But Now You Know

The search for truth in human action

Trickle-Down Taxation


2. A heavy progressive or graduated income tax.

Item #2 of the Communist Manifesto: "A heavy progressive or graduated income tax". What isn't mentioned is that this was a way Marx could make the poor even poorer and weaker, not the rich. Marx gained power from the strife caused by poverty.

One of the best-sounding of the freebies that Obama is offering to hand out (if it’s not just another politician’s empty campaign promise) is exempting everyone who makes under $200K from the income tax. This one even tempts me. Lower taxes are good for the economy, for economic freedom, and of course for everyone who earns less than that amount of money.

But there’s a serious down-side to this. How do we fund all of the other freebies he is giving out, if we are going to cut government tax revenue with this one?

Of course the answer is simple: We are going to tax the people who make OVER $200K so much more that it makes up for the loss. Obama says it’s only fair, to “spread the wealth around”.

Now this may not be quite as bad as it sounds:

  • First, people who make over $100K or so pay most of the taxes, already. Unfortunately, Bush’s tax cuts were not really all that “for the rich”, and “wealthy” people already pay almost all of the taxes. It was pointed out today that there are some companies, in fact, that are forced to pay more taxes per year, individually, than 66% of all families. It’s famous that the top two percent of earners pay something like 60% of the taxes.
  • Second, tax cuts boost the economy, which increases tax revenue. Both Reagan and Kennedy both demonstrated this, cutting and simplifying taxes, and having tax revenue increase.

Unfortunately, those two things aren’t enough. The billions paid by people who earn less than $200K still adds up…and tax cuts don’t all work equally well.

For example, tax cuts that favor one group over another help the economy less, while ones that spread the burden evenly help everyone more. In fact, simply spreading the burden evenly, with NO tax cut, would boost the economy more than cutting taxes for some people, while raising it for others.

Especially when the taxes (as they already, are, and will now be more) are designed to punish hard work, success, and contribution to society.

Just as a slight increase in interest rates, so small it certainly doesn’t change any one person’s mind, has a large nation-wide impact on how much people borrow, so a tax that increases as you earn more money has a nation-wide impact on how much people earn, depressing income growth.

But there’s something involved, that’s more important than ALL of that:

WHEN Barak Obama raises taxes on people who earn more money, the wealthy will not pay a penny of it.

You will.

The counterpart to trickle-down economics (which points out that wealthy people who earn more money spend and invest more, allowing all of society to become more wealthy) is…

Trickle Down Taxes

When you raise taxes on the rich, they ALWAYS respond to defend their wealth. The more money and power they have, the better they can do this. They can give themselves raises, pay accountants to shelter their income, or otherwise make up for the new tax.

But where do they get the new money, to pay themselves enough to make up for the taxes?

From you.

Wealthy people and companies can, for example, raise prices to pay themselves enough extra to make up for the taxes. Guess who pays the higher prices.

They can also cut jobs or pay among their employees, in order to make enough to pay themselves more. Guess who the employees are.

Along with those two tools of passing along higher taxes, the rich and powerful can cut quality of products, again to save for themselves. Ice cream that was once two quarts is now 1.5 quarts, and the same price. Check Edy’s and Breyer’s, next time you’re shopping. Guess who ends up paying for all the reduced-quality/quantity food. Not the rich guys…the can afford to pay a premium for consistent quality.

Ultimately, ALL costs the government imposes on the wealthy, they pass down to you.

Oh, but the tax trickling isn’t done, yet.

If They Lose, You Lose More

Let’s say you, somehow, manage to force the wealthy and powerful to pay for their own taxes.

You are now shutting thousands of people out of jobs, and, causing more hunger and poverty.

Why?

Because the wealthy don’t put their money in giant Scrooge McDuck vaults, to play in while they cackle wickedly. Instead, they either spend or invest it. Spending it creates jobs directly. If they buy a car, someone built it, someone shipped it, someone sold it, people repair it, people clean it…maybe someone even drives it as their job. The less money ANYONE spends, the less work there is. But, let’s face is, the wealthy have more money, per person, than other people, and therefore supply more jobs with money.

Poor people have to mow their own lawns (if they have them). Middle class people may be able to pay someone to mow their lawn for them. A few dozen families might, between them, manage to keep one lawncare guy employed. But one wealthy dude may employ a half dozen lawn guys, all by himself. 

Take away his money, and the rich guy may have to lay off his lawn people…perhaps one hundred times the job impact of a middle class person having to stop hiring a lawn guy.

But most of a wealthy guy’s money is not spent, so it doesn’t make jobs.

Well, not directly.

Investment Creates Jobs

Instead, it gets invested. Invested money, of course, goes directly to creating wealth. That’s the whole function of investment…the reason that the investor gets more money back. The creation of wealth actually creates MORE jobs than spending money directly. This, in fact, is what actually drives employment, in general. Without investment, we really would “run out of jobs”. The economy would stagnate, and we’d end up like Communist China was, before they went “capitalist”.

The “capital” in capitalism is investment.

Rich people and companies are the reason most new jobs ever get created at all, because it requires investment to build the factory, or store, or restaurant, whatever it is. Even when poorer people start their own successful business out of pocket (something pretty rare, because of government regulation and taxes), they only create large numbers of jobs as they become successful and rich.

One of the many reasons the economy is so weak, now, is because investment is so rare, thanks to punishment of investment through taxes, regulation, deflation, and the preference for stagnating money shelters like bonds and treasury notes, over the stocks to which government has proven to be so hostile.

If we are to get back on the road to economic growth, we must first get on the road to economic freedom for all, including the wealthy, who just happen to pass on ALL effects we try to have on them, good or bad.

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December 3, 2008 Posted by | Economy, Politics | , , , , , , , , , , | Leave a comment

Why Oil and Gas Prices Are Falling


We all know that high gas/energy prices, driven by high oil prices, are a large part of what has crippled the US economy.

But what has caused that?

Oil prices are not set by oil companies, but by futures and commodities speculators, who bid on the oil at auctions. The companies have no more control over the price than someone selling with a regular auction on EBay.

The speculators decide what they are willing to pay, based on what they believe the future of oil to be.

How Prices Rose

In 1999, the monopolistic oil cartel OPEC started cutting production, specifically to help themselves and their allies get rich by driving up the price of oil. Speculators, naturally, started bidding more for oil, expecting there to be a shortage. It went from well under $20 per barrel to over $30.

Then George W Bush got elected.

People assumed, because wealthy oil barons in Texas and Saudi Arabia were largely responsible for financing him, that plentiful oil was in their future. This ignored history, of course, because plentiful oil is cheap, and cheap oil is bad for oil barons. The more expensive oil is, the better. It would have made more sense to expect Bush to do things that would drive up the price of oil.

Bush and Abdullah Saud

Bush holds hands with a member of the Saudi tyranny, top state sponsor of terrorism, and leader of the push to keep oil prices high

But they assumed it’d be plentiful, so they bid lower on it, and the price fell. It got almost back down to its natural, under-$20 price range.

But that was bad for Bush’s financiers.

In fact, there was a lot of loud public worry, among oil barons, about how the price of oil was returning to normal.

Then came September 11th, 2001. 

Afghanistan

After 9-11, there were many ways America could go. 

The way Bush chose to lead, was to first attack Afghanistan. He said this was because they were harboring bin Laden. He promised, though, that he was going to exhaust all diplomatic means, and only attack them as a last resort.

But before he attacked, the government of Afghanistan, a long-time US ally whom Bush had just recently sent, openly and on record, a great deal of grant money for their help, offered to turn over bin Laden for war crimes trial.

Bush ignored the offer, refusing even to discuss it with them. When they offered a second time, the US attacked the very next day.

Speculators saw this as a very bad sign for oil, because Afghanistan was closely aligned with many oil-producing countries, and they bid more for it, driving the price into the high $20 range, fifty percent higher than its natural price.

Iraq

Then Bush began threatening to attack Iraq. Now Afghanistan had at least some association with Al Qaeda…but Iraq, of course, was ruled by Al Qaeda’s #2 enemy after the US: Saddam Hussein.

Oil speculators found this pretty scary, and confusing. The price of oil rose to close to $40, more than twice its natural range.

Gradually, it declined, on the promise of cheap oil from Iraq, even though every government projection of conquering Iraq anticipated years of quagmire and turmoil, jeopardizing oil supplies for a long time to come. This is why his father had not done it.

(more after this K-rad graphic)

 

Oil Prices, Real and Adjusted, from 1990 to mid 2008

Oil Prices, Real and Adjusted, from 1990 to mid 2008

Sure enough, as time war on, the war got worse, and the speculators responded by bidding ever-higher for oil.

 

General Belligerence

What’s more, whenever the price was finally stabilizing a bit, the Bush administration would do something else that threatened the oil supply, like picking fights with Hugo Chavez, or threatening to attack Iran. Each time, investors were frightened, and the oil price climbed.

Eventually, this kind of belligerent foreign policy pattern pushed it up to $140 per barrel, over 700% above its natural price of just a few years earlier.

Sane Foreign Policy?

Then, in early 2008, it began to grow increasingly likely that Barak Obama would be the Democratic nominee. Unlike Hillary, he had always opposed this kind of foreign policy. Speculators began to weigh the possibility of a different foreign policy into their price bids.

Obama's Oil Price Rescue

As Obama's election grew more likely, oil buyers became reassured that oil supplies might be secure, and bid less, driving down prices.

As he clinched the nomination, and then began to dominate the polls versus McCain, the amount speculators were willing to pay steadily declined.

 

By the time he was elected, which had been seen as a probable for some time, they had built a peaceful foreign policy into the price, so that it was half its peak. 

The day after he was elected, the price fell dramatically. 

Now it remains in a holding pattern, a fraction of its peak just a year ago…waiting to see if Barak Obama is going to keep his promise of sane foreign policy. If he does, we could see oil falling down to its natural price, which by now is probably little more than $30 a barrel.

Ironically, sane foreign policy has an even greater impact on what the investors in oil are willing to pay, than Obama’s own position as a Liberal enemy of the energy needs of Americans.

November 24, 2008 Posted by | Economy, International | , , , , , , , , , | 3 Comments

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