What will we do when the US runs out of money? A few months ago it seemed that the American public may actually grasp the size of the numerical problem, but the elections revealed that people in bulk are not capable of basic math. It only takes the most cursory of reviews to understand that increased taxes will not even dent the overspending, yet somehow that is not a problem. Unfortunately, it takes a slightly larger intellect to understand that more taxes do not always equate to more revenue. It takes still more for people to understand that top-loading the wealthy, dramatically affects the poor.
For myself, as a business owner, it is difficult for me to understand how people think our current situation ‘might’ be ok. It clearly is not, and more of the same will simply destroy our future, as well as that of our children. After this past election, I’m expecting future generations to experience tremendous difficulties in America as well as the world. It doesn’t take much historic review to see where liberal cradle-to-grave policies will take us. There is nothing wrong with wanting to give people everything, except that we require them to create in order to be able to give it. When you incentivize people to stay home and not work, that is exactly what you get.
See, the basic problem with government control of populations is that the people making the rules, don’t focus on the incentives they create. They never will and that is why less government is nearly always beneficial. If you make a rule that allows life-sustaining payment for extended unemployment, the people are incentivized to remain unemployed. Yes, some will seek jobs, but many times they chose unemployment as a reasonable and understandable alternative. In the past two years, I have seen dozens of examples of people who turned down employment in favor of government checks. When you allow “permanent disability” to mean anything from a broken back to emotional harm, a lot of people are suddenly incented to experience serious emotional harm! Duh.. Disability claims have absolutely skyrocketed in recent years and people who really qualify are being left off the list in favor of those who should not. It has been a common theme of this blog that groups of people incentivized to a certain path, are numerically biased to that path. It is no different than the fake Mannian math which preferentially choses data to create hockey sticks. If you bias the population, you skew the “average” result toward the bias.
But tax hikes are still the solution to insane overspending…
Just a little more from the “rich”.
The numbers don’t add up, and worse yet, they are not even close! So…… When a tiny little country like Greece, with less per-capita debt than the US, economically collapses and sends shudders through the global economy, what will the world do when the US does something far worse? I can’t even imagine what it will be like, and at the same time, after this election, I can’t even imagine how we will manage to avoid it.
While the liberals in America make the false argument that the rich don’t pay their “fare share”, whatever that is, it is business owners who are actually being targeted. Of course the truly rich politicians won’t tell you that. When real wages are dropping across the country and a minimum wage job draws a thousand applicants, does it really make any sense to tax business further? Liberals tax cigarettes because they say they want less of them. Obama taxes the rich because he believes that redistribution is the key to happiness. This government has not enacted one single pro-business reform in the last 4 years and we are reaping the benefits in spades. Guess what that means for the workers wages a company hires when high unemployment creates an oversupply of qualified candidates?
In the past decades, regulations and costs have been added to business operations. Business owners have continually pointed out the consequences and are regularly ignored or demonized in return. Higher electric cost, higher compliance cost, higher reporting requirements, hundred page tax filings, higher employment compliance costs, communication taxes, gas taxes, border crossing taxes, foreign business taxes……on and on. These are all added costs. These have continued to increase over the past 20 years, the result has been a herkey-jerkey decrease in real income for the middle class and poor in America. Just like every socialist country in the world, the population is generally poorer, and the separation between those with money and those without is generally larger. Of course the media blames corporate greed rather than the obvious governmental problem.
And on we go, down the same stupid path.
This time though, is very different than any other in history. America holds a huge fraction of the wealth of this planet. An enormous amount of business is controlled by this country, yet these American customers of the globe are about to go flat broke. No amount of tax increase on the wealthy can even dent the over 1 trillion per year deficit. In fact, it is my contention that a further tax increase will result in a reduced net revenue. Of course you have to adjust for inflation and you have to estimate GDP with and without the tax. A second method, which is far easier to understand, is to simply calculate what a manufacturing business would have do to react to higher taxes!
Unlike the fake government economics, business actually has to live within their budget or they go broke. In the current banking environment, often there is literally zero backup.
Below are a hundred individual numbers. 10 rows of 10 representing the income of a 10 million dollar fictitious S corporation manufacturing company.
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In this company 40% of the total income goes to pay for product material cost.
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Twenty five percent of the income goes to pay employees including the company contribution to federal taxes.
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Five percent goes to employee benefits.
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Five percent goes to material transport.
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Five percent goes to various utilities, insurance, supplies and materials which support operations
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Two percent more is invested in commissions and sales activities leaving about 18 percent profit after every possible writeoff has been taken. This is the money reported on an S corporations owners personal tax return as income. One point eight million dollars.
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Currently the Federal government taxes this money at 35% and the state of Michigan taxes it at 5%. Then there are various property taxes and fees which must be paid so the effective rate is about 45% on income.
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So 10 percent is left to invest in growth, savings and profit for distribution. If the company doesn’t invest in growth, it will die.
The company above invests 5% into growth leaving 5 percent for the owners to distribute or save for a less productive time.
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Now in a 10 million dollar company, that 5 percent represents 500,000 dollars which is not an insubstantial amount of money. Except that that 10 million dollar company burns through an average of about 40,000 dollars for every weekday it exists, so 500K isn’t much of a cushion for operations. The federal government sees that 18 percent profit as personal income of course, and taxes it as though the owners were professional hockey players who actually took home 1.8 million dollars.
Today these owners are being asked to pay their “fare share” and are looking at a 5% tax hike along with a massive increase in health care costs, as well as increased capital gains tax which will massively limit investment opportunity.
So now assume that the federal portion of our hypothetical company’s taxes went from 35% to 40% as is currently proposed. Then we are looking at about a 50% rate of taxation. If you are an investor in the company who contributes less than 500 hours of work per year, your rate goes up an additional 3.8% from Obamacare, but we will assume you are an active partner and we will ignore the projected twenty to forty percent increase in health care costs.
After tax, you have then:
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Or 9 percent to spare from your 10 million dollar company.
If you invest 5% as before, you only have:
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Four percent left from your nice 10 million dollar manufacturing company that just paid 900,000 in taxes. That is actually 20% less take-home income after tax from a 5% increase. What’s more is that your company just paid the federal government 900,000 dollars instead of a measley 800,000, while retaining 400,000 for the owners to either save or distribute. Over two times the money you can actually spend on growth or personal profit is paid in tax.
Something is going to have to give, and my guess is that it won’t be the liberals. After the economy gets worse, they will just blame something else and find a new way to attack business. The media has completely brainwashed the public into believing that this tax hike is about ‘increased revenue’ and paying your fair share, when the propaganda has literally zero basis in reality.
Now while this example does not represent my company, this is a very typical scenario for a manufacturing firm in the United States. Just to add a little more “real world” flavor to the discussion, one of our largest competitors just got bought out by a Taiwanese company. Of course Taiwan only taxes their corporations at 17 percent so it is no surprise to see American business being bought out. This Taiwanese company will manufacture at its own plant and charge the maximum amount of cost to the American branch to limit US tax. Even a mental midget can guess what Obama’s expansion of that tax differential means for American competitiveness with Taiwan in a global economy.
In my case the numbers have worked out such that I will pay 4 times more in taxes to the various United States Governments than my personal take home income in 2012. Not 40% tax but 400%.
The general public is completely ignorant of these things. Consider for a moment though what a business must do to react to this massive cost increase. In our case, price hikes are not possible as it is a global economy, so the cash will have to come from somewhere else in the company. Benefits, pay, number of employees, investment, etc… In the end, investment and growth will necessarily suffer as both our company and our customers have less purchasing power. It is absolutely clear that both the government and employees will actually receive less money from us than they would have in the long run.
If you are an employee in private industry, you will likely continue to watch the un-reported inflation of prices rise faster than your check. This isn’t corporate greed, as the idiots on MSNBC would tell you, it represents the cold fact that evil business owners will have less money to pay out. So when you are asking your boss for a raise in the coming years, don’t be surprised if his answer is – go get it from Uncle Sam.







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