Monday, January 12, 2009

We tax all the others and pass the revenue on to you

The world economy is contracting. Will there be enough money to do all the things we've come to take for granted? Europe is already suffering from Russia's energy aggression as Russia has successfully changed its position from being an energy market player to being the market. There's no other way to understand 232% increases in the wholesale price of natural gas to Ukraine. Well, that and Viktor Yushchenko is pro-west.

If it's true that economic expansion if fueled by "new money" -- money that is created by successful cutting-edge innovation and investment -- then where will our new money come from now? And if there is no new money, how will we fund what used to be discretionary spending?

There are going to be tax increases, no matter how much you make or who you voted for or what you believe about how much government should spend and on what. They're coming because the new administration can't be seen to back off on its promises to tax everyone but you.

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Consumption taxes? Lots of noise about consumption taxes these days. VAT, national sales tax, things like that. Accompanying clamor about how much such taxes might raise. $500BB from a 5% national consumption tax of some sort according to one estimate. It's regressive, sure, imposing similar tax rates on dissimilar income groups, even after allowing some "critical" items to be exempt. But you didn't really think the poor and middle class weren't going to kick in a share did you? They will, despite assurances of tax cuts for 95% of American families. Wait and see on this one. Tax cuts for the poor and middle class? Sucker.

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Sin taxes: Write it down in BIG letters. If you engage in any sort of behavior that is seen by someone else as socially undesirable -- smoking, drinking, gambling come to mind -- the government will think the harder it is to defend the easier it will be to tax. Big increases are coming for all the traditional sin taxes. If you make your living catering to any of those penchants, think about a career change.

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Fun taxes: If you enjoy something that not everyone can enjoy, the more restricted it is the easier it less will be the opposition to taxing it. Yachting? Travel? Fast cars? Doesn't matter what, you're going to pay more than your fellow cubicle-dwellers when you do it.

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Dems and Repubs alike, we just ponied up $800BB or so to shore up failing giants or stimulate the economy or whatever, with massive amounts more coming within days. Now Fortune tells us today ... Um, it's gonna be a while before that starts to work. It is? We're spending -- call it a trillion and try not to cry -- and it's gonna take a while? How much would it take to start it working today? We're spending a tril and no one is demanding anything to show for it? Are you freakin' kidding me? No wonder some of it is going for dividends and bonuses for failure. No one is saying STOP!

But hey, no sweat, Ms. Pelosi will make up for it by repealing tax cuts for the rich. Down with TCFR! Let's review how that's going to happen, according to her: restore upper tax rates to 35 and 39% from 33/35. But since that's a net tax revenue reducer, not an enhancer, you can't get there from here. "Run that by me one more time." (Willie Nelson again.)

Nancy Pelosi: Making America pay for California.

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If we could tax without consequence we would just raise taxes to meet our budget requirements, right? But that isn't the way it works. The wrong people wind up paying disproportionate taxes, people with money don't invest it, even move it out of the reach of government, productivity declines, along with revenue.

Then what? If some tax cuts increase revenue, isn't it rational to cut those taxes and enjoy the increased revenue? The current answer seems to be, not if it looks unfair to an influential voting bloc.

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