Readiness: December 31st, 2012

Have you been putting of getting yourself and those you care about ready? Have you been looking for evidence or incentive to start? Well, look no further.

On December 31st, 2012, most of the nation’s current tax benefits are scheduled to expire. Overnight, every American who pays taxes could see a significant increase in what the federal government takes from his or her paycheck, to the tune of hundreds to thousands of extra dollars a year.

Further, capital gains taxes and estate taxes will skyrocket, crippling the income of retirees and the ability to small business owners to pass their hard work on to future generations.

The result could very well be an unprecedented collapse in the US and, therefore, global economies.

You don’t think it could happen? You think the government will do the right thing before then? Have you been paying attention to what the government has been doing up until now?

Take this potential as a warning. Get ready. Now.

DLH

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Worldview: The global attack on productivity

I often wonder–as the debates rage on about government budgets, deficits, and taxation–how many people realize that most taxation is an assault on their productivity.

You see, all you have available to you in life is your time and your effort, collectively referred to as your productivity. You choose to invest your productivity in a certain way, then along comes the government who says that a certain amount of that productivity–quantified as income–belongs to them off the top. Then, they say another amount belongs to them if you take your quantified productivity and do anything with it–that is, spend it. Finally, the government says that they are going to spend the productivity they took from you on infrastructure, products, and services it is now going to force you to use–literally force you, as the government has engineered a near monopoly on the use of force–and they’re going to take even more of your productivity in the form of fees for the privilege.

As far as I can tell, this system of robbing people of their productivity means that people, in general, have become less productive. Why should anyone work hard and apply themselves if the government is just going to come along and take what you’ve done, especially since it takes more as you are more productive.

So, the reason that local, state, and federal governments are going broke, and are taking all the rest of us down with them, is that they have effectively capped the amount of productivity their citizens can produce even as they demand more of it to pay for their infrastructure, products, and services they are going to force you to use by taking even more of your productivity.

This is a self-defeating system and can only result in collapse. What’s ironic about this whole mess is that this is not the first time in the history of the world this very thing has happened, nor will it be the last. People think that letting the government force them to do something certain ways in return for giving up their productivity seems like an easier way, but it always fails. There is no such thing as something for nothing, and as the number of people to cease to be productive goes up, it’s not possible for those who try to continue to be productive to make up the difference. The system collapses into an tragic, entropic heap, usually a lot of people die, and those who worked the hardest–that is, those who were most productive–rebuild on the ruins.

The manifestation of this condition in 2011 is massive global budget shortfalls. The US federal government alone has spent $14 trillion more productivity units than it managed to collect since the end of World War II, or 280 million household-years worth of productivity. That means that, even at full employment (unemployment around 4 percent, or about 68 percent of the total population working), it would take all of the salary of all of the households two years to pay off the debt, and that would not provide a dime to the government to maintain anything.

So, what’s the solution? It’s easy: stop penalizing people for being productive. How do we do that and still keep all of our pet programs? In short, we can’t do that exactly. The pet programs will have to change, get cut back, go away altogether, but that reality cannot help but be offset by the benefit most people will gain from having access to more or most of their own productivity.

In real terms, this probably means some sort of flat or “fair” tax, probably in the form of a transaction (sales) tax on things regulated by the government. And, no, I do not believe such a scheme would penalize the poor more because, frankly, the poor would be less so as wages rose because businesses could grow because they would have more money being spent by people who have more of their productivity back.

Of course, these sorts of things rarely resolve themselves by way of reason, dedication, and hard work in any kind of mutually beneficial way. Again, history tells us, they usually resolve themselves by bloodshed and hardship, but there is always a first time for everything. What this first time would take is the people demanding their productivity back at the ballot box.

DLH

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Worldview: The cost of reality means sacrificing until it’s fixed

One of the costs of putting one’s thoughts out in a public forum like a weblog is that one’s readers often expect both an opinion and a solution if the issue at hand is a problem that needs solving. The issue of budget deficits, most recently brought forward by the collective bargaining debates in Indiana, Ohio, Tennessee, and Wisconsin, is no exception.

Again, as I have stated several times now, I think the whole collective bargaining debacle is a tempest in a teacup that distracts everyone–legislators, governors, citizens, and union members alike–from the real and far more pressing issues our communities, states, and nation face.

And, chief among those issues is that we and our communities, states, and nation face a nearly insurmountable debt if we continue to spend the way we have until this point.

So, how do we solve this kind of a problem? From my point of view, not cleanly or easily. We have to face the fact that we cannot afford to continue to pay for the things we are doing the way we are doing them, even if we want to, because there’s simply not enough money to do it.

I know that many people will now shout a raft of ideas: tax the rich more, increase taxes in general, change the rules for how people access social programs, etc. And, I say, fine, do that, and it still won’t solve the problem. Increasing taxes beyond a certain point merely drives the rich away, puts those who can’t leave in greater need of social services, and decreases the amount of money in the economy creating tax revenue. Changing access to social services, especially in conjunction with increased taxes, only causes more people who need access because they can’t afford to do things on their own anymore not to have access to what they’re paying taxes to theoretically have. They’re all bad ideas if that’s all that’s going to be done.

In order to fix these problems, we have to start cutting: real, meaningful cuts that may very well force millions of people to change how they live their lives. Yes, this means cuts to Medicare, Medicaid, and Social Security. Yes, this means cuts to education and environment. Yes, this means cuts to the military and intelligence programs. It probably also means at least marginally higher taxes, at least at the local and state levels, until the issues at hand resolve themselves.

How these cuts and higher taxes come about is what this whole debate should really be focused on, not whether or not public employees have collective bargaining rights. We’re expending all of our effort as a nation around the edges without dealing directly with the heart of the problem. Until we reach the heart, we can’t kill the beast, and it still may just devour us.

DLH

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Worldview: The cost of reality: taxing ourselves out of debt?

A comment on a previous post suggested that, rather than attack unions or cut spending, we should just raise taxes. My gut response was “raise taxes on what exactly?”

I’m pretty sure that most Americans have no idea who is paying taxes, how much taxes they are paying, and what effect those taxes have on the economy as a whole.

Before I go into more detail, let’s get one thing straight: you do not pay taxes if you get more money back from the government than you paid in. If you paid, say, $1000 in and get $1500 back because of credits and whatnot, you did not pay taxes. If your income is exempt from taxation, you did not pay taxes. If you can claim sales tax credits, you did not pay taxes.

Now, because of the fact that so many Americans get more back in taxes than they pay in, only about 53 percent of taxable Americans actually pay federal income taxes. And, since most states base a payer’s taxable income on what income was taxable, large numbers of people do not pay state taxes either. The issue is a little more muddled at the local level, but it is safe to say that there are tens of millions of Americans paying no or very little taxes.

That brings us to the 53 percent who are paying taxes. One of the battle cries of the progressive movement is to tax the rich, yet most reliable estimates place the amount of revenue gained from those taxes at around $90 billion per year, or about 7 percent of the projected deficit in 2011. Even if all of the tax cuts were eliminated, it would only gain around $500 billion a year, or about 38 percent of 2011′s deficit.

So, what about raising those taxes even higher? I can speak to that issue personally. I already pay about 40 percent of my income in total taxation–sales taxes, excise taxes (as on gas), income taxes, etc. Ending the current tax cuts would represent a 50 percent increase in my federal taxes (because the 10 percent tax rate would cease to exist, meaning the bulk of my income would be taxed at the 15 percent rate). Further, the expiration of current tax breaks would increase my taxable income, thereby exposing more of my income to state and local taxes. In the end, this method alone could increase my tax burden to as much as 50 percent of my income, and for most Americans the effect would be similar.

What would you do if you took a 10 percent pay cut, because that’s what those increased taxes would represent. What would you have to cut? What would you stop doing? What would you stop paying?

Now, imagine what would happen if the government actually raised those rates even higher.

And, keep in mind that 65 cents of every dollar you are paying in taxes already goes into someone else’s pocket, very likely someone else who is not paying taxes, at least at the federal level.

With that picture in mind, explain how raising taxes helps us get out of debt.

DLH

Read more at my Worldview site...

Worldview: The cost of reality

I’ve been watching the progress of the collective bargaining revocation bills in Wisconsin and Ohio with great curiosity and not a small amount of amusement. What I see on all sides of this debate is a failure to deal with reality.

Teacher’s unions fail to understand that there is no more money. Wisconsin is in the hole $2.2 billion. Ohio is in the hole $7 billion. Those deficits are only the ones for 2011. Sure, they are just trying to protect their own, but at what cost? What else has to get cut to protect them? Who else has to pay?

On the other hand, you have the conservative law makers and those who elected them. They claim union busting–because that’s what revoking state collective bargaining agreements really is–will save the tax payers millions. That’s true, but so would cutting state programs, especially the costly social welfare programs even conservatives are addicted to.

The problem, as I see it, is that nobody wants to admit the truth: we’re not going to get out of these problems with selective, politically motivated cuts. Instead, we’re going to have to make far-reaching, across the board cuts at all levels of government that will last decades, and those cuts will only serve to allow us to tread water.

Unfortunately, no one is listening. Liberals and progressives want to tax more and spend more. Conservatives want to attack their political opponents’ pet programs without doing anything real to face the problems. Libertarians are too wild-eyed and disorganized to do anything other than make incoherent noises.

In the midst of all of this, our nation is failing. Our currency is devaluing. Our economy is not creating jobs. More than half our citizens effectively do not pay taxes, and the other half are paying so much they can’t make anything happen. Our tax system penalizes success. Our laws make starting and maintaining businesses unnecessarily complex. This year, local, state, and federal governments will spend between $2.5 and $3 trillion more dollars than they collect in taxes. The total US debt burden carried by all levels of governments could exceed $25 trillion–or twice the entire GDP of the US in 2011.

If we really want to fix the problems that got us here, we have to end–no, destroy–the disincentive to perform, succeed, and innovate on the strengths of our own merits. We have to wipe out the notion that we can somehow treat every individual and situation as some kind of an average and deal with reality in all its uniqueness and complexity. For the first time in decades, we have to think, act, and react in accordance with the situation we have, not the one we are convinced we should have. We have to return the bulk of control to the individual and stop expecting governments to take care of us.

And all of these solutions are going to happen whether we want them to or not. We cannot continue what we are doing because what we are doing is failing. The question that remains is whether we participate in the process by which the next thing comes into being or whether we stand and watch as the terms are dictated to us.

I suspect most will do the latter, which is why I’m pretty sure you should be getting ready for some really tough times ahead.

DLH

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Worldview: I sense a revolution coming, and a lot of you aren’t going to like it

As some of you may have gathered, I do a lot of reading, especially about history, politics, and current events. Over the past few months, I’ve noticed a new theme starting to grow, first in comments, then in mainstream articles wherein the writers have begun to question the salaries earned by public sector employees at the taxpayers expense.

I am not commenting on whether or not public sector employees make too much, not enough, or whether what they do is of benefit to the people paying for it. Instead, I am considering what may be the first casualty of the coming taxpayer revolution against bloated government: public sector pay.

Let’s face it. Most taxpayers have no idea what most public sector employees do for a living outside vague notions of the jobs people like teachers, police officers, or firefighters have. Even with jobs the taxpayers think they understand, I suspect most taxpayers think people doing those jobs get paid too much, take advantage of the system, and (perhaps worst of all) could not get jobs elsewhere.

Having been a public sector employee at one time, I can see how the taxpayers might get that impression, which is why I think it is so easy for the taxpayers, angry at the situation we find our nation in but yet unwilling to realize the solution means they will have to make sacrifices, to think that part of the solution is to pay public sector employees less.

Unfortunately, if history is any indication of future trends, the employees who will be targeted by this anger will be the ones who least deserve it. The taxpayers will target local public sector employees–teachers, police officers, fire fighters, etc–who they depend on the most while ignoring the excesses carried out by the actual guilty parties–elected officials and career bureaucrats.

I think if history does repeat itself, the problem this time will be that many public sector employees will just quit. It will be impossible for the taxpayers to demand that, say, teachers begin their careers at 22 with master’s degrees, engage in constant professional development, put up with the taxpayers undisciplined and incapable children, and deal with the never-ending onslaught of government regulations for laborers wages. Take your pick of public sector employees, and you will find similar ridiculous notions.

I am not saying that there are not public sector employees–even teachers, police officers, and fire fighters–who do not get paid more than they should, take advantage of the system, and could not get jobs elsewhere. I am saying that the tendency is for the taxpayers to pick on the public sector employees they rely on the most because they are the most visible and the most accessible.

If we look at the history of such reactions, what we discover is that the governments enduring them and the people making them often fare badly. In the worst cases, the governments collapsed or the nations thrust themselves into civil war. In the best cases, nations endured long periods of malaise.

As a nation, we need to tackle the problems before us, and I understand that even public sector pay needs to be reformed if we are going to find our way out of the mess we’re in. I also understand that making irrational decisions based on anger rarely produces positive outcomes. Consider your demands carefully, because they will have consequences if they become reality.

DLH

Read more at my Worldview site...