Tax Education

By Tom Rhodes, 2/2/12

Libertarians consistently fail to educate and articulate the libertarian point of view in a way that can be understood. We also consistently fail to point out where in taxes the statists in power consistently hide simple truth from the people. We get drug down in dumb arguments and keep forgetting that the goal is liberty for all, equality for all, rule of law, etc. Today I'll make an attempt and mention some basics that the people should understand but politics and hyperbole get in the way: one is the stupidity of our double taxation system, the other is the Chutzpah of rich liberals calling for more taxes on the rich, and the last is similar in I point out the actual practices of a tax-and-spend liberal on using tax dollars for charity, compared to how he dictates the people act. I may be tilting at windmills, but in as much as liberty and freedom are clearly not the goals of either of the two major parties, we have to try.

Tax stupidity

Assume you own a business work a reasonable 50 hours a week, take care of your 5 employees, etc. and after all is said and done there was $100,000 profit in that business last year. You pay your 35% corporate income taxes and then you as owner are free to use the remaining $65K however you want. Now then, you see an opportunity to double the size of your business but need capital, so you sell some shares in your business but retain 60% ownership and full control. You use the investment dollars provided and expand and hire more people your work load is now about 60 hours a week and are successful and reach your projected doubling in size. Your expanded business now earns $200,000 dollars in profit and again pay 35% in corporate income taxes. You cannot keep the profit for just yourself anymore because you don't own all the business so based on who owns shares you distribute the now doubled $135K after tax profit to yourself and those whom purchased stock. Your share of the doubled profits is $78K, but . . . Since you are now a group of owners instead of a single owner these profits are now called dividends, and now taxed again at a rate of 15%. Thus you only actually receive $66K. The result is you doubled the size of your business increased your work load from 50 to 60 hours a week and took home an additional thousand bucks. Why increase your work load, risk, and hire more people for $1K per year? Obviously a napkin discussion with your accountant would lead any reasonable person to decide that expanding, hiring, etc. isn't worth it.

The above example the business owner add 20% more time and effort and takes home less than 2% increase in his earnings. If we did not double tax the profits from that same example, the 20% extra effort would have netted 20% extra earnings. All taxes on dividends are double taxing the profits of owners of a business. The profits a business earns are taxed, and then when the owner transfers their profit from the businesses bank account to their private bank account they are taxed again. That is double taxation, how is this fair?

The reality that statists and socialists fail to accept is that all corporate taxes are passed on to the purchaser of their product or service as part of the cost of that product or service. Just like the everyday Joe looks at his take-home pay, not his gross pay, investors and businessmen look at what's left-over after ALL costs including taxes are paid to determine whether an investment or business decision is worth the expense and effort. The reason so many younger workers opt out of benefits like health-care is that they can't spend benefits, and at the young low end of the work scale the risk of possible future health care costs compared to benefit of cash to pay for food, electricity, car payments, and the like are considered, and often the low risk of health problems associated with youth mean that the cost of health insurance are offset by the benefit of cash on hand. Those kind of risk/cost/benefit decisions are what determine future decisions for everybody. Currently we are in a no-mans-land of tax decisions, promises of more taxes on profits from business, uncertain health insurance costs, and future forced reduction in cash on hand for workers (forced insurance), when there isn't even a federal budget, has put business and workers in a holding pattern trying to protect cash and assets, growing them is secondary to protecting them. Thus we see huge interest in things like gold and silver. We need sound fiscal policy without ever-changing rules for people to make intelligent decisions about the future.

Tax Chutzpah

The hypocrisy of liberals like the Rev. Al Sharpton who attacks the Bush-era tax cuts and calls for "the rich" to pay more, belongs in the Hypocrisy Hall of Fame. Sharpton's income from his nonprofit is listed at almost $250,000. His salary at MSNBC is about the same, so "civil rights leader" Al Sharpton earns a cool half-million bucks a year to pontificate (cool gig if you can get it). The New York Post reports that he owes federal taxes and state taxes totaling $3.5 million. Wow!! Either he hasn't paid taxes for a long long long long time, or earns a lot more money than estimated or both. At his current $500K estimated earnings, if the government took all his earnings every year it would take him 14 years to pay off his IRS debt, he probably won't live that long. How much does a person have to earn to acquire a $3,500,000 tax bill? How much nerve does someone with earnings of about a half-million dollars per year, who effectively pays zero taxes have to have in order go on TV and rant for higher taxes on the rich?

Tax Charity

Statists are calling on taxing the rich more; they want the government to "take care of" everybody cradle to grave, but they don't actually practice what they preach. Consider Massachusetts, in 2001 it lowered its state income tax rate. Being the nice people they are they, put on their tax form a check box to allow the guilt ridded tax payer to volunteer and pay the old higher rate. Of the more than 3 million Massachusetts tax filers in 2004, a whopping 930 taxpayers volunteered to pay the higher rate. That number is so small it equates to just 3 pennies of $100.00; measurable but barely, and effectively zero percent. Now include in your consideration of this system that Massachusetts liberal Democrat Rep. Barney Frank, who like virtually every other liberal (or conservative, or libertarian, or independent) in his state declined the opportunity to pay the higher tax. Frank said, "I'll donate the money myself," explaining, "I don't trust the legislative leadership and Gov. (Mitt) Romney to make the right decisions." Even uber-liberal Barney Frank agrees with the libertarian viewpoint that private Charity will better spend his money than the government, which, by its nature, operates less efficiently and more expensively than can private welfare. He agrees that he, not the government should determine what charity should receive what part of his income to do charitable work. Why should any citizen trust the government to do what's best with their money if our most powerful elected leaders don't?

On a side note Barney Frank has uttered a good number of libertarian quotes, like this 2009 quote; "Criminalizing choices that adults make because we think they are unwise ones, when the choices involved have no negative effect on the rights of others, is not appropriate in a free society."