by John F. Di Leo
Reflections on Tax Day, 2011
You and I are too young to remember… heck, our parents and grandparents were too young to remember… but we’ve seen the scene in old movies:
A huckster, a showman, traveling from town to town with a covered wagon or buggy, singing the praises of some impossible patent medicine. “It cures gout, reverses balding, and repairs broken limbs!” or “Too short? Grow four inches taller at any age!” or “Tired and listless? Weak and frail? This bottle of liquid magic will fix anything!”
And he’d stand on his soapbox and sell one-dollar bottles of spring water, whiskey, or skin cream, labeled “Miracle Tonic” or “Magic Elixer” in those interesting days before the FDA, EPA, and Truth in Advertising laws. Most of those products are long gone, perhaps to the betterment of our health, if to the detriment of our entertainment dollar. Long gone…
…with perhaps one exception. The miracle tonic of the modern American Democrat: Taxes.
- Government broke? Don’t cut spending, just raise taxes.
- People unemployed? Taxes will create jobs.
- Need stimulus? Taxes will fund it.
- Too many smokers and drinkers? Sin taxes will take care of that.
- Schools too expensive? Raise taxes.
- Feeling unpatriotic? Pay some taxes; you’ll feel like a good American again.
All that remains is to claim that paying taxes will restore your husband’s receding hairline or better fill out your wife’s strapless dress. They’re probably holding back on these for a stirring keynote address at the 2012 Democratic National Convention.
When the FDA sees an unlikely claim on a medicine ad, they demand to see the ingredient list, the drug research, the manufacturer. That’s as good a way as any, to investigate the world of Taxes in America.
Difficult to Define
We use the word broadly. A tax can be a percentage, maybe graduated, maybe flat, maybe with minimums and maximums, maybe with no limits at all. A tax can be a flat dollar amount or it can vary with the whim of an assessor or regulator. It can be assessed on income, on spending, on property, on savings, even on death.
And there are unlimited substitutes for taxes. Devaluing currency to avoid paying government debt is a tax, of a particularly sneaky sort. Raising license fees on businesses so that a governor can claim to have raised no taxes is a common dodge in state capitols, but all honestly agree it’s just a tax under another name. What of artificially low government-subsidized interest rates, that reduce the pool of money available to loan at normal rates, just to buy off some segment of the electorate like college students or homebuyers? Just taxes under another name.
In the end, a tax is a government’s choice to take money from you… somehow. The vehicle – whether it’s a tax on income or savings or spending or property, or monetizing a debt or kicking it down the road by selling bonds – may be worth studying in terms of which one does the least damage, which one does the most to steer behavior in a desired direction – but it’s still a tax, a means of taking money and power from the private sector, and transferring both to government.
Disguising the Destruction
Throughout the 20th century, as taxes of all kinds mushroomed in every jurisdiction, the tax fanciers developed creative ways to hide them so that the public wouldn’t notice them. Rather than a leviathan with a single paw in our wallets, we have an octopus, with as many tentacles as we have pockets, reaching into every change purse, wallet, purse and passbook.
First they invented income tax withholding, so most of us would only see 1/26th or 1/24th of our income tax payment every paycheck… along with a method of annual calculation designed to ensure over-collection. As a result, people think of the size of the refund they get in April, rather than the total net tax payment.
(Here’s a question for you, gentle reader… unless you’re self-employed, I’m betting you don’t remember how much you paid in total state or income tax in 2010, but you do know exactly what your refund was this spring. Am I right?)
When they dreamed up the Ponzi scheme of Social Security, they knew we’d be horrified if we realized how much that sinkhole was costing us, so they applied withholding to that too… and they came up with the clever idea of an invisible employer match: 7.5% from you, visible on your paycheck, plus 7.5% from your employer, hidden from your paycheck, unmentioned and unknown to most Americans. The Social Security / AFDC/TANF / Medicare take is now some 15% of your salary (reduced by two points for 2011 only). Think what a retirement plan you could buy with that much, even conservatively invested, throughout your entire career.
Homeowners: Do you write an annual check to your state treasurer for your property taxes? Probably not… it’s paid by your banker from the escrow account in your mortgage. You don’t see those three, or six, or ten thousand dollars per year as payments to government; you just think of “the mortgage bill”, in which the property tax is higher than your homeowners insurance or your principal reduction, only eclipsed by the interest amount. And if you’re a renter, you pay property taxes too – but your landlord writes the check; it’s included in your rent. All to keep one’s personal contribution to the leviathan unseen by the average American voter.
Now consider business taxes. Businesses can’t vote. They may occupy office space, farmland, storefronts or whole office buildings… but they aren’t citizens, so as American entities, they cannot vote (nor should they, of course). But they sure can be taxed. Income taxes at state, federal, and sometimes even municipal level… sales taxes on purchases of office supplies, materials, and equipment (this varies by state)… capital gains taxes when an investment succeeds… property taxes for all that land, even though the business doesn’t have children to put in the schools, usually doesn’t commit crimes to require the police and courts. Such business taxes are hidden; only the company controller and the tax analysts really know how much they’ve paid in taxes.
How about your gasoline, averaging over $4/gallon at this writing? A huge expense for nearly every American, whether for his family car or the corporate fleet… and it’s packed full of taxes. Unlike most retail products, these taxes are rolled in so we blame OPEC, or the oil companies, for the high prices. We don’t notice that government at every level is grabbing a hidden cut.
Or business “fees.” The cost of doing business for a bank is to buy your insurance from the FDIC, the government, not at market rates, but at the government rates. The cost of doing business for a trucking company is the state’s license fee, thousands of dollars per truck annually in some states. The cost of doing business for professionals from hair stylist to lawyer is an annual license fee, again anywhere from hundreds to thousands of dollars per year. All taxes, all hidden from view.
When you ask how much you’ve paid in taxes – when the Tax Foundation and such groups calculate an annual average or declare a Tax Freedom Day – you think of your income tax, your property tax, your sales tax… but you sure don’t see or feel the embedded taxes paid by all these businesses, driving up the cost of everything you purchase and everything you do. This is no accident.
The Democratic Party’s Primary Sacrament
While the average American may have forgotten that our nation was borne of a tax revolt, the powers in our state and national capitols have not. Keenly aware that Americans detest the legalized theft of unjustifiable taxation, they have spent a century hiding taxes in a thousand ways. What first was simply FICA was split into the employer and employee contributions, those were split further into Social Security and Medicare portions. Watch them split it up yet again, when they next find they need more money.
Taxation has become a holy sacrament to the American Left. While conservatives concentrate on spending reduction, entitlement reform, and regulatory restraint, the Left has one answer, and one answer only. Raise taxes.
They’re open about how; we can raise this one or that one, create new ones on new groups, find new industries on which to place the leeches. We can demonize a habit or an industry, for its methods or its results or its byproducts, the end result being always to increase the money we wring from every stone.
Read any speech from their president, Barack Hussein Obama (don’t listen to it, just read it… I want you to survive the experiment). To him, increased taxes are a moment of grace, an opportunity for good works, a fulfillment of our faith in the Leviathan that we are all expected to worship and feed daily.
So many euphemisms: We must make sacrifices. We must invest. We must contribute. We must support. Nowhere is there the slightest conception that such heavy tax increases might not in fact be necessary at all, or that they might even be detrimental. Our patriotism is questioned if we object, if we so much as propose that perhaps there might be a better way… it’s a religion to them (though even the Church only asks for ten percent).
Taxation Has Consequences
To the Left, a tax is a predictable source of revenue. Despite decades of proof to the contrary, they continue to maintain that one can merely look at last year’s activity and predict the revenue a tax rate will produce. If last year a nine percent rate produced nine dollars, then this year a ten percent rate will produce ten dollars, period. To the American Left, any drop in the rate produces a drop in the revenue; any increase in the rate produces that much greater a revenue stream.
But in truth, of course, just like any other action, taxation has consequences. Money taken from you, your neighbors, and your friends is money taken out of your community, money that you, your neighbors and friends can not spend. Every $50 taken from your block is another family dinner that one of you now won’t be able to buy in the local restaurant, a couple of books that now won’t be bought at the local bookstore, another gift that now won’t be bought in the local shopping mall. Now just take that $50 off every block in town, and do the math – see how much damage even a small tax increase can do to a local economy, when just a few sales a week can mean the difference between breaking even and going under.
When those businesses suffer, some of their staffs are unemployed; when the businesses close, all their staffs are unemployed. While employed, they are contributors to the economy – they pay taxes and keep their neighbors employed. But while unemployed, they no longer pay those taxes, no longer buy books and gifts and dinners, no longer keep their local businesses operating.
This is just as true on the larger scale: Millions are employed in manufacturing in the United States, but it used to be more. If a government sees factories as a well to which you can return again and again, eventually it will run dry. Union work rules and other financial demands, a litigation culture that makes so many legitimate businesses into targets, and federal energy policies that have intentionally made oil, natural gas and the electric grid into money pits for any energy-dependent business, have all combined to make this a terribly inhospitable country for manufacturers. Add a century of raising taxes on them too, and can anyone wonder why manufacturers have surrendered in the country of their birth and fled to foreign shores?
The Truth About Taxes
Only the Right tells the truth about taxes… that there is no zero-sum game; that every change to the tax code has an effect, for good or ill.
Raise taxes beyond the point of diminishing returns (as described on Arthur Laffer’s brilliant curve), and you not only start destroying economic activity, throwing people out of work, and increasing poverty, but in addition, you don’t even take in as much revenue as you thought you would. Over the course of years, it becomes far less. Remember when the Clinton administration slapped a massive luxury tax on American boatbuilders? The industry ground to a standstill in response. When the income sources retire, close down, or flee, the tax collector discovers that no matter how high you raise your rates, any percentage of zero is still zero.
But lower those tax rates a little – or better yet, a lot – and you’ll see the potential for economic growth. As every business in town continues to do business with each other, the added income in the area – not manufactured money like “stimulus program” dollars, but real added income – becomes self-fertilizing. Activity breeds more activity; productivity breeds productivity, and people are hired, money is spent, companies grow. To quote JFK’s wise old cliché, “a rising tide lifts all boats.”
And on top of all that, this economic boom produces more revenue, as proven most forcefully by the experience of the Reagan administration, in which federal tax rates were greatly reduced but revenues essentially doubled (yes, after figuring for inflation!).
The American Left won’t admit this fact, to themselves or to the electorate. Why? Because producing revenue and erasing deficits really aren’t the main goals for the American Left. Tax policy is the government’s way of controlling the country. Tax a thing and you’ll get less of it; exempt it from taxes and you’ll get more of it. Give one group an exception and they’ll support your party; demonize another and they’ll be a useful whipping boy whenever you need to change the subject.
Perhaps the key difference between the Right and the Left isn’t a question of which method really works, which method is most effective. It’s too obvious that the Right’s proven method has the best results for taxpayer and government alike.
No, perhaps the difference is that the Right believes in freedom, so we call for low, fair taxation, as rare and as limited as possible, across the board… while the Left believes in control.
Thousands of pages of law, clause after unending clause of restrictions, permissions and exceptions for lobbyists to stumble through, for lawyers and courts to interpret, for campaign contributions to influence. That’s why our tax code is long not short, destructive not growth-oriented.
And that’s why this country needs a change in its tax policy, not just to eliminate deficits and start us on the way to paying down our debt, but for a still more noble and critical purpose.
We need to tell the truth about the crushing complexity of our taxing system, our voracious leviathan that has trampled both our liberty and our prosperity for so long, and change directions, back toward a fair tax system and the Constitutionally limited government that our Framers intended for us. Low rates, evenly applied, visible not hidden, all toward the goal of prosperity, not control.
And then at last, the truth will set us free.
Copyright 2011 John F. Di Leo
John F. Di Leo is a Chicago-based Customs broker and international trade compliance expert. He served as a spokesman for the Illinois Small Business Men’s Association and the Ethnic American Council during the Reagan era, and looks forward to a return to the awareness of free market economics that a vigorous TEA Party movement and a Great Awakening of the American electorate have made possible.
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