Bible Freedom Science: Shell Game TaxesCopyright © 2012, Charles Johnsen

Guess Who Pays All the Taxes?
You Do.

The Progressive Income Tax is Shell Game

The progressive income tax is a lie. We all end up paying all taxes. The money spent by Congress, all of it, comes out of your wallet one way or the other.

The high percentage income taxes paid by rich people are built into the retail prices we pay for everything. It makes no difference who writes the check to the IRS. Corporations, business people, and wealthy stock owners are tax collectors, not tax payers. They pass along their entire tax bill as a cost of doing business to their customers: you and me. One way or the other all taxes on employment, production, and investment are passed along to consumers and become hidden sales taxes.

In theory, an income tax is a fair way of raising revenue for government. Another fair way is an sales tax. But the fairness of these taxes depends on three things: that 1.) the rate is the same for every dollar of income or spending for everybody and that 2.) the rates are low, which means that government spending on every level must be low. 3.) who is actually paying and how much they are paying is clear and honest. None of these are true for our antiquated, complicated, irrational tax system in the United States of America. The progressive income tax is a fraud.

Spending is the real problem. It makes no difference whether the spending is funded by debt, inflation, or tax revenue. When the spending is too high the natural, private economy is shrunk, which means less tax revenue is available for spending, which makes the situation even worse. So-called stimulus spending causes depressions.

If the spending is funded by government debt, then it is harder for business to borrow for expansion and few wealth generating jobs are created. The only jobs saved or created are government jobs, which are a net loss to the economy because they produce nothing of value, or even impede the creation of wealth in the private economy because what they do produce is useless or harmful. Police, fire fighters, and soldiers are not the problem and (assuming we dispose of paternalistic pensions, benefits, and seniority based salaries) can be supported by taxes without difficulty. But there are few others in government who create or protect wealth and almost all government personnel spending hurts the natural economy of making, selling, and buying privately.

Forget government, even consumer debt may have a negative effect on wealth production. Credit card balances, mortgages larger than the household income can support, and consumer loans for cars, boats, and other toys beyond the reach of cash payment may increase demand but at the same time make the capital necessary to meet the demand scarce. That will cause price inflation and freeze business and product innovation because the person with a new idea or invention cannot find investment money and established companies have no incentive to improve. Investors will go for the easy money and make bank deposits instead of investments in business. All government polices that encourage debt, especially the mortgage tax deduction, while they may work to increase demand for a while, will always end up in disaster. And the worst bubble creating polices are the brain dead federal reserve bank's (I cannot bring myself to capitalize those words) artificial interest rates and reserve rules. The good effects never last longer than the next election and the bad effects last forever.

Funding government spending by inflation is a dastardly fraud. Every dollar in every saving account is reduced in value, a hidden tax on savings. Every dollar in every pay check, not just the big pay checks, is reduced in value so that gas and food and rent cost more and more while our earnings are less and less. Inflation is a tax but it is regressive, not progressive, and hurts you and I way more than it hurts a fully invested stock owner. When you see the stock market averages rising do not assume the economy is getting better, it may only be smart people buying stock to hedge against the inflation they believe is coming. Sooner or later wages will also increase but that will jack up prices even more and begin a cycle much like the swirl in a toilet as our whole economy is flushed away. The federal reserve bank historically supports the foolish spending of Congress by reducing interest rates to banks which puts more money into circulation, which is the definition of inflation.

The flushing toilet is a nearly perfect analogy to monetary inflation. The toilet bowl has a siphon built into it that will suck all of the water out of the bowl when it is activated. We have all heard the toilet cough as the last few cups of water leave the bowl. Before the siphon is activated there is a balance where a little extra water into the bowl drains out through the siphon without activating it, maintaining a constant level in the bowl. How is the siphon activated? The much larger amount of water in the tank is dropped suddenly into the bowl. The very fast increase in water level over the siphon's activation level initiates the flush. Just so, dumping funny money into the economy will suck all of the value of our currency into the sewer. So it is true, a plumber is a better economist than a politician.

Tax revenue is different from tax rate. Revenue is the total amount of money that the governments, state and federal, collect. The tax rate is the percentage charged to each individual income. The easy example is that a one hundred or ninety-nine percent tax rate would produce zero revenue because everybody would stop working, saving, or investing. Or everything would become a black market and no taxes would be collected. Likewise, a zero or one percent tax rate would produce no revenue. But there is a point where a tax rate will produce the maximum revenue for the government. American politicians usually peg this amount at a little under 20%, but this ignores the tax rates of the states and cities and the other hidden taxes on corporations or other economic activity. Personally, I believe that the total tax bill for everyone should be no more than ten percent of total income. And I believe that this would actually increase the revenue to the government because of the enormous amount of economic activity that would be unleashed. Fifty percent of a one trillion dollar economy would give the state five hundred billion dollars to waste. Ten percent of a five trillion dollar economy would give the state the same income but all of the rest of us would be better off by a factor of nine. Of course, the only way to see this benefit is to cut spending to ten percent of whatever the total of all individual incomes is. History is on my side, especially the four years when the Democrats held the House of Representative and made the opposite experiment.

So, pass a Constitutional amendment that limits tax rates? It will not help. We can also abolish the federal reserve bank and forbid government debt. It will not work. Not the best, the only solution, is to limit government spending. Nothing else will work because one way or the other when the elected officials spend money, it is your money, not some rich guy's money.

But, after all, what harm is done if the rich pay a larger percentage than the poor? Even if the poor are actually paying the tax when they buy stuff from the rich guy, what is the problem?

The vote. If people believe that they get stuff from the government for free, that some one else is paying, they will vote for that representative, senator, or executive who promises them the most. Free food, free housing, free education, free unemployment money. What is next? Free wide screen TV, free car, free vacation in Greece? This category of foolishness also includes all minimum wage laws, which are really a kind of tax on those who buy stuff. This category of foolishness also includes the out right lie that government spending is able to increase private economic activity. I said lie.

A nearly perfect example of these economic principles is the coming effects of the falsely named Health Care Reform Act. It is actually the Health Care Rationing Act. The illusion that somebody else will pay for my health care is maintained by hidden taxes, rationing, third party payments, and price controls. The best outcome, if this tragedy continues, is a black market in health care. The worst is a police state, which is the only way this obscene plot against ordinary people and their natural economic systems can be continued.

Ultimately the worst effect of government spending while lying about who pays for it is the effect on individual character. Free people, responsible for themselves and their families, will be turned into serfs owned by this or that political party. Too many of us have already abandoned the American ideal.

We know enough not to play the shell game on a sidewalk. We know we always lose in end. So why do we keep playing the Who pays the taxes? shell game?