Taxes

“A Disease of the Public Mind”

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That is the title of a book about the first US Civil War that resulted in the assassination of President Lincoln. The soldiers in the South hated those in the North and vice versa. Northern soldiers have since been credited with undeserved virtue while Southern rebels were labeled racist enemies of the state, a moniker that still survives in the present day. But neither side was fighting over the abolition of slavery.

 

Trump’s opponents claim he will re-institute Jim Crow oppression, put black people back in chains, end democracy and put people in Hitler’s concentration camps. The continuous character assassinations, legal persecutions, numerous impeachments, unfounded accusations and insinuation caused what has been called Trump Derangement Syndrome (TDS), a disease of the public mind resulting in a recent assassination attempt.

 

Follow the Money
The Constitution the North and South agreed upon in 1788 enshrined the economic principles of Adam Smith’s Wealth of Nations, fostering equality under the law, individual sovereignty and limited government. Slavery was still too contentious an issue to settle. Starting in the next century the British led a moral crusade to eliminate slavery globally. While politically virtuous, Britain could afford to pay off slave owners and generally didn’t face the the vexing question for US plantation owners of whether freed slaves could support themselves and, if not, whether this would lead to murderous riots as had happened elsewhere. Abolition was a contentious issue everywhere slavery was practiced, typically with long drawn out steps to complete. But the long simmering political dispute that came to a head in 1860 wasn’t about abolition, but money. The federal government relied almost exclusively on tariffs raised in Southern ports – most of which went to northern states – on imports financed with the fruits of slavery, cotton exports.

 

Since the Civil War, limited government has given way to big government. The Democratic Party has created many dependent constituencies whose continued prosperity depends upon continuing Democratic power and largess: the bureaucracy, the government at all levels, teachers, labor leaders, academic educators and administrators, trial lawyers, government contractors, social security recipients and what are still euphemistically called journalists, among many others. The current Civil War is also about money. Trump has been in both political parties, fits in neither. But ”you are fired” represents an existential threat to Party members.

 

For contemporary Democratic politicians, almost all trained as lawyers, money beyond what is available by taxing the rich exists in banks, especially the Federal Reserve Banks, to be distributed according to the spoils system. For Republican politicians (but not RINOs), mostly former businessmen, prosperity comes from productive work and from savings productively invested. For those businesses and workers who are not on the receiving end of the spoils system, whose taxes pay for political largess, limited government is the only solution. There is very little middle ground.

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All Hat and No Cattle – Section 25C Tax Credits

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I love that expression. There are lots of explanations of the saying, but I take it to mean (and I assume most do) that it is meant to describe a big talker – one who says a lot but doesn’t really have/do much to back it up.

As the dust has begun to settle from the Inflation Reduction Act (I always laugh at that title), that saying keeps going through my head.

There are a lot of things in the IRA that are HVAC related and one of them was the extension and expansion of 25C Tax Credits. Before I go any further, a short primer on tax credits.

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Paying for Biden’s Dreams

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President Biden says, in connection with his ‘infrastructure’ plan, that “We’re going to pay for everything we spend.”

Actually, it’s you that would pay for this proposed spending.  Exactly how much you would pay, and what forms your cash outflows would take, are dependent on your individual situation, but make no mistake: you would pay.

You would likely pay through higher direct taxes–yes, it is claimed that there would be no tax increases for those earning less than $400K/year (family income), but there are spending increases built into or implied in the ‘infrastructure’ bill that imply much higher spending…and taxing..over time.  You would pay, in higher prices, lower wages, and reduced investment returns for those corporate tax hikes, which Biden seems to view as a source of free money. You would likely pay in terms of reduced job opportunities…possibly even outright job loss…as a consequence of a damaged US business climate.

Above and beyond the specific details, the ‘infrastructure’ plan and its supporting tax represent an attempt to redirect a greatly-increased part of the national income generated by Americans into the hands of government and of those whose relationship with that government is key to their finances.  Such increases in government scope are of direct financial value to a lot of people, including high-income as well as lower-income people…see my post here for discussion of this point.  Increasing the scope of government also represents a tremendous ego and status benefit for many people, most definitely including Biden himself…who actually met with history professors to get ideas on how he could build up his ‘legacy’ and who, I think, is more interested in a legacy of doing Big Things than in what the benefits of those Big Things might be.

Nancy Pelosi, in reference to the ‘infrastructure’ bill, stated that: “The dollar amount, as the president has said, is zero.”  This is nonsense. The fact that money for a program will come from somewhere doesn’t mean that the cost of that program is zero.  If a division of a company embarks on an expensive project and gets the money from their parent corporation, that doesn’t mean that the cost of that program is zero.  Same if the division get the money by raising prices and/or selling more to their existing customers–the program still costs what it costs.

The Biden/Pelosi view seems to be that the United States exists to support the Federal government and that category of people who are most closely linked to that government.  Increasingly, government and the ‘extended government’ are acting like medieval robber barons, plundering the surrounding countryside to keep themselves and their retainers wealthy and powerful.

See also this post at Ricochet: Economic Illiteracy on Parade and my post The Logic of Insatiable Centralization.

Labor Day Thoughts

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My discussion question for today: In a world with global and highly-efficient transportation and communications…and billions of people who are accustomed to low wages…is it possible for a country such as the United States to maintain its accustomed high standards of living for the large majority of its people?…and, if so, what are the key policy elements required to do this?

Henry Ford did not establish the five-dollar day out of the sheer goodness of his heart.  He did it because worker turnover had become unacceptably high: people didn’t like assembly-line work, and they had alternatives.  Suppose Ford had then had the option of building the Model T in a low-wage country, say Mexico.  Maybe he wouldn’t have needed to bother with the American $5/day wage and the productivity improvements needed to support it. (Although Ford being Ford, he still might have implemented the manufacturing innovations and process improvements even without strong economic necessity to do so.)

America’s premium wage structure has, I think, been historically enabled by several factors:

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The Logic of Insatiable Centralization

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People and businesses have been leaving New York City, and the state of California, at a considerable rate. Some of these people/businesses are *resources* from the standpoint of government and its leaders: they are tax money on the hoof.   Cuomo, de Blasio, and Newsome would surely like to have a way of keeping them there.  Would these leaders, if they were allowed, favor a legal prohibition on exits, or at least a prohibitive tax penalty for such exit? This is the logic of the Berlin Wall, or of the Reich Flight Tax, the Reichsfluchtsteuer.   Such things may seem impossible in America, but the Dems have pushed for a lot of things that would have previously been considered impossible in America.

Comes now Janet Yellen of the Biden administration, with a proposal for a global minimum tax on businesses, thereby nailing the feet of companies to the floor and keeping them from going elsewhere to avoid excessive exactions.  Just as Blue-city mayors would rather not have to worry about offering a tax system that is fair and economically-rational, the same is true of the Blue Biden administration.

As a writer at Ricochet has pointed out:

(Yellen’s proposal) is a terrible idea, for a very simple reason: “harmonizing” between governments eliminates competition between them. And it locks in the kind of bloated incompetence that is a feature of even the best governments out there.

We want companies to be able to shop for their preferred home, just as we want Americans to be able to move to low-tax states. Similarly, if a poor country is trying to attract tenants (companies), why should they not be able to offer advantageous tax rates or less bureaucratic overburden?

It would not just be a matter of keeping companies from moving–the proposal would also tend to reduce or eliminate pressure to keep taxes low and minimize government waste.

Basically, this global minimum tax would represent the collusion of the political and bureaucratic classes against everybody else.

And against diversity–any diversity of political and economic philosophies.

“Progressives” don’t like fine-tuning incentives; they like issuing prohibitions and giving orders.