 17.5% of GDP. In 2007, thanks in large part to a 15% tax rate on capital gains and dividends, revenues were 18.5% of GDP.
To hold out the tax policies of 1977 or 1992 as examples of effective ways to raise more revenue is ludicrous. It didn’t work then, and it wouldn’t work now.”
Higher Tax Rates on Rich Won’t Increase Revenues
Obama doesn’t particularly care that revenues will be lower with higher taxes. It’s all about his personal version of “fairness”, sometimes known as class warfare.
Hope and Change. Obama will leave you with no hope and only a little loose change in your pockets. People ate up the hype in 2008 with a spoon. Now he’s coming for what little you have left with a club. Only now people are beginning to understand that. Like most socialists, he’s going to run out of spending other people’s money real soon. And what do we do after that? Why, end up like Greece, of course. And the sad part of it is, the far left, the socialists, the communists, the unions, and the anarchists could care less.
He’s no dummy. That’s what’s scary.
You could explain that ‘corporations don’t pay taxes they only collect them’ to every voter in the country, and I would bet that 40% would reject that axiom.
“Make the rich pay for me” is far too ingrained in the culture to be bothered by logic. Shake-downs have worked.
Value added taxes, as some politicians would promote, do seem to be corporate taxes in deeper disguise. They would be well included in the Obama-fairness docterine. That revenue is fed from every step of the making to buying process, with no single entity getting the big bill.
I disagree. I think if you explained it to them, they would understand readily enough, and accept it.
No, the problem is getting their attention long enough to be able to explain it to them.
Politicians get it, but their thinking is so warped it really doesn’t matter who really pays, it’s all about collecting money so that they can be the one deciding who gets it. Money=Power. Power=Dependence & Influence they can sell. Gotta feed the beast.
So they purposely hide who’s paying the tax by distracting voters with an unsympathetic target. Not only do they give the non-targeted taxpayer the impression they’re off the hook, but it makes them look like they’re doing good works. Look at me, I’m making sure smokers quit by increasing taxes in cigarettes! I’m making funding this fabulous new school/new airport/new stadium (while employing my friends businesses & supporting unions)!
Please help me understand why you think Ofumble’s budget means anything at all, when we know no budget will pass the Senate until the second coming of Christ – or the death of Hairy Reed, as his wife calls him.
The author forgot the price of the product. Everyone pays business taxes except the business. Why is that so hard for the average person to wrap their tiny little minds around. Taxes, just like EVERY OTHER BUSINESS EXPENSE, is factored into the cost of the product. We all pay.
That comment tells the whole difference between a real President, Kennedy and Obama. Obama cares more about equality of results; where everyone is given the SAME opportunity to become poor, then making America economically sound, safe from enemies, and exceptional.
________________________
Francisco d’ Aconia