Sunday, July 29, 2012

Path to Liberty | Privatization or Back to the Plantation?


“Mr. President, it is natural to man to indulge in the illusions of hope. We are apt to shut our eyes against a painful truth, and listen to the song of that siren till she transforms us into beasts. Is this the part of wise men, engaged in a great and arduous struggle for liberty? Are we disposed to be of the number of those who, having eyes, see not, and, having ears, hear not, the things which so nearly concern their temporal salvation? For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst, and to provide for it.” ~ Patrick Henry

An Accountant Explains Why the U.S. Cannot Balance its Budget

- By: Larry Walker, Jr. -

In following video (link), a former accountant who worked with budgets for over 40 years clearly explains the U.S. budget dilemma. After reviewing the facts contained therein, it should be evident that there are only two possible solutions for the survival of the United States: (1) raise taxes by 50% across the board or, (2) lower taxes and privatize entitlement programs.

Raising taxes leads to a smaller economy and larger government, with the need to eventually raise taxes again at some point. On the other hand, lowering taxes while privatizing entitlement programs leads to a larger economy and less government. Although the latter will cause some pain in the initial years, the affliction will be faced either way. However, privatization is the only path leading to the long-term sustainability of a free Republic.

While some would conclude that the solution involves a combination of increasing tax rates while cutting entitlement programs, I believe the two are mutually exclusive. That is to say, raising taxes reduces the size of the economy leading to the need for even more entitlements. Raising taxes also narrows the tax base leading to less government revenue. On the other hand, privatization requires lowering income tax rates to enable entitlement programs to go private. Cutting taxes also leads to a larger private economy, a broader tax base and increased government revenues. So the latter leads to greater economic independence for free citizens, and less reliance on government programs. This should be the goal for a free society.

Our freedoms may only be sustained by lowering income tax rates in conjunction with privatization of the major entitlement programs (i.e. Social Security, and Medicare). Although some painful days will occur during the initial years of conversion, in which the government must meet its past commitments while transitioning younger workers towards privatization, it is important to note that, “Every time in this century we've lowered the tax rates across the board, on employment, on saving, investment and risk-taking in this economy, revenues went up, not down.” Thus reducing income tax rates will actually increase, not decrease, federal revenues during the transition. Therefore, the tax cuts that I am speaking of should be across the board and immediate, as should the transition towards privatization.

There are really only two choices, (1) a larger private economy based on free-market principles and self-reliance, or (2) an ever increasing and invasive federal government with greater dependence on its ability to collect taxes from a shrinking base of those able to pay. The policies implemented today will determine America’s future. The alternatives are clear – live free, or become a ward of the State. There are no laurels to rest upon. Either you favor exercising your God-given right to freedom, or returning to slavery. The decision is yours. As for me, I choose freedom, by any means necessary.

"The day that the black man takes an uncompromising step and realizes that he's within his rights, when his own freedom is being jeopardized, to use any means necessary to bring about his freedom or put a halt to that injustice, I don't think he'll be by himself." ~ Malcolm X

Photo Credit: English Exercises

See Related:

Obsolete Government Programs, Part 1 | FICA - Apr 20, 2011

If we were not forced to pay this mandatory tax of 6.2% (12.4% for the self-employed) on earned income up to the limit of $106,800, we would be able to save a greater portion of our own money into the modern retirement...

Obsolete Government Programs, Part 2 | Medicare - Apr 21, 2011

Medicare is partially financed through payroll taxes imposed by the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act of 1954. In the case of employees, the tax is equal to 2.9% (1.45%...

Social Security: A Breach of Trust - Jan 09, 2011

As I explained in “The Social Security Bust Fund”, the federal government has summarily confiscated and spent every dime of the $2.6 trillion surplus, which would have comprised the Social Security Trust Fund, and has...

Unequally Yoked | Social Security and the Working Class - May 07, 2011

Did you know that most state and local government employees are exempt from Social Security taxes? Millions of Americans who are covered by state or local retirement plans do not pay into the Social Security system.

The Social Security Bust Fund - Jan 03, 2011

In other words, the Treasury pays interest to the Social Security Trust Fund, but not in the form of cash, rather in the form of additional special-issue securities. (Huh?) Interest is only physically paid out when money is needed...

Saturday, July 21, 2012

Taxing Inflation, Part 3 | Romney vs. Nothing

“We are in the midst of yet another great American discussion about taxation. Perhaps no policy area has become more sensitive or controversial. At stake are two vital concerns for the American future: How will we generate sufficient revenue to balance our budget without discouraging economic activity, and will the burden of taxation fall equitably on all Americans?” ~ Mitt Romney

Faith vs. Hopelessness | Independence vs. Dependence

- By Larry Walker, Jr. -

Under Mitt Romney’s tax proposal, no one making less than $200,000 a year is taxed on interest income, dividends or capital gains. For more on why this is just, see Parts One and Two, but to be brief, when investments are losing purchasing power at a faster pace than current returns, a tax on investment income merely acts as a second tax on top of inflation. In addition, under Romney’s plan, income tax rates are cut by 20% across the board, with the bottom tax bracket reduced from 10% to 8%, and the top bracket from 35% to 28%. The last President to lower top tax rates to 28% was Ronald Reagan, and we all know what happened back in the 1980’s. Romney’s game plan also eliminates the alternative minimum tax (AMT), which deserves to die, since Congress has failed to peg its exemptions to inflation.

Aside from the above, Romney eliminates the death tax and caps corporate tax rates at 25%. Altogether Romney’s strategy is pro-growth, one fully capable of giving our stagnant economy the boost it needs to reach a full recovery, and place us back on the right track. Although Romney’s proposal isn’t perfect, it’s far better than the alternative, which can be pretty much summed up as nothing to less than nothing. That’s right! Barack Obama’s scheme omits economic growth as a viable possibility, instead settling on sanctimonious indignation against high achievers, especially business owners who would be hit by his proposed tax hikes.

Obama’s blueprint offers nothing for 98% of Americans, those making less than $157,197 in 1993 dollars (the equivalent of $250,000 today). In other words, you won’t see your taxes rise or fall by one dime, except of course for those new health care taxes. And for the remaining 2%, those making more than $157,197 in 1993 dollars (the equivalent of $250,000 today), Obama offers to hike tax rates to 36% and 39.6%, and to raise the capital gains tax from 15% to 30% or more. In short, under Obama’s outline, 100% of the 51% of Americans who pay income taxes will either receive nothing, or less than nothing. But the most glaring flaw in Obama’s program is that it omits incentives capable of stimulating private sector investment, and thus growth. And without private sector growth, there will be even fewer jobs to go around, and only more of the same -- temporary, deficit-financed, government boondoggles.

A Dearth of Gross Private Domestic Investment

Gross Private Domestic Investment is one of the four components of Gross Domestic Product (GDP). In the United States, real gross private domestic investment currently represents just 14.1% of real GDP, or $1.9 trillion. But after the Republican-led Congress passed a tax-relief and deficit-reduction bill in 1997, real gross private domestic investment subsequently peaked at 17.5% of GDP in the year 2000. The 1997 bill lowered the capital gains tax from 28% to 20%, which induced greater levels of private domestic investment, leading to a higher rate of GDP growth, and increases in economic activity, employment and tax collections. Contrary to popular opinion, it was actually the 1997 tax cuts, not the 1993 Clinton tax hike, which produced the boom of the 1990’s (see chart below).

In the year 2000, the Dot-Com Bubble burst, wiping out a great deal of private capital and reducing gross private domestic investment back to 15.6% of GDP by 2002. So Republicans passed the Jobs and Growth Tax Relief Reconciliation Act of 2003. The 2003 Act slashed capital gains rates once again, this time to 5% and 15%. This attracted capital investment back into the economy, boosting gross private domestic investment to 17.2% of GDP in the years 2005 through 2006. Then in 2007, global credit markets went haywire, the housing bubble burst, and the Great Recession commenced. Lasting until June of 2009, the most recent downturn dragged gross private domestic investment to a 20-year low of 11.4% of GDP. Although there has since been a mild rebound to 14.1% of GDP, gross private domestic investment remains hopelessly mired in the same doldrums faced in the mid-1990s. Private investors, perhaps with good reason, are still reluctant to place new capital at risk domestically.

The Perils of Government Investment

There is a strong correlation between gross private domestic investment and real GDP growth (see table). Which came first, the investment or the growth? Well, without investment, there is no growth. And investment can only come from two sectors, private or government. Federal government consumption has remained constant, representing 7.7% of GDP in 1995 and 7.6% currently, while state and local government consumption has declined from 13% of GDP in 1995 to 10.6% currently (see table). The federal goverment's contribution to GDP is already deficit financed, and state and local governments have bankrupted themselves through commitments to union induced pension schemes and Medicaid. So which is likely to succeed, more deficit-financed government investment, or higher levels of private sector investment?

The reason gross private domestic investment remains retarded is due to the policies of Barack Obama. Under Obama’s program, government spending has spiraled completely out of control, resulting in a glut of low interest U.S. Treasury securities, which are siphoning off capital from the private sector, via the lure of a government guarantee. This is doing a great deal of harm to the American economy, since government is incapable of building anything on its own. As a matter of fact, the only accoutrement the federal government has built by its lonesome is a $15.8 trillion mountain of debt, which now amounts to $139,500 for each U.S. taxpayer (subject to increase every millisecond). What’s ironic is that a taxpayer investing in U.S. government securities is also responsible for making interest payments on the same, through income taxes. After all, it’s not like the government has its own private stash with which to pay. Thus, the notion of government investment is but a farce.

The Obama administration’s latest presumption involves purchasing aviation biofuel through the U.S. Air Force at $59 per gallon, while straight avgas is selling for $3.60 a gallon. This they surmise is somehow a good use of taxpayer monies. The Obama administration, in its wisdom, fully expects the price of biofuels to fall by 2015, even if solely through the demand of a single customer – the U.S. taxpayer. Apparently, no private sector airline is dumb enough to join the gala. The major flaw in this design is that the recipient of this generous subsidy, Gevo, Inc., relies heavily on corn in the manufacture of its patented isobutanol fuel. And since day corn prices have jumped by more than 52% in the last month, due to the severe drought, this puppy is liable to go bankrupt by the end of the year, along with the rest of the Obama administration’s not-so-green, government financed, ventures. But at least we can say, "We didn’t build that, somebody else made that happen.” Is converting the food supply into fuel ever a good idea? Hello!

By the way, Gevo’s stock peaked on the NASDAQ exchange at $25.55 per share in April of 2011, but since the end of June has been trading below $5.00 per share. The fact that the stock had already lost over 80% of its value before the drought tells us all we need to know about the current administration’s due diligence. Relying on government investment to make up for a shortfall in private investment is kind of like cutting off your nose to spite your face. Barack Obama’s parting shot, proposing to raise income taxes in the middle of an economic quandary, is about twice as dopey. By now it should be clear that Obama’s big-government dream isn’t the solution to our problems, it is the problem. Government doesn’t know best. In fact, but for the $2.4 trillion a year it collects in taxes from the private sector, the federal government wouldn’t exist.

The Verdict

Raising real gross private domestic investment back to 17.5% of GDP would add as much as 3.4% to real GDP, or the equivalent of $455.6 billion. And since according to the Bureau of Economic Analysis, per capita personal income is currently $37,500, that means rebalancing the economy in favor of gross private domestic investment could translate into as many as 12.2 million new jobs.

Mitt Romney’s proposal, to eliminate the tax on interest, dividends, and capital gains for those making less than $200,000, is the only serious plan on the table capable of boosting gross private domestic investment back to 2000 levels, and beyond. And the creation of 12.2 million new jobs through Romney’s strategy is just the tip of the iceberg. Additional jobs are created through increases in personal consumption as the result of cutting income tax rates by 20% across the board, eliminating the AMT, eliminating the death tax, and capping corporate taxes at 25%.

In contrast, Barack Obama’s inflation tax raises taxes on the most productive Americans, those making more than $157,197 in 1993 dollars (the equivalent of $250,000 today), and does nothing for the other 98% of Americans, the combination of which will result in the loss of as many as 12.7 million jobs. So Obama's notion offers nothing to less than nothing in terms of economic growth.

Mitt Romney’s proposal, on the other hand, leads to higher levels of gross private domestic investment, GDP, economic activity, employment, and tax collections. It’s the best hope for improving America’s economic condition. It’s economic independence versus dependence. It’s faith versus hopelessness. It’s pro-growth versus nothing. Thus, you may place this independent conservative in the decided column. Was there ever a doubt?

Related:

Taxing Inflation: Why Americans Invest Overseas

Taxing Inflation, Part 2 | Simple Pro-Growth Policies

Ends of the Green Agenda

The Malaise of 2012 | Part IV

Sunday, July 15, 2012

Taxing Inflation, Part 2 | Simple Pro-Growth Policies

Are we interested in treating the symptoms of poverty and economic stagnation through income redistribution and class warfare, or do we want to go at the root causes of poverty and economic stagnation by promoting pro-growth policies that promote prosperity? ~ Paul Ryan

… Promoting Prosperity

– By: Larry Walker, Jr. –

In the United States, real gross private domestic investment currently represents 14.1% of real GDP, or $1.9 trillion. But it only represented 12.6% in 1993, after the Clinton tax hikes. Then in 1997, the Republican-led Congress passed a tax-relief and deficit-reduction bill that was at first resisted but ultimately signed by President Clinton. The 1997 bill lowered the top capital gains tax rate from 28% to 20%. The reduction in capital gains rates encouraged greater private domestic investment, leading to GDP growth, and increases in both economic activity and tax collections. After the bill passed, real gross private domestic investment grew to 15.6% in 1997, and reached a peak of 17.5% by the year 2000. It was actually the 1997 tax cuts, not the 1993 Clinton tax hike, which produced the boom of the 1990’s.

But then the Dot Com Recession began, lasting from March through November 2001, wiping out capital and reducing gross private domestic investment to a low of 15.6% of GDP. Then Republicans passed the Jobs and Growth Tax Relief Reconciliation Act of 2003. The 2003 Act slashed capital gains rates to 5% and 15%, which boosted gross private domestic investment back to 17.2% of GDP in 2005 and 2006. But then the housing bubble burst and the Great Recession began, lasting from December 2007 through June 2009, eviscerating trillions of dollars in capital. Recessions typically destroy capital, and the Great Recession was no exception. Afraid of losing again, investors have been reluctant to place new capital at risk. Government spending has since spiraled out of control, absorbing capital from the private sector with the lure of low return guaranteed government securities.

Boosting gross private domestic investment back to 2000, 2005 and 2006 levels, or to between 17.2% and 17.5%, would add as much as 3.4% to GDP growth. But Barack Obama, through a series of temporary measures, coupled with threats of higher taxes, has done little to allay investors fears. So the question today is what can the U.S. government do to encourage more private investment in the domestic economy? Following are three simple policies which can and should be implemented right away.

Pro-Growth Tax Policies

Long-term capital gains are currently taxed at a top rate of 15%, while short-term gains are taxed as ordinary income (at rates ranging from 10% to 35%). At the same time, capital losses are limited to the lesser of $3,000 per year, or up to the amount of concurrent capital gains. Interest income and ordinary dividends are currently taxed as ordinary income, while qualified dividends (paid on stocks held for 60 days or longer) are treated as long-term capital gains and taxed at a maximum rate of 15%.

But this is all subject to change next year – with the rate on long-term capital gains increasing to a maximum of 20%, and the tax on interest, ordinary dividends and qualified dividends all increasing to ordinary rates of between 15% and 39.6%. Until Congress either changes or extends the current rates, uncertainty and flagging private domestic investment will prevail. But a more exigent question is whether taxing any form of return on capital investment is fair. What’s a fair tax for the return on investment?

1. Indexing Capital Gains

As discussed in Part I, in India, capital gains are computed differently than in the U.S. Under India’s tax law an investor is allowed to increase the cost of the original investment by the annual inflation index, before computing a capital gain or loss. Capital gains in Israel are also inflation adjusted. And as stated previously, the following countries don’t tax capital gains at all: Belize, Barbados, Bulgaria, Cayman Islands, Ecuador, Egypt, Hong Kong, Islamic Republic of Iran, Isle of Man, Jamaica, Kenya, Malaysia, Netherlands, Singapore, Sri Lanka, Switzerland, and Turkey. Other countries like Canada, Portugal, Australia, and South Africa do levy a tax on capital gains, but the tax only applies to 50% of the gain.

However, in the United States, capital gains are figured without the benefit of an inflation adjustment. What’s wrong with this? What’s wrong is that the U.S. dollar has lost 96% of its value since the Federal Reserve was established and the Tax Code imposed in 1913. Therefore, much of what is thought of as a capital gain in the U.S. isn’t a gain at all, but rather just the recovery of an amount equivalent to (or in some cases less than) the purchasing power of the original investment.

For example, if you had invested $100,000 in 1981, your investment would have the same purchasing power as $261,497 today. That’s because annual inflation has averaged 3.15% in the U.S. over the last 31 years (calculate it here). So an investment of $100,000, 31 years ago, which happened to appreciate by $161,497, hasn’t really made a dime. Yet the federal government will levy a tax of $24,225 (@ 15%) on the investor as a reward for believing in America. But had the same investment been made in India, Israel, or in any of the other 17 above mentioned countries which don’t tax capital gains, the return on capital would have been tax-free. So what’s a fair share?

Does the USA’s current capital gains policy encourage American citizens and corporations to invest more at home, or to move abroad? The answer should be clear. But making matters worse, the tax rate on capital gains is scheduled to increase from 15% to 20% in 2013. And even worse, Barack Obama is proposing to raise the rate to at least 30% on the “wealthy”, while doing nothing for the other 98% of Americans. But on a brighter note, Mitt Romney would eliminate the capital gains tax entirely on taxpayers with incomes below $200,000, while lowering ordinary income tax rates to between 8% and 28%. Romney is on the right track, but he could go a bit farther.

Why not simply index capital gains to inflation, tax real capital gains at ordinary tax rates, and allow an unlimited amount of real capital losses to be claimed within the year recognized? That way it’s not necessary to play the class warfare game. Making capital gains taxes fairer for everyone is a way to increase private domestic investment and GDP, while at the same time attracting capital back to the U.S. and away from what are currently more just investment havens.

2. No Tax on Interest Income

In the U.S., interest income earned on deposits at banks and credit unions, on money market funds, on bonds, and on loans, such as seller-financed mortgages is taxed as ordinary income, subject to ordinary income tax rates. Interest on U.S. Treasury bonds and savings bonds is taxable for federal purposes, but tax-free at the state level. Interest on municipal bonds is tax-free at the federal level and tax-free at the state level if invested within one’s state of residence. Interest on municipal private activity bonds is tax-free for the regular tax, but is taxable for the alternative minimum tax.

Focusing on taxable interest, when the interest rate earned is less than the inflation rate, why is it considered taxable? If an investor isn’t earning at least the inflation rate, there are no real earnings, since the investor suffers a loss in purchasing power. For example, according to FDIC.gov, the national average interest rate paid on bank savings accounts is currently 0.09%, and the average rate on 60-month certificates of deposit, whether over or under $100,000, is 1.06%. Meanwhile, inflation has averaged 1.81% over the last five years (lower than normal due to the recession). So at today’s interest rates, an investor with $100,000 in a savings account is losing something on the order of 1.71% in purchasing power each year. This adds up over time. At current averages it would amount to loss in capital of 8.55% over five years. And that doesn’t include service charges some banks impose for the privilege of having an account.

Interest rates banks pay today aren’t a reward, but rather a punishment. But as if interest rates aren’t pathetic enough, after losing purchasing power while trying to save a dollar or two, the federal government then levies a tax on the decline in value, ensuring that no American will ever get ahead. The return on U.S. Treasury securities isn't any better. On July 16th, the U.S. Treasury was somehow able to sell 3-year Treasury Notes offering an interest rate of 0.25%, and a yield of 0.366%. That’s laughable especially considering that the interest earned is taxable as ordinary income. Meanwhile, the inflation rate for urban consumers was 2.93% last year, and is expected to reach 3.00% in 2013. Are we paying our fair share yet?

The federal government currently taxes interest income at rates ranging between 10% and 35%, yet those rates are scheduled to increase to between 15% and 39.6% in 2013. Barack Obama’s solution is to do nothing for anyone making less than $250,000, and to raise rates to 36% and 39.6% on those making more. Mitt Romney’s solution is to eliminate the tax on interest for taxpayers with incomes below $200,000, while lowering ordinary income tax rates to between 8% and 28%. But Romney shouldn’t even have to play the class warfare game.

Either taxing interest is fair, or it’s not. And if it’s not fair, then it’s not fair for any American. If the U.S. government is serious about encouraging savings within its borders, then at the very least it will eliminate the tax on interest. It’s that simple. In no case should any investor earning less than the rate of inflation be insulted with an income tax bill. And to be truly fair, a capital loss deduction should be allowed when a long-term saver loses purchasing power by getting trapped at rates below the rate of inflation.

3. No Tax on Dividends

In 2003, President George W. Bush proposed to eliminate the U.S. dividend tax stating that "double taxation is bad for our economy and falls especially hard on retired people." He also argued that while "it's fair to tax a company's profits; it's not fair to double-tax by taxing the shareholder on the same profits." Perhaps he was right.

In Brazil, dividends are tax free, since the issuer company has already paid a tax. In Japan, since 2009, capital losses may be used to offset dividend income. But in the U.S. dividend income is first taxed to corporations at rates ranging from 15% to 35%, before being paid to shareholders. Investors then get hit with a second tax on the same income ranging from 10% to 35% on ordinary dividends, or limited to 15% on qualified dividends (on stock held for greater than 60 days). And income tax rates on dividends are scheduled to increase to between 15% and 39.6% in 2013, on both ordinary as well as qualified dividends.

Naturally, Barack Obama’s solution is to raise taxes on dividends. Obama plans to keep Bush’s lower 10% tax bracket in place, but to raise top tax rates to 36% and 39.6% on those most likely to invest in dividend paying ventures, those making more than $250,000. Mitt Romney, on the other hand, would eliminate the tax on dividends for taxpayers with incomes below $200.000, while lowering ordinary income tax rates to between 8% and 28%. I believe that Romney is on the right track; however, if double taxation is unfair, then it’s just not fair – no matter how much income is involved.

Dividends should either be taxable to the corporation or the individual, but not both. And lest we forget, a tax on dividends may also be punitive, in the sense that when an investor’s returns are lower than the rate of inflation, purchasing power is being lost, not gained. If the government insists on taxing both entities, then the tax should only apply to individuals on the amount of return in excess of the rate of inflation.

Summary

No American should have to pay a tax on capital gains or interest income, unless the return on investment exceeds the rate of inflation. No American should have to pay a tax on dividends when the tax has already been paid by a corporation. Whether it’s easier to just do away with investment taxes altogether is subjective, but I do believe that it’s in best interests of the United States to entirely eliminate them for every American. No American should ever be taxed after suffering a decline in the purchasing power of their capital. At the very least, the basis of capital investments should be adjusted for inflation, and capital losses should be deductible in full and concurrently. If the return on investment is less than the rate of inflation, then there is nothing to tax.

Barack Obama has proposed to do nothing for 98% of taxpayers, and to raise taxes on the investment income of those making more than $250,000. He’s so stuck on the class warfare tack that he has totally forgotten to put anything on the table which would encourage greater levels of savings and investment within the United States. If Obama is somehow successful, I would expect more capital and more jobs to be shipped overseas.

Mitt Romney has proposed policies which will encourage greater savings and investment. Although his plan isn’t perfect, it’s far better than the alternative. Romney would eliminate the tax on capital gains, interest and dividends for taxpayers making less than $200,000. He would also lower the bottom tax rate to 8% from 10%, and top rates to 28% from 35%. Romney’s policies are more likely to retain capital within the U.S. and to attract more from abroad, which will lead to increases in gross private domestic investment, GDP, economic activity, employment and wealth creation.

Related:

Taxing Inflation: Why Americans Invest Overseas

Data: Spreadsheet on Google Drive

Friday, July 13, 2012

Taxing Inflation: Why Americans Invest Overseas

Artificially Raising Taxes Reduces GDP

- By: Larry Walker, Jr. -

"Tax increases appear to have a very large, sustained and highly significant negative impact on the economy.” ~ Christina Romer, just prior to leaving the Obama Administration -

U.C. Berkley Professor and President Obama’s former Chair of his Council of Economic Advisers (CEA), Christina Romer, published a paper in 2010, concluding that a tax increase of 1 percent of GDP, about $160 billion today, reduces output over the next three years by nearly 3 percent, or $480 billion at current GDP figures. And according to the Bureau of Economic Analysis, per capita personal income is currently running at around $37,500. Thus, Barack Obama’s plan to raise taxes on the most productive American citizens would result in a loss of around 12.7 million jobs over the ensuing three-year period. But fortunately, U.S. policy makers aren’t naïve enough to place their trust in the hands of a novice. I wonder what India’s economists think.

In India, GDP is expected to grow by 6.5% this year, and by 7.1% in 2013, or more than 3 times the rate of the U.S. And according to the President of the Confederation of Indian Industry, Adi Godrej, “Artificially raising taxes will reduce GDP.” What he says in the following one minute video should be common sense. To paraphrase Mr. Godrej, ‘The tax to GDP ratio is best increased when GDP growth is good. When GDP growth is good, economic activity, tax collections, and the tax to GDP ratio increase. But it goes exactly the other way when GDP growth slows down. Thus, high rates of taxation are against the interests of the country. Reasonable tax rates with policies designed to increase GDP growth is the best way to increase the tax to GDP ratio.’

U.S. Capital Gains Taxes

In 1997, the Republican-led Congress passed a tax-relief and deficit-reduction bill that was resisted but ultimately signed by President Clinton. One of the things the 1997 bill did was lower the top capital gains tax rate from 28 percent to 20 percent. It was actually the 1997 tax cuts, not the 1993 Clinton tax hike, which produced the boom of the 1990’s. The reduction of capital gains rates encouraged greater investment, which lead to GDP growth, and an increase in both economic activity and tax collections.

The same policy will work today. However, what Barack Obama is proposing is exactly the opposite. Obama’s notion of raising income taxes on some taxpayers, health care taxes on others, and capital gains rates on investors, to name a few, amounts to an artificial tax hike, which most economists agree will result in a reduction of GDP. Thus, Obama’s tax hikes are not in the best interests of the country. But he doesn’t appear to care about our common welfare.

Obama’s policies are admittedly not about economic growth, but rather about furthering his self contrived, yet erroneous, notion of fairness. Yet the truth is that the very concept of taxing capital gains is in itself unfair. The method in which capital gains are calculated in the United States is antiquated, illogical, and actually hinders our ability to reach a full recovery. In order to understand the dilemma, one must put himself in an investors place.

An Example: Let’s say an investor makes a five year commitment to invest $100,000 into a public or private company stock. And let’s say the rate of inflation is averaging 3.0% per year. By the time the investment is sold, what cost $100,000 five years ago, may cost as much as $115,000, due to inflation. So if no gain is realized on the investment, the investor automatically loses $15,000 in purchasing power.

Now let’s assume that five years later the investment has grown from $100,000 to $115,000. Under the current U.S. tax code, upon redemption of the stock, the investor is subject to a 15.0% tax on the gain. A capital gain of $15,000 is calculated by subtracting the amount of the original investment from the sales price ($115,000 - $100,000), and the amount of tax due is $2,250 ($15,000 * 0.15).

So to summarize, an investor made a 5-year investment of $100,000, recognized a long-term capital gain of $15,000, paid a capital gains tax of $2,250, and got to keep $12,750, or 85.0% of the gain. Most people think this is fair enough, but there are a few scoffers out there who think a 15% capital gains tax is too low. So let’s examine the question of fairness.

Most of us are aware that the dollar has lost roughly 96% of its value since 1913 (see chart at the top). With that in mind, if instead of investing the $100,000, as in the example, the investor chose to hide it under a mattress, what would happen? For one thing, no taxes would be due. But at the same time, when the money is spent, 5 years later, its purchasing power will have declined by $15,000, again due to inflation. In fact, the reason most people choose to invest their money is to simply maintain the purchasing power of their savings.

In the example, the investment barely appreciated enough to keep pace with inflation. Therefore, no gain was realized. Inflation ate up $15,000 of the investor’s purchasing power, which was merely recovered through appreciation in the stock. But now along comes the U.S. government to lend a helping hand. And because of its antiquated and illogical tax policies, the federal government levies a 15% tax on what, for all practical purposes, isn’t a gain at all. The government then collects what it deems to be its fair share of a gain, but the investor hasn’t actually gained a dime. In fact, once the tax is paid, the investor realizes a loss in purchasing power. Does that sound fair? Who knew that maintaining the value of the currency in ones possession was a taxable event?

Capital Gains in India and Elsewhere

In India, capital gains are computed differently than in the U.S. Under India’s tax law an investor is allowed to increase the cost of the original investment by the annual inflation index, before computing a gain or loss. Had this been done in the example above, the basis of the original investment would have been stepped up to $115,000 before computing a net capital gain of $0 ($115,000 - $115,000). In India, it is considered unfair to tax someone for merely recouping the inflation adjusted value of an investment. It’s unfair because the sales proceeds of an investment are derived from the current value of the currency, whereas its cost was based on a value that existed in the past (five years prior in the example above).

The following countries are even more progressive, they don’t tax capital gains at all: Belize, Barbados, Bulgaria, Cayman Islands, Ecuador, Egypt, Hong Kong, Islamic Republic of Iran, Isle of Man, Jamaica, Kenya, Malaysia, Netherlands, Singapore, Sri Lanka, Switzerland, and Turkey. Other countries, like Canada and South Africa do levy a capital gains tax, but only on 50% of the gain. A few nations even allow their citizens to defer capital gains taxes entirely by allowing them to rollover their gains into a new investment within certain time frames.

One has to wonder why anyone in their right mind would be encouraged to invest in the United States. Considering that inflation doesn’t stop when an investment is sold, while the money is sitting around waiting for the tax to be paid, it continues to lose value. And once the tax is paid, the remainder continues to diminish in value until it is ultimately reinvested. In light of the colossal decline in the value of the U.S. dollar over the past 100 years, the question we should be asking ourselves is not what rate to levy on capital gains, but rather why the tax even exists?

Pro-Growth Tax Policies

No wonder many Americans choose to invest abroad, and in some cases to renounce their citizenship entirely. These days, if you want a fair shot, and if you want to pay your fair share, you might have to set your sights beyond the shores of the United States. The bottom line is that the U.S. Tax Code needs an overhaul. Our tax policies should be upgraded to something more along the lines of reason and common sense. Like India, we should at the very least index the basis of long-term capital investments to inflation, for purposes of determining taxable gains (and deductible losses). This concept should be applied to all forms of capital investment.

If the federal government refuses to implement policies which encourage GDP growth, then how does it expect the economy to grow? When our wealth is being slowly eroded by inflation, and then we’re taxed on the deteriorating value of our currency, it pretty much makes investing in the U.S. futile. If the federal government wants to encourage investment in the U.S., which is what it should do, in order to stimulate GDP growth and create jobs, then our elected officials should stop talking about raising tax rates on both ordinary income and capital gains, and start discussing ways to lower the tax burden and make our system fairer and comparable to more just investment havens.

Here’s some more food for thought. Why is interest income taxed? When a saver is earning less than 1.0% at a domestic bank, while inflation is running at more twice that rate, why is the federal government entitled to any part of what amounts to a decline in purchasing power? What you earn on a bank account these days isn’t interest income; it’s more like a taxable capital loss. What about dividends? Dividends are already taxed once at the corporate level, are not deductible by corporations for tax purposes, and then are taxed again after distribution to the investor (double taxation)? Taxing interest and dividends isn’t fair either, and the practice should therefore be repealed.

No American should ever have to pay a tax on capital, especially when upon its return the inflation adjusted value is the same or less than the original amount. Is the U.S. taxing the eroding value of the dollar because it makes sense, or perhaps because when the tax code was conceived no one anticipated that the dollar would lose 96% of its value over the ensuing 100 years? If you think our current method of taxing interest, dividends and capital gains is fair, then please explain your reasoning. If you think that taxing the deteriorating value of the dollar is a way to foster economic growth, then why has real GDP growth only averaged approximately 1.5% in the United States over the last 12 years?

"Action expresses priorities." ~ Mahatma Gandhi

References:

India Tax Laws and Tax System 2012

Tax Rates in India

India Mart – Computation of Capital Gains

Nine Million Dollars – Long Term Capital Gains Tax (LTCG) on Property Sale

Heritage Foundation - Tax Cuts, Not the Clinton Tax Hike, Produced the 1990s Boom

Wikipedia – Capital Gains Tax

Related:

Private Equity vs. Government Redistribution

Real Tax Reform II: Taxing Corporations

Monetary Reform, Part I | End the Debt

Friday, July 6, 2012

U.S. Jobs Deficit Grows by 47,000 in June

Going Around in Circles

~ “If you're lost in the woods and you feel like you're walking in circles, you probably are.” ~ Discovery News

- By: Larry Walker, Jr. -

According to the Economic Policy Institute (EPI), the U.S. economy needs to create a minimum of 127,000 each month in order to keep pace with population growth. And based on today’s Employment Situation Report, the economy created just 80,000 jobs in June. That means the jobs deficit increased by another 47,000 last month. Yet, according to Barack Obama, "That's a step in the right direction.” However, according to economic common sense, it’s another step towards stagnation, then decay and dissolution.

He added, “We can't be satisfied because our goal was never to just keep on working to get back to where we were back in 2007.” So according to Obama, his goal was never to just keep working to get back to where we were in 2007, a day when we had 4,805,000 jobs more than we have currently. “I want to get back to a time when middle-class families and those working to get into the middle class have some basic security,” he said. We are left to wonder what time that was – the 1920’s, 50’s, 60’s, 80’s, 90’s, or the 2000’s. But based on the latest jobs report, that time could have been any year prior to Obama’s term.

Returning to December of 2007, the month the last known recession began, and applying the Economic Policy Institute’s (EPI) estimate — that we need to create a minimum of 127,000 jobs each and every month to keep up with population growth — we discover that the jobs deficit, since then, has grown to 11,790,000. The deficit stood at 5,165,000 jobs when Obama was inaugurated, and has since grown by an additional 6,625,000. So does that sound like, “a step in the right direction?”

As you can see graphically in the chart above, the jobs deficit has little changed since left-wing Economist Paul Krugman’s December of 2009 assessment. According to Krugman, to be meaningful, the economy needed to add 300,000 jobs a month, from the end of Obama’s 11th month in office, through December of 2014. But since then, as shown in the corresponding table, the jobs deficit hasn’t decreased at all.

Last month, according to the Bureau of Labor Statistics, the U.S. economy created a mere 80,000 jobs, on top of a revised 78,000 in May, and 68,000 in April. But the economy needs to create 127,000 jobs a month just to keep pace with population growth. So that means we’ve fallen 156,000 jobs farther behind over the last quarter. In fact, at last quarter’s pace, the U.S. will find itself another 3,120,000 jobs in arrears in another 5 years (156,000 jobs * 20 quarters). We know that any result short of a 127,000 monthly increase in Nonfarm payroll jobs adds to the current jobs deficit, but we should be mindful of an even more important statistic: The number of jobs we need to create each and every month, in order to catch up.

New Jobs Benchmark

When we tweak Krugman’s December 2009 benchmark with the latest figures, we discover that to be meaningful, the number of jobs needed to return to more or less full employment by December of 2014, or within 2 ½ years is now 520,000 jobs a month, as follows:

  • In order to keep up with population growth, we would need to create 127,000 jobs times 30 months, or 3,810,000. Add in the need to make up for lost ground and we’re at around 15,600,000 (3,810,000 + 11,790,000) over the next 30 months — or 520,000 jobs a month.

However, if we just simply write-off Barack Obama’s last 3 ½ years as a foolish, but costly experiment, and extend the target date out another 5 years, or through June of 2017, then we come up with 323,500 jobs a month, as follows:

  • In order to keep up with population growth, we would need to create 127,000 jobs times 60 months, or 7,620,000. Add in the need to make up for lost ground and we’re at around 19,410,000 (7,620,000 + 11,790,000) over the next 60 months — or 323,500 jobs a month.

In other words, we aren’t moving in the right direction, we’re going in circles. Since the economy now needs to create 520,000 each and every month to be on a track towards full employment within 2 ½ years, or 323,500 jobs each and every month to be on track towards full employment within 5 years, Obama’s record of 80,000 jobs in June has only pushed us farther away from the mark. In fact, as I alluded to above, instead of heading towards full-employment, we are currently on track towards increasing the jobs deficit by another 3,120,000 jobs over the next 5 years.

The Bottom Line: As each month passes in which fewer than 127,000 jobs are created, the goal of full employment is pushed farther away. When Barack Obama was sworn into office, the U.S. was running at a deficit of 5,165,000 jobs, but since then the deficit has increased by an additional 6,625,000 jobs (see table). So we are NOT moving in the right direction, no matter what Barack Obama thinks. We’re just going around in circles. The Spiritual Principle behind Step One in any recovery program is Honesty. When Barack Obama says we are moving in the right direction, he’s not being honest with himself, or with the American people.

Photo Credit: Mr. Barlow’s Blog - Are you going round in circles?

Data: Worksheet on Google Docs

Related: The Real Jobs Deficit | Moving in the wrong direction.

Sunday, July 1, 2012

Economic Dependence vs. Independence, Part 2

* Continued from Part 1 *

School #2 – Higher Income Tax Rates

Within the second school of thought, Barack H. Obama speaks as though something most of us believe in no longer exists, or is at threat of extinction. According to Obama, ‘the idea that if you work hard, you can do well enough to raise a family, own a home, and put a little away for retirement’ is at risk, and that ‘this is the defining issue of our time’. But what he doesn’t understand is that like God, natural rights and divinely inspired ideals never change. The basic ideal Obama is referring to is called freedom. So is our freedom suddenly at risk of extinction? If it were, could it possibly be restored by raising taxes on the most productive members of our society?

“What’s at stake is the very survival of the basic American promise that if you work hard, you can do well enough to raise a family, own a home, and put a little away for retirement. The defining issue of our time is how to keep that promise alive. No challenge is more urgent; no debate is more important. We can either settle for a country where a shrinking number of people do really well, while more Americans barely get by. Or we can build a nation where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules. At stake right now are not Democratic or Republican values, but American values – and for the sake of our future, we have to reclaim them.” ~ Barack Obama, January 24, 2012. Blueprint for an America Built to Last.

Newsflash: We are still free. The American Dream has been in existence ever since our Founding Fathers penned the Declaration of Independence. There’s a reason it wasn’t named the ‘Declaration of Dependence’, for that is what we were delivered from. The Declaration of Independence in itself is the only blueprint America will ever need. It doesn’t guarantee anyone success, but it does allow us the freedom to succeed by any means we deem necessary. For those who want to do well enough to raise a family, own a home and put a little away for retirement, lower across the board tax rates are the way to go. But entrusting more of what money one is able to garner to a wicked and lazy servant, such as our current bloated federal government, is of no use towards that end.

Big government is like the servant who was given one talent, except instead of burying and returning it to his master; he spent it, then borrowed another in his master’s name, and spent that as well, returning to his master a bill for two additional talents. Under the second school of thought, we’re taught to take from those who are productive, to throw it away, and then borrow more in their name, eventually turning them from free men into indentured servants. So although no man can take our freedom from us, we can voluntarily give it away. How is an economy supposed to grow when resources are taken away from its most productive members, and squandered?

For this lazy and wicked government, one dollar is too many and a thousand is never enough, so why is it deserving of anything at all? We entrusted the federal government with a $2,600,000,000,000 surplus of Social Security savings, yet where is it today? It’s now part of the $16,000,000,000,000 national debt, the portion of which the government claims to have borrowed from itself. And who will the government get the money from to pay back what it has borrowed from itself? The government will return to those same productive members of the private sector and demand even more. How dare you! It’s time to identify those who are responsible and throw those worthless servants outside, into the darkness!

U.S. taxpayers will have given the current administration over $10,000,000,000,000 during its recent four-year term, and where is that? Did the government return it two-fold? Did we even get back the flaunted $1.79 we were promised for each dollar spent on unemployment benefits and food stamps? No. Not only has the government squandered every dime, but it has handed us a bill for an additional $6,000,000,000,000 in accumulated debt. You know we’re gonna identify and throw each and every irresponsible, lazy and wicked government servant out into the darkness, from the top down.

Conclusion

Under the morally correct theory, tax cuts lead to a smaller government and more private sector freedom, allowing productive men and women of all races and backgrounds to create wealth, by leveraging their own resources. But under the morally bankrupt theory, wealth is never created with resources handed out through redistributive schemes, as redistribution merely keeps its recipients poor and dependent, while robbing society’s most productive members of their capital.

Put another way, every man and woman is endowed by their Creator with certain talents, but not everyone achieves equal results – some produce thirty fold, some sixty, and some one hundred fold. This has been true since the beginning of creation. But then there are those rare birds, who not only squander the talents entrusted to them, but incur huge deficits along the way, some thirty, some sixty and some one hundred fold. Because these wicked and lazy servants seek to drag as many as they can latch onto down with them, they must be cast out.

The radical left thought it could rewrite American history, within a couple of years, by conning us into believing that we had lost something which, in reality, has always been in our possession. But radical left-wingers are severely misguided. Our freedom will not be taken away without a fight. America didn’t need a new blueprint. What we needed four years ago is the same thing we need today, someone to execute the blueprint written by our Founding Fathers 236 years ago. Therefore, the radical left-wing must be expelled. In conclusion, the centre-right philosophy is more in line with what America needs today: lower taxes, less government, and more economic freedom.

“In the last times there will be scoffers who will follow their own ungodly desires. These are the men who divide you, who follow mere natural instincts and do not have the Spirit.” ~ Jude 1:18-19

“He who has ears, let him hear.” ~ Matthew 13:9

Photo Credit: Baruch College Blogs - Remembering What Was Meant To Be Forgotten

References and Related:

Economic Dependence vs. Independence, Part 1

Exxon Mobil SEC Filings

Obama's 1950s Tax Fallacy

Saving Our Way to Prosperity

Obama’s Failed Jobs Subsidy | 99 Weeks

Private Equity vs. Government Redistribution

Tax Virtue: The Golden Mean

Economic Dependence vs. Independence, Part 1

Two Schools of Thought

* By: Larry Walker, Jr. *

“Again, it will be like a man going on a journey, who called his servants and entrusted his property to them. To one he gave five talents of money, to another two talents, and to another one talent, each according to his ability. Then he went on his journey. The man who had received the five talents went at once and put his money to work and gained five more. So also, the one with the two talents gained two more. But the man who had received the one talent went off, dug a hole in the ground and hid his master’s money.” ~Matthew 25:14-18

One interpretation of the Parable of the Talents is that the master is an employer who hired three workers and paid them different amounts according to their ability. The first two workers were productive, doubling their employer’s investment. The third didn’t like the employers pay structure, and chose not to work, giving up a potential paycheck. In the age we live in today, the era of big government, government is the new master. An oversized government takes the eight talents from the employer in taxes, before it can employ anyone, redistributes one talent to each of the unemployed, and then squanders the rest on worthless thingamajigs. In the following year, bloated government returns, and demands of the employer another eight talents to do it all over again. Eventually the employer moves to Costa Rica to get away from its oppressive master, and big government goes bust.

School #1 – Lower Income Tax Rates

In the first school of thought, the words of former President’s John ‘Calvin’ Coolidge, Jr., John F. Kennedy, Ronald W. Reagan, and George W. Bush forever live, reminding us that high income taxes are the single largest barrier to job creation and economic growth. And if we don’t lack job creation and economic growth today, then what do we lack – higher taxes and more social welfare benefits? Perhaps we should listen more to reasoned voices from America’s past, and pay less attention to the failed Western European influenced bloviating of the present.

“There is a limit to the taxing power of a State beyond which increased rates produce decreased revenue. If that be exceeded intangible securities and other personal property become driven out of its jurisdiction, industry cannot meet its less burdened competitors, and no capital will be found for enlarging old or starting new enterprises. Such a condition means first stagnation, then decay and dissolution. There is before us a danger that our resources may be taxed out of existence and our prosperity destroyed.” ~ Calvin Coolidge, January 8, 1920. Address to the General Court beginning the 2nd year as Governor of Massachusetts.

"The largest single barrier to full employment of our manpower and resources and to a higher rate of economic growth is the unrealistically heavy drag of federal income taxes on private purchasing power, initiative and incentive." ~ John F. Kennedy, Jan. 24, 1963. Special message to Congress on tax reduction and reform.

“We don't have a trillion-dollar debt because we haven't taxed enough; we have a trillion-dollar debt because we spend too much” ~ Ronald Reagan - 40th US President (1981-1989)

“He said, tax the rich. You've heard that before haven't you? You know what that means. The rich dodge and you pay.” ~ George W. Bush - 2004

Across the board income tax cuts always deliver results, as they allow productive members of society, from all races and social classes, from the least to the most productive, to earn and keep more of their own money. As this phenomenon occurs, those affected are incentivized to produce, consume, save and invest more. The resultant growth spills over into the broader economy allowing nonparticipants to reenter the workforce, or enter for the first time. This concept was good enough for Coolidge, JFK, Reagan and G.W. Bush, whose across the board tax cuts delivered for each an era of relative growth and prosperity for millions of Americans. So what’s the excuse today? For answers, we return to the Parable of the Talents:

“Then the man who had received the one talent came. ‘Master,’ he said, ‘I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. So I was afraid and went out and hid your talent in the ground. See, here is what belongs to you.’ His master replied, ‘You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest. Take the talent from him and give it to the one who has the ten talents. For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him. And throw that worthless servant outside, into the darkness, where there will be weeping and gnashing of teeth.’” ~ Matthew 25:24-30

The radical left believes that if the servant who was given one talent had instead been given two or five, he might have been as productive as the others. Although some would think this a possibility, it wasn’t likely, for in the parable, each was given an amount according to his ability. The worthless servant simply proved himself to be lazy and wicked. But instead of casting him out into the darkness, the radical left, which has become a bastion of the lazy and wicked itself, believes it is the responsibility of the productive to provide sustenance for those unwilling to work.

The moral of this story is that when the free market is given liberty to place money into the hands of the fruitful, it benefits all who are willing to participate. So politicians who constantly clamor for higher taxes on more productive persons, including corporations, have it backwards. The lesson teaches us that when resource allocators are allowed to direct their own capital at will, jobs are created and the economy grows. It also teaches us that when wicked and lazy people are given an opportunity to succeed, they instead run and hide.

Taxes are too high!

The point is not that we are a nation of wicked and lazy people, but rather that income taxes are still, after all the lessons learned throughout American history, way too high. Yet the government demands more. Today, the minimum income tax rate in the United States is 10%. But add to that 13.3% in mandatory Social Security and Medicare taxes, and lowest rate is really 23.3% (25.3% in normal years) for most Americans. Even the poorest working person in America has 13.3% of their income confiscated from each paycheck (7.65% of which is paid by their employer). Compare this with Coolidge’s bottom tax bracket rate of 1.5% in the mid 1920’s, an era which predated the imposition of Social Security and Medicare taxes, and you begin to understand the dilemma. In fact, the top tax rate in the 1920’s was 25.0%, which is less than the 28.3% paid by most in the middle class today (a 15% income tax, plus 13.3% in Social Security and Medicare taxes).

These days, the American middle class muddles along after handing around 30.0% of its income over to the government, while those who are more productive are forced to give up as much as 45.0%. Yet the government demands more. If you take a moment to contrast the minimum income tax rate of 1.5% in the mid-1920’s with today’s minimum rates of 13.3% to 23.3%, you will understand the real disparity. Looking back through American history, it is clear that we suffer not so much from income disparity, as from an income tax disparity. In other words, we are much poorer than our ancestors.

In the mid-1920’s, our great grandparents worried about paying income tax rates ranging from 1.5% to 25.0%, while today we are forced to contend with taxes ranging from 13.3% to 45.0%. We worry about how much the government will confiscate beyond a virtually guaranteed minimum rate of 13.3% of the first $106,800 in earnings, which is 886.7% higher than our ancestors lowest tier. As things stand today, the government isn’t giving us anything; instead it is taking our talents and burying them under a pile of debt. So by lowering income tax rates across the board, the government won’t be giving anything to anyone, but rather proportionally reducing the amount it already takes from everyone.

The Exxon Mobil Fallacy

For example, many on the radical left routinely spout off, that since Exxon Mobil Corp made $42 billion in profits last year, more should be taken away from it and given to the government. While it’s true that Exxon Mobil earned net after-tax profits of $42.2 billion in 2011, the company actually made a profit of $146.7 billion before taxes. That is to say, once you deduct out $33.5 billion in sales based taxes, $40 billion in other taxes and duties, and $31 billion in income taxes, it was left with $42.2 billion (see income statement below).

In effect, Exxon Mobil paid 71.2% of its pretax profits, or $104.5 billion, in sales based taxes, other taxes and duties, and income taxes, before it was able to take home 28.8%, or $42.2 billion. If 71.2% isn’t enough for left-wing radicals, then how much is enough? Is profit a dirty word? Exxon Mobil is a producer, and the more leeway granted to the productive, the more wealth is created. If the government takes even more capital away from producers like Exxon, who would radical left-wingers propose it be given to? Is there another entity around that can turn higher profits than Exxon Mobil? Left-wingers have it all backwards.

The radical left surmises that we should take more away from Exxon and give it to the government, so that the government may in turn give a small penance to nonworking, nonproducing members of society, and squander the rest. They propose to take away more of Exxon Mobil’s resources and incentives because the company and its industry return large profits. But the morally correct thing to do is to take more away from the nonproductive, like our debtor-government in Washington, DC, and let companies like Exxon Mobil go gangbusters. Would you rather invest your money in Exxon Mobil’s stock, which is paying a better than $8 per share dividend, or in the U.S. Government, which is currently running a debt per U.S. taxpayer of $139,000 (subject to increase each second)? This should be a no-brainer.

Continued … Economic Dependence vs. Independence, Part 2

Photo Credit: Baruch College Blogs - Remembering What Was Meant To Be Forgotten

References and Related:

Exxon Mobil SEC Filings

Obama's 1950s Tax Fallacy

Saving Our Way to Prosperity

Obama’s Failed Jobs Subsidy | 99 Weeks

Private Equity vs. Government Redistribution

Tax Virtue: The Golden Mean