Posts Tagged ‘taxes’

What kind of person are you?


Do you think of labor in a factory to be a resource, or an asset?  Do you believe that it should be ‘every man for himself!’ or do you believe in community being worth investing in?  A pure capitalist would view labor as a resource, to be exploited to the utmost.  A civic minded person believes that the community is valuable, and well worth investing in.  Pure capitalism is self-destructive, as we have witnessed, because all of the wealth ends up in the hands of a few, and the economy comes to a halt, because no one can buy anything.

Part of the reason that the government has grown so large is because the community has had to band together to deal with the consequences of our capitalist society, which aims to use people up and throw them away.  If employers took care of their employees as if they were an asset, an investment in training, experience, and knowledge accumulated over time on the job, than government would not be needed to redistribute the wealth through taxation.  Health care, retirement, housing, all would be affordable, and available to all.

Every one wants a bigger slice of the pie.  Even though the pie is not getting larger, and there are more people wanting a slice.  Taking some from somebody else to have more for yourself is called greed.  Greed has betrayed capitalism in the United States, pushed rational thinking aside, and driven us right over the edge.  Instead of investing in the future, to assure that the future is the one that we desire, we have been enticed to spend everything, and more, right now.  In return, our jobs have been outsourced overseas, our taxes are buying less and less services, and everything is horribly expensive.

Only huge, economy-wide growth, on a scale never seen before, can pull us out of an economic implosion.  Asset deflation is likely to set in, as prices drop, values decrease, and people have no money to spend.  Deflation scares the wealthy more than anything else, because it steals away their wealth even through locked vault doors.   To avoid another Great Depression, a new set of rules are needed.

Investment has got to be with the intent of value increasing over the long term, not in order to pay today’s bills.  Cash dividends to stock holders is the single most damaging policy of all modern business practices.  It robs the future to allow luxury for a time, and corrupts the process of management.  Stock should increase in value, and be split, to reward its owners, as the company becomes more and more valuable.  But that can’t happen when the profits are being funneled into cash to pay to stockholders.



The future by default?


Attention is focused on Greece right now, as efforts to prevent the country from collapsing into bankruptcy rise to a crescendo.  Such a bankruptcy might bring about a cascade of additional implosions, if investors shun sovereign debt from Portugal, Spain, and Ireland.   Iceland is already in bankruptcy, the result of wheeling and dealing by two Icelandic banks.  The United States is running unprecedented deficits, which are only partly a result of the economic crisis.  The only country which seems to have its economic house in order is China, which has been financing the American economy for nearly 10 years.

Why is it so difficult for countries to live within their means?  How can governments expect to borrow money endlessly, without ever having to pay back the loans that keep them afloat?  Is it fear of losing power that drives officials to promise what cannot be afforded?  The consequences of continuing the path that we are on are growing steadily more dire, yet no one seems to be suggesting that we change our course.  World trade stands in jeopardy, because who will sell goods to a bankrupt country?

The people of Greece have been living an illusion, fostered by governments which were willing to extend every possible luxury to stay in power.  Civil service workers could not be fired, most workers received 14 months of pay every year, and retirement benefits exceeded the income made while working.  But Greece is only the tip of the iceberg.  Nearly every developed country coddles their people, sheltering them from the true costs of living.  Budget deficits have become standard operating procedure around the world, not just in the U.S.

Even amidst widespread unemployment, some people are gaining more wealth.  Are we all being hoodwinked so that a few can continue to rake in the dough?  It seems like it.  Consumer spending has been the engine that keeps the world economy growing, yet consumers have been borrowing to spend.  If consumption were to decline to sustainable levels, who would suffer the most?  The people who have to put up with a 10-year-old car, or the car companies?  If we were forced to buy shoes that could be repaired, instead of spending nearly a week’s wages on disposable shoes, wouldn’t we be better off?  Probably, but the industrialists who have been getting rich selling us shoes over and over again would not be.

Most people have not seen their income increase for nearly ten years, yet the wealthiest people have been getting wealthier the whole time.  Consumer debt is at unprecedented levels, while income growth is ground to a halt.  If taxes are raised enough to pay the costs of government, consumers would be unable to consume.  Instead of raising taxes, governments have resorted to borrowing to meet their costs, trying to keep consumption going.  But it cannot go on.  Consumption is going to decline, tax revenues will follow suit, and then governments will be forced to default on their debt.

We are all headed for the poorhouse, because some people have been getting rich while the rest of us are just scraping by.  Wages have not even come close to growing in proportion to productivity.  Instead of paying shareholders cash bonuses, corporations should be paying their workers wages that reflect the value of the work that they do.  Then consumers would have the money to pay higher taxes and still be able to buy new goods.  But greed has blinded the boards of corporations, and the wealth that the workers create goes to people who do nothing to help create it.

American workers are so productive that they could be paid full-time wages for working half days, allowing full employment.  But that would mean that the wealthy would not get wealthier as fast.  So, the workers are earning what they did when they were much less productive, and unemployment is widespread.  Workers who cannot work don’t buy things that they don’t desperately need, which means that consumption declines, and tax revenues diminish.

We could have avoided all of this pain, but doing so would have cut into the profits that a small number of individuals have enjoyed.  As a result, all of us, wealthy and poor, are going to suffer.  Maybe we can get it right next time.  If there is a next time.

Which road to recovery?


As the financial crisis has evolved into an economic crisis, where unemployment and diminished consumer spending have replaced toxic assets as the poison in the system, more calls for tax cuts are heard.  Stimulus spending is not reviving the economy, therefore another remedy must be needed, the thinking seems to be.  Conservatives have opposed the stimulus spending from the beginning, insisting that tax cuts would be more effective at reducing unemployment and stimulating private spending.  They argue that reducing taxes would allow investment into new businesses, which would create jobs.

This might be so, if the investments were made in the United States, and the jobs that were created were for Americans.  But recent history indicates that large corporations are more likely to use money freed up by tax cuts to invest in overseas production, to expand outsourcing, to maximize profits.  How is this going to help American workers?  Making products cheaper doesn’t help if consumers are unemployed, or underemployed.  Private investors are unlikely to put their money into improving energy efficiency, or alternate energy sources which will take years and years to pay off.

Conservatives object to the government simply handing out money that it has had to borrow, yet cutting taxes is basically the same thing.  Either way, the deficits will continue to increase.  But stimulus money has not been used to create new jobs in many cases, but to preserve existing ones.  States have been able to avoid laying off educators by paying them with stimulus funds, which keeps unemployment from going up more, but does not create new jobs.  Construction projects have had some positive effect, but many of those projects will only provide temporary employment.

How can we put Americans to work for the long-term, while at the same time putting more money into the hands of the private sector?  Doing one without the other is only going to prolong our agony.  Tax cuts will put more money into the hands of the private sector, but there is no assurance that it will be used to create jobs in America.  What industries are ready for large-scale investment, what sector could absorb millions of workers?

If we were to improve the ways that we use energy, so that we could accomplish the same result with fewer units of energy, we would be creating new wealth.  If we reduce the cost of heating and cooling a person’s home, we allow that person to spend a larger portion of their income on other things.  If we reduce the energy overhead costs for a retailer, that retailer can either lower their prices, or increase their profits, or a mixture of both.  And these benefits would be permanent, not just a temporary shot in the arm.

So, how about we cut taxes for those who invest in improving their energy efficiency, while using federal funds to put people to work improving energy efficiency?  In this way, we can target a specific area for improvement, instead of just handing out money in the hopes that some of it will create new jobs.  Energy efficiency is one of the greatest weaknesses of the United States, perhaps in part because consumption has made some people richer.  But choosing consumption over efficiency has made all of us poorer.

Learning old lessons again


There is an ancient rule that any individual who becomes wealthy at the expense of the group is threatening the survival of the group, and must be isolated from the rest of the group, irregardless of the individuals eventual survival.  This law was enforced by evolution, natural selection, survival of the fittest.  It appears that civilization has caused us to forget this ancient law, because society has so much inertia that it can survive individuals who make themselves wealthy at the expense of the group.

But that condition is changing, the result of a small number of individuals who have enriched themselves enormously at the expense of the rest of us.  The brakes could have been put on the financial bubble long ago, preventing the carnage that surrounds us today.  But Greed motivated very wealthy, powerful individuals to intervene in the attempts to reign in the explosive growth.  Regulatory bodies were discouraged from investigating suspicious activity, Congress was lobbied not to enact certain laws, and a few overseas governments were manipulated into providing shelters for the wealth.

We all were encouraged to borrow, cash out equity, and to shop until we dropped.  Insanity began to take over, as the stock market kept growing beyond any reasonable limits, prices for homes doubled, and doubled again and again, and we succeeded in exporting our materialistic culture to even much older nations, under the guise of ‘globalization’.  Why should someone in Thailand make shoes for people in America if all they are going to get is material compensation.  The old ways may not have been prosperous, but the people were happy.

Greed manipulated us through the media into believing that owning things could make us happy, and accepting that our self-worth was dependent upon the things that we could by.  We became so desperate to prove our worth that we would buy cars that cost so much we had to get a 5 year contract to buy them.  Tho contract would last longer than the car would.  The same thing happened with houses, where the 30 year mortgage became the standard.  Very few people in this country actually own their home, most are paying a bank for the ability to live in the place.  By the time that you get it paid off, you are too old to take care of it, and often have to sell it for far less than what you have put into it.

All of these things made a lot of people rich, but they made a few people much, much wealthier.  I don’t know their names, and don’t want to know their names, because they are evil people.  They have been willing to run the world economy into the ground to satisfy their insatiable desire for MORE!  It would not be nearly as bad as it is if they had only played with their money, but they had to go and use ours, too.  Basically, we have all been broke for about 20 years, but we have been part of a shell game, a con, to convince us that really could spend more than we make.  It was inevitable that the powers behind this con would eventually lose track of where everything was.  When other nations with more wealth than us began to compete with us for resources, the sham collapsed, victim of gasoline prices which Americans simply could not afford.  It is one thing to put a big screen TV on your credit card, but entirely another to put a tank of gas on it.

Now, we are seeing values return to the levels they would have been at if the ‘irrational exuberance’ had been discouraged with higher interest levels, restrictions on leverage, mark to market rules, and other arcane things which are extremely boring to talk about, but which have such incredible impact on our lives when they are ignored.  Unfortunately, because so many of us have been sucked into jobs that catered to the Greed, such as selling people things that they didn’t really need, values are likely to keep on dropping.  Deflation could become a black hole, sucking the wealth out of the entire system.

Unless we begin using the material wealth that we have amassed to begin creating wealth that belongs to the community, such as a nationwide fiber optic system.  Rebuilding roads and bridges is important, but so is making those same roads and bridges far less vital, by replacing them with the means to move information, to the point that we can almost believe that we are somewhere else entirely.  Virtual reality would allow us to perform tasks half a world away, to take part in events without having to leave our homes, to shop for things without having to go to a store.

Insulating our homes, business facilities, upgrading equipment, these are the investments that we will have to make to keep energy costs low enough that we can afford them in an economy which is sustainable.  Educating our populace to the highest levels that they are capable of is another survival strategy, because the solutions to our problems are not going to come from ignorance.  Who us going to pay for all of this?  We are, the average Americans, who have been duped into spending everything that we were going make for the next few years.  Instead of paying off our credit card debts and hyper-inflated mortgages, we are going to end up working our butts off just to eat and keep a roof over our heads.

The 40 hour work week may become victim to the need to pay a whole bunch of taxes, so that this program of self-improvement is not entirely at the expense of other countries.  Probably, we are going to have to get by with what TVs, stereos, and computers that we have, because importing them would mean paying somebody else real money.  But we have so much incredible potential, so much accumulated wealth, that we could turn this thing around in a matter of a decade.  If we all agreed to work together, to sacrifice together, and to believe in each other.  There is hope, but it is mighty slim.

The dance changes tempo


So far, I am not aware of anyone acknowledging the fundamental problem behind our current economic woes;  We can no longer sustain the level of consumption that we have become used to.   Between the price of many commodities going up, and home values declining, we have to spend more than we earn to live in great luxury.  Yes, luxury.

We drive ourselves around in our own cars, so that we don’t have to be close to strangers.  Many of us stand under a shower of warm water for several minutes every day.  The lights always will come on when we flick the switch, there are no open sewers running near our schools, and the water coming out of the tap is fairly safe to drink, even though it became fashionable during the Age Of Excess to only drink bottled water.  The telephones almost always work, and most people fly on airplanes when they have to go somewhere.

By the standards of most of the world, these things are great luxuries, which even the wealthy cannot always afford, because they simply don’t exist in some places.  Yet we often consider them to be ‘rights’, which cannot be infringed upon.  We have the ‘right’ to drive our own car somewhere if we want to.  But there is nothing that says that we have the ‘right’ to gasoline whenever we want to go somewhere.  If we can pay for the fuel, fine.  But what if we can’t?

The costs of energy are rising, and not simply because of demand.  Generating plants are becoming harder and harder to get permits for, the grid that transmits the energy that is generated to where it is needed is on the verge of overload, and we need a whole bunch of new lines to move wind power to where it can be used.  Crude oil is no longer found by drilling a few thousand feet in sandy soil.  Extracting it can mean working in thousands of feet of water, and penetrating the Earth’s crust with holes several miles deep is becoming common as we search for new supplies of oil.

For our society to become economically sustainable, consumption of energy has got to be reduced considerably, possibly 50 percent.  That sounds like a huge undertaking, but we are so inefficient in how we use energy that it would be fairly straight forward.  The majority of structures in this country are poorly, if at all, insulated.  Simply bringing every building up to the highest possible level of insulation would result in huge savings,  as would putting solar panels on every roof.

But the automobile is the biggest culprit, and there is simply no way to make it cheap to push around a whole bunch of metal and plastic so that one person can risk their life to get where they want to go by themselves.  We will always have cars, but we will no longer use them all the time.  Instead, we are going to have to get used to riding public transportation when we are commuting to work or school.  But we will still be able to go where we want, when we want, when we can afford it.

If we can make what we already own more valuable by making it more energy efficient, we have invested our money into something that will create wealth, or money, as long as it is used.  But this wealth will be diffused through the economy, instead of being concentrated in the hands of a few, which might be why there is such resistance to changing the consumption of energy dramatically.  The oil companies will not make huge profits if we all start riding transit to work or school.

This will be a drastic change in the American lifestyle, but we are facing something worse than War.  We are dealing with the consequences of unbridled Greed getting its way for too long.  A lot of money was made, but the value of money is coming into question, because so much has been ‘made’ that just disappeared all of a sudden.  Real wealth is the kind that everyone benefits from, and which won’t just go away.  A bridge, a rapid transit system, a fiber optic network, insulation in every building, these are things that make all of us wealthier.

If we are equals, why aren’t our taxes?


The economic stimulus bill being rushed through the Senate right now focuses more on tax cuts than the House version of the bill, which promotes federal spending.  Why are the Republicans so obsessed with tax cuts?  Because many of the wealthy in this country object to having to pay higher taxes than the middle class.  At some point in the past, when the liberals controlled the government, it was decided that the wealthy could afford to pay more of their income in taxes than the middle class, so the tax rate for the wealthy was raised to 50 percent.

That inequity still persists, although the highest tax brackets are no longer taxed at the 50 percent level.  Another item that was to be included in the stimulus package was relief from the Alternative Minimum Tax, the liberals attempt to stop the wealthy from using various tax loopholes to escape from the high tax burden.  All this talk about taxes is boring as sin, but when you are talking about a pile of paper over 5 feet high, of letter sized pages, typed single space, who could avoid being bored?  That is the size of the United States tax code.  No one knows the whole thing, and there are people whose lives revolve around a few inches of that stack.  Armies of people work to prevent companies and individuals from paying more than they absolutely have to.

Wouldn’t it make sense to throw that pile of paper away, and replace it with a single, flat tax rate, which applies only to individuals, and represents the portion of the Gross Domestic Product that it costs to operate the government?  If we want to modify behavior, call it a fine or fee, or a subsidy, but leave it out of the tax code.  This is where the complexity has come from, trying to change behaviors.  If the government doesn’t want people doing something, they put a tax on it.  Conversely, if the government wants to encourage something, they create a tax break for it.  All of this leads to thousands of pages of legalese, which usually doesn’t go away when the activity it addresses does.

If we went to a flat tax rate, and did away with all the shelters, deductions, and other loopholes, so that everyone paid the same rate, we could get by with a tax rate of about 17 or 18 percent.  That is the proportion of the G.D.P. that the government has spent every year for some time.  This slightly higher than what most middle class people are paying, and a lot lower than what the higher tax brackets face.  If we are equal before the law, why can’t we be equal before the I.R.S.?

A slice of the pie


Everyone wants a slice of the pie, but some people want the whole pie.  Well, they have gotten it.  They have all of the money, and we have none.  This is the drawback to the way that capitalism is practiced in the United States.  The money ends up in the hands of a few, the mass has nothing, and commerce comes to a stop. Pop!  The bubble bursts.  Deflation sets in, and markets crash.  What is anything worth, if no one has the money to buy it?  They can’t borrow the money anymore, because the bankers don’t know how much the money is worth.

We are all so far in debt that there is no possibility that we can pay it off.  We are in default on too many things, because there are not enough of us actually creating anything of value to exchange for what we need.  A service is only as good as the ability to pay for it.  When everyone has to do their own cooking, restuarants are not going to do well.  And the list goes down the line.

We are now in the Post-Industrial, Post Everything, Service economy.  And we are all broke.  We can not afford to consume Service anymore. EOF

End Of File

There is a different way to look at Capitalism.  Do not look at people as a resource, look at them as owners.  They own the means of production.  The buildings, assembly lines, and whatnot are only there to create a place for people to work.  Supposedly, productivity has increased by several percent every year for years and years.  Has compensation for labor?

Labor is not just a resource to be exploited for the lowest possible cost.  Labor is provided by people, the members of your community.  Your community is this country, what you call yourself.  If you are an American, your community is broke.  Maybe you aren’t, but so many of us are that your money is not going to be much compensation for the loss that cannot be measured in dollars.  Our culture, our pride, our energy.

The only way out of this situation is to put everyone to work working for each other.  Creating wealth that all of us benefit from, because it makes each of us worth more.  Rapid transit systems, fiber optic networks, high speed rail systems, space exploration.  We are going to have to get used to work a lot without being able to spend very much, because all of our money is going to be used by the government to pay for creating this wealth.  But this will be real wealth, not shopping centers, office towers, and parking lots.  This will be wealth that will be used for years and years, and create more wealth every time it is used.

This is capitalism as practiced where the people are the owners, even though they do not own the companies that do the work.  I have a saying that I came up with.  “If I work to make things better for everyone, things will get better for me, too.”  Whether or not we end along with the ending of the old ways is up to us.

Real wealth means real work


We all would like to live the life of luxury, sitting by the pool, drinking the day away, but life is not like that. But still, people try, by jacking up the profit margins on their business interests, demanding substantial dividends from the stock that they own, and hiring the cheapest possible labor to work for them. There is a point where self-interest becomes greed, and it seems to me that most people have no idea where that point is.

When we put our own needs ahead of the community that we live in, we degrade our quality of life. This is not usually apparent right off, but it gradually overwhelms our own standard of living, forcing higher spending for police, security, and maintenance. We may believe that we are above the common standard, but we cannot escape the effects of that standard, unless we wish to live in a vacuum.

When industries send jobs overseas, they reap the profits of lower labor costs, initially. But, in time, the decline in income in the markets where their products are sold forces their profit margins to shrink. At the same time, the quality of the community declines, as tax incomes shrink. This is not the same as the improvements in productivity brought about by new technologies, this is the complete elimination of employment opportunities in an established market. There are no new jobs created by the changes, as there are when productivity increases.

Greed pushes management to ignore long-term costs in the interest of maximizing short-term profits, resulting in a gradual diminishment of returns. A franchise owner who employees only high school age workers to maximize his profit is likely to see his trade dwindle, as people become unhappy with the service they receive and the quality of the product they get. The craftsmanship of workers who have never done a job before, and don’t buy the finished goods, is unlikely to equal that of people who have been raised in a culture based on craftsmanship.

By demanding extraordinarily high profits, the financial industry set the stage for an implosion of prices. Bidding up the price of stocks resulted in artificially high values, which could not be sustained. There is no reason for housing prices to appreciate substantially if no improvements are being made to the homes, yet it was assumed that prices would keep going up and up, for no other reason than that they always had before. Ignoring the possibility that housing prices might fall practically insured that they would, because even the smallest blip in the market would be magnified.

Sustainable, long-term growth is going to require hard work, the creation of real value, and re-investment into the community. There is no way around the fact that what we have called wealth is in reality merely inflated values. Real wealth is not created by manipulating numbers in computers, but in building things that have lasting value, that are tangible, and that can be used by large numbers of people. Real wealth takes real work to be created, something that we seem to have forgotten.

Future shocking?


It amazes me that we are not hearing any straight talk about what lies ahead, as if things could somehow go on as they have before. Even though I have only a small education in economics, it seems obvious to me that the United States is going to have a huge amount of debt to pay off. This can only be done by working together to create things of lasting value which can be used by large numbers of people. Infrastructure. Trade cannot pay off debt, because nothing of lasting value is created in trade.

Consumer spending is based almost entirely upon trade, so consumer spending will have to decline. But how could consumer spending continue at previous levels if people are all broke? Something is going to have to replace consumer spending as the engine of the economy, and it will have to be big. Instead of building roads, though, maybe we should consider some new kinds of infrastructure. Like fiber optic cables to every home, and a combination data terminal/videophone in every house. A national high speed rail network. Upgrade the electric grid, and run transmission lines to areas where wind is plentiful. Insulate every structure in the nation. Not just spending money, but actually increasing our efficiency as a nation.

Demand for resources can easily outstrip supply if developing countries begin large-scale consumption. The resulting supply-side shocks cripple the economy, pushing up inflation at the same time that wages become stagnant. Greed overwhelms the markets, and a herd mentality emerges, where any profitable strategy is immediately copied, over and over again. One sub-prime mortgage is not a problem. Several million of them are. So markets will have to be guided into spending a portion of their capital on long-term projects, which will dampen the volatility in the short term, while providing guidance for investors as to where long-term growth will be.

Our future economic expansion must be based in increasing our net worth, not financial manipulations of value. Paying for this increase will mean working longer hours, so that the tax burden is spread over more earnings. The payment of cash dividends has got to be discouraged, so that corporations can invest their earnings into new means of production, training, and research. Military spending has got to be reduced, as that is money that disappears from our economy after one pass through it. Spending on space exploration needs to be increased, because it generates new wealth at a rate nearly unequaled, while engaging the high-tech military-industrial complex.

Saving has got to be encouraged, so that the government will have access to money to use for these programs. Payroll accepted in the form of U.S. savings bonds should be tax free, and the payroll value calculated in immediate redemption value, not the face value at maturity. Interest on savings accounts should be tax free. We are going to have to stop relying on foreign countries to carry our debt, because we are making our money worthless. Only by working together, and sharing the sacrifices, can we have any hope of coming out of this economic meltdown.