Saturday, January 28, 2012

Mitt's taxes: An Australian perspective

Let’s face it. The two-year-long process leading to the inauguration of an American president has more in common with Madison Avenue and Sunset Boulevard than Pennsylvania Avenue, so we should not be surprised or shocked. But it is downright bizarre to see one Republican candidate tearing into another Republican candidate for not paying enough tax. After all, aren’t these guys supposed to favour a lower tax burden?

Newt is criticising Mitt because he pays only 15% income tax. If Mitt had been caught evading tax, Newt would be onto something, but Mitt is just complying with the tax code created by a Republican president, George W. Bush. If Mitt had paid more, he would be making voluntary contributions to the public purse, which as the late Kerry Packer once said is a mug’s game.

Soon the US media will go into a frenzy over Mitt’s tax affairs because he will have to go through that obligatory ritual for all presidential candidates of making public tax returns for the past few years. (Thank goodness our candidates for high office don’t have to do that.) But there is a perfectly good reason why Mitt’s overall tax rate is low: his income is mainly from capital gains and dividends, which are taxed at 15% in America. Australia prevents double taxation of dividends through the imputation system; the United States mitigates it by taxing dividends at a low rate. But taking into account the 35% company tax rate and the 15% rate on dividends in America, any dividends paid out of taxed profits are in fact taxed at almost 45% in the hands of the shareholder. The 15% rate on capital gains in America is approximately half the top marginal personal rate, as is the case in Australia.

The real issue is not whether Mitt is paying too little but whether the tax system as sketched above is right. There is nothing exceptional about taxing capital income more lightly than labour income. Australia does it to a point, and even the Henry review said we should keep doing it (albeit in different ways). The real worry in America isn’t so much the fate of Newt or Mitt at the hustings but that if the Republican primary campaign can take this bizarre turn, perhaps the populism of Barack Obama, Warren Buffett, and the Occupy crowd is setting the terms of the public debate on tax policy more than anyone realised.



Antitrust Kills

Brian Caplan does rather overstate a good point below. He assumes that antitrust laws have no benefits. That may be true but it needs to be argued or at least referenced

Since 2007, Bill Gates has given away $28B, 48% of his net worth. Frugal Dad estimates that he's saved almost 6 million lives. I haven't double-checked his sources, but it's a plausible estimate.

Back in the nineties, Bill Gates was experiencing far less favorable publicity - and legal persecution. The U.S. government sued Microsoft for antitrust violations. In 2000, Alex Tabarrok estimated that the antitrust case had cost Microsoft shareholders $140B. Yes, Microsoft ultimately reached a relatively favorable settlement. But Gates probably would have been billions richer if antitrust laws didn't exist.

You might say, "Who cares? He can afford it." But hold on. We're talking about a great philanthropist. If Bill Gates were $5B richer, he almost certainly would have increased his charitable giving. A conservative assumption is that he would have stuck with his current ratio, giving away 48% of the extra $5B. It's quite possible that he would have given away every dollar.

If Gates' philanthropy is as efficacious as most people think, there's a shocking implication: The antitrust case against Microsoft had a massive body count. Gates saves about one life for every $5000 he spends. If the case cost him $5B, and he would have given away 48%, antitrust killed 480,000 people. If the case cost him $5B, and he would have given away every penny, antitrust killed a million people. Imagine how many people would be dead today if the government managed to bring Microsoft to its knees, and Gates to bankrutpcy. It staggers the imagination.

You might object, "By the standard, Gates himself is killing millions by failing to give even more." If you're a consequentialist, that's exactly correctly; we're all murderers in the eyes of Jeremy Bentham and Peter Singer. But if we stick to the common sense distinction between "killing" and "letting die," Gates is innocent, and the government remains guilty. Outsourced to philosopher Michael Huemer:
It is possible to harm someone not only by directly inflicting a harm, but also by actively preventing that person from taking actions to avert or remedy a harm. Suppose that, through no fault of mine, Marvin is in danger of starvation. He asks me for food. If I refuse to give him food, I thereby fail to confer a benefit on Marvin and, at the same time, allow Marvin to go hungry. If Marvin then starves to death, those who accept the doing/allowing distinction would say that I have not killed Marvin, but merely allowed him to die. And some believe that this is much less wrong than killing, possibly not even wrong at all. But now consider a different case. Suppose that Marvin, again in danger of starvation, plans to walk to the local market to buy some food. In the absence of any outside interference, this plan would succeed--the market is open, and there are people willing to trade food for something that Marvin has. Now suppose that, knowing all this, I actively and forcibly restrain Marvin from reaching the market. As a result, he starves to death. In this situation, I would surely be said to have killed Marvin, or at least done something morally comparable to killing him.

The same holds, of course, if someone robs a philanthropist who otherwise would have come to Marvin's assistance.



Thou Shalt Not Covet

President Obama says that people are poor because others are rich. What a crock that is. It’s nothing more than a refusal to accept personal responsibility for the failure of the welfare-warfare way of life and the managed-economy way of life that that statists have foisted upon our nation.

What’s even a bigger crock is Obama’s solution for making the poor better off. He says that if the government seizes more money from the wealthy, that will improve the lot of the poor.

Oh? And how is that? Let’s assume that someone is worth $10 million and that there are thousands of people in society who are worth $1,000. The government decides to seize $3 million from the rich person. Okay, so the government now has $3 million more dollars in its coffers and the rich person is now worth $7 million.

How does that help those poor people except to satisfy their sense of envy and covetousness? So what if those poor people are celebrating that the rich person isn’t as rich as he was before. What does that do for them?

Let’s take it a step further and say that the government distributes the $3 million to all those poor people in equal shares. Sure, they’d all be wealthier, but wouldn’t that be the case if they had simply stolen the money from the rich person, without the forcible intervention of the government? Isn’t a thief always wealthier after the theft?

Where does it stop? Won’t there be people who are worth $2,000 — the new poor — demanding “equality”? Won’t the government have to seize another $3 million from the rich person and give it to that group of people? And then what about the people who are worth $4,000, who are now on the bottom rung?

The process just keeps going on and on, until there are no more rich people. Everyone is now truly equal. But in the long run, everyone ends up poor, equally poor. The rich no longer have private businesses in which they are employing the poor. That leaves the government as the sole employer in society.

People end up realizing that a tree based on violations of the natural law and God’s law that prohibit covetousness, envy, and stealing will inevitably produce bad fruit, which includes poverty across society.

We have a real-life example of this phenomenon — Cuba. When he took over as president of Cuba, Fidel Castro had the exact same mindset that guides President Obama. Castro believed that the reason there was so much poverty in Cuba was not because of the U.S.-government-supported “crony capitalism” that characterized Cuba but rather because there were so many wealthy people in society. So, Castro, like Obama, began taking money from the rich and redistributing it to the poor, with the aim of equalizing wealth in society.

But with each distribution, more confiscation was necessary in order to equalize the new segment of poor people at the bottom of the economic ladder. Castro decided to take the socialist principle to its logical conclusion. He ended up seizing all the wealth of the rich people, including their money, their industries, and their mansions.

No longer would money be wasted in the form of “profits” because the government would be running all the industries. No longer would people face unemployment because the government would be the sole employer. No longer would there be disparities of wealth because everyone would be working for the government on salary.

The result has been mass impoverishment in which most everyone is on the verge of starvation. Like Obama, Castro refuses to acknowledge that the root cause of the impoverishment is Cuba’s socialist system. He blames Cuba’s poor economic conditions entirely on the U.S. embargo.

The question that Castro and Obama and other statists never ask is: What are the causes of wealth in a society? That’s the critical question. That’s the question that Adam Smith asked in his landmark treatise, An Inquiry into the Nature and Causes of the Wealth of Nations. He wanted to know what it was that made some nations wealthy.

The answer is one that doesn’t please statists. The key to rising standards of living in a society is the following:

1. Prohibit government from waging war on poverty by confiscating and redistributing wealth.

2. Prohibit government from managing the economy and intervening in economic activity.

3. Prohibit government from controlling and regulating economic activity.

4. Prohibit government from engaging in imperialist military adventurism that inevitably contributes to excessive spending, debt, and bankruptcy.

5. Prohibit the government from managing the monetary system, especially with paper money and a central bank (i.e., the Federal Reserve).

In other words, the key to ending poverty in any society is to prohibit the government from using its coercive power to help the poor. Leave everyone, including the poor, free to engage in economic enterprise free of government control, permit, or regulation. Leave people free to accumulate unlimited amounts of wealth. Leave people free to do whatever they want with their own money.

No income tax. No welfare programs, including Social Security, Medicare, and Medicaid. No regulatory programs. No warfare programs. No monetary programs. Just nothing but free enterprise — that is enterprise totally free of government control and intervention.

That’s the key to ending poverty in every society on earth. When people are free to engage in enterprise and to accumulate unlimited amounts of wealth, the poor have the chance to become wealthy. When people are free to accumulate wealth, they inevitably save some of their income. That savings goes into capital, which is then converted into tools and equipment, which make employees more productive. More productivity means higher revenues. Higher revenues mean higher wages. Higher wages mean higher standards of living, especially for the poor.

Thus, contrary to what Obama, Castro, and others of the statist ilk suggest, there is a natural harmony between the wealthy and the poor. The wealthy risk their money to establish businesses. They hire the poor to work there. To succeed, the business must produce goods or services that please consumers. If the business succeeds, the owner wins, the consumers win, and the employees win. Thus, employees have a vested interest in helping the business succeed.

God did not create an inconsistent, contradictory universe, one in which such sins as covetousness, envy, and stealing produce good results. On the contrary, such wrongful actions inevitably bring bad consequences, not only personally but also when they are enshrined within government policy.

The best thing that could ever happen to the poor is the dismantling of America’s immoral and destructive experiment with socialism, interventionism, and imperialism.




TN: Businesses press for end of estate tax: "Robert Doochin says his next step is fairly simple: After nearly half a century at the helm of American Paper & Twine Co., pass the business on to his three children. But with an estimated value of $10 million to $20 million, there’s one problem: the tax bill. Doochin’s estate attorney has advised him to move out of state, he says. ... Doochin, like many successful business owners, has been pressing state leaders to lower Tennessee’s main tax on wealth, the estate tax."

What’s so special about the 1%?: "Making more money than 99% of one's countrymen is, by itself, no more morally objectionable than scoring in the 99th percentile of the SAT. Indeed, generally, it's much more morally praiseworthy; creating wealth benefits people other than oneself. Of course, some people cheat on the SAT. Cheating is wrong. But high-scorers generally aren't screwing anyone over."

Kiddie porn punitory: "Few reasonable people would argue least of all me that victims of child sexual abuse were injured and deserve damages for their suffering and humiliation -- from the criminal; the abuser who caused the damage -- not from those who merely looked at the pictures. To argue or hold otherwise is patently insane. It’s like holding a person fully responsible for a murder for merely looking at a picture of the victim after the fact."

Doug Casey on the collapse of the euro and the EU: "Interview with Doug Casey. Casey: "Right now the Eurocrats in Brussels really only have the power to regulate, which is bad enough. But if the European Union had the power to tax, it would become an actual empire. Especially if they then created a European army -- there's no telling what kind of mischief they'd get into. On the bright side, they can't really afford an army."

President Obama’s definition of fairness is precisely the opposite: "His use of the word fairness ultimately begs the question of why Obama is advocating progressive taxation which, by its very nature, is unfair. By increasing the proportion of tax paid on incomes over certain arbitrary thresholds those deemed to be too rich or too wealthy are simply being discriminated against. To Obama, earning more than $1million clearly means one is a proper target for discrimination."

To re-inflate the bubble …: "The Fed announced they will maintain near-zero interest rate levels until the end of 2014, the continuation of a policy implemented in 2008 to 'spur economic growth.' In reality, the Federal Reserve is continuing more of the same that caused the financial crisis in the first place. The Fed caused the crisis by keeping interest rates artificially low for too long a period of time spurring investment in areas of the economy (like housing) that already had been overinvested in, thus inflating the bubble that nearly crippled the US economy when it burst in the December 2007"



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