Tuesday, July 20, 2010


Taxes: a Primer

In this time of extreme pressure between conservatives and liberals over national economic policy, a plethora of proposals have surfaced to radically change the way we pay for the benefits (?) of government. The only agreement seems to be that the present system is faulty and something new must be done to either replace or supplement our current tax system. With your permission, I would like to review some of the proposals and discus their impact on you, the taxpayer.

The VAT Tax
Representatives at the White House have said that in an attempt to reduce the enormous Federal deficit new taxes may be needed and that a VAT tax is "on the table". This is a system that has and is being used in Europe and is favored by the more liberal politicians. The letters stand for "Value Added Tax" and that is an appropriate description. Under this system, every time a person or entity 'adds value' to a product the government exacts a tax of a percentage of that 'added value' which is paid by that person or entity. The additional cost due to the tax is passed on to the next stage of the product, whether it be the final consumer or another activity that will add even more value. This may be a simple progression for some products, but can be a Gordian knot of complexity for a complex product. Let us say a hypothetical craftsman, George, makes wooden spoons. The product begins as a tree. This may be considered a raw material and not subject to the tax, or the act of cutting the tree down may be considered a value added. The tree, in the form of logs goes to a sawmill where it is reduced to lumber of convenient size and the added value of this process is taxed. A mill that caters to producers of wooden products takes boards and cuts them to length and rough mills them to an approximate shape of the finished product, in this case a spoon. Tax is paid again. George takes this blank and turns it into the finished product by turning it on a lathe, grinding, sanding, and applying a finish of oil or laquer. Tax is paid by George and he recovers that by adding to the price he gets for his product. As you can see, the ultimate payer of a value added tax is the consumer. The tax is collected every time the product changes hands for additional processing, but the cost of that tax is added to the price.
We have looked at a rather simple example, but now imagine the complexity of the taxation of a complex product such as an automobile. Thousands of parts made of dozens of materials using hundreds of processes will go into any car. Each part, many produced by outside suppliers from raw materials furnished by companies in that business adds to the burden of taxes which must be paid by the end user of the vehicle. A little recognized detail of this scheme is that you wind up paying taxes on the taxes. The steel mill pays a tax on his profit for turning raw materials into finished steel. Naturally he passes this on to the next user of the steel by adding the tax to his price. The next user machines the steel into a finished part. He, in turn pays a tax and passes the cost of the tax to the user of those parts. But part of the cost of his raw material was the tax on the 'value added' in making the steel. The tax multiplies with every step in the production of any product.
The end payer of these taxes is, as mentioned before, the consumer. This tax is somewhat progressive, a term we will more fully explore later, in that the wealthier consumer will purchase more products and products that have had more 'value added'. However, our society is so complex that everyone must have the use of manufactured products to survive. Even if one can not afford a car he must rely on a bus or other shared transportation system. If you wish to exempt the bus from the VAT taxes you run into the problem of maintaining separate inventories of taxable and tax exempt materials and intermediate stage components. The whole system is a cost accountant's nightmare and an invitation for the government to assert itself into the most minute details of the economy.

The Fair Tax
A tax sceme proposed by several notable conservatives is called the 'Fair Tax'. This is basically nothing more than a point of sale tax as is used by all states except New Hampshire (Live free or die!) The government exacts a percentage tax 'at the cash register' for all products sold. This is a system proposed by those who are disgusted by the complexities and abuses that are built in to our current income tax. It would replace the income tax as the primary source of government funding. It is a tax that would be levied equally on everyone and the wealthier consumer would pay more because he would buy more and more expensive products. Most states modify this by exempting certain necessary products from the tax. Food items are usually tax free as well as drugs in some jurisdictions. In this manner those less fortunate would be spared from taxes on their necessities, which account for most of their disposable income.
In Canada this is called the GS T and certain services are taxed as well as goods. Here, too, certain necessary services such as doctor's fees might be exempt. This makes the tax system somewhat progressive. A primary advantage is that we would not be taxed on savings. Since you pay the tax when you spend the money, you pay nothing on funds you put away. And substantial personal savings are a sign of a healthy economy. Our income tax system taxes your money as it comes to you. Therefore you have less available funds to put into savings. This has been modified slightly by allowing tax-free savings plans such as 401k and IRA accounts, but the benefits are not that great.
The biggest advantage of the 'Fair Tax' is that it is applied to everyone. I have seen figures showing that less than 50% of the people in America pay income taxes. Some of this is due to the myriad loopholes that have crept into our tax code, but more on that later. It is a simple system and does away with a whole army of persons now required to administer the system and others who provide consultation and preparation of returns. One thing must be incorporated or the 'Fair Tax' becomes indistinguishable from the VAT. A producer of goods and services must be exempt from paying taxes on materials used to produce what he sells. Otherwise the taxation at every step of bringing the components of commerce to market is the same pyramid scheme as the VAT. The Canadian province of Ontario currently collects 8% provincial tax and 7% GST for a total 'fair tax' of 15% in addition to a national income tax. As you can see, using the 'fair tax' as the means of financing the government would require a quite substantial percentage tax rate.
Stay tuned for the rest of this monograph at this location.
-Publius

Thursday, April 22, 2010

The Future of the Tea Party Movement

Not since 1992 has an independent movement had such a following as the Tea Party groups. In fact, Ross Perot's efforts in 1992 affected possibly one-fifth of the Presidential Election. The Tea Party, according to recent polls, has at least doubled that. The question is, when election time rolls around who is going to benefit and who is going to lose because of this following. Current polls indicate that the President's approval rating is dropping and will be signifigantly less than 50% by November. But the President is not on the ballot in November. It is the entire House of Representatives and one-third of the Senators who will be chosen. This is a chance to reverse the Socialist trends that the President has been laying on our nation. Without the consent of Congress the president is powerless. If he tries to block Congressional repeal of any acts that have already been passed he may find that his veto can be overruled by a substantial majority in Congress. It is of utmost importance that the President be stopped by this congressional election. History has proved that it is much harder to undo bad legislation than to stop it from passing in the first place.

How can the Tea Party best accomplish this? First of all, just what is the Tea Party? So far it has been shown to be a loosely organized group of citizens who are fed up with the direction our government is taking and wants to shift back to tried and true values. It has no central organization and its platform consists mostly of negative statements about what government should do. This is not a bad thing, the Ten Commandments consists of mostly negative statements about what people should do. How can that help in the crisis we face? It has been proved time after time that the United States is governed by a two-party system. Time after time the will of the people has been thwarted because a signifigant percent of the people voted for their choice as the independent best man for the job and thus defeated the second best man for the job who had major political party support, resulting that the worst man for the job got elected. Considering the lack of time before the election, there is no way the Tea Party can compete against the established machinery of either the Democrat or Republican parties. It is more a matter of convincing candidates of the two parties that they must adhere to the platform of the Tea Party in order to be elected.

Establishing a platform is not beyond the ability of the Tea Party. Already there is a vast agreement of what it wants and what it will not tolerate. All that is required is that those likes and dislikes be enumerated and more specifically defined. Then present them to the candidates as a litmus test of whether they are worthy of Tea Party support. If the movement continues to grow as it has so far, candidates will actively seek the Tea Party endorsement as necessary to survival. And how can the Tea Party accomplish the dual tasks of building a platform and vetting candidates? The simplest way to accomplish a democratic system is the town meeting. This is how the Tea Party started and this is how it can succeed. All it takes is an emphasis on taking care of business at town meetings and mini-conventions. Politicians who wish to identify with the party should best speak about the technicalities of the issues instead of making blanket political promises. When major candidates or incumbents seek to speak at Tea Party gatherings and incorporate planks of the Tea Party platform in their speeches to the general public it will indicate success.

But do not expect perfection. It is doubtful that any Democrat or Republican candidate will endorse the complete tea Party platform, whatever it turns out to be. Be satisfied with what the candidate is willing to support. Who knows? There may develop a contest between candidates to see who can support the most important Tea Party planks. It will also require political savvy for a candidate to determine which planks are most important to his constituents. One thing that will separate the candidates will be the voting record of incumbents seeking reelection. Beware of politicians who claim to have 'seen the light' after a history of foisting big government on the people. What the Tea Party must not do is put up candidates with no existing party structure to back them. Even Teddy Rooseveldt couldn't sell his Bull Moose party. Remember that the elections in November will not just choose our Congress, but also state and local offices as well. It is so easy to vote a straight ticket and so many voters do just that. Look at the rest of the ticket when you evaluate a candidate for party support. Our political system is based on handshakes and networks and it is futile to change that machine at this time.

If the Tea Party is successful in turning our Federal government around to the direction the people want, I predict either of two outcomes. 1. The Tea Party will infiltrate either of the existing parties to the point that it will ideologically become the Tea Party and the ideology will persevere for at least a decade or two. OR 2. One of the existing parties will wither and lose its relevance in American Politics and slowly be replaced by the Tea Party or another movement with similar ideals. Speaking realistically, either of those outcomes could befall the present Republican party. The Republicans are the main group who has any power to slow down the hyperliberal movement. They can either become the active arm of what the Tea Party adherents want or they can refuse that mantle and become irrelevant in the struggle between Liberal Socialism and Constitutional Conservatism. Historically, the Whigs became defunct when the new Republican Party succeeded in putting Abraham Lincoln in the White House. And the Democratic Republicans became the Democrats. It all depends on what an informed electorate decides that the primary issues are to be. LLet us make sure they are well informed.

-Publius

Sunday, March 14, 2010

An idea whose time has come: (source unknown)

For too long we have been too complacent about the workings of Congress. Many citizens have no idea that members of Congress can retire with the same pay after only one term, they don't pay into Social Security, they specifically exempt themselves from many of the laws they pass (such as being exempt from any fear of prosecution for sexual harassment) while ordinary citizens must live under these laws. The latest is to exempt themselves from the Healthcare Reform that is being considered...in all of its forms.

Somehow, that doesn't seem logical. We do not have an elite that is above the law. I truly don't care if they are Democrat, Republican, Independent or whatever.
The self-serving must stop. This is a good way to do that. It is an idea whose time has come.


Proposed 28th Amendment to the United States Constitution: Congress shall make no law that applies to citizens of the United States that does not apply equally to the Senators and/or Representatives; and, Congress shall make no law that applies to the Senators and/or Representatives that does not apply equally to the citizens of the United States.


You know that Representatives are elected for only a 2 year term - when this was written up, the forefathers figured that no-one would want this job because the representative from his city/village would have to leave his farm/business for a while (definitely considered a hardship then) and travel away from home.

(This accounts for the fact that there are only 2 Senators (six year term) per state compared to the much larger number of representativesat the adoption of the Constitution and is the reason some functions were reserved for the Senate and others for the House. The language of the above proposal may need polishing, but the intent is perfectly clear........-Publius)

Is Capitalism on its way out?

The following is a discussion topic to which we responded. The message is worthwhile and should be disseminated to the extent possible by concerned citizens - like you. ............................Publius

Question:
What do you think, is the American public stupid enough to drop the ideals that made us great and endorse socialism? Will the U.S.A turn into the U.S.S.A? I'd like to believe it won't happen, but I've been wrong before.

Publius:
Is Capitalism on its way out? Capitalism is ALWAYS on its way out, displaced by pie in the sky Socialism. The motive force is the whole raft of politicians who pander to the masses with those promises of pie in the sky. (What they don't tell us is that it's a mud pie and we're paying for good apple.) As long as they can fool some of the people all the time and all the people some of the time they will be a problem. Even back in Rome, 2000 years ago the ruling class had resorted to bread and circuses to keep the proletariat from rebelling. This led to the downfall of Rome and there was no competing social system to cushion the fall. That led to the development of a religious autocracy which stunted the growth of human progress for a millennium.

More recently the fall of the Marxist Socialism that had taken over the whole core of Eurasia has been cushioned by the emergence of a viable Capitalist society after we showed that a desireable alternative exists. That should make you proud to be an American.


To summarize: Yes, Capitalism is on its way out. Its skids are greased with the foolish promises of greedy politicians and the insane voting of lazy bums who want something for nothing or think the world owes them a living. It is a failure of morality, an abandonment of all that is good and true in the Human spirit. The good news is that Socialism is on its way out. A society that has too large a percentage of its population suckling at the public teat can not survive. Somebody has to draw the water and hew the wood. Europe is a good example of society in balance. The lines of the battle are clearly drawn and the political tides swing back and forth between Socialism and Capitalism, always maintainig a balance between the two. Unfortunately America has not found this balance, but has been on a Socialistic path for the last eighty years. The question is, will the American people rise up in indignation and disgust and reverse this trend? Only time will tell.

Meanwhile, if you are already filled with indignation and disgust, rise up and challenge the lies of the Socialist media. Point out the corruption and existence of a whole class of non-productive voters who are pushing us closer to the brink of chaos.