Saturday, January 30, 2010

Rent & Taxes

One of Debra Medina's goals as governor is to eliminate property taxes. It seems that the conventional thinkers have a knee jerk, negative reaction to the idea but it's probably because they haven't thought it through. I haven't read much about the idea, pro or con, so I decided to do my own thinking and work through the concept just from what my personal impact might be. 

One argument I heard was that abolishing property taxes would adversely impact the working class. Let's look at that for a moment. First of all, everyone pays property taxes, working poor or not. Whether their income is from a welfare check, an unemployment check or a pay check, if a person shops at a merchant, any merchant, whether it's Wal-Mart or the local thrift store, they're paying property tax on the building and contents of that property. Every business has to pass along it's operating costs to its customers in order to survive. Usually, there will be a profit figured on top of the cost. In other words, a business makes money on property taxes and that money comes out of consumer's pockets. 

Here's another example: We own an inexpensive rent house, the sort that a $30,000 a year or so family might rent. $150 per month of our rent is what it takes to cover property taxes, without even figuring a profit or handling fee. That's $1,800 per year, or 6% of their income on property taxes. That's over 3 weeks pay just to cover the taxes on a property that they don't own. 

Government, even limited government, needs revenue so without property taxes, we would need to recapture some revenue. The number I hear is something like 14% or so. Currently, the state sales tax is around 6.25%  so we would be seeing an additional 7.75% on taxable purchases. I don't know if the current list of tax exempt purchases would be modified but I'm going to estimate that a $30,000 family might spend about 1/2 their income on taxable purchases. That's less than $1,200 so they've saved over $600 just on my property taxes (not to mention benefiting from lower prices at retailers who no longer have to pay tax on dirt). Not only that, if they're paying rent, the tax cost is the same regardless of how they manage their expenses. 

We would have to structure our government budgets so that it can retract with the economy since tough times would reduce sales tax revenues? Is that a bad thing? Wouldn't that be better than having a fixed property tax rate which causes property owners to lose their capital just because the economy is struggling?

This is as far as I'm going to go on this interesting installment. So far, sales tax is a win for the working class. 

Other ideas I want to explore:

Sans property taxes, would it be easier for businesses as well as private individuals to amass capital which would ultimately help moderate the economy's ups and downs?

Cities use property tax abatements in order to attract jobs creating businesses. Does this give us a clue about fostering a job creation environment?

When Texas capped property tax rates, taxing authorities began a rush to re-evaluate property values (just before the real estate bubble burst). Didn't they just create tax revenue out of thin air?

What if sales taxes were apportioned more to the cities generating them? Would that turn cities into consumers, rather than beggars?

What if there were sales taxes on property sales as well as tax increases on automobile sales and other capital investments?

Should we stop exempting churches and other philanthropic organizations from sales taxes?

I hope to explore these ideas and welcome your comments. 

Friday, January 15, 2010

Some pigs are more equal than others

Rationing exists in our current health care process and rationing will exist in any health care system operated by any government. This is a simple reality: When there is a limited supply, there will always be a method for rationing it. In a totally free market (our current system is nowhere close to fitting that definition) dollars take care of the rationing question. People with more dollars get more service. It sounds cold, perhaps even brutal, but that's the way it is. But a government operated system must also manage a limited supply. Instead of rationing based upon the dollars of patients, it's rationing will be based upon other economic factors. For example -- which makes more economic sense: Spend tens of thousands on a 10 week premature crack baby or spend tens of thousands of dollars on a kidney transplant for a 70 year old diabetic? Or, perhaps neither should get care and those dollars should be spent on a thousand healthy school aged children in order to assure they grow up to become productive members of society. Someone has to make a decision, someone is going to call that decision biased and unfair. Someone wins, someone loses. We can't have it all. 

As Democrat leaders scramble to push their system upon an unwilling body politic we get a glimpse of how the real rationing will take place. Observe the special deals made with various states in order to get a vote. Observe the special deals exempting union members from taxes on their free market insurance policies. Observe the penalties placed upon individuals who choose to have a better health plan, or no health plan at all. You see, dollars still rule the rationing process. Only now, it's dollars that are translated into political contributions and favors. Rationing will be decided by bribery. Rationing will be managed by a ruling class. 

You see, in the quest for equal treatment we will inevitably and irrevocably find that, just as George Orwell noted in "Animal Farm," some pigs are more equal than others. 

Thursday, January 14, 2010

Laissez-nous faire!

The following is an extended quotation followed by a few comments:

Since "economic growth" is today's great problem, and our present Administration is promising to "stimulate" it -- to achieve general prosperity by ever wider government controls, while spending an unproduced wealth -- I wonder how many people know the origin of the term laissez faire?

France, in the seventeenth century, was an absolute monarchy. Her system has been described as "absolutism limited by chaos." The king held total power over everyone's life, work and property -- and only the corruption of government officials gave people an unofficial margin of freedom.

Louis XIV was an archetypical despot: a pretentious mediocrity with grandiose ambitions. His reign is regarded as one of the brilliant periods of French history: He provided the country with a "national goal," in the form of long and successful wars; he established France as the leading power and cultural center of Europe. But national goals cost money. The fiscal policies of his government led to a chronic state of crisis, solved by the immemorial expedient of draining the country through ever-increasing taxation. 

Colbert, chief advisor of Louis XIV, was one of the early modern statists. He believed that government regulations can create national prosperity and that higher tax revenues can only be obtained from the country's "economic growth"; so he devoted himself to seeking a "general increase in wealth by the encouragement of industry." The encouragement consisted of imposing countless government controls  and minute regulations that choked business activity; the result was a dismal business failure. 

Colbert was not an enemy of business; no more than is our present Administration. Colbert was eager to help fatten the sacrificial victims -- and on one historic occasion he asked a group of manufacturers what he could do for industry. A manufacturer named Legendre answered "laissez-nous faire!" ("Let us alone!"). 

Apparently, the French businessmen of the seventeenth century had more courage than their American counterparts of the twentieth, and a better understanding of economics. They knew that government "help" to business is just as disastrous as government persecution and that the only way a government can be of service to national prosperity is by keeping it's hands off. 

Would you believe this is from an L.A. Times column? It was published in 1962, written by Ayn Rand. 

What was true in the seventeenth century was true in the 18th, 19th, 20th and remains true today. Whatever prosperity the U.S. of A. has achieved in its short lifespan has been in spite of the government, not because of it. Though there are myriad examples of "government help" I just want to mention one item to be watching for: The aftermath of the bailout/stimulus spending.

Over a trillion unproduced dollars have been created out of thin air in order to save institutions that are too big to fail. In conjunction with this "salvation," another trillion of "stimulus" has been created in order to keep the people working. The inevitable result of this action will be inflation and even though the Fed will attempt to forestall it, significant inflation will come. In fact, the first harbinger has already arrived and you can see it in the "good news" on Wall Street. 

Here's how it works: At the moment the bogus money is created out of thin air, it has the same purchasing power as the money that is already in circulation. This means that the biggest beneficiary of the phony money will be whomever gets to use it first. Wall Street and the bankers are very close to the top of the feeding chain so they'll get to take advantage of the funny money at full value, or near full value which means that the "fat cats" literally get the fattest prime cuts of the new money. But as this uncapitalized cash begins to trickle down through our economy, inflation begins to take its toll  because bad money (meaning money that is worth less) drives out the good money (capitalized money). 

And who gets stuck holding the worth-less money? You guessed it. . . we, the people. You don't have to believe me -- in fact, I want you to prove me wrong. Here's how to do it: Make some notes about pricing on a couple of dozen of your most commonly purchased items -- fuel, utilities, groceries, clothes -- whatever you think you need in life. Watch as the prices of these items climb. Your paycheck will increase too ( as will your taxes) but it will rise after your expenses rise, not before. In other words, we, the working people get caught with the worth-less money.  Compare your commodity notes in January 2011 and January 2012 and you'll see a significant erosion of the value of your dollar. Usually, this happens so slowly we don't even notice the robbery that's taking place but sometimes it's like an explosion. Either way, as the money inflates, the gap between the Wall Street "haves" and the Main street "have nots" will grow larger and larger. Count on it. As this government assistance progresses you can count on greedy capitalism getting the blame for "oppressing" the poor as the gap grows ever wider. Less prosperity, a bigger difference between the haves and have nots, and the government will say once again: "Hi, I'm here to help."  

That's just one reason why we should be collectively shouting: Leave us alone!

Sunday, January 3, 2010

Now THAT is some serious job creation!

Well, it looks like I've been misguided in my disagreement with the socialist health care system that's being crammed down our throats. I should have thought of this before but I must have gotten caught up in the excitement that goes with having the IRS manage my health care (don't believe me? just read the bill and you'll see how much of the proposed health care system is actually managed by the IRS!). After regaining my composure, I've decided that I can live with that minor infringement because the collective health care system will create jobs. Lots of jobs. And we need jobs, right? Here's how it works:

According to the Adam Smith Institute, in the U.K., as of August 2009 the 6th largest employer in the world is the National Health Service - Great Britain's socialist health care provider. Their 1.3 million employees ranks them right up there with China's utility service (1.5 million), China's petroleum interests (1.6m) and China's army (1.6m).   1.3 million employees taking care of 62 million people. That's one health care worker for every 48 or so people. (Apparently it's still not enough since so many Brits choose to go out of country for health services). A similar ratio here in the U.S. of A. (or will we become the USSA?) works out to nearly 6.4 million jobs!  How could I have been so blind not to see the huge benefits for this socialized health care program? Why haven't Reid and Pelosi trumpeted this jobs bonanza? Don't they realize that with the stroke of a pen (along with some serious mangling of the constitution) they're creating over 3 times as many jobs as the world's biggest employer (Wal-Mart 2.1m).  

Just imagine . . . 6.4 million health care workers with the compassion of the IRS and the enthusiasm of the USPS.  It's time for my nightly gram of soma.