Tuesday, July 27, 2004

Tax rant

A quick back of the envelope calculation:

-- A single person earning $110,000 loses about $27,000 to taxes.
-- A single person earning $52,000 loses about $10,000 to taxes.

-- A couple earning a combined $185,000 lose about $47,000 to taxes.
-- A couple earning a combined $130,000 lose about $30,000 to taxes.

-- Anyone earning above $288,350 loses 38.6% of each dollar to taxes.

Do these numbers make sense? Do you see a problem here?

John Kerry does. Why?

The thrust of his argument goes something like this:

"The U.S. economy is being undermined by a rising budget deficit, the prospect of ballooning interest rates, unfairly high taxes on the poor and unfairly low taxes on the rich."

His solution: tax the rich more and tax the poor less. Put the proceeds into public healthcare and education. There will be plenty to go around. Share the wealth!

Firstly, why is the budget deficit rising? Didn't Clinton sign a balanced budget not long ago?

The point here is that in 2001 the economy went into a tailspin for the first time since Clinton was in power. The stock market lost a lot of ground and the 9/11 terrorist attack left investors gob-smacked. Is it any wonder why the fundamentals of the U.S. economy are so out of sync?

What is easy to forget is that when an economy is performing badly the government is the first to suffer. The less people earn, the less they spend and the less the government receives in tax revenues. The upshot is a rising budget deficit. The government is borrowing to cover it's spending commitments; commitments made when the economy was doing a lot better than it is now.

The irony of all this is that the economy is being run by people who remain in office for a short period of time. This is usually part of the problem, not the solution. What we have now is a situation where things look bad and will probably get better. They will get better irrespective of who is in power. Anyone who thinks otherwise is kidding themselves.

The only lasting difference those in power can make is in the distribution of income. Some might say this is government getting in the way. Others might say it's the government righting wrongs. The truth of the matter is, as always, somewhere in between.


What is crucial is that government not intefere excessively.

What I see when I look at the calculations above is a situation where a moderate redistribution of wealth is taking place already.

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