Sign That Times Are Bad.. Governments Desperately Looking For Revenues…

By: ispeculatornew
Date posted: 07.19.2012 (5:00 am) | Write a Comment  (6 Comments)

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Taxes are a good way to divide any group of individuals. There are a few that believe taxes should never be raised and almost be eliminated.. but despite the best attempts of Grover Norquist, most would agree that it’s not quite that simple.  All countries have to balance the desire to have a balanced budget over the long term with the quest to offer services and to redistribute part of what the top earners are making towards those less fortunate.

I’ve written a few times here about my frustration with those that think raising taxes on the rich is the answer to everything. It’s not that taxing the rich is a bad idea but rather that it’s so much more complex than that. Making the debate seem so simple might help to win elections but it’s not the right way to manage a country.

In recent months, many Western countries have been under heavy pressure to fix their finances. In Europe especially, governments from smaller countries such as Greece, Portugal and Ireland to bigger ones like Spain and Italy are facing huge challenges. Why? Investors no longer trust that they are “risk-free”. It’s not so certain that Germany will come to the rescue and a default is certainly within the possible outcomes. That has led to surging yields on their debt leading to unsustainable interests being paid.

Backs Against The Wall

These countries are now desperate to find a way out of this as soon as possible. Even the US government, which is still much safer than all of those mentioned governments has been accumulating record deficits which has translated into record debt. Obama and Romney are now set to argue over how to rectify the situation.

Austerity vs Growth

The big debate in Europe concerns the best way to fix this big problem. Some such as Germany want austerity, which ends up being cuts in services and expenses while others like France and most of the troubled economies prefer a pro-growth approach where a stronger economy would lead to higher tax receipts and eventually a balanced budget. I guess some of both is required…

Raising Taxes

Somehow though, governments around the world think that raising the taxes might be the shorter term solution to their problems. It’s happening everywhere and is seriously worrying me. Let’s look at a few examples:

-The US has been pushing hard on money earned by their companies and citizens outside of the country. It is the only country to tax individuals that live outside the country and has been pushing hard on increasing their revenues on taxes from expats. Faced with many that are not coming clean, the IRS is offering special deals for those that do.  In terms of companies, the IRS is working on legislation that will prevent companies from tapping their offshore cash stockpiles

-The United Nations has been looking at the possibility of taxing the ultra-rich and while the idea is certainly worrying, I don’t think anyone seriously think countries would agree to such an idea.

-France remains scheduled to move ahead with its 75% tax on income over 1 million Euros in a year.

-The recent health care changes, named Obamacare have successfully passed the Supreme Court, but only once they were considered as taxes

Taxing Should Be Done With Extreme Caution

The French government will scare away companies that were thinking of setting up a shop in France.. these are exactly the type of things that will hurt the economy in the long term… It frustrates me to no end that so many people don’t get this. Not only does taxing (especially at extreme levels) reduce incentives for individuals but it puts a bigger share of the economy in the hands of the (inefficient) government. Governments should not enact policies simply because they are “popular” or easy to move through. It should be about long term growth more than anything else.

I’m not saying they should not be raised. Many tax loopholes should be eliminated and there are certainly some taxes that should be added to favor new energy, etc. But in the past 30 years, the top 1% has gone from paying 19% of the total federal taxes to over 37%…. how much more do you expect them to pay? The entire bill?

Next Time You Hear About Raising Taxes…

Please ask yourself or the person that is discussing it… “Does this tax increase make sense or is it just a desperate move by an even more desperate government”.

 

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6 Comments

  1. Comment by Bryan — July 19, 2012 @ 10:53 am

    You claim that in the past 30 years, the top 1% has gone from paying 19% of the total federal taxes to over 37%. This doesn’t sound unreasonable, however the income share of the top 1% has increased from 10% to over 20% so they are proportionally paying less taxes then they did 30 years. Hardly a position to claim about. And nobody expects them to pay the entire bill, but society is organized in a way that has benefited those at the top immensely. It makes sense for them to pay proportionally more. The real people being ripped off tax wise are upper middle class, high wage earners, who get hit with 35%+ rate and have far less loop holes compared to investors and business owners.

  2. Pingback by Dividend Link Time — July 20, 2012 @ 4:01 am

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  3. Comment by Bret @ Hope to Prosper — July 23, 2012 @ 3:54 pm

    I agree with Bryan that one of the reasons the tax bill has gone up for the 1% is because their incomes have as well. Still, they earn 27% of the income and pay 37% of the taxes. The top 5% pay 58% of the tax revenue. If the LTCG rate raises from 15 to 20% next year, that will raise their contributions even more.

    What really concerns me is that 46% of Americans pay zero in income taxes. That is way too high a pecentage of non-contributors. Anyone over the poverty line should be contributing at least some small amount. Ironically, most of the people paying zero are the ones calling to raise taxes on the rich.

  4. Comment by Intelligent Speculator — July 23, 2012 @ 4:56 pm

    Many great points, and I think it’s fair to say that the rich could pay more. I just argue that it’s too easy of a solution and it’s often looked at as if there were no downsides to doing it.

    I also agree that having almost half of the population not paying taxes is not a good trend

  5. Comment by mike — July 29, 2012 @ 8:37 pm

    if a fair system of paying taxes is not followed or enforced you will end up with a banana republic in no time. The rich will not pay and the poor have nothing to offer, as for the middle class with shrinking incomes and off shoring their jobs. It will get to a point of no return.

  6. Comment by IS — July 30, 2012 @ 11:58 am

    @mike – Right yes, but the problem is that there are many legal methods of doing this

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