“I am glad the rich will get their tax cut extension… because I plan on becoming a billionaire, and I don’t want to be taxed unfairly in the future.”
The statement I made above is something that I think about 50% of the population does not grasp. That would be the 50% who favor raising taxes for the top 2%. Unfortunately, not seeing yourself as a potential billionaire means that you will not make efforts to get above your current financial level. It is a matter of striving to better yourself, setting financial goals and planning a way to get there. It has been my observation that average person who favors taxing the rich heavily does not see themselves as ever getting to that level. While the average person who is against taxing the rich heavily, can identify themselves with the rich in one way or another and see themselves as potentially getting there. This is an important difference in mindset. In a free market economy, prosperity is a self-fulfilling prophecy. Do you believe in yourself? Do you believe that your efforts today will lead to your prosperity in the future? Perhaps this makes you question if you are planning hard enough to get rich. Very few will every actually attain billionaire status, but the effort to become one will comfortably get you into the millionaire club.
As for Obama… what he should have done was raise the high-bar from $250,000 to 1 million per year for the highest tier. A lot of households make 250,000 to 500,00 even if they don’t report it. Look at every small retail store in your neighborhood. There is a good chance they are above the 250,000 income level. They have a lot of flexibility in reporting their moderate income, and certainly identify themselves as people who plan to be very rich some day. A lot of homeowners have more then 250,000 in capital gains locked into their homes that they bought 20 years ago, so that higher tax on income over 250,000 does not sit well with them (regardless of homeowner and capital gains tax limitations). Obama does not realize that the goal of the middle class is to become part of the upper class… not stay middle class. Obama is fighting against the middle class in this sense.
Obama would have been more successful if he attempted to change the tax tiers. He should have changed the highest tax tier so that instead of starting at 250,000, it started at 1 million or even 2 million. This might have brought over just enough support to his plan to pass. This should have been done before the 2010 election. After the election it was too late for even this to work. Obama took an “all or nothing” chance… and lost.
Tuesday, February 8, 2011
High Taxes Breed Tax Cheating… and Trade Deficits
Warning! The Truth is sometimes disturbing!
Let us consider the Foreign Trade Deficit. Officially the statistics show that the US economy has been falling behind in International Trade for decades. I can assure you that companies make a profit on almost every single trade made, otherwise they would close the doors. Furthermore, it is not logical that the any Country would be able to maintain a trade imbalance for so many decades. Any thinking person would conclude that there must be more to the trade deficit then appears on the surface.
Here is a question to ponder. Do you seriously think that the owners of any company are going to submit to the ridiculously high taxes that the US Government demands? Does anyone expect business owners who take the risk of investing capital into a business to just hand one third of their profits over to someone else who took no such risk? It is really counter intuitive. Companies have an incentive to under-report profits, hence the illusion of a trade deficit. It is my observation… that the high taxes in this country have turned ordinary businessmen and women into criminals. This has been a very common trend throughout all of history. The higher taxes and tribute are, the more effort people will put into beating the tax system rather then being productive.
The fact is that at once you get above the point were you are working for a salary, taxes are voluntary. Business-owners objectively consider how much they have to pay in taxes and how much it costs to beat he system. As long as it costs less to beat the tax system, ordinary people will take that option. The way it works is simple. Hypothetically, if I buy a product from China (or any other country) that costs $1, I will have my buying-agent in China record the cost as $8 on the invoice and I will send $8 in payment to the agent in China. I then sell it for $10 in the US and show a profit of $2 to the IRS. Meanwhile my agent in China wires $6 to my bank account in Panama or some other country and keeps $1 for himself for his assistance. The fact is that there is more US dollars outside the US then inside the US. Taxes are way to high when ordinary businesspeople will go to such great lengths to avoid them.
The underlying misconception has been that American Companies prefer to import rather then buy domestically. This is false. Purchases made domestically fall under US jurisdiction and records can be easily obtained by seopena. This is not the case with international transaction going through foreign banks who have every incentive to protect their account holders and none to help US government agencies… and are not legally obliged to do so.
The average businessman today is more concerned about his potential tax liability then he is about his competition. That is contrary to free market ideology where government is not suppose to interfere. Taxes are way to high when peoples actions are influenced by the tax consequences to the extent of Trillion Dollar Trade Deficits.
Take a look at the Form 1040 from 1913: http://www.irs.gov/p…rs-utl/1913.pdf
The first tax tier was….1% (20k to 50K)
The second……………..2% (50k to 75K)
The third………………..3% (75k to 100k)
The fourth………………4% (100k to 250K)
The fifth………………….5% (250k to 500k)
The sixth and final ……6% (500k plus)
The average income in 1913 was only 15k. The median was about 3k. The vast majority of people were exempt. Do you know how rich you were in 1913 to be making 500k a year? These are tax rates at which the the govt would have the people’s support and cooperation. This is how they got the 16th Amendment passed, legalizing the Federal Income Tax. The American people would have never had allowed an Income Tax Amendment to the Constitution if they knew how far the congress would have gone with it. The people have responded in kind by working around it. If the government would reduce taxes to 1913 rates, they would find that people would be more willing to pay a fair share.
Let us consider the Foreign Trade Deficit. Officially the statistics show that the US economy has been falling behind in International Trade for decades. I can assure you that companies make a profit on almost every single trade made, otherwise they would close the doors. Furthermore, it is not logical that the any Country would be able to maintain a trade imbalance for so many decades. Any thinking person would conclude that there must be more to the trade deficit then appears on the surface.
Here is a question to ponder. Do you seriously think that the owners of any company are going to submit to the ridiculously high taxes that the US Government demands? Does anyone expect business owners who take the risk of investing capital into a business to just hand one third of their profits over to someone else who took no such risk? It is really counter intuitive. Companies have an incentive to under-report profits, hence the illusion of a trade deficit. It is my observation… that the high taxes in this country have turned ordinary businessmen and women into criminals. This has been a very common trend throughout all of history. The higher taxes and tribute are, the more effort people will put into beating the tax system rather then being productive.
The fact is that at once you get above the point were you are working for a salary, taxes are voluntary. Business-owners objectively consider how much they have to pay in taxes and how much it costs to beat he system. As long as it costs less to beat the tax system, ordinary people will take that option. The way it works is simple. Hypothetically, if I buy a product from China (or any other country) that costs $1, I will have my buying-agent in China record the cost as $8 on the invoice and I will send $8 in payment to the agent in China. I then sell it for $10 in the US and show a profit of $2 to the IRS. Meanwhile my agent in China wires $6 to my bank account in Panama or some other country and keeps $1 for himself for his assistance. The fact is that there is more US dollars outside the US then inside the US. Taxes are way to high when ordinary businesspeople will go to such great lengths to avoid them.
The underlying misconception has been that American Companies prefer to import rather then buy domestically. This is false. Purchases made domestically fall under US jurisdiction and records can be easily obtained by seopena. This is not the case with international transaction going through foreign banks who have every incentive to protect their account holders and none to help US government agencies… and are not legally obliged to do so.
The average businessman today is more concerned about his potential tax liability then he is about his competition. That is contrary to free market ideology where government is not suppose to interfere. Taxes are way to high when peoples actions are influenced by the tax consequences to the extent of Trillion Dollar Trade Deficits.
Take a look at the Form 1040 from 1913: http://www.irs.gov/p…rs-utl/1913.pdf
The first tax tier was….1% (20k to 50K)
The second……………..2% (50k to 75K)
The third………………..3% (75k to 100k)
The fourth………………4% (100k to 250K)
The fifth………………….5% (250k to 500k)
The sixth and final ……6% (500k plus)
The average income in 1913 was only 15k. The median was about 3k. The vast majority of people were exempt. Do you know how rich you were in 1913 to be making 500k a year? These are tax rates at which the the govt would have the people’s support and cooperation. This is how they got the 16th Amendment passed, legalizing the Federal Income Tax. The American people would have never had allowed an Income Tax Amendment to the Constitution if they knew how far the congress would have gone with it. The people have responded in kind by working around it. If the government would reduce taxes to 1913 rates, they would find that people would be more willing to pay a fair share.
Gold Standard – Myths and Facts
Historically… gold as a currency has had all the problems of Fiat Money. Aside from the fact that it has no intrinsic value… more of it can be mined and is continually mined. The organizations mining it have an advantage and have historically manipulated the supply to their advantage. The US government at one point confiscated all the gold (a crime). It made itself the sole legal purchaser of gold in the US. That only shifted and further centralized control of gold rather then disperse it. Few people know, that when the US govt went on the Gold Standard, YOU the individual, where no longer allowed to own it. Executive Order 6102 required U.S. citizens to deliver by May 1, 1933 all their gold coin, gold bullion, and gold certificates to the Federal Reserve. An exception of $100 in gold coins was allowed. This does not seem fair or constitutional to me.
Gold historically has been subject to scams such as mixing it with other metals. The only system that is not corruptible is a barter system where you trade actual commodities. Problem there is that the barter system is too slow and cumbersome for anything above a “village level” economy.
The current Fiat system is supposed to be backed by real assets as each dollar is born into existence via debt, which is backed by collateral on real assets.The only flaw in this system is that the government can create/borrow money without putting up real collateral, thus debasing the currency. This is no different then when Rome use to mix other metals into its gold resulting in inflation and instability back then too.
The solution is simply for government to end their print and spend policies. This is the same advice they would give to any third-world nation. The cost of this is that money will always seem in short supply. Both government and individuals will have to make hard choices on how to spend the little money they have. In the short run we will be giving up aggressive boom cycles in favor of long term stability.
Gold historically has been subject to scams such as mixing it with other metals. The only system that is not corruptible is a barter system where you trade actual commodities. Problem there is that the barter system is too slow and cumbersome for anything above a “village level” economy.
The current Fiat system is supposed to be backed by real assets as each dollar is born into existence via debt, which is backed by collateral on real assets.The only flaw in this system is that the government can create/borrow money without putting up real collateral, thus debasing the currency. This is no different then when Rome use to mix other metals into its gold resulting in inflation and instability back then too.
The solution is simply for government to end their print and spend policies. This is the same advice they would give to any third-world nation. The cost of this is that money will always seem in short supply. Both government and individuals will have to make hard choices on how to spend the little money they have. In the short run we will be giving up aggressive boom cycles in favor of long term stability.
How Modern Banking Works
This post is meant to be educational so that everybody knows how our monetary system works. Knowing how the system works is the first step to identifying the problems and considering solutions.
How modern Fractional Banking works:
line 1 Bank Starting Capital………………….1,200
line 2 Reserve for Bank working capital……………………………………. ..200
line 3 Private Loans……….1000…….1000……..1000…….. ..1000
line 4 Int + Prin……………..2000……..2000……2000… ….2000
Total Principal + Interest on Line 4= $8,000
Line 1 Starting capital is only $1,200
Line 2 The bank keeps only 200 in reserve.
Line 3 The bank has lent out $4,000 on $1,000 and expects to get paid back $8,000.
The money to be payed back, the total of Interest + principal on line 4 ($8,000), does not exist because on line 1 they only started out with $1,200.
More money must be created (printed) to pay back the Int + Prin… or the borrowers will default. The system depends on more borrowers coming in after and create more money through debt borrowing. Yes, Factional Banking is a legalized Ponzi scheme, but there is nothing better that would scale to a growing economy that has been thought of yet.
The system is designed so that all new money must be borrowed into existence. More money must be constantly created or else the borrowers will default because at any given time there is not enough money in existence for ALL borrowers to pay back their debt. The Church understood this and tried to ban the practice of Fractional Banking. Andrew Jackson, the 7th US president, knew this too and fought hard to destroy the Second Federal bank. The charter of the First was allowed to expire. The point is that there are costs and benefits to this system that have been known for a long time.
The system is good because it allows for the money supply to scale to a growing economy. The system requires that all borrowings are backed by collateral. So if allowed to work properly, it is a very good system with a built in control on inflation. The money created at the local level IS backed by something. It is backed by real assets which have an intrinsic value much greater then gold. Gold is not good for much except art. If economy grows too fast… it will result in a situation where there are not enough new loans coming in.. when there are not enough new borrowers coming in to borrow more money (create new money), some people will default (recession). This is the built in control on inflation.
The only problem with this system is the Government. The government has given itself the ability to borrow as much money as it wants without putting up real assets as collateral. The Treasury just prints up paper bonds and sells them to the Fed Reserve for new cash. The govt basically gives itself an IOU for new money. This is proof that anything that government touches… turns to sh1t.
It is false to say that our money is not backed by anything, it is infact backed by real assets that borrowers use as collateral. The only problem in this system is the Government borrowing which is not backed by anything of value other then its “power” to tax and confiscate property almost at will.
As the govt borrows more and more, its debt becomes a bigger percentage of ALL the Outstanding debt. As that Government percentage goes higher, it means that a greater percentage of our money is NOT backed by real assets.
There is only one possible solution to this problem at this point. The national debt can never be paid back, since in this system the money to pay it all back never exists at any point in time. The amount not actually owed to anyone can be written off. That should be balanced by proportionally decreasing the private debt and the money supply. The effect of this is “Deflation”. The problem of this is only psychological as people will have to get use to the idea of taking a pay cut every year. That however would be offset by lowered living expenses.
How modern Fractional Banking works:
line 1 Bank Starting Capital………………….1,200
line 2 Reserve for Bank working capital……………………………………. ..200
line 3 Private Loans……….1000…….1000……..1000…….. ..1000
line 4 Int + Prin……………..2000……..2000……2000… ….2000
Total Principal + Interest on Line 4= $8,000
Line 1 Starting capital is only $1,200
Line 2 The bank keeps only 200 in reserve.
Line 3 The bank has lent out $4,000 on $1,000 and expects to get paid back $8,000.
The money to be payed back, the total of Interest + principal on line 4 ($8,000), does not exist because on line 1 they only started out with $1,200.
More money must be created (printed) to pay back the Int + Prin… or the borrowers will default. The system depends on more borrowers coming in after and create more money through debt borrowing. Yes, Factional Banking is a legalized Ponzi scheme, but there is nothing better that would scale to a growing economy that has been thought of yet.
The system is designed so that all new money must be borrowed into existence. More money must be constantly created or else the borrowers will default because at any given time there is not enough money in existence for ALL borrowers to pay back their debt. The Church understood this and tried to ban the practice of Fractional Banking. Andrew Jackson, the 7th US president, knew this too and fought hard to destroy the Second Federal bank. The charter of the First was allowed to expire. The point is that there are costs and benefits to this system that have been known for a long time.
The system is good because it allows for the money supply to scale to a growing economy. The system requires that all borrowings are backed by collateral. So if allowed to work properly, it is a very good system with a built in control on inflation. The money created at the local level IS backed by something. It is backed by real assets which have an intrinsic value much greater then gold. Gold is not good for much except art. If economy grows too fast… it will result in a situation where there are not enough new loans coming in.. when there are not enough new borrowers coming in to borrow more money (create new money), some people will default (recession). This is the built in control on inflation.
The only problem with this system is the Government. The government has given itself the ability to borrow as much money as it wants without putting up real assets as collateral. The Treasury just prints up paper bonds and sells them to the Fed Reserve for new cash. The govt basically gives itself an IOU for new money. This is proof that anything that government touches… turns to sh1t.
It is false to say that our money is not backed by anything, it is infact backed by real assets that borrowers use as collateral. The only problem in this system is the Government borrowing which is not backed by anything of value other then its “power” to tax and confiscate property almost at will.
As the govt borrows more and more, its debt becomes a bigger percentage of ALL the Outstanding debt. As that Government percentage goes higher, it means that a greater percentage of our money is NOT backed by real assets.
There is only one possible solution to this problem at this point. The national debt can never be paid back, since in this system the money to pay it all back never exists at any point in time. The amount not actually owed to anyone can be written off. That should be balanced by proportionally decreasing the private debt and the money supply. The effect of this is “Deflation”. The problem of this is only psychological as people will have to get use to the idea of taking a pay cut every year. That however would be offset by lowered living expenses.
Wednesday, November 3, 2010
More Money Printing on the Way
People just don't want to understand that the Recession is the Fix rather then the problem. It is the only thing that makes people respect the dollar.
The National Debt represents newly printed money. The Treasury prints up Bonds and sells it to the Fed to give the appearance of some sort of book balancing. Only a small amount of the the debt is money actually owed to anyone. There is no one on this planet that has 40 trillion dollars to lend to the US govt. It is a ridicules number that borders on not being a real number at all.
1 million second = 6 days (no problem)
1 billion seconds = 30 years (easy to imagine, hard to remember)
1 trillion seconds = 30,000 years (what the EFF' is that???)
Printing money to get the economy moving only creates a much bigger problem of instability. European countries printed money for years and were very unstable economically because of this. That is why they moved to the Euro which was much harder to just print more of without getting a lot of counties to approve.
I think the answer to the monetary disaster in the US is to replace the Federal Reserve Board of Governors with the State Governors. If 2/3's of them agree to increase the money supply through more debt or change interest rates, then ok. We need a check and balance over money printing. That check and balance should go back to the states.
The National Debt represents newly printed money. The Treasury prints up Bonds and sells it to the Fed to give the appearance of some sort of book balancing. Only a small amount of the the debt is money actually owed to anyone. There is no one on this planet that has 40 trillion dollars to lend to the US govt. It is a ridicules number that borders on not being a real number at all.
1 million second = 6 days (no problem)
1 billion seconds = 30 years (easy to imagine, hard to remember)
1 trillion seconds = 30,000 years (what the EFF' is that???)
Printing money to get the economy moving only creates a much bigger problem of instability. European countries printed money for years and were very unstable economically because of this. That is why they moved to the Euro which was much harder to just print more of without getting a lot of counties to approve.
I think the answer to the monetary disaster in the US is to replace the Federal Reserve Board of Governors with the State Governors. If 2/3's of them agree to increase the money supply through more debt or change interest rates, then ok. We need a check and balance over money printing. That check and balance should go back to the states.
Tuesday, October 27, 2009
The Right to Bare Arms...
I will soon explain how this is relevant to Recession Economics.
Obama has done something very good for me. His presence in the White House made me realize that I must do everything I can to assert my 2nd amendment right. The threat that he and his party represent has really motivated me to take some drastic initiatives that I have been putting off of a long time.
The first step was to legally purchase guns and ammunition before any legislature is enacted by the Democrats to infringe on the 2nd amendment. Upon purchasing guns and ammunition I realized that I now needed a place to store and shoot these weapons. In the last few months this has moved me to buy a considerable piece of property and begin construction. This is the point at which I am thankful that we are in a recession. The property is costing me half of what it would have two years ago. It is also relevant that gun and ammunition sales have been booming since Obama took office as people try to head off an future restrictions. This is probably the reason why they have not attempted to enact gun control legislation. They are afraid of cutting off their only good leg.
Sure enough, we can expect that before the next election they will make an attempt to pass gun control legislation. If for no other reason then to spite the other side. A republican Filibuster is our only hope. House Speaker Nancy Pelosi says she only wants to have guns registered. We know from experience in Britain and Australia that this is the first step to confiscation. The governments there first took an accounting of who had guns and later moved to confiscate them. The right to bare arms is no different then the right to free speech. Once you start picking away at the Bill of Rights there is no end. The Bill of Rights does not set apart the 2nd amendment from the other amendments in any way and give it a lesser value. All those rights are the peoples rights.
We can see evidence of this in Britain which is further along down this path... and it is the same path. First they banned handgun ownership... Then they banned long-gun ownership... Then they banned swords... Then they try to ban pointed kitchen knives... Now they plan on banning the PINT. Yes, the drinking glass because apparently people have been using this to assault one another. The point is obvious, if people want to hurt each other they will use stick and stones if they have to. Will democrats ban sticks and stones too?
Someone anonymously said:
"I think the root cause of the problem here is hands. Anything that can be held in one's hand can be a weapon.
Outlaw hands. Problem solved."
I guess the Democrats have their work cut out for them.
Obama has done something very good for me. His presence in the White House made me realize that I must do everything I can to assert my 2nd amendment right. The threat that he and his party represent has really motivated me to take some drastic initiatives that I have been putting off of a long time.
The first step was to legally purchase guns and ammunition before any legislature is enacted by the Democrats to infringe on the 2nd amendment. Upon purchasing guns and ammunition I realized that I now needed a place to store and shoot these weapons. In the last few months this has moved me to buy a considerable piece of property and begin construction. This is the point at which I am thankful that we are in a recession. The property is costing me half of what it would have two years ago. It is also relevant that gun and ammunition sales have been booming since Obama took office as people try to head off an future restrictions. This is probably the reason why they have not attempted to enact gun control legislation. They are afraid of cutting off their only good leg.
Sure enough, we can expect that before the next election they will make an attempt to pass gun control legislation. If for no other reason then to spite the other side. A republican Filibuster is our only hope. House Speaker Nancy Pelosi says she only wants to have guns registered. We know from experience in Britain and Australia that this is the first step to confiscation. The governments there first took an accounting of who had guns and later moved to confiscate them. The right to bare arms is no different then the right to free speech. Once you start picking away at the Bill of Rights there is no end. The Bill of Rights does not set apart the 2nd amendment from the other amendments in any way and give it a lesser value. All those rights are the peoples rights.
We can see evidence of this in Britain which is further along down this path... and it is the same path. First they banned handgun ownership... Then they banned long-gun ownership... Then they banned swords... Then they try to ban pointed kitchen knives... Now they plan on banning the PINT. Yes, the drinking glass because apparently people have been using this to assault one another. The point is obvious, if people want to hurt each other they will use stick and stones if they have to. Will democrats ban sticks and stones too?
Someone anonymously said:
"I think the root cause of the problem here is hands. Anything that can be held in one's hand can be a weapon.
Outlaw hands. Problem solved."
I guess the Democrats have their work cut out for them.
Wednesday, September 16, 2009
I can't wait until everyone's unemplyment benefits run out!
The most ridicules thing about recessions is how hard it is to hire people. You would think it would be easy with so many people out of work. Why would they come work for me when unemployment is giving them $400 a week to stay home and go to the beach all summer. My own girlfriend is out of work and has no intention of looking for a job until her unemployment runs out.
It is possible to persuade people to work if you offer a premium salary. The people who would normally get $10 /hr, now want $17/hr to work.
As soon as unemployment benefits run out, which we should start to see around December 2009, people will start going back to work for $10 and hour. The increase in labor productivity will sustain the recovery. I just hope that the government does not interfere and extend unemployment benefits. The longer unemployment runs, the longer it will take to get the economy back on track.
BTW, my opinion of the recovery so far is that it has only been fueled by inflationary money printing. Not that I would have done anything different. The world wide effect of the engineered recession has caused other governments to print even more money then the the US. Economics is relative, you only have to do better then everyone else.
You all know the story of the two brothers and the tiger right... A tiger is chasing two brothers and one stops to put on a pair of sneakers. The other brother asks, "Do you really think the sneakers are going to help you outrun the tiger?". His brother answers, " I don't need to outrun the tiger. I only need to outrun YOU".
It is possible to persuade people to work if you offer a premium salary. The people who would normally get $10 /hr, now want $17/hr to work.
As soon as unemployment benefits run out, which we should start to see around December 2009, people will start going back to work for $10 and hour. The increase in labor productivity will sustain the recovery. I just hope that the government does not interfere and extend unemployment benefits. The longer unemployment runs, the longer it will take to get the economy back on track.
BTW, my opinion of the recovery so far is that it has only been fueled by inflationary money printing. Not that I would have done anything different. The world wide effect of the engineered recession has caused other governments to print even more money then the the US. Economics is relative, you only have to do better then everyone else.
You all know the story of the two brothers and the tiger right... A tiger is chasing two brothers and one stops to put on a pair of sneakers. The other brother asks, "Do you really think the sneakers are going to help you outrun the tiger?". His brother answers, " I don't need to outrun the tiger. I only need to outrun YOU".
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