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Monday, November 19, 2012

Why Taxing the Rich Taxes the Poor

People think they are voting for a tax on only "the rich" who are greedy enough to earn more than the needy "middle class". This article will help educate those people things they were never taught in public school: 

Taxes

By Jeff Clark, Stansberry & Associates
Monday, November 19, 2012

Raising taxes on the rich raises taxes on everyone.

My home state of California just passed Proposition 30, which increases income taxes on residents who make $250,000 a year or more. The top marginal tax rate is now 13.3%, the highest of any state.

Proposition 30 was sold to the voters as "this won't cost you a dime, but it'll make the rich pay their fair share to put our schools back in shape."


Since so many voters thought they were excluded from the tax, and so many voters have no understanding of economics, the lower wage earners were able to vote to take money away from the higher wage earners.


But… they'll get hit just the same.

I was having this discussion a few weeks ago with the gentleman who pays me $4,300 per month to rent my old house. His kids attend public school – the cost of which is paid for through property taxes. Since I own the property he lives in, I pay the taxes. So he believed he could vote to raise taxes to improve the schools and it wouldn't cost him a dime – since he doesn't pay the taxes.

I had to explain to him that the amount I charge for rent is based on my ability to earn a profit on my investment (the home). That means I have to charge him enough to pay all the taxes and insurance on the property and generate a higher income than I could receive on an alternative investment.


If my property tax payment goes up, I would have to increase his rent by a similar amount. So while he doesn't pay the property taxes directly, his vote to increase my taxes would be a vote to increase his rent.


He was shocked… SHOCKED… that I would be so greedy as to force him to shoulder the burden of the increased cost of my investment. I explained to him the alternative if I was unable to earn a fair return on investment was to sell the house and move my money elsewhere – which would leave him and his family without a home.


Again, he expressed shock at my greed.


Funny, though… he didn't seem to mind it so much when he thought he was voting to take my money to spend on his daughters' education.


This is an educated man who is an executive at a large corporation… Yet he has no understanding of the basic laws of economics.


Is there any wonder we are in the mess we're in?


Prop 30 imposes an extra income tax, so it gets around the property tax issue. But the economic argument is the same. By imposing extra taxes on the "rich," the rich then need to raise prices in their businesses to make up for it… or else take measures to avoid the tax completely. That means everyone pays.
From this article we can see the mechanics of exactly why, when those who know how economics work get taxed, those who make economics work pay the taxes. In other words, it is the producer, the working person who pays the taxes ultimately. Why? Because s/he is the producer, of course! 

CAPITAL
Every person providing capital expects profit. He or she who wants to keep the profit for own uses is thereby called a Capitalist. A person using capital to produce profits to give away is called a Philanthrop, or a philanthropic person. Both kinds of people are very useful in society but the Capitalist is essential to economy. Only with every form of capital can an economy work.

 The Labor producer is a Capitalist because s/he requires profit on the use of the capital s/he provides which is the time and muscle and thinking ability God gave her or him to produce with. Industry Capitalists direct Labor Capitalists in creating new products from the earth materials God provided us. The person with the Currency Capital provides the currency to pay the Labor Capitalist her or his profit before the product is even put onto the store shelves for consumers to purchase it. The Management Capitalist organizes and manages the Industry, Currency, and Labor in order to produce and deliver the product for the end Consumer. 

These four (4) basic forms of Capital -- Industry, Currency, Labor and Management -- comprise the basic business elements of Economic Capital .

In passing I mention wholesalers/retailers, shippers/truckers, marketers, sellers, property owners/managers, and many other forms of Capital providers. Any going concern or working business creates a product or service for an end Consumer to buy. 
Every Capitalist will require a profit on the use of the capital provided. The Currency Capitalist generally has currency earning profit instead of using only his or her time and labor to earn it. Many Currency Capitalists and Industry/Management Capitalists have their currency making money for them every hour of the day. Labor must trade time and effort for currency/money. This is why most Currency, Industry and Management Capitalists have more time in which to play than Labor Capitalists who exchange most or much of their time for currency. These Capitalists who have more time and money than other Capitalists are called, genereally, "The Rich".
TAXES
These are some reasons why The Rich Capitalists are admired and envied by the "Middle Class" Labor Capitalists. Middle Class Capitalists want Big Brother, the Government, to tax The Rich and transfer that money into services the Middle Class (and the Poor) benefit from. The middle class and the poor want The Rich to pay all the taxes that pay for all the government benefits, not understanding that it takes about $2.25 of taxes to pay for $1.00 worth of end result services. The Government is a very wasteful and expensive service provider, actually the worst in the world. This is not taught in public school.
Another thing the poor and middle class aren't taught in public school is that whenever The Rich discover their income is diminished by taxes they simply increase the costs of their currency capital so increased profits cover the increased cost of the taxes. Industry and Management also raise their prices to pay for the tax increases. The consumer pays the price of the increase and the Rich Capitalist gets repaid for the increased taxes. The Consumer who ALWAYS pays the final price on the product or service.
Every person is a consumer and there are FAR MORE middle class Labor consumers than Rich consumers who end up paying the higher prices with no reimbursement for the increase. 
Now the lesson is over.  The final step is 

THE QUIZ: 
 1.     IN WHICH CLASS ARE YOU? (check all that apply)
         [  ]   Currency Capitalist          [  ] The Rich Consumer
         [  ]   Labor Capitalist               [  ] The Middle Class Consumer
         [  ]   Earn over $250,000/yr     [  ] Earn under $250,000/year

         [  ]   Management Capitalist   [  ] Industry Capitalist
         [  ]   Pay more because of tax increases   
         [  ]   Pay the same with tax increases
         [  ]   Don't know whether I pay more or less because of tax increases
2.     DO THE EXTRA TAXES FROM THE GOVERNMENT APPLY TO YOU?
        [  ] YES    [  ]  NO
3.     DO YOU BUY ANYTHING FROM STORES, SHOPS OR THE INTERNET? 
        [  ] YES    [  ]  NO
4.     IF TAXES GO UP WILL THE TAXED PEOPLE TRY TO MAKE UP FOR THEIR LOSS? 
        [  ] YES    [  ]  NO 
5.     WHEN TAXES GO UP, WHAT WILL LIKELY HAPPEN TO PRICES OF PRODUCTS? 
       [  ] They'll likely go up   [  ] They'll likely go down   [  ] they'll likely stay the same

6.     IF PRICES GO UP BECAUSE OF INCREASED TAXES WHO GETS PAID BACK BY THE INCREASE?  (check all that apply)
        [  ] The Rich     [  ] The Taxed   [  ] The Consumer   [  ] The Middle Class/Poor   [   ] ME!!
      

7.     IF PRICES GO UP BECAUSE OF TAXES WHO ENDS UP PAYING  WITHOUT BEING PAID BACK? (check all that apply)
        [  ] The Rich     [  ] The Taxed   [  ] The Consumer  [  ] The Middle Class/Poor     [   ] ME!!
8.    DO YOU WANT INCREASED PRICES ON PRODUCTS?
       [  ]  YES     [  ] NO

9.    DO YOU WANT TO RAISE TAXES ON THE RICH? 
       [  ]  YES     [  ] NO
  
10.   WILL YOU VOTE FOR A POLITICIAN WHO PROMISES TO LOWER TAXES ON THE RICH?
      [  ]  YES     [  ] NO

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