Archive for the ‘Taxes’ Category
By Ben Hart
At a certain point, it becomes too expensive to keep using government money.
Think about the cost to you of using government money — the cost of using dollars.
Government takes about 40 cents of every dollar earned in America. For high-income earners, it’s closer to 50 percent, and is even higher than 50 percent if you live in high-tax states such as California and New York.
Add to this the fact that the dollar is devalued every day because the Federal Reserve is constantly printing new money to monetize the national debt. The federal government is today borrowing 46 cents out of every dollar it spends. The way it finances this debt is to print more money. It then pays its debt with devalued money (which doesn’t make creditors, like China, any too pleased).
When measured against the price of gold and silver, the dollar has lost more than 60 percent of its value since Barack Obama’s first day in office.
But the biggest cost for using government money is clearly the Tax Man — who takes 40-50 cents of every dollar you earn.
Alternatives to Government Money
Libertarians and most conservatives basically believe that the money we earn is ours, or should be.
We then willingly pay taxes — much like a condo or association fee — for common services we all want and need: law and order, national defense, roads and infrastructure, care for the disabled, etc. — tasks and functions that serve the “general welfare” of the people.
But the government has an entirely different view of the money you earn.
The government believes the money you earn is the government’s, and that the government is being nice by letting you keep some of it.
But, in a very real sense, the cash you earn at your job is the government’s money . . . because the government just prints it. U.S. currency is printed or minted by the government.
So if you want to be free (or more free than you are now) you must look for ways to stop using the government’s money, or at least reduce your use of the government’s money.
What’s the alternative?
Well, there are an almost infinite number of alternatives to government money.
Casinos use chips. Corporations often pay people with stock or stock options.
Prisoners use cigarettes as currency. Frequent flier miles also have a monetary value. Frequent Flier miles amount to an ethical bribe to keep you using the airline.
And then there’s the barter.
What I Learned from Karl Hess
When I was a student at Dartmouth College in the early 1980s, I brought a speaker to campus named Karl Hess.
He had been a speechwriter for Barry Goldwater. He wrote Goldwater’s most famous line: “Extremism in the defense of liberty is no vice. Moderation in the pursuit of justice is no virtue.”
To hire him to speak, we had to pay him in the form of food and other basic staples (canned goods, bags of rice, toilet paper, gift certificates, clothing, etc). He had a long shopping list of what he needed that totaled about $2,500 — his speaking fee at the time.
Karl Hess was so anti-government that he would go to any and every length not to pay taxes, of any kind.
As long as you never receive cash, you can escape the Tax Man for the most part.
The way Hess paid his rent was to perform services for his landlord. He was a skilled carpenter, welder, and machinist. So he could perform whatever task was needed on his landlord’s property.
Hess had been an orthodox conservative and Cold Warrior. His radical libertarianism was apparently triggered by an especially brutal audit of his finances by the IRS.
Following the audit, Hess sent the IRS a copy of the Declaration of Independence with a letter saying that he would never again pay taxes.
The IRS answered by charging him with tax resistance, confiscated almost all his property, and put a 100% lien on his future earnings. So basically, the IRS was sentencing Karl to death. If you are forbidden by the IRS to keep any money, you can’t eat, can’t pay rent, can’t buy clothes.
Some sympathetic lawyers with libertarian leanings helped Hess get out of his legal situation with the IRS pro bono and in combination with some kind of barter arrangement. So he never spent any time in jail. After that, the IRS left Karl alone. Can’t get money from a stone.
Karl continued to live this way for the rest of his life — trading his services for physical goods: barter.
Hess said that if 10,000,000 Americans would have joined him in defying the IRS and refusing to participate in the government’s cash economy, we could have replaced the current tax code with something that makes sense — that’s consistent with liberty. And we could have restored America as the “land of the free.”
He said most people are terrified of the IRS, so cower in the corner praying the government won’t notice them and will just leave them alone.
Most people don’t want to live like Karl Hess — with no cash.
But it is a way to get through life without having the government always coming after you.
I’m a conservative constitutionalist, not a libertarian.
I believe we need government. We need a military, roads, infrastructure, sewage systems, law and order, ports, airports. We don’t want people starving on the streets. There are essential jobs we need government to perform. The Hoover Dam was a good idea. So was landing on the moon. Attending school should be mandatory. The government should be able to use its eminent domain power to build a road through your property, so long as you are compensated at fair market value. Taxes are the price we pay for civilization.
But there comes a point when the government starts to more resemble a mafia operation than an institution honestly looking out for the good of the country. When the IRS rules that Karl Hess is no longer entitled to have any money at all, we’ve gone way past that point.
Alternatives to the Karl Hess Strategem
There are ways, however, to minimize the cost of government money (the amount you must pay the Tax Man) without having to take a major hit to your quality of life.
More and more, people are looking for ways to do exactly this.
The key is to keep your cash income as low as possible and to look for other ways to get paid for your work, or to postpone payment for your work so you can be taxed at a lower rate.
Let’s say you are a car salesman and work on commission. Or you work for a base salary, plus you receive bonuses based on a percentage of what you bring in.
All you need is enough immediate cash to cover your living costs. Plus you want to maximize contributions to your 401k or IRA because that lowers your taxable income.
The rest can be paid in IOUs or stock equity in an effort to keep your income below the point where the dreaded Alternative Minimum Tax kicks in.
The Best Tax Shelter
Now the #1 tax shelter is to own your own business because you can then decide how much cash to pull our of your business. You then use most of your money to keep building and expanding your business because you are not taxed until you pull cash out for yourself or have cash sitting in you company’s bank account (profit) at the end of the year.
Let’s take someone like me. I’m in the direct marketing business.
The currency in direct marketing is the list I build — my list of leads and buyers.
Each postal address or email address has a monetary value ranging from 25 cents each to $20 each depending on an array of factors. Marketers understand the value of an email address, a postal address, a first-time buyer, a repeat buyer, or a lead who has never bought anything from me or my clients.
So the way I build value is to build my email and postal address list — my database of buyers and leads. I know at all times exactly how much that list (database) of names and addresses is worth. It’s the equivalent of money in the bank.
The way I build my list of email and postal addresses is by mailing letters, sending email, or purchasing ads — the cost of which is a tax-deductible business expense. I can then convert this list of email and postal addresses to money whenever I need cash.
I can turn my list into cash either by mailing out a sales letter or by renting my list to other marketers.
The IRS can’t tax me until I convert my list to money that I then deposit in my personal bank account. So it operates exactly like a 401k or IRA. That is, I build my business with pre-tax money (by advertising) because business costs are tax-deductible.
The currency for companies like Facebook, Google and other Internet properties is the number of users these sites have because the number of users represent eyeballs for the ads they are selling.
A user has a specific monetary value to these companies. Facebook and Google knows exactly what the value of a user is to them. But the IRS doesn’t tax these companies by the number of users even though users equal money — only better . . . because they aren’t taxed.
All businesses operate this way. They build their value with pre-tax money. Their value is determined by their sales — their customer base or market share.
The money is in the value of the business — usually valued at 10 times annual earnings, but sometimes valued at 30 or even 50 times annual earnings or more (if you are a fast-growing hot tech company).
The stock market values Amazon at $124 billion even though it’s not turning an actual profit, or is barely turning a profit most years. The currency for Amazon is its number of customers — just about everyone in America who has an Internet connection. Amazon’s founder Jeff Bezos is worth about $24 billion — mostly because of the Amazon stock he owns — even though Amazon technically is not turning much of a cash profit.
That is, not turning a profit in terms of the government money it’s accumulating in its bank account. For Amazon, market share is the currency of choice — the alternative to government money. But the IRS can’t tax “market share.”
And, of course, the IRS can’t tax Bezos on his $24 billion estimated net worth until he cashes in his stock.
This is why business owners have such an advantage over employees in terms of building wealth. The business owner might be cash poor, might not take much money out of the company at all for herself. Their real wealth is in the value of the business.
This is how Warren Buffett and Mitt Romney pay very little tax.
Plus, business owners can justify much of what they do in life as a business expense. Vacations can be called business travel so long as they actually do some business when they travel, etc. In today’s Internet world, your office can be anywhere.
I haven’t had to fight rush -traffic to get to a real office since 1990. I work in a virtual office — my computer with an Internet connection.
So owning your own business should be priority #1 — even if it’s just a side business and most of your income derives from full-time employment.
If that’s the case, consider converting your full-time job to contract work where your employer just pays your company for your services. Then you’ll be able to deduct much of your car, your fuel, your phones, the computers and gadgets you use, your travel and lodging costs, etc.
You’ll have to pay your employer’s portion of your FICA payroll tax and buy your own health insurance (through your business). But you do that with pre-tax money. And, very likely, you’ll come out way ahead — especially if your adjusted gross income at your full-time job is more than $125,000 per year. Depending on your situation, that’s about when the dreaded Alternative Minimum Tax starts to kick in with a vengeance for many taxpayers and you begin to lose most of your deductions and exemptions.
For example, if you are a commissioned salesman who pays for your own business expenses, you can’t deducted your legitimate business costs once your income goes above about $125,000 (depending on your situation).
The only way to protect yourself from the Tax Man when you reach that level of income is if you are a small-business owner and have a way to keep most of your money working productively in your business.
Your business is like a bank. You can pull money out when you need it.
What’s really the point of making a lot of money anyway?
It’s to have enough left over for a rainy day — either when business is not going so well or when you want to retire, or when you are sick or injured and can’t work. But then you’ll be taxed at a lower rate when you pull some money out.
The Second Best Way to Shield Yourself from the Tax Man
But let’s say you really are not in a position to start your own business, or you don’t want to for whatever reason. Maybe you just like the company you work for. Perhaps you don’t have the entrepreneurial spirit.
Here’s an alternative to starting your own business.
Strike a deal with your employer to minimize your take-home pay.
If you are a high-income earner (let’s say $100,000 per year or more), this should be a pretty easy deal to strike with your employer — especially if you work for commission or a base salary plus bonuses based on how much money your bring into the company.
Give your employer the option to make a deal with you that goes something like this: “Just pay me $6,000 per month [or whatever figure you really need to live] and add x% interest per month on the unpaid balance and let it accrue.”
Many companies need capital, can’t borrow from banks because of the Dodd-Frank legislation, so will be happy to not pay you what they owe right away, use the capital, and pay you interest on the capital. This then just accrues, like a mutual fund.
You are then doing exactly what the owner of the business is doing. You are building equity in the business and pulling money out when you need it, thus avoiding having to pay confiscatory tax rates.
Of course, you have to have a good sense of the company’s financial stability to do something like this. And you must trust the company. But that’s a simple matter that can be accomplished with some due diligence and a contract or note. You can’t be taxed until the money actually changes hands. You can’t be taxed on what your employer owes you, only on what you are actually paid.
IOUs are just like money — better than money because they include an interest rate (which protects you from the dollar’s declining value).
So you wait until you really need the money to collect it. And then you’ll be collecting your money at a lower tax rate.
Or consider exchanging services: “I’ll do X for you if you’ll do Y for me” — the Karl Hess strategem.
Kids understand this concept: “If you buy me the Halo video game, I’ll mow your lawn.”
The key concept is to keep your cash income down to a minimum. You need a certain amount of cash to live. Then look for other ways to receive compensation other than immediate cash money.
Trading pay for equity in the company you are working for is a great way.
The Modern Economy Is Actually Built on IOUs . . . and That’s a Good Thing
When you think about it, most of the economy runs on IOUs.
There’s only about $1.6 TRILLION of actual currency (printed and minted money) in circulation in a $16 TRILLION U.S. economy. The $16 TRILLION U.S. economy runs on a vast web of interlocking promises that something will happen in the future — contracts, promises.
That’s how the $1.6 TRILLION in physical currency turns into a $16 TRILLION economy.
You need to look for ways to run your own personal economy this way because it’s really the cash that’s the fiction. And it’s cash transactions that are taxed.
The economy is running on a 10-times multiplier of physical currency in circulation to the actual annual GDP. This means if you are operating only in the cash economy, you are effectively short-changing yourself by a factor of ten.
Think about how banking works.
Banks can borrow money today from the Federal Reserve at a near zero percent interest rate. They then lend this money out at 3-7 percent or more. The banks are only required to keep 10 percent of deposits as cash on hand. As long as they do that, there’s almost no limit to what they can borrow for near-0% interest from the Federal Reserve.
So this is free money for the banks.
The banks then lend this money to people so they can buy homes and start or expand businesses. For home buyers, lenders always frontload your interest payments. Your payments for the first 20 years on a 30 year mortgage are almost all interest payments. Almost no principal is being paid until the end of the loan period. Those who sell their homes within five to seven years are thus paying an interest rate on the money they borrowed of about 30 percent, not the four percent you’d pay if you paid for the entire 30 years.
That’s how lenders get rich. Lending money is just about the easiest way to make money.
But you can operate your own personal economy this way. Become a lender . . . to your employer, to your clients . . . so you can keep your cash draw to a minimum. Accept payment in the form of IOUs or equity in the company.
I know some lawyers who have become part-owners of some sizeable companies by accepting payment for services in exactly this way.
More Alternatives to Government Money
Think about how a partnership works.
People usually form partnerships because they can’t yet afford the cost of hiring employees or they can’t afford to hire that employee. Simply forming a partnership is not a taxable event.
If the company you are working for gives you stock in lieu of cash payments for your services, that’s not a taxable event (if you play your cards right) — not until you cash out the stock. And if the company you are working for is growing and a good company, your stock is likely to be worth far more than what you would have been owed in cash.
Think of the founders of Facebook. Mark Zuckerberg did not have the money to pay all these people are the beginning. So he gave them a piece of the company. Many of them are not multi-millionaires and even billionaires. But they aren’t paying tax on their Facebook stock, unless they cash out.
If they wanted to diversify their holdings, they could conceivably trade some of their Facebook stock for something else of value — say bars of gold or real estate in Costa Rica, or perhaps guns, food, oil futures, or stereo equipment. The IRS tracks and taxes cash transactions.
As long as you are still holding your casino chips, the IRS can’t tax you. The instant you cash in your casino chips for government money (if it’s a large amount) is when the Tax Man takes his 40-50 percent cut.
So you want to create the equivalent of casino chips for people you do business with.
That, in essence, is what private money is. It’s the equivalent of prisoners playing poker for cigarettes. Gift certificates and coupons are other forms of private money. If you were paid in subway tokens and gift certificates, art work, coupons, and bags of rice, the IRS could not tax you.
Well, technically the IRS probably could if it wanted to devote a lot of manpower to figuring out how much all this stuff is worth.
I’m just scratching the surface here on alternatives to getting paid with government money. Just trying to get you thinking — helping you to see there are so many other ways to get paid.
I’m not offering tax advice here. I’m not qualified for that. So don’t just run off and do exactly why I’m suggesting here. Consult a smart tax attorney first to make sure it’s all legal and done correctly, or you’ll be in for a rude surprise. I’m just talking general principles here — providing some food for thought.
A smart tax attorney will show you how to do this correctly — the way people like Warren Buffett, Mitt Romney, and the super-rich do it to minimize the bite taken by the Tax Man. Isn’t it amusing that Warren Buffett (who is worth $54 billion) wants higher taxes for everyone else (for you and me), but fights the IRS tooth-and-nail to pay the absolute lowest amount of tax possible on his own income and assets?
The point is: The vast array of alternatives to government money is limited only by your imagination.
So why let the Tax Man take 40-50 percent of what you earn when there are so many alternatives to government money?
Imagine if you had to pay a 40-50 percent front-end load to invest in a mutual fund. That mutual fund would have a tough time finding any investors.
But that’s the load we are paying when we accept payment in government money.
You don’t have to go full-blown Karl Hess to push back against the government. If everyone just uses their imagination (and a smart tax lawyer) to push back a little against the government, positive changes will start to happen.
The idea with this article is to encourage you to provide some resistance to what the government is doing to you — within the law, of course. Be creative in finding ways to get paid other than with immediate cash money.
The Proliferation of Private Currencies
By some estimates, there are now more than 4,000 private currencies in circulation.
Communities across America (especially in senior citizen communities) are setting up what are called “Time Banks” are being established. So if you offer to drive a senior to visit the doctor, you establish credit in the Community Time Bank, which can be redeemed as services performed by someone else for you.
You have, no doubt, heard of the hypothetical case of the restaurant patron who did not have enough money to pay the bill so was enlisted to wash dishes. Same concept as the Time Bank, which is systemetized.
Time Banks keep a data base of community tasks that need doing. You accumulate Time Credits for doing these tasks. Your Time Credits are money in the bank.
Local banks in the Berkshire region of Massachusetts have issued their own currency called Berkshares. For $95, you can purchase $100 worth of Berkshares. More than 400 regional businesses have agreed to accept Berkshares as the equivalent of cash. The reason these banks are doing this is to encourage consumers to buy from local merchants. This helps keep business in the region, helps the local economy, and helps the banks which are lending to these business.
Berkshares operate much like the most famous private currency of all-time — the WIR in Switzerland. During the worldwide depression in the 1930s, the banks cut-off credit to businesses. In response, businesses issued their own currency (credits), which could be used to pay for goods and services at participating businesses.
The WIR cooperative was really just an accounting system — tracking debits and credits. According to the WIR cooperative’s bylaws, its purpose “is to encourage participating members to put their buying power at each other’s disposal and keep it circulating within their ranks, thereby providing members with additional sales volume.”
Because of the rise of the WIR, Switzerland was not hit nearly as hard as other countries by the depression of the 1930s.
Today, the WIR cooperative (a non-profit) has 62,000 members, assets of more than $3 billion and is considered a key pillar of Switzerland’s stunningly strong and stable economy.
Casino chips are a version of this. As long as you are in the casino, you can use your casino chips to pay for your drinks, pay your tab at the restaurant, buy clothing, buy anything in the casino’s shops, pay tips.
Online marketers are stepping up there use of digital currency in a big way — from Facebook credits, Nintendo Points, and Bit Coins to Amazon’s new “Amazon Coin.”
Amazon already allows you to pay with Digital Gifting and gift cards. Amazon’s Kindle Fire will have its own payment eco-system.
What Amazon is doing here is freezing out competitors — in effect creating its own currency that can only be used in the world of Amazon. Your primary incentive for using Amazon’s digital currency is discounts.
Part of this new Amazon economy might work something like the American Express “Rewards” program, where you accumulate points by using your AmEx card that can be redeemed for all kinds of products — “rewards” for your loyalty to AmEx.
But Amazon (because Jeff Bezos is so brilliant) will no doubt come up with many other ways for you to accumulate “Amazon Coins” (credits) other than paying with cash.
You can accumulate frequent flier miles by using your credit card. Surely, Amazon will be entering into these kinds of barter arrangements with credit card companies, airlines, restaurants, retail stores, gas stations, hotels, car rental companies, etc. to create its own Amazon “near-cashless” economy.
So the world (and smart people) are finding ways to move away from government money — have been for a long time. This trend will only accelerate exponentially.
What’s to stop a billionaire or consortium of billionaires from from creating their own competitor to the Federal Reserve, complete with their own currency that’s backed by gold?
It’s illegal for Americans to go into direct competition with the dollar by minting their own currency. So they would need to set this up offshore. Or they would need some smart lawyers to set this up in a way that this would not be a “competing” currency, but would be a “complimentary” currency. And they probably could not call it currency. They’d have to call it “credits,” or something.
Someone much smarter than me can figure out the nuances of how to keep it all legal.
Stockpile Physical Gold and Hard Assets
The Chinese mother of my wife Wanda was an expert at escaping totalitarian regimes.
When the Japanese took over most of China, she escaped to Laos with suitcases full of cash, gold, and silver.
Then when the Communists took over Laos, she escaped with her family (nine kids, including Wanda) to Thailand and then the United States. Wanda’s Laotion name is Vanhdalone — which she Americanized to “Wanda” when she arrived in the U.S.
Wanda’s mom was an expert on knowing the value of gold and silver. She was always looking for ways to pay cash for gold. People were always bringing her the gold and silver they had because they needed quick cash for food.
Wanda’s mom is a master barterer. But her goal was always to accumulate gold and silver.
When all Hell breaks loose, what you want is gold and silver, as well as stockpiles of dry, canned and vacuum sealed food products – which will only increase in value even if all Hell doesn’t break loose.
Wanda still has this mindset. She doesn’t like to keep money in the bank. She doesn’t
trust the banks. She’s seen first hand what can happen to a country overnight (in her case, Laos). Wanda’s even more radical than I am. She’s a big fan of Alex Jones — doesn’t think he’s the least bit crazy.
She says Obama, with his soothing promises and rhetoric (always promising free food, free health care, free housing, free education) sounds exactly like the Communists who took over her country.
Two of her relatives spent five and six years respectively in Communist labor camps. They eventually managed to escape (or would have died) walking for weeks barefoot through the jungle to get to Thailand.
Wanda says she wants to be sure we’re set up and prepared for a quick exit if the situation here really starts heading south.
The John Galt Option
What Wanda is suggesting is the John Galt option.
That is, taking all your marbles and leaving America for a more favorable tax and business environment. What John Galt did in the Ayn Rand novel Atlas Shrugged was quit the system — much in the way Karl Hess did.
The country doesn’t need to go completely Communist or Socialist for that option to become attractive.
The John Galt character had been a spectacularly successful entrepreneur and innovator. The Rand novel contemplates the question: What would happen if every successful entrepreneur, business leader, and innovator got so fed up with being hassled by the government and punishing taxes that they simply quit the system?
What would happen to the economy if all the successful people, all the creative leaders, just up and left?
That’s what Facebook co-founder Eduardo Saverin did. He took his billions and moved to more tax-friendly Singapore. He said the confiscatory tax rates in the United States was a major factor in his decision to pull a John Galt and simply leave the USA.
So now Singapore has the benefit of Eduardo’s Saverin billions . . . instead of us.
Many millionaires and billionaires are doing exactly this — taking their marbles and moving elsewhere. If you are a multi-millionaire or billionaire, you can afford to live anywhere.
What do you think will happen to the U.S. economy if all the millionaires and billionaires simply left the USA — forever?
But that’s exactly what’s happening.
Why live in America, where you will be constantly assaulted by the IRS, hassled by government bureaucrats, and even vilified by the President of the United States for not “paying your fair share”?
Why not move some place that will welcome you with open arms? Why not move some place where the government will pretty much leave you alone, some place that has reasonable taxes — perhaps a place that only takes 30 cents of every dollar you earn instead of 50 cents or more?
Many political and economic commentators are asking the question: why is the stock market hitting new highsl, but the wider U.S. economy so poorly?
The answer is that the stock market is no longer the U.S. economy.
Corporations (like people) can set up shop anywhere. And they are setting up factories in places like China, India, and countries where the labor is cheap, taxes are lower, and the business climate more friendly.
Apple has 20,000 employees working oversees. But more than 700,000 people (almost all of them oversees) are working for contractors making and assembling Apple’s products. Apple has, in effect, pulled a John Galt. Most other sizable corporations that manufacture products are doing exactly this.
Detroit is gone now. The car companies have moved elsewhere to escape the labor unions and insane leftist economic policies.
So the stock market (as in the Dow Jones Industrials, the S&P 500, and the NASDAQ) has very little to do with the U.S. economy anymore. America could go away and the corporate world will do just fine . Corporations (though they might have been U.S. companies at one time) are now multinationals — global. They build their factories and provide jobs where the business climate is most favorable. The top corporate tax rate in the U.S. is now 35 percent. The USA has the highest corporate tax rates of any country in the industrialized world.
Socialist-leaning Canada recently cut its top corporate tax rate to 18 percent.
Then when you add the cost of ObamaCare and punishing labor laws into the mix, the question is: why would anyone want to set up a business in the United States anymore?
It’s not like the Cold War days when the U.S. was just about the only game in town for capitalism, when communism was on the march everywhere. Today, the Soviet Union is gone. Communism is not much of a threat. People and businesses are now free to go wherever they want. They have many options.
America is no longer the “Shining City on Hill” envied by the rest of the world. America used to be special, but really isn’t anymore. The American idea of liberty that made America the most economically successful nation in human history is over. So why not choose a place where it’s easy to do business and where the government takes much less of your money?
It’s not just using the government’s money that’s becoming so unattractive. Continuing to live in the United States is becoming increasingly untenable.
Obama’s Counter-Productive War on Achievers and Producrers
Of course, it’s the poor and the middle class who are hurt most by these confiscatory taxes and costly mandates and regulations. The rich can just pull a John Galt, pick up their marbles, and leave. Most Americans can’t afford to do that.
This is why Obama’s and the Left’s war on the rich is so silly, counter-productive, and harmful to the poor and middle class. The rich have many ways to protect their wealth and save themselves from socialism and Obama’s economic illiteracy. The rich did not get rich by being stupid. The rich are a lot smarter than Obama. The rich have off-shore bank accounts and offshore corporations to protect their assets from the Tax Man. The rich have teams of super-smart attorneys who they pay $1,000 per hour to figure out how to do all this.
Trillions of dollars in U.S. corporate cash is now parked oversees out of reach of the IRS, and doing absolutely nothing for the U.S. economy.
This is why the stock market is hitting new highs, while the U.S. economy is still stuck in the mud at zero GDP growth.
But Barack Obama is so locked into his 1960s-1970s neo-Marxist mindset that he has no clue as to why this is happening. He thinks he can control everything. He can’t.
In his arrogance, Obama thinks he’s smarter than everyone else. He isn’t.
Short of seceding from the union, the states can take strong action to counter an abusive federal government
The Red States should issue a “Declaration of Non-Compliance” with all unconstitutional Federal laws and regulations
For example, suppose a big state, such as Texas, declared itself a tax sanctuary — that no Texan will be required to pay an income tax of, say, more than 15 percent to the federal government.
It would cite the U.S. Constitution’s Fifth and Fourteenth Amendments for legal justification.
The Fifth Amendment states that “Nor shall private property be taken for public use without just compensation.”
This is known as the “Takings Clause.”
The Fourteenth Amendment states that the government must not “deny to any person within its jurisdiction the equal protection of the laws.“
This is known as the “Equal Protection of the Laws” clause.
The progressive income taxes violates both these Amendments.
If some Americans are taxed at a higher rate than others, they are being denied equal treatment under the law — a fundamental principal of common law and justice.
I should not pay a bigger fine for running a red light if I’m richer.
If the government is taking my money to give to someone else, clearly my property is being taken without just compensation . . . and not even for public use. So this is a violation of the “Takings Clause.”
So there is plenty of legal justification for Texas to simply declare (by passing a state law) that no Texan will be required to pay an income tax of more than 15 percent to the federal government.
The Tenth Amendment to the Constitution establishes the dual sovereignty doctrine. It states that,
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
According to the Tenth Amendment, most of what the federal government is doing today is unconstitutional.
If the federal government actually followed the Tenth Amendment, it would be about one-third the size it is now.
The Constitution set up a federal government to do certain very specific things –”establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.”
Clearly, the federal government has no Constitutional authority to take money from one American to give to someone else.
The Sixteenth Amendment states that,
Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
But the federal government does not have the authority to tax some people at a 30 percent rate and others at a 10 percent rate (for the purpose of wealth redistribution) because that violates both the Fifth Amendment’s “takings” clause and the Fourteenth Amendment’s “equal protection of the laws” clause.
The Supreme Court of the United States has repeatedly upheld the “dual sovereignty” doctrine of the Constitution’s Tenth Amendment.
Most recently, in the ObamaCare case, the court ruled that the states are under no obligation to comply with the ObamaCare law. That is, the states are under no obligation to use money from the state treasury to set up the ObamaCare “exchanges” or to expand “Medicaid.”
Thus, much of the financing mechanism for ObamaCare is gone if the states simply refuse to provide the funds and refuse to set up the exchanges.
James Madison and Thomas Jefferson both argued that the states have the right simply to refuse to go along with unconstitutional federal laws and decrees. After all, it was the states who created the federal government in the first place.
At North Carolina’s ratifying convention, James Iredell told the delegates that when “Congress passes a law consistent with the Constitution, it is to be binding on the people. If Congress, under pretense of executing one power, should, in fact, usurp another, they will violate the Constitution.”
In other words, the states would have the right to ignore any law Congress might pass that violates the Constitution.
So let’s say Texas declares that no Texan will pay more than a 15 percent rate on income to the federal government and that no Texan will be subject to arrest by federal authorities for refusing to pay more than this. What practically could the federal government do in response?
Well, the federal government could try to come into Texas to arrest the non-compliant Texan.
The state of Texas would then provide legal defense for the Texas taxpayer while the case worked its way through the courts, which could take years.
The state of Texas can just use the courts to tie up the federal government for years in litigation.
This would be taking a page from the ACLU’s playbook.
The ACLU has achieved a lot for the Left by threatening litigation and tying up the government in litigation.
Texas could take this approach with every abusive federal law, such as the Obama Administration’s plans to deny Americans their Second Amendment right to keep and bear arms, or all the unconstitutional regulations coming from the EPA.
In fact, the state of Texas could declare every federal regulation illegal that was not explicitly passed into law by Congress.
The federal agencies have issued hundreds of thousands of regulations that carry the force of law. You will pay fines and can go to jail for failing to comply with these regulations. But these regulations should carry no weight whatsoever because they were not actually passed into law by Congress.
Congress is the lawmaking body, not the Executive Branch.
And Congress has no Constitutional authority to transfer the lawmaking power to the Executive Branch.
So the state of Texas (or any state) could go through every federal regulation and declare it will no longer comply with these regulations.
What could the federal government do if Texas did that?
And what if this trend caught on in other solidly Red states? — such as Oklahoma, Mississippi, Louisiana, Alabama, Wyoming, Utah, Kansas, Arkansas, Georgia, South Carolina, Nebraska, Kentucky, the Dakotas, Montana, Idaho.
That’s a pretty sizeable chunk of territory that we might call the “Free United States of America” — in contrast to the “Enslaved United States of America.”
What could the federal government really do if this happened?
We would not actually secede from the union. These states would just refuse to comply with unconstitutional laws and regulations. They would continue to comply with Constitutional laws. We would want, for example, to continue to pay for national defense because that’s authorized by the Constitution.
The states can go through the federal budget and determine what they will pay for (the Constitutional items) — and NOT pay for (the unconstitutional items).
We will be happy to pay for all Constitutional federal functions of government.
Another area for the states to put their foot down is to say “no more seizing of private and state lands by the federal government.”
The states are perfectly capable of identifying places of true scenic beauty to protect.
What’s been happening is that the federal government has abused its eminent domain power to simply seize as much American land as it can for itself.
The federal government now owns 84.5 percent of Nevada, 69.1 percent of Alaska, 57.4 percent of Utah, 53.1 percent of Oregon, 50.2 percent of Idaho, 48.1 percent of Arizona, 55.3 percent of California, etc. — in other words, most of the Western United States.
The Obama Administration has mapped out a plan to seize millions more acres of valuable Western lands, putting many ranchers out of business.
The Red States need to say not only no more lands will be seized the federal government, but should begin taking lands back from the federal government.
Who is the federal government to say what Texas or Alaska can and can’t do with their own land — including their oil?
Kick the federal government out of the state.
And it really doesn’t matter what the Supreme Court rules because most of these federal laws and regulations are unconstitutional, no matter what liberals on the Supreme Court say.
The Supreme Court is not the supreme authority of the land. The Constitution is. If the Supreme Court ruled that it’s okay to kill all red-headed children, that would not make it Constitutional to do so.
There’s no mention of the Supreme Court in the Constitution as the supreme authority in the land. That did not happen until 1958, when in Cooper v. Aaron the Court declared that its rulings have exactly the same weight as the text of the Constitution itself.
But that’s a self-evident absurdity.
The Constitution very clearly states that the courts operate under the laws established by Congress. And Congress operates under the Constitution.
It’s then clear from the ratification debates on the Constitution that the states are supposed to be the final arbiters on what is Constitutional, or not. In fact, that was the entire promise in the ratification debates, or the Constitution never would have been ratified. The states were assured over and over again, that they would be the judge of the Constitutionality of laws enacted by Congress.
If the federal law is Constitutional, the states would and should be pleased to abide by the law. We all agree that sensible laws and rules are needed for the proper functioning of a civil society.
But under the American system, most of the governing is supposed to be handled by state and local governments.
Instead, the federal government that is the big usurper and primary lawbreaker America. It’s come more to resemble organized crime than a real government.
We have a rogue President, a rogue federal bureaucracy, and a largely rogue Supreme Court — a court that actually found an unalienable right to an abortion in the text of the Constitution — where no such right exists — thus nullifying abortion laws in all 50 states.
So if the Supreme Court can nullify laws in all 50 states, the states can counter by nullifying unconstitutional federal laws. We then have a stand-off — which is what happens when the government attempts to impose its will on an unwilling people. We’re supposed to be governed in America by the “consent of the governed.”
Since we do need courts, the “Free United States” can set up its own Supreme Court — a competing court made up of Constitutionalists.
Again, what could the federal government really do about this?
The feds could theoretically take military action.
But that’s not likely to happen unless the states actually secede from the union. But the states would not be doing that. We are not talking about attacking Fort Sumter here.
The states would just be enforcing their Constitutional rights — vigorously, on every front and in every way.
It would not be a Declaration of Independence, we would be issuing a Declaration of Non-Compliance – non-compliance with unconstitutional laws and regulations.
The Supreme Court has already given the states the roadmap for how to do this with its ObamaCare ruling — declaring that the states are under no obligation to comply with ObamaCare.
Its time for the Red States to reassert their Constitutional authority in every area — to take authority back from the federal government.
And it would good to formalize the Red State complaint against the federal government with a formal Declaration of Non-Compliance — following the same pattern of argument as America’s Declaration of Independence of 1776.
America’s Declaration of Independence made its case by cataloguing a long list of abusive behavior by the British government. It’s well worth reading this list, because so many of these complaints apply to our own federal government today:
The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world . . .
He has made Judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries.
He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people, and eat out their substance . . .
He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation . . .
For imposing Taxes on us without our Consent:
For depriving us in many cases, of the benefits of Trial by Jury:
For transporting us beyond Seas to be tried for pretended offences
For abolishing the free System of English Laws in a neighbouring Province, establishing therein an Arbitrary government, and enlarging its Boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule into these Colonies:
For taking away our Charters, abolishing our most valuable Laws, and altering fundamentally the Forms of our Governments:
For suspending our own Legislatures, and declaring themselves invested with power to legislate for us in all cases whatsoever . . .
A strong case can be made that much of this is happening now — only more so. The federal government has vastly over-stepped its constitutional authority in many areas — “has erected a multitude of New Offices [not envisoned by the Constitution], and sent hither swarms of Officers [bureacrats] to harass our people, and eat out their substance.”
Isn’t this happening today?
Let’s take ObamaCare as just one example.
ObamaCare sets up a Soviet-style health care bureaucracy that will destroy freedom in America and wreck our health care system if its allowed to take root and spread like a cancer into every area of American life. ObamaCare . . .
- Requires the hiring of 16,000 brand to IRS agents to enforce the 2,700-page law.
- Establishes 159 brand new government agencies to administer the program;
- Includes 21 new taxes and tax increases.
Barack Obama promised in his 2008 campaign for the Presidency that he would “fundamentally transform” the American system (his words) — including our Constitutional structure of government.
The engine that’s driving this fundamental transformation of our society is”ObamaCare.”
Communists and socialists have always known that the fastest and surest way to move a country to socialism is through socializing medicine — that is, by putting a country’s health care system under government control.
Vladimir Lenin, the founder and architect of the Soviet Communist state, said “Socialized medicine is the keystone to the arch of the socialist state.”
Lenin and the Communists knew that once you control people’s access to health care and medical treatment, you control their lives. The Left here in America is well aware of this also.
When radio host Paul W. Smith asked liberal Congressman John Dingell (D-MI) why it will take the government until 2014 to fully set up the ObamaCare system, Dingell said this:
“It takes a long time to do the necessary administrative steps that have to be taken to put the legislation together to control the people.”
Source: News Talk WJR Radio with Paul W. Smith 3/23/2010
Does this sound like the America established by our nation’s Founding Fathers and described in the Constitution of the United States?
Is this really the purpose of our federal government — “to control the people“?
The Constitution says the primary purpose of government is to “secure the blessings of liberty” and to provide for the “common defense” – not to “control the people.“
Under our Constitution, people are supposed to be free to do whatever they want, so long as they are not harming someone else.
That’s called freedom.
America’s Declaration of Independence says the purpose of government is to secure our “unalienable rights” to “Life, Liberty and the pursuit of Happiness.”
ObamaCare is about none of this. ObamaCare is about the opposite of what described by our nation’s founding documents.
No wonder Cuba’s Communist dictator Fidel Castro hailed the passage of ObamaCare as “a miracle.”
In other words, when Barack Obama told us in 2008 that he was out to “fundamentally transform” America, he meant it. And he’s doing it primarily through ObamaCare — but also via the EPA, Executive Orders, and his administrative control of the vast federal bureaucracy.
His bureaucrats and regulators are issuing an avalanche of regulations on their own every week that carry the force of law — complete with criminal penalties and sanctions. All this is unconstitutional.
It’s time for the Red States to Declare Independence from all this — or rather Declare their Non-Compliance with a long catalogue of federal abuses by the federal government, very similar to America’s original Declaration of Independence of 1776.
This is not a proposal to go to war or to secede. It’s a proposal simply to refuse to comply with all federal laws and regulations that are clearly unconstitutional.
What could Obama and the Left do if the Red States actually did that?
Grover Norquist has been catching a lot of heat lately for holding politicians to the pledge they signed not to vote for any net tax increases.
He was the Best Man at the wedding for my first marriage on October 10, 1987.
He may be the smartest political mind I know.
Here’s how his “No Net Tax Increase Pledge” came about.
Way back in 1984 or 1985, I was having dinner with Grover and several others at Gallagher’s on Capitol Hill when he (we) conceived of challenging all federal elected officials and candidates for federal office to sign such a pledge.
Drinks and dinner at Gallagher’s back then with Grover and our little group of pro-freedom activists was a near-nightly event — as none of us were yet married. We’d get together almost nightly to plot and scheme the rollback of socialism and big government, plus tell jokes and laugh a lot.
One of our big complaints was that President Reagan just wasn’t moving fast enough to shrink the federal government back down to Constitutional size — which would mean cutting the size of the federal government by about two-thirds. ”Why isn’t Reagan even trying to eliminate the Departments of Education, Energy, Labor, Commerce, HUD, and much of Health and Human Services?” we’d wonder.
One night, I mentioned to Grover that I grew up in Vermont and New Hampshire.
In the 1970s, New Hampshire had a great conservative governor by the name of Mel Thomson.
This then became a tradition in the state.
After that, you could not hope to win your race for Congress, for Senate, or for the Governorship in New Hampshire without putting your hand on a Bible and pledging never to vote for instituting an income tax or sales tax.
New Hampshire financed its government with a fairly stiff property tax, state-owned liquor stores, and assorted user fees.
New Hampshire has changed a lot since then. People from Massachusetts have since moved into New Hampshire to escape high taxes in Massachusetts — only to vote for Democrats and higher taxes in New Hampshire.
Southern New Hampshire is now a suburb of Boston.
So New Hampshire has become a purple state instead of a solidly red state.
But back in the Mel Thomson days (the 1970s) Dartmouth economics professor Colin Campbell conducted a study comparing the quality of government services in Vermont versus New Hampshire.
The study made sense because the states are mirror images of each other geographically and demographically. But a Vermonter paid 40 percent more taxes on average than a New Hampshirite.
Professor Cambpell’s study found, however, that government services in New Hampshire were superior to Vermont’s. And New Hampshire’s government was collecting more tax revenue.
How can this be?
Well, Professor Campbell concluded that the business climate in New Hampshire was superior to Vermont because of New Hampshire’s low (almost non-existent) taxes.
So, given a choice, why pay 40 percent more in taxes just to live in Vermont?
As a result, business boomed in New Hampshire, and New Hampshire was able to attract triple Vermont’s population.
All this economic activity then generated more tax revenue for the government of New Hampshire to spend on public services.
Grover (at our 1985 dinner at Gallagher’s) was very interested in Governor Mel Thomson’s idea of challenging politicians to take the “No Tax Increase” pledge.
So he developed a similar pledge for federal politicians to sign.
Who would have thought that 1985 dinner conversation at Gallagher’s would have turned into such a political firestorm in 2012?
Of course, no one is required to take this pledge. But if you decline, voters have a right to assume you plan to raise taxes — or, at least, want to keep your options open.
Politicians take Grover’s pledge for one and only one reason — because they believe doing so will help them win their election. So voters have a right to expect their elected representatives to keep their pledge.
Under Grover’s Pledge, you can vote for tax reform that closes loopholes if there is a corresponding decrease in tax rates. What you can’t vote for is a net tax increase.
But as Mel Thomson, JFK, and Ronald Reagan demonstrated — if you cut tax rates, this increases economic activity and economic growth. So there’s almost always an increase in tax revenue for the government. As people get richer, the government gets richer. It’s a win-win proposition.
The logic is this . . .
If taxes are 100 percent, the government will collect no revenue . . . because no one’s going to work if all their earnings are confiscated by taxation. And if taxes are zero, the government collects no revenue either.
No one knows exactly what the optimal level of taxation is to produce the fastest economic growth and most revenue for the government. Regulation also factors into this because regulation acts like a tax.
Grover’s view (and mine) is that we are a long way past this optimal point on the Laffeur Curve.
The burden of government (taxes plus excessive regulation) is deterring business and economic activity — disincentivizing work, production, and risk-taking . . . while incentivizing leisure and sloth.
If you don’t believe me, watch this video . . .
A big reason economic growth in the U.S. has been so slow in recent years is because there are other countries today that are more favorable for business — such as Canada.
Canada recently cut its top corporate tax rate to 15 percent.
The top corporate tax rate in the U.S. is 39.2 percent — now the highest in the developed world.
So why start a business in the United States if you can pay less than half the tax rate by setting up your factory a few miles to the north?
Communist China has also been cutting taxes like crazy lately — on both corporations and individuals.
Well, to spur more economic growth. That’s why.
China’s top corporate tax rate is now 25 percent — 38 percent lower than America’s top corporate tax rate of 39.2 percent. But for qualified enterprises, the top corporate tax rate in China is now 15 percent. No wonder business capital is flowing out of the United States and into Communist China.
Communist China today is a lot less Communist than we are.
In Hong Kong (now part of Communist China) the top corporate tax rate is 16.5 percent.
By the way, two thirds of Britain’s millionaires have pulled a John Galt and left Britain since the introduction of its 50 percent top tax rate.
Grover doesn’t want that to happen to America.
Paul Krugman argued recently in the New York Times that in the 1950s, the top income tax rate was 91 percent for individuals. He notes that the U.S. was then the unrivaled #1 economic superpower in the world.
JFK than cut the top rate to 70 percent. Reagan cut the top rate to 50 percent, then to 28 percent.
What Krugman misses with his 91 percent top tax rate thesis is that we had just emerged from World War Two as the big winner. The rest of the world had been destroyed, for the most part. Then most of the rest of the world was either Communist or Third World.
The U.S. (relatively unscathed by World War II) was just about the only game in town for any kind of capitalism.
The 91 percent top tax rate was a hangover from WWII when we had to fund the big war machine so we could defeat both Hitler and the Japanese.
Because of the huge tax rate in the 1940s and 50s, most corporate executives did not take much in the way of pay. Instead, companies had generous pensions and other befits that were not taxed.
And people tended to stay at the same company for their entire lives because they could not afford to leave their pensions and benefits behind. So employees were, in essence, indentured servants. So that’s not so good if you value freedom.
We actually had much faster economic growth in the 1960s than we had in the 1950s after JFK cut tax rates to a top rate of 70 percent (despite the cost of the Vietnam war and other Cold War costs).
Of course, no one ever paid close to these top rates. They hid the money in their companies and had a lot of deductions and exemptions.
I actually think that, more than the top income tax rates, over-regulation is the much bigger hurdle to starting a business.
Regulations hurt start-up businesses more because they can’t afford the lawyers to make sure they are in compliance. As a result, new business start-ups are almost non-existent today. Small business is always where the new jobs and economic growth come from.
Grover believes (quite common-sensicallly) that the emphasis should be on lightening government’s burden on new business formation and productive activity by lowering tax rates, striking down unnecessary government regulations, and reining in out-of-control federal spending.
That’s what JFK and Reagan did. The result in both cases was economic growth rates of more than four percent per year — more than double the growth rate we are seeing today.
Government at all levels is taking 40 cents out of every dollar earned in America. The federal government is borrowing 42 cents out of every dollar it spends.
Enough is enough. It’s time for government to tighten its belt and to stop strangling the goose (capitalism) that’s laying the golden eggs.
It’s both good economics and good politics. There’s absolutely no reason to strike a deal with Obama on this. Just let the Fiscal Cliff happen.
On January 1, 2013, automatic spending cuts plus Taxmageddon kick in — unless President Obama can strike a deal with House Republicans over spending cuts and taxes.
Obama wants to increase taxes, but doesn’t want to cut spending, with the possible exception of military spending. He certainly doesn’t want to cut or even limit spending on entitlements and welfare programs. He wants those expanded. Obama always wants to spend more. Obama always wants to grow government.
The Fiscal Cliff stops his spending spree.
I’m not the least bit concerned about the automatic spending cuts.
Remember, the Fiscal Cliff is not a Fiscal Cliff for you or me. It’s a Fiscal Cliff for the federal government. It requires the federal government to cut spending across-the-board if Congress and President Obama fail to hit spending cut targets they all agreed to. It requires the federal government to go on a diet.
Isn’t this exactly what we want — mandatory spending cuts?
So this is only a crisis for liberals and Leftists who want no restraints on spending.
Yes, the military will be hit by this. But, frankly, it’s high time we started scaling back our military. Not that I’m against having a huge military if we can afford it. But we can’t.
Right now, 43 percent of the entire world’s military spending is, well, us. We are spending six times more
on our military than #2 China. We are spending 14 times more than Russia. Both Britain and France spend more on their military than Russia.
Russia is really just a Third World country, no longer much to worry about.
There’s no Hitler on the horizon and aircraft carriers are not needed to kill terrorists.
Surely the 11 aircraft carriers we now have are enough.
No other country in the world has more than two aircraft carriers. China and Russia each have one aircraft carrier.
So I’m not losing much sleep over the prospect of scaling back our military some if it also means we have to cut government spending everywhere else by the same proportion.
We need to do this.
The U.S. government now has a $16.3 TRILLION debt and is borrowing 40 cents out of every dollar it spends. We need to cut and we need to cut now. If that means we go from 11 aircraft carriers to six, so be it.
Then we’d only be spending three times more on our military than #2 China.
While we’re at it, let’s also end all foreign aid. We can’t afford that either.
But what about Taxmageddon?
Starting on January 1, 2013, American households will see an estimated average tax increase of $4,223 per year.
Not only will the Bush tax cuts expire, but the patch on the dreaded Alternative Minimum Tax also expires. This will rope another 20,000,000 middle income households into paying the AMT who were never supposed to pay this brutal tax. The FICA payroll tax holiday will also expire on January 1.
The expiration of the Bush tax cuts produces about one-third of Taxmageddon’s tax increases. It’s a myth that the Bush tax cuts only reduced taxes on the wealthy. They also reduced the marriage penalty, increased the Child Tax Credit and the adoption credit, and increased tax breaks for education costs and dependent care costs.
But there’s more, much more.
Taxes on capital gains will go up to 20 percent from 15 percent. Taxes on dividend income will triple for many Americans. Instead of a top rate of 15 percent on dividend income, you’ll be paying whatever your income tax rate is on dividends. So that could be 39 percent under the new rates. And the “death tax” exclusion drops from $5,000,000 to $1,000,000 — with a mind-boggling 55 percent tax rate.
So goodbye family farm, and goodbye family business.
Then, perhaps most crushing of all, most of the 21 tax increases that are embedded in the ObamaCare legislation kick in.
So a tax increase nightmare awaits us January 1.
I say, so what?
If Americans want a gigantic social welfare and entitlement state, they need to start paying for it.
Now, I would certainly prefer there be no Taxmageddon on January 1. But I’m willing to live with it if we also get all those mandatory across-the-board spending cuts.
It would be far better just to have the spending cuts and no tax increases. The tax increases will certainly hurt the economy, probably plunge us into another recession — a double dip.
But I’ll take Taxmageddon if we get all the immediate mandatory across-the-board spending cuts.
I’ve always believed that if Americans had to actually pay for the government they are getting, they would not want this much government.
But politicians have found a way to increase government spending (especially entitlements) without requiring voters to pay the tab. They do this through deficit spending, and letting future generations pay for it — when the current crop of politicians have long since left office.
But that’s immoral. That’s stealing from future generations to pay for today’s government benefits.
It’s time to end this generational theft. It’s criminal that we are saddling babies who haven’t even been born yet with the tab for our benefits. Right now, every baby born in America owes $81,000 on the national debt. It’s time we pay the piper.
This will require brutal fiscal austerity.
But there’s also a big political benefit to going over the Fiscal Cliff and allowing all these automatic spending cuts and tax increases go into effect.
Barack Obama will get the blame.
Taxmageddon will likely push America back into another recession. But that’s, frankly, what America needs. What recessions do is blast the fat out of the economy. We then emerge stronger.
We need to get our fiscal house in order. And that’s painful.
Most Americans won’t like it and will take their anger out on Democrats in the 2014 mid-term elections and the 2016 Presidential Election.
But that’s just a side benefit. It’s also the correct economic prescription.
If you run up your credit card debt so you can live beyond your means, that eventually catches up with you. Then comes the hangover. There comes a point when you have no choice but to dramatically cut back your spending (perhaps even live like a pauper) until you can pay off your credit cards. You must learn to live with less.
That’s what America must do now.
Why not use this opportunity of the Fiscal Cliff to do these two wonderful things:
1) Put America’s fiscal house in order with across-the-board mandatory cuts in government spending; and . . .
2) Let Obama and the Democrats pay the political price for the pain.
There’s really no need to fear the Fiscal Cliff. It’s the tough medicine America needs. We have a $16.3 TRILLION national debt, for Pete’s sake. Soon the debt will be $20 TRILLION. And then we’ll be Greece.
The mandatory spending cuts will make us stronger in the long run.
The House GOP position should be no more increases to the debt ceiling. There’s nothing to negotiate. The debt ceiling should not go up again, period, ever. There’s really no reason to meet with Obama to talk over any of this. Just let it happen.
ART LAFFER-WALL STREET JOURNAL: If we judge both leading contenders in the Republican primary, Newt Gingrich and Mitt Romney, by what they’ve done in life and by what they propose to do if elected, either one could be an excellent president. But when it comes to the election’s core issue—restoring a healthy economy—the key is a good tax plan and the ability to implement it.
Mr. Gingrich has a significantly better plan than does Mr. Romney, and he has twice before been instrumental in implementing a successful tax plan on a national level—once when he served in Congress as a Reagan supporter in the 1980s and again when he was President Clinton’s partner as speaker of the House of Representatives in the 1990s. During both of these periods the economy prospered incredibly—in good part because of Mr. Gingrich.
Jobs and wealth are created by those who are taxed, not by those who do the taxing. Government, by its very nature, doesn’t create resources but redistributes resources. To minimize the damages taxes cause the economy, the best way for government to raise revenue is a broad-based, low-rate flat tax that provides people and businesses with the fewest incentives to avoid or otherwise not report taxable income, and the least number of places where they can escape taxation. On these counts it doesn’t get any better than Mr. Gingrich’s optional 15% flat tax for individuals and his 12.5% flat tax for business. Each of these taxes has been tried and tested and found to be enormously successful.
Anti-tax increase Grover Norquist calls the attacks on him by pro-tax increase Rep Frank Wolf “disgusting”
Norquist says that just because he’s married to a Muslim woman doesn’t make him pro-terrorist. Notes that his wife is pro-America, pro-freedom, pro-U.S. Constitution, is a U.S. citizen, and shares his anti-tax increase views. Wonders what the heck Wolf is even talking about.
YAHOO!: Conservative activist Grover Norquist responded to attacks from Virginia Republican Rep. Frank Wolf Tuesday, calling Wolf’s accusations that Norquist was connected to terrorists “disgusting” and saying they were copied from “racist websites.”
Norquist, the president of Americans for Tax Reform, a group that has convinced all but six House Republicans to pledge never to raise taxes, has been sparring with with Wolf for some time. Norquist has refused to support a commission that would consider tax increases as a way to decrease the federal deficit–while Wolf has long supported a deficit-reduction plan that would combine spending reductions with tax hikes, a proposal Norquist has fought for decades.
On the House floor Tuesday, Wolf accused Norquist of being associated with terrorist financiers, discussed his connection in 2006 to disgraced lobbyist Jack Abramoff and said that Norquist has used his organization’s pledge “to advance many other issues that many Americans would find inappropriate, and when taken as a whole should give people pause.”
POLITICO: Former President Bill Clinton says now is not the time to hike taxes.
“I personally don’t believe we ought to be raising taxes or cutting spending, either one, until we get this economy off the ground,” Clinton told Newsmax in an interview Tuesday. “This has been a dead flat economy.”
Clinton, who is hosting the Clinton Global Initiative’s annual meeting in New York City this week, said that until the country’s debt is reduced, he doesn’t believe cutting or raising taxes or boosting spending are the solution to bringing the country to a full employment economy.
Which of these tax hikes will destroy the most jobs?
AMERICANS FOR TAX REFORM: Since taking office, President Barack Obama has signed into law twenty-one new or higher taxes:
1. A 156 percent increase in the federal excise tax on tobacco: On February 4, 2009, just sixteen days into his Administration, Obama signed into law a 156 percent increase in the federal excise tax on tobacco, a hike of 61 cents per pack. The median income of smokers is just over $36,000 per year.
2. Obamacare Individual Mandate Excise Tax (takes effect in Jan 2014): Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following
|1 Adult||2 Adults||3+ Adults|
|2014||1% AGI/$95||1% AGI/$190||1% AGI/$285|
|2015||2% AGI/$325||2% AGI/$650||2% AGI/$975|
|2016 +||2.5% AGI/$695||2.5% AGI/$1390||2.5% AGI/$2085|
Exemptions for religious objectors, undocumented immigrants, prisoners, those earning less than the poverty line, members of Indian tribes, and hardship cases (determined by HHS). Bill: PPACA; Page: 317-337
3. Obamacare Employer Mandate Tax (takes effect Jan. 2014): If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2000 for all full-time employees. Applies to all employers with 50 or more employees. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer). Bill: PPACA; Page: 345-346
Combined score of individual and employer mandate tax penalty: $65 billion/10 years
4. Obamacare Surtax on Investment Income (Tax hike of $123 billion/takes effect Jan. 2013): Creation of a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single). This would result in the following top tax rates on investment income: Bill: Reconciliation Act; Page: 87-93
|2013+ (current law)||23.8%||43.4%||43.4%|
|2013+ (Obama budget)||23.8%||23.8%||43.4%|
*Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations. It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income. It does not include active trade or business income, fair market value sales of ownership in pass-through entities, or distributions from retirement plans. The 3.8% surtax does not apply to non-resident aliens.
5. Obamacare Excise Tax on Comprehensive Health Insurance Plans (Tax hike of $32 bil/takes effect Jan. 2018): Starting in 2018, new 40 percent excise tax on “Cadillac” health insurance plans ($10,200 single/$27,500 family). Higher threshold ($11,500 single/$29,450 family) for early retirees and high-risk professions. CPI +1 percentage point indexed. Bill: PPACA; Page: 1,941-1,956
6. Obamacare Hike in Medicare Payroll Tax (Tax hike of $86.8 bil/takes effect Jan. 2013): Current law and changes:
|All Remaining Wages
|Obamacare Tax Hike||1.45%/1.45%
Bill: PPACA, Reconciliation Act; Page: 2000-2003; 87-93
7. Obamacare Medicine Cabinet Tax (Tax hike of $5 bil/took effect Jan. 2011): Americans no longer able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin). Bill: PPACA; Page: 1,957-1,959
8. Obamacare HSA Withdrawal Tax Hike (Tax hike of $1.4 bil/took effect Jan. 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent. Bill: PPACA; Page: 1,959
9. Obamacare Flexible Spending Account Cap – aka “Special Needs Kids Tax” (Tax hike of $13 bil/takes effect Jan. 2013): Imposes cap on FSAs of $2500 (now unlimited). Indexed to inflation after 2013. There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. Bill: PPACA; Page: 2,388-2,389
10. Obamacare Tax on Medical Device Manufacturers (Tax hike of $20 bil/takes effect Jan. 2013): Medical device manufacturers employ 360,000 people in 6000 plants across the country. This law imposes a new 2.3% excise tax. Exempts items retailing for <$100. Bill: PPACA; Page: 1,980-1,986
11. Obamacare “Haircut” for Medical Itemized Deduction from 7.5% to 10% of AGI (Tax hike of $15.2 bil/takes effect Jan. 2013): Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI). The new provision imposes a threshold of 10 percent of AGI. Waived for 65+ taxpayers in 2013-2016 only. Bill: PPACA; Page: 1,994-1,995
12. Obamacare Tax on Indoor Tanning Services (Tax hike of $2.7 billion/took effect July 2010): New 10 percent excise tax on Americans using indoor tanning salons. Bill: PPACA; Page: 2,397-2,399
13. Obamacare elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D (Tax hike of $4.5 bil/takes effect Jan. 2013) Bill: PPACA; Page: 1,994
14. Obamacare Blue Cross/Blue Shield Tax Hike (Tax hike of $0.4 bil/took effect Jan. 1 2010): The special tax deduction in current law for Blue Cross/Blue Shield companies would only be allowed if 85 percent or more of premium revenues are spent on clinical services. Bill: PPACA; Page: 2,004
15. Obamacare Excise Tax on Charitable Hospitals (Min$/took effect immediately): $50,000 per hospital if they fail to meet new “community health assessment needs,” “financial assistance,” and “billing and collection” rules set by HHS. Bill: PPACA; Page: 1,961-1,971
16. Obamacare Tax on Innovator Drug Companies (Tax hike of $22.2 bil/took effect Jan. 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year. Bill: PPACA; Page: 1,971-1,980
17. Obamacare Tax on Health Insurers (Tax hike of $60.1 bil/takes effect Jan. 2014): Annual tax on the industry imposed relative to health insurance premiums collected that year. Phases in gradually until 2018. Fully-imposed on firms with $50 million in profits. Bill: PPACA; Page: 1,986-1,993
18. Obamacare $500,000 Annual Executive Compensation Limit for Health Insurance Executives (Tax hike of $0.6 bil/takes effect Jan 2013). Bill: PPACA; Page: 1,995-2,000
19. Obamacare Employer Reporting of Insurance on W-2 ($min/takes effect Jan. 2012): Preamble to taxing health benefits on individual tax returns. Bill: PPACA; Page: 1,957
20. Obamacare “Black liquor” tax hike (Tax hike of $23.6 billion/took effect immediately). This is a tax increase on a type of bio-fuel. Bill: Reconciliation Act; Page: 105
21. Obamacare Codification of the “economic substance doctrine” (Tax hike of $4.5 billion/took effect immediately). This provision allows the IRS to disallow completely-legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance” and is merely intended to reduce taxes owed. Bill: Reconciliation Act; Page: 108-113
STEPHEN MOORE-WALL STREET JOURNAL: Media reports in recent weeks say that Senate Democrats are considering a 3% surtax on income over $1 million to raise federal revenues. This would come on top of the higher income tax rates that President Obama has already proposed through the cancellation of the Bush era tax-rate reductions.
If the Democrats’ millionaire surtax were to happen—and were added to other tax increases already enacted last year and other leading tax hike ideas on the table this year—this could leave the U.S. with a combined federal and state top tax rate on earnings of 62%. That’s more than double the highest federal marginal rate of 28% when President Reagan left office in 1989. Welcome back to the 1970s.
Here’s the math behind that depressing calculation. Today’s top federal income tax rate is 35%. Almost all Democrats in Washington want to repeal the Bush tax cuts on those who make more than $250,000 and phase out certain deductions, so the effective income tax rate would rise to about 41.5%. The 3% millionaire surtax raises that rate to 44.5%.
We already have this . . . in the form of the gasoline tax.
THE HILL: Obama administration has floated a transportation authorization bill that would require the study and implementation of a plan to tax automobile drivers based on how many miles they drive.
The plan is a part of the administration’s Transportation Opportunities Act, an undated draft of which was obtained this week by Transportation Weekly.
The White House, however, said the bill is only an early draft that was not formally circulated within the administration.