Alen’s reference to the Fair Tax opens up a number of side debates which we should probably not take up Lex’s bandwidth pursuing, but the principal advocate of the book on the matter is radio talk show host Neal Boortz and boortz.com is his platform for sharing the word.

As a final note on this subject, the tax code may exist to make one pay his fair share of the upkeep of society, and it may be used to influence behavior, but it seems to me it has become so complex as to be incapable of achieving either purpose well.

As example, I own 50 acres of land in a Midwestern state. I pay, thanks to tax laws in that state, $38/year in taxes on that property. The land is presently valued at about $8K/acre. My home costs me closer to 4% of assessed value in taxes, or closer to $6K/year, in another Midwestern state.

Such a discrepancy can hardly fit the definition of fair, nor can it be solely to influence my behavior since I let the 50 acres lie fallow and untouched while I live and work at the higher-tax residence.

Look at the minimum-wage bill recently passed by the House. It has an exception for American Somoa. Why Somoa? Could be that Somoa is where tuna is fished and the cost of tuna fishing would go up a lot if $3.50 jobs were mandated to pay $7.50, or we’d just let Somoa remain unemployed and buy our tuna from the Japaese for less and have a lot of unemployment insurance to cover.

Now ponder, cogitate even, if Somoa can’t compete because through the stroke of a pen somebody just priced you out of business, what could be so fair about an imposed tax that then that does the same?

It’s all in the economics.

Best Regards,
– Max

A report from the Congressional Budget Office sheds further light:

“Receipts of corporate income taxes increased by 47 percent in 2005, following a similar growth of 44 percent in 2004. As a result of those two strong years, corporate receipts as a share of GDP have risen from 1.2 percent in 2003, their lowest point since 1983, to 2.3 percent of GDP in 2005, their highest percentage since 1980. Changes incorporate tax law in recent years have contributed to the swing, as investment tax incentives enacted in 2002 and 2003 reduced corporate receipts; those incentives expired at the end of calendar year 2004. Most of the strong growth in receipts in 2005, however, probably reflects robust economic activity in both 2004 and 2005.”

http://www.cbo.gov/ftpdocs/68xx/doc6837/11-2005-MBR.pdf

This is a different conclusion from the “soak-the-rich” website I cited earlier, whose agenda is to keep the estate tax, and so conveniently ignore the CBO updated figures that don’t help their case.

If job creation as a side benefit –not the primary purpose— of corporate activity were better understood, the efforts and priorities of government might be better applied. If state, local, and municipal governments devoted a higher budget priority to infrastructure than direct human services, it follows that the overall conditions for job creation to occur, and the resulting additional revenues to sustainably fund human services along with other public goods would almost certainly improve, correct?

Of course that’s the long-term view. In the political and emotional short-term, bridges, culverts and fiber optic cable don’t suffer pain, fear, or harbor envy. Most importantly, they don’t vote. They are not capable, like certain voting segments are, of “caboose braking” as Thomas Barnett calls it:

http://www.thomaspmbarnett.com/glossary.htm

So if we agree the tax code is about rewarding appropriate behavior, and no one should be left in the dust [right, Michelle?] then encouraging and supporting as many individual engines of opportunity as possible is going to more fairly distribute the weight of those public goods most important to living people. Investment passive income is a more powerful engine than people’s own hourly wage labor–so increasing one’s individual share of a growth engine you can own is smarter than only relying on vulnerable jobs that nobody owns.

Mute infrastructure is not vocally “compassionate”. It doesn’t commiserate with victims or offer scapegoats to blame for individual, family or community failure, whatever the causes may be. It just offers silent choices between the inevitable pain of changing, and the suffering of staying stuck.

Taxing capital gains is just wrong. We tax an individual who takes AFTER TAX earnings and invests them in a corporation in order to make a profit, and encourage economic growth. We then Tax that corporation (and the taxes are paid by the consumer in the form of higher prices, not the corporation)for any and all profit that it makes in a given time period. The corporation then pays out a dividend based on it’s AFTER TAX profit for the year, which we then tax AGAIN. To top all of that off, if the value of the corporation increases and the investor decides to sell, for any reason, the government gets it’s cut AGAIN.

For any and all members of the more liberal political parties I have the following questions:
“What percentage of my income should I give over to the government? The current tax scheme forces the top 5% of tax earners to pay ~50% of all personal income tax revenues. What percentage of income tax revenues should the top 1, 3 and 5% pay? We have over 20% of the lowest earners in this country not paying any taxes at all, or receiving more from subsidies than they pay in taxes. Should this be increased to 25, or 30% just to make the country more fair? Is the only way to close the federal deficit raising government tax receipts, or should we require more fiscal restraint? Are you willing to see a freeze in the government budget at todays spending levels (NO ICREASES WHATSOEVER) for a period of 5 years, if it will provide for the elimination of the federal deficit? If not, why not?”

We have government waste on a scale unimagined by our founding fathers. The Dept. of Education can lose BIllions of dollars a year and not be held accountable. We have redundant programs wasting millions of dollars every year with no measurable effect. (I give you state run education)

Every time a suggestion is made to give the power to make decisions back to the “people”, politicians start howling. NO to school vouchers, NO to privatizing Social Security.

The simple fact that the more “liberal” minded in Congress can raise taxes without affecting 50% of the voters, gives them enormous power over us. Stick it to the rich….yeah, that’s the ticket, their all Mr. Scrooge, they deserve to be punished for being successful.

At age 32, I am virtually guaranteed to never see a dime of my Social Security. There is NO “Trust Fund”. There is only a little slip of paper saying “The United States owes Alen $X.” Can I sue the government for false advertising, and extortion because they keep moving the retirement age or level of return on me?

I like the Fair Tax system. Check it out at http://WWW.FAIRTAX.ORG it is probably not perfect, but I think it is a good starting point.

Final point on taxes. All elected politicians (state, local, federal) should be forced to pay taxes on all income at the highest tax bracket, and should be allowed only one deduction equal to the poverty level of their district/state. all other deductions are disallowed.

A company does not exist to provide jobs or produce a product in a capitalistic system, it exists to create wealth for the shareholders or owners. The money that a company takes in as profit (generally between 7 and 10% of overall revenue, called the profit margin) either goes to the shareholders as dividends, or is used to fund things such as R&D, expansion, and the like with the hopes of further increasing the value of the company and hence enriching the owners of that company. If you tax the _income_ of a company you are basically just reducing the profit margin by some amount. That loss in profitability is either made up with higher prices for the consumer, reduced dividends for the shareholders, or reduced spending for expansion, R&D, and such. The latter two would be mean less taxable income from new employees, contractors, and my shareholders. The former would cost me market share, reducing my ability to compete against a similar business that did not have the additional burden and likely causing me to employ fewer workers because I’m selling fewer goods. That’s global trade in a nutshell, really, and why tariffs are imposed to protect domestic manufacturers against foreign manufacturers with lower production costs.

Now then, it is true that corporations benefit from many public services. Infrastructure to move their goods, police and fire protection, a stable government, and a legal system that ensures both corporation and customer abide by the same set of rules. However, a corporation is not a living entity, so I think it’s safe to say that they would not take advantage of public services such as homeless shelters, Medicare, mass transit, public television, or the like.

Many of these services are paid for through use taxes and local taxes, such as sales and property taxes in your city or state, the gasoline tax, highway taxes on commercial vehicles, and the like. The tax code generally applies these taxes to any entity, so Wal-Mart pays property tax on their store the same as its employees do on their homes, pays sales tax for those goods and services it purchases, etc…

Additionally, corporations pay the unemployment insurance and half of the FICA taxes for each employee, a tax burden not shared by the consumer. So corporations do pay taxes, but it is just another expense of doing business. The key is if those costs place it at a competetive advantage or disadvantage in the marketplace.

Where it gets fun is in the case of tax breaks, or “corporate welfare.” South Dakota has no state income tax on businesses, while neighboring Minnesota and Iowa do. Thus South Dakota entices companies with a lower tax burden, but has a 3.2% unemployment rate, while Iowa has 3.4% and Minnesota has 3.9%. South Dakota thinks the loss of potential revenue from a business income tax is made up through the increased employment. Likewise, large-scale projects like refineries, power plants, and the like often have local governments offering tax waivers for some time, thinking the economic expansion of the region will overcome the loss of this potential tax revenue.

So the tax code is really about rewarding behavior you want and discouraging behavior you don’t want while meeting the basic needs of your society. The real question is not if taxes are necessary, but at what level they become counter-productive.

The comparison of 1962 federal tax revenue figures against 2003 figures gives one look at where the tax burden has shifted. What it does not show is what caused this shift or what the consequences would be if the tax code had not changed since 1962, perhaps in lower total revenues or higher unemployment rates or fewer domestic businesses.

Best regards,

Max