Beyond the Cusp

December 24, 2017

Let’s Talk About the Tax Cut Law

 

The long talked about and maligned tax cut legislation has finally passed, and will be signed as a Christmas present for all in tax lands. What has been some of the main talking points have been that the uber rich will receive more money back than the poorest of the poor and that companies having more of their money is not required for them to pay higher wages or hire more employees while expanding business, they could pay more to employees and hire more without a tax cut or expanding their business. Why don’t we simply look at these half-crazed statements which have infected much of the discussion over this economy boosting legislation?

 

The very first things we need to be honest about are that the Democrat Party elites have never seen a new tax or tax increase they did not like, a government giveaway to the lower fifty percent of earners they could not get behind, and tax cuts which includes corporations and the top fifty percent they could not hate. Since we are speaking of the tax cut, we will address the last point only. When your definition of the uber wealthy includes the entirety of the top fifty percent of earner sans the Hollywood elites, then any tax cut will provide the wealthy with almost all the tax relief as they are those in the top fifty percent of earners who pay taxes while those in the bottom fifty percent largely do not pay income taxes. The confusion comes in because the entirety of earners pay taxes, but not all pay income taxes which is what we are talking about. If the Democrats were really so concerned about the taxes paid by the lower fifty percent of earners, then they would find some way of restructuring Social Security taxes, Medicare and Medicaid taxes such that it was less of a burden on those at the lower wage earning end of the scale. One means would be to make minimum wage earners exempt from these taxes and have them begin after earners have earned a specific amount and raise the upper end cut-off one more. Of course, once this begins, very soon these taxes will end up like income taxes, only paid by the top fifty percent of earners and the lower fifty percent of earners being exempt for the most part. Such a taxation schedule should be called the “Democrats think this is almost fair tax schedule.” It is this protection racket by which the Democrats all but lock in those who earn less as their supporters and why they are scared to death of such ideas as a fair tax system where there are far less deductions and a flat tax rate for everyone. To the people complaining about this tax cut, a straight flat tax is called grossly unfair and a tax plan that helps the rich. That is only an accusation available because of the mess of a tax system the two parties have patched together through years of designing taxes to fit their ideas of fair. Such a system has produced a money wasting and unfair system which drains of close to if not over ten percent of the economic growth just to address taxation. That is unfair to everyone no matter where on the pay schedule they fall as it takes money from everybody at an equal percentage and allows the IRS to use the tax code through differing interpretations to attack people which those in power decide need targeting.

 

The people telling us that only the rich will see significant reduction in their taxes are selling you a yarn. We have heard arguments that the lowest one-third of income earners will not see a single penny extra in their paychecks resulting from this legislation. Well, of course not, they do not pay income tax but many get a refund from the income earned tax credit, a straight giveaway to those who pay no taxes such that they will receive a tax refund so they can believe they must have paid taxes. In reality, this is another form of welfare the democrats have devised calling it a tax refund for the tax challenged. What else do you call a refund sent mostly to people who never paid into the fund from whence the refund for payments comes from? We call that a backdoor, disguised Welfare payment. The other truth they leave out is virtually every taxpayer will see some degree of reduction in their tax bill with the singular exception being such special cases who claim every conceivable deduction through some form of tax wizardry and now face some of those deductions being removed from the tax code as part of simplification and those deductions outweighing the amount their taxes were reduced. Thusfar, in everything we have read, such an individual exists in examples of how such could conceivably occur and have names such as John Doe, John Smith, Taxpayer X and other such nomenclature for something which is so rare that no such individual could be found, but we are assured that there are millions who fall into this narrow class of people and they just did not have the time and resources to find anyone.

 

Capitol Cash Machine

Capitol Cash Machine

 

The other huge problem is that this tax cut legislation actually gives corporations, which term is used such that you do not believe this includes the Ma and Pa store on the corner or down the street, it does, are receiving tax cuts. They poke fun at the idea that this will increase the ability of these companies to pay their employees more, save up and enlarge their company thus hiring more employees at a higher rate of pay. Their claim is companies, including the Ma and Pa shop aforementioned, can pay their employees more and expand their businesses and hire more people now if they really wanted to but they are not doing so which simply proves that they will just pocket the extra money and pay the top earners more while probably cutting lower earners’ salaries because they got a tax cut so do not need as much salary. These people really do hate companies and wealthy people unless they are leftist backers of the Democrat Party. Below are a few selected tweets from Hollywood and other elites we took from an article titled, “Liberals Have an EPIC Meltdown Over GOP Tax Reform” which we found online at Townhall.com and cleaned up Mr. Maher’s language to retain our family friendly ratings. These comments were extremely amusing in a provocative way as they come from people who make more in one week than we will in our combined lifetimes. Do they not realize that they are the wealthy of which they complain so loudly? If it is so rotten being that wealthy, we have another suggestion for them, not only refuse their ill gotten tax cuts, but make an example and pay double what they owe and denote that their extra payment must be used to pay down the principle of the debt, something which truly would help the nation and its financial wealth and would pay dividends far into the future. If the entirety of the mega-wealthy would make a contract that they each pay one million dollars additional taxes each year denoting that it goes directly into paying off the principle of the debt, with one proviso, the government finish that year with a balanced budget or showing a profit. That would serve a number of worthy causes, it would give the government, particularly Congress, an incentive to live within its means, pays down the principle and not just another interest payment making the interest in the future less, and eventually such a contract would remove the debt altogether making the United States debt free for the second time in its entire history (the other time was January 8, 1835, under President Andrew Jackson). Wealthier corporations could join this effort, use their participation as an advertising gimmick, and likely make more profits than the payments would cost. The biggest benefit of such a bribe would be getting Congress every few years to actually manage to spend within its limits, the more often the better.

 

Liberals Have an EPIC Meltdown Over GOP Tax Reform Tweets

Liberals Have an EPIC Meltdown Over GOP Tax Reform Tweets

 

While we are speaking on taxes and balanced budgets, there are some dangerous realities coming in the near future if the United States does not get its fiscal house in order. The first is that with the debt climbing to such a high level, the interest is eating an ever-larger share of each yearly budget making spending limitations impossible. Should the interest rates increase, which should the economy heat up would become unavoidable, then the interest on the debt, which is paid with short term loans, would balloon making even meeting that payment beyond the ability of the government leading to a default situation. This has been part of why the interest rates have been kept artificially so low as the government would collapse should they ever reach close to or above nine percent prime rate. Of course should the debt increase faster than the economy increases as was the case over the past twenty years, then nothing will prevent default within some set period of time probably within this century. The best plan for taking care of this problem would be two-fold approach; first, pass a balanced budget amendment to the constitution which would require that no budget surpass the previous years tax intake by the IRS except in time of declared warfare, and second, a tax policy which incentivizes the economic growth through simplification of the tax code which would include a wealth tax on uninvested savings, which would include trust funds and endowments, of over two-hundred-fifty-million dollars, adjusted for inflations and deflation each year, such as to encourage these large pools of revenue to be invested thus stimulating economic growth as that is the easiest and fastest way to shrink the deficit.

 

As far as the ridiculing and belittling of the tax simplification and reduction legislation, it is being done for two basic reasons. First, the left-leaning media-Democrat Party-entertainment-news conglomerate believes firmly that the government can spend your money far more wisely than can you as you would never spend your hard-earned money on some of the insanities such as investing in anthropomorphic global warming schemes from the United Nations or whatever your favorite waste of money by government might be but the government will spend money on the United Nations IPCC (Intergovernmental Panel on Climate Change) and that means they would spend your money more wisely than you could ever spend that money. Second, this was one of Donald Trump’s ideas and as he backs this plan, it must be prevented from being enacted at all costs simply because it is Donald Trump’s idea. That is the hard and basic truth. It matters not if this tax package is good for America, good for most of the populations, good for the economy; it was not done by an approved individual, read Democrat, and thus is terrible, horrible, dastardly and must be made to be unpalatable to the public. What the people pushing this inanity twenty-four-seven have not and refuse to recognize is that they have reached the point where the rest of the world is getting on with their lives and have been ignoring them for months. They cannot see this as they are locked into echo-chambers of like-minded, or out-of-minded, others who are doing the same thing. They each retweet or repost the same things in such a manner that they do eventually repeat about every seven or eight months thus these have become ring-posts which work their way around varying groups of people finally reaching back to the original point only to start around again. Some of these people are in multiple rings making the entire hodgepodge somewhat less discernable, especially for those involved. Granted, there are some who remain in contact with a number of these people either for amusement, gain information on the other extremes, or because they have lost a friend to the fire breathing circuit and are waiting for the right moment to try an make a recovery effort.

 

As a closing point, having companies pay fewer taxes is always a good thing because companies do not pay taxes, only people pay taxes. Does anybody really believe as some have posted that companies do not pass on the cost of taxes in the price of their products and in lower raises for the employees. Those are the realities of running a business as we can tell you from experience in doing exactly that. Overhead includes tax payments, licensing, rental fees, fuel costs and a myriad of other incidentals and are all summed up and then incorporated in determining the cost of their goods and services. Lower any single element and the price drops, raise any single element and the price goes up. What you are not being told is it is less expensive for you to pay a tax directly than for you to pay the tax through a corporation placing the costs of that tax into its price formula. When they incorporate the tax as part of their price formula, that cost is added to the base cost of the goods and other essentials in manufacturing or producing the goods or services and once that determination is made, it is then increased by a percentage. For example, an item costs ten dollars to make and overhead is five dollars per unit of which one dollar is taxes. The price mark-up is one-hundred percent (not uncommon for production to retail price with Jewelry far higher and low ticket items less but this is a normative range) then you take the ten dollars and the five dollars and add them getting fifteen then increase that by one-hundred percent and you get a selling price of thirty dollars of which two dollars are for the taxes. That is right, they mark-up their tax cost and pass that along and make a profit on their taxes because companies make a profit on everything otherwise they would not be in business very long. So, which is more expensive, the corporations paying the taxes or the individual paying the taxes once you realize that the corporation places the cost of taxes into the production cost and then mark-up the entire cost including a mark-up on the taxes so you pay for the taxes plus. It really is that simple, you pay for the taxes plus for a profit on their paying the taxes in the price of everything you purchase, so would it not just be easier to pay the taxes yourself instead of through a middleman? We know there are some out there still saying that the corporations and companies can afford to pay more taxes but they do not actually pay the tax, the people do. The corporation and tax costs are passed on to the customer with an allowance giving the corporations additional profits.

 

Beyond the Cusp

 

December 15, 2017

Will America Explode First?

 

There has been any number of editorials commenting about the presumed unrest in the United States. They all, more often than not, have referred to the extreme anger and protest existing on social media. They assume that as social media was largely quiet during the Presidency of Barack Obama and has been very noisy since the election of Donald Trump as President that the United States public was more unified during the former and very distressed now. There have been those who point out that there is this old expression of the “silent majority” which was described as what awoke to elect President Reagan. This was presumed to explain that the “silent majority” actually is silent. There is some support to this as these are presumed to be the older people plus ones who are not as computer active as the ones now protesting so vehemently. After all, they are presumably silent, right? Still, how completely upside down and fouled does the world, and the United States in particular, have to be for Donald Trump to be elected to the Presidency? That has been one of the overriding questions which are somewhat more difficult to answer. Had the election gone the other direction, there would be people asking how far things must have gone awry and has become to elect Hillary Clinton. The other question is how crazy have things become that an avowed socialist and former Communist to almost win the Democrat primary elections. Well, how far gone have things become in the United States?

 

The first point that we believe shows that the political class has completely lost all connection with reality has been the debt. Things were viewed as having reached the verge to going off the rails when George W. Bush was elected President and the debt stood near five-trillion dollars. Eight short years later the debt had all but doubled pushing towards ten-trillion dollars. Then enter President Barack Obama and another short eight years later and the debt had almost doubled again approaching twenty-trillion dollars. Things actually went off the rails far earlier when the politicians decided that they could only afford to pay the interest on the debt and never pay down the debt. When under President Willian Jefferson Clinton with a Republican Congress managed to make a budget that on paper did not add to the deficit, the nation celebrated as if President Andrew Jackson completely paid off the debt which was celebrated on January 8, 1835. By the end of 1935, the debt had returned to between thirty to thirty-five billion dollars. Apparently, the debt had been eradicated for just a few weeks and then Congress returned to business as usual. Debt appears to be the norm and not the exception. Eventually, one of two things are going to happen, either there will be a Constitutional Convention called by the States to amend the Constitution placing a balanced budget amendment onto the Constitution with a stipulation that some percentage, ten sounds like a good number, of each budget must be applied to the principle of any existing debt until all debt is vanquished and to be reapplied instantly should new debt accrue. Anything short will lead to the worst possible option, default.

 

Eventually the interest on the debt will exceed the ability to allow paying the full amount and still running the government and meeting promised payments and allotments. Now it is possible to continue to pay the interest and all government expenses as long as there is somewhere for the United States to borrow the necessary amounts of money. This became a problem when China closed its loan office to the United States. This led to some creative financing. The Federal Reserve sold the United States the needed moneys while creating this money through bonds which it gave to the main lending banks. This method works just fine providing that these funds remain dormant in the lending banks. The problem comes when the economy becomes more active and there comes a demand for more loans and these funds begin to be utilized by the loaning banks. This is called giving the money velocity in economics. This leads to inflation as the money supply begins to increase, and in this case possibly rapidly. With inflation comes the problem of removing this excess currency from the monetary supply. There are two means for completing this task, taxes and interest rates. There are, needless to point out, ramifications to each of these means. Increasing interest rates makes the interest on the debt, which is refreshed through short-term loans on the debt, rise and eventually this leads to default or spiraling inflation. So raising interest rates is out of the question and explains why interest rates have been artificially kept so low. The other means is taxes and increasing taxes ends the economic activity and leads to less tax moneys being collected. This would also eventually lead to default or spiraling inflation. Any means used will, eventually, lead to default on the debt which will cause a loss in faith of the dollar. What would that cause?

 

A crisis in the dollar would have any number of consequences. First, and likely the most devastating, the world would all but immediately demand that some different or group of different monetary notes be used as the new reserve currency. If a group of currencies were chosen, there would be some form of complicated and intricate formula to determine what the rest of the world’s currencies would be worth. The other choice would be some mythical means for establishing exchange rates and the various values of currencies. The reason for these confusions and problems is easy to explain, gold is no longer the basis of any currency. As the dollar was the reserve currency when President Nixon took the dollar off the gold standard, he took the world off the gold standard and now currencies floated against the arbitrary value of the dollar. This is also why gold prices fluctuate against the dollar, though they actually do not gain or lose value. If you were to figure what a Ferrari would have cost in gold in 1971 and then figured the price of a Ferrari cost in gold today, the difference would be relatively negligible. That is why these claims that investing in precious metals, especially gold, will make you more wealthy in the future. It will not, you may receive more dollars, Federal Reserve Notes, but they will have very much the same purchasing power as the money you utilized to purchase the gold in the first place.

 

Tulipmania

Tulipmania

 

Would defaulting on the debt ruin the United States? Interestingly enough, such a default would allow the United States to get out of debt faster. The dollar would immediately lose much of its value and imported goods would become prohibitively more expensive. On the other hand, it would make American made goods extremely affordable to the rest of the world, except China who falsely set their currency tied to the dollar, so China would also become a pauper nation. This would allow the United States to become a prime location for manufacturing, as American labor prices would be lower than almost everywhere else where the ability of the work force is comparable. Made in America would become desirable once again not only for quality but also for affordability. Still, a default would be ruinous for American business initially and numerous companies, especially those manufacturing overseas, would find they were no longer able to be profitable and they would be replaced by new companies which would spring up almost overnight. The largest problem would be foreign corporations and billionaires could buy large shares of American companies which would provide the United States with the funding to climb out of the hole they would find themselves to have fallen. The real losers would be those people holding stocks and other investments which were in dollars as overnight they would become almost worthless compared to their value just a few days, possibly hours earlier. Such a default might lead to another stock market crash but the following dark days could be avoided providing that Congress was locked in political gridlock and unable to act. Financial bubbles burst and that makes room for new smaller bubbles to begin. That is the normal cycle for investing, especially if you are investing in tulips in the Netherlands from 1619 to 1622 when the bottom fell out when one person decided that tulips were not worth their price and everyone realized that mania had led them astray. Those left holding tulips had lousy investments but very pretty flowers to show for the insanity. On that flowery lesson, we will let the American mania continue and see when their crash comes or if they might be saved by some sagely leadership, whenever that is proven to be found. In the meantime, stay tuned for more fun and watch the crazed social media; it can be amusing as long as nobody gets hurt.

 

Beyond the Cusp

 

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