Greed, Envy, and Taxes

A guest post by Mickey Ellison:

 

We have all heard of the seven deadly sins. Wikipedia breaks them down simply. Wrath, greed, sloth (lazy), lust, pride, envy, and gluttony. We could spend hours discussing each of these, but for the purpose of this writing, we will focus on two: greed and envy.

In my opinion, the state and federal income tax is possibly the greatest hindrance to economic growth. To have this conversation, some of you will have to open your mind because envy will creep in to cloud your judgment. How many times have we heard that the rich should pay more and our way of doing that is through the income tax?

The US tax code is well over 70,000 pages in length, so forgive me if I don’t have everything perfect. Check this out! According to the Small Business Association, in 2012 small businesses made up about 99.7% of U.S. employer firms. That isn’t 99.7% of employees, but rather 99.7% of those that employ people. If I read that right, .3% of actual employer firms are large businesses. Yet, only 49.2% of employees work for small businesses which means 50.8% of the employees work for large firms. Now, let’s not get caught up in the numbers, but if you want more information on the statistics, visit this site.

This is where your mind must open. Small businesses with new innovative ideas can become a real threat to large businesses. How many of us that were alive in the 1980s would have ever thought Walmart could ever squash K-Mart? That was unthinkable, but fast-forward 30 years and that is exactly what happened.

Every large business we see out there like Walmart, GE, and Microsoft started out as small businesses. Sam Walton started the largest retailing company in the world in — of all places — Bentonville, Arkansas. Do you think K-Mart was worried about this hick in nowheres-Ville becoming a real threat? Of course not, but Sam Walton did become a major threat to K-Mart non the less.

Now, if I were a large business that didn’t want to become the next K-Mart, what could I do to prevent that from happening? One way would be to continue to get better at what you do, or another would be to influence laws that make it impossible for the next Walmart to even exist. Unfortunately we can see the choice that most make is using the power of government to protect them. Influencing politicians can possibly make it easier to squash the competition privately while appearing to be on the side of the little guy. I think a 70k page tax code is proof of that! Greed!

Those evil large companies that we love to hate, along with the help of politicians, prey on another of the seven deadly sins, envy. They can get the ignorant masses in such an uproar, that the companies’ greedy scheme can be pushed by the envy of those same masses, and do it all in under the idea of fairness. Seeing how this could work will take some understanding of the tax code, and hopefully you can see how the income tax can kill the entrepreneur that could eventually threaten the behemoth that we also love to hate.

Sowell

So, let’s dive in. The average American that is an employee understands the income tax differently that the average American small business owner. Let’s look at the average American tax payer. You get your paycheck from your employer, and you have had your state and federal taxes withheld for you by your employer based on how you filled out your W-4 form when you were hired. After those withholdings are taken out, the employer also withholds the amount that you are required to pay for your benefits and what you have chosen to contribute to a 401(k) if you have one. After all of that is done, you have your take home pay. Sometime between January and April 15th, you file your taxes with the IRS, and you are told how much you will receive in a refund or if you owe more. That’s pretty much the extent of it. Stop for a moment to thank your employer for mailing that check to the IRS and state to pay your taxes. It’s an ingenious system because most people really have no idea what they really pay in taxes since they personally do not have to write the check, but that isn’t the point of this post.

Now, let’s take a look at the average American small business owner. Most of them are not your CEO that we see on television, rather they are often our next door neighbors. People like the local plumber, the local hometown restaurant owner, and back in the day the local gas station owner. Many of them have no employees or often less than 10. How does their taxes work? First they must make a profit, and that isn’t a given, but let’s assume that they do. The example that I will use is a plumber that makes $100k a year as a sole proprietor and has no employees. My first question is how many of you know what a self-employment tax is? When you get your W-2 income, your employer withholds social security and Medicare and that adds up to about 7.5%, but did you know that your employer is required to match that? Do the math! That’s about 15%. The real number for 2014 will be 15.3%. If you own a business as a sole proprietor that is an immediate 15% off of the top of your income. On $100k, he/she owes $15,000 and we haven’t even gotten to income taxes yet. After paying the $15,000, there is $85,000 left to be taxed according to our progressive tax system. Below I will do the math on that:

$0-9075 is taxed at 10% and that equals $907.50
$9076-$36,900 is at 15% that equals $4,173.75
$36,900-$89,350 is at 25%. Since he only has $85,000 that is subject to income tax, the amount due is $12,025.

And, if you happen to live in a state that has an income tax, he has that to pay as well. For this example let’s use 5%. In many states it’s higher, but this works for the example.
On $85,000 that comes up to $4250. For those of you being technical now, I know you can write off the state taxes against your federal taxes, but play nicely.

Now let’s add them all together:
$15,000
$907.50
$4173.75
$12,025
$4250

________
$40,605.50 is your grand total, leaving him $59,394.50.

What would he do with that $40k if he could keep it? That’s anyone’s guess, but let’s look at some possibilities. First, he might simply spend it. Maybe he buys a car. Buying that car pays the salesperson a commission, the car lot makes a profit, and the manufacturer can make another car to replace that. They pay the assembly line worker, the mechanic, the company that produces the upholstery. The upholstery company makes a profit, and they have to employ someone to make the upholstery, but because $40k in taxes were withheld, none of this business takes place.

What if he hired another employee and paid them the 40k. The business may grow faster, creating more profit, and that results in more money being spent or maybe even another employee that could help the company grow even more. The employee will spend the money on something. Let’s say food at the supermarket, that can pay the cashier, the butcher, the baker, the truck driver, the packaging plant, the farmer, the seller of fertilizer, and the list goes on and on. None of this takes place because the government plundered the business owner for over 40% of his profits.

When income taxes are raised, these are the people that get hurt. Not Warren Buffett or Bill Gates! Not Walmart or Costco! What it does do is prevent some entrepreneur from creating something better than Walmart or at least makes it more difficult. In the end, the large companies are more likely to absorb these taxes by passing them on to the employees, but what really happens if the small business owner is priced right out of business. This discussion doesn’t even take into account the numerous regulations and rules that hinder economic growth.

If there is one thing to remember from this article, I would say think beyond the rhetoric of politicians and large mega-corporations. Think about the small business owner when you get caught up in the emotion that politicians use against us. The next time you or I complain about having to go to Walmart and we wonder where the local dime store went, hopefully you are starting to know now. Almost every new tax law or regulation will have the opposite effect than what is being sold. This is why the Walmarts can get larger, and this is why the too big to fail banks have gotten even bigger. The American dream of owning one’s own business will become a fantasy because we allowed greedy politicians and business men to cause us to commit one of the seven deadly sins, and that is ENVY.

by Mickey Ellison

A food mission and the economy

I wrote last year about a tour of a local “food mission” that I took and I went again this year. The organization is in Daytona Beach, Florida and is a church supported mission that helps to feed the poor and homeless.  The mission is a totally volunteer operation run by mostly retired folks that can donate time to keep the little operation open. They are able to serve about 500 families each month giving them food, toiletry items, and some clothing. I was with a tour group of supporters last week and we had a look around.

One of the leaders of the mission volunteer group gave a presentation to the various people who were there to see the operation. The speaker asked a group of middle school kids a very hard question, one that he claimed no one ever gets right till they hear the answer. He said that in Daytona Beach, Florida there are a some annual events such as the Daytona 500 or “Bike Week” that causes the population to explode to many times its normal size for the duration of the event. These events cause the number of people who line up for free food and items to drop. The number goes down as the population of the town goes up. Why? Why is it that during Speed Week, Bike Week, or the 500 the number of people who will line up on the sidewalk to wait their turn at free food goes down?

The man gave the young people countless attempts to guess the reason until he finally answered that during these huge events there is more work to be had than normal in town. Work for the unskilled. Work for the homeless. Work for the down and out. Work that these people can get! And they would much rather work than be fed free. They want to find work.

It is heart breaking to know that the U.S. government at all its levels uses its minimum wage laws, health insurance requirements, countless regulations, and so on to make a large percentage of America chronically unemployed. Everyone knows that the unemployment situation is very bad even if the official figures lie and understate the problem. Ludwig von Mises pointed out that in a totally laissez faire market there would be nearly no unemployment. There would be some people between jobs or some who were unable to work for various reasons, but any who wanted to work and were physically and mentally fit would be able to find work.

Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other. If government spending is financed by borrowing from the commercial banks, it means credit expansion and inflation. If in the course of such an inflation the rise in commodity prices exceeds the rise in nominal wage rates, unemployment will drop. But what makes unemployment shrink is precisely the fact that real wage rates are falling. ~ von Mises

Government intervention into the market place can never help the overall economy, it can only help the favored at the expense of the rest of us. But government can certainly hurt the economy. It can destroy the economy.

Concerning unemployment itself, it is the minimum wage laws and unemployment benefits programs, both supposedly designed to help workers, which directly lead to higher costs of employment and hence to higher joblessness and misery. Economists have known for generations that embracing those policies implies embracing many additional people being without jobs even as the favored are aided in some ways. The infuriating thing is that it is not a lack of work to be done but that it becomes too expensive to pay for the work to be done.

Lew Rockwell once gave a short list of barriers to employment:

  • The high minimum wage that knocks out the first several rungs from the bottom of the ladder;
  • The high payroll tax that robs employees and employers of resources;
  • The laws that threaten firms with lawsuits should the employee be fired;
  • The laws that established myriad conditions for hiring beyond the market-based condition that matters: can he or she get the job done?;
  • The unemployment subsidy in the form of phony insurance that pays people not to work;
  • The high cost of business start-ups in the form of taxes and mandates;
  • The mandated benefits that employers are forced to cough up for every new employee under certain conditions;
  • The withholding tax that prevents employers and employees from making their own deals;
  • The age restrictions that treat everyone under the age of 16 as useless;
  • The social security and income taxes that together devour nearly half of contract income;
  • The labor union laws that permit thugs to loot a firm and keep out workers who would love a chance to offer their wares for less.

That list by Rockwell is just a few of the government interventions that impoverish the people at the expense of the favored — the cronies of the powerful. If the government interventions on the above list were eliminated today we would see full employment. Not the fake “full employment” that government has claimed in times long past, but the situation where everyone who wanted a job could get a job.

It is time to end the welfare state and let people go to work. People naturally like to be useful and to voluntarily cooperate with others. It is time to again try the laissez fair system that built the Western world in the first place.

Lies about Laissez-faire

As the Western World seems to be spinning out of control financially, I keep reading in all sorts of places that “laissez-faire” economics has failed. What is up with that? I have not seen laissez-faire in my lifetime any place on the planet earth. Were do these people get this stuff? I read of one writer who even talked about the UK having a “laissez-faire” approach! My god, has someone re-defined the phrase and forgot to inform the public?

Here is one good definition of “laissez-faire”:

“Laissez-faire capitalism has a definite meaning, which is totally ignored, contradicted, and downright defiled by such statements as those quoted above. Laissez-faire capitalism is a politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual’s rights against the initiation of physical force. This protection applies to the initiation of physical force by other private individuals, by foreign governments, and, most importantly, by the individual’s own government.” ~ George Reisman

The reason that we keep hearing and reading “experts” claim that our troubles come from “laissez-faire” is that they want to destroy the credibility of having no government intervention into the market by way of using the failures of market-socialism and government intervention by fraudulently calling it “laissez-faire”. Under laissez-faire there is almost no role for government at all, and yet the modern western world from the USA to Greece has a command economy controlled by the various minions of the government. One can not even fix a person’s hair in America without a certificate of government approval!

Some have pointed out that the government in America is spending at least 40% of national income, but even that horrid figure does not tell the whole story. There are millions of federal, state, and local bureaucrats enforcing laws, making regulations, misusing laws and regs, and otherwise interfering with the voluntary private market to the point that the economy is crippled by their interference. There are thousands of federal, state, and local government agencies charged with making sure that citizens do not do anything voluntarily but rather follow commands from the government.

The Federal Register contains at least seventy-three thousand pages of detailed government regulations at the national level and this number increases by the day. The very idea of a Federal Register is incompatible with  laissez-faire capitalism, and don’t forget that the states and local governments pile regulations, bearing the force of law, on top of the Federal Register regulations. On top of all that, we have a central bank which destroys any hope of a market based money supply that would happen with a gold standard money system. We are truly closer to the system of a police state than to laissez-faire capitalism.

The mainstream press is just lying when they claim that there has been any failure of a “laissez-faire” system in the west. We have no such system and have not had anything close to it for at least a century and a half. The press and the “experts” always claim that it is laissez-faire that is causing the problems and they denounce it at every opportunity. And of course they call for ever more regulation of the population to cure the ills caused by the massive regulations that have really caused the sickness in the first place.

A new source for cheap, clean water

I saw this good news in a blog post. I was reading at a science blog and I was shocked to read about the following news reports of a new way to make water drinkable. I had missed this recent news article, from Reuters:

Pentagon weapons-maker finds method for cheap, clean water

(Reuters) – A defense contractor better known for building jet fighters and lethal missiles says it has found a way to slash the amount of energy needed to remove salt from seawater, potentially making it vastly cheaper to produce clean water at a time when scarcity has become a global security issue.

The process, officials and engineers at Lockheed Martin Corp say, would enable filter manufacturers to produce thin carbon membranes with regular holes about a nanometer in size that are large enough to allow water to pass through but small enough to block the molecules of salt in seawater. A nanometer is a billionth of a meter.

They make the filter out of graphene. I had never heard of the stuff. I bet most people have not.

“It’s 500 times thinner than the best filter on the market today and a thousand times stronger,” said John Stetson, the engineer who has been working on the idea. “The energy that’s required and the pressure that’s required to filter salt is approximately 100 times less.”

graphene

Humans are very creative and ingenious. Given cheap energy, we can meet our needs on any front. The need for clean, pure, drinkable water is one resource that has been in the news lately. All kinds of people have been hollering that we are “running out of water“. I even hear that on the news here in Florida which is a swamp from one end to the other, and we live on a big ball of water called the earth. Maybe some don’t know about the oceans because they don’t live near one like I do, but surely they have seen photos.

But potable water, ah, now there is the key. Potable water (drinking water) is needed to support life and to grow crops. If the southwest USA and northern Mexico had a nearly unlimited supply of clean water we could feed the world many times over. Think of it, we could pump sea water out of the Gulf of Mexico and desalt it, thus giving farmers all the water their little hearts and large crops could ever want. Cheap food? Now there is a problem I wish we had.

As proof of the possibility, look at what Israel has done with old style technology. They can clean up 5 gallons of sea water for one cent. That is 500 gallons for a dollar.

cost efficiency isreal desalinationFigure 2. Cost per cubic metre (black) for desalinated water around the world. I have added the cost per 100 US gallons in blue. The four outlined plants are in Israel.

Now it takes large amounts of energy to pump seawater though reverse osmosis filters and so we will still need relatively cheap energy. But with the graphene filters we might see an increase in efficiency of up to a factor of 100 times present methods. That would be up to 50,000 gallons for a dollar.

Since Israel is already desalinating 300,000,000 cubic meters of water per year now and is said to be building capacity to go to 600 million in a few years, we see that the new technology will make desalinating sea water even much more practical than it is now. Tampa Florida is using some seawater now as part of their water management plan. This graphene news can only be great news for everyone: but especially the poor of the world. The poor need clean water and this new advance can make it 100 times cheaper to provide it.

This news also reminds me of the people who keep saying that we are running out of water. That has never been true. We have shortages of pure, clean drinking water in places. We need to develop the technology to clean sea water to meet our needs. This is of course exactly what the new development of the graphene filters means for the reverse osmosis desalination of seawater plants.

But even with this breakthrough, it still takes energy to purify water and if the mindless fraud of “catastrophic man-made global warming” means we can’t use coal or gas then the cost of purified sea water will remain too high for the common man — and especially the poor. The cost of the water is a function of the cost of energy.

If energy is cheap then using endless seawater to turn the deserts green is practical and profitable. If energy is made ultra expensive by the so-called “fact” that CO2 is “poison” then the poor of the world will suffer greatly and many will die.

Collective blindness

I wrote a comment on a thread at the Guardian in response to a Glenn Greenwald post and my comment was about the fact that the average man does very little deep thinking about philosophy, economics, or ethics. I pointed out that the common man relies on the academics, intellectuals, and other opinion makers to do that for him. The State uses the opinion makers to keep the populous believing that the state is either “a good thing” or at least “an inevitable thing”. The common man does little deep thinking about things; especially ethics and economics. They don’t do as Thomas Sowell tells us to do — go beyond the seen to the unseen and then even past that to the consequences. An especially wise liberty lover responded to my comment with some words of his own and wrote about collectivists in general. I liked his thoughts and so I want to share some of them with you and add a couple of my own. I hope you gain something from this.

Communists, Socialists, Fascists, and collectivists in general possess a very selective immunity to the concepts of opportunity cost and unintended consequences, thanks to over a century of being inoculated with State propaganda. Propaganda starting in the public school and reinforced by TV, movies, and so on. The “right” pays lip service to opportunity cost when it comes to entitlement welfare, while of course completely disregarding it when it comes to corporate welfare. The “left”, of course, is the near mirror-image of the “right” as they scream about corporations and love individual handouts. Both sides want the government to rob Peter to pay Paul — they just differ on who Peter and Paul are.

I’ve yet to encounter hardly a single collectivist, right or left, here, at Salon.com, or elsewhere, who will acknowledge any downside whatsoever to any government intervention they prefer. So, when I observe that Glenn’s subject here is in fact a direct and inevitable unintended consequence of allowing the State to steal the citizens’ money and dole it out to academia, the collectivist response, if there be any at all, will be either evasion or the rhetorical equivalent of “huh?”, reflecting the intellectual dishonesty and ignorance that pervades political thought and discussion today.

This ubiquitous inability or unwillingness to even recognize, and therefore consider, even first principles, is an intellectual pathogen most of us are exposed to by State schools from an early age. Since by now most parents, and even grandparents, have been infected it is now an entrenched, self-reinforcing and self-perpetuating generational phenomenon.

It makes it nigh impossible to think rationally about the ramifications of one’s ideology and inevitably leads to the us vs. them, black and white, emotion-driven mentality that the State exploits so effectively to divide, rule, rob, manipulate and enslave us.

It is horrible that as we have gained in technological progress and have “educated” so many more of our citizens with many more years of schooling, we find that most are unable to use logic to analyze our situation. Very few have any principles that they could enumerate and explain to you. If they could choke out some supposed principle you would find them in violation of it often. The basic idea of “live and let live” or the non-aggression principle would not cross the mind of most of our people even as they supposedly honour the principles of the founders of the country.

So many of our people have been bought off by the state that it will take an extraordinary effort to convince them that the state is our worst enemy. Fortunately, even with the propaganda of the government schools, the young seem to be moved by the message of liberty and freedom. They give me hope that the ideology of collectivism will be beaten.

aa_live_and_let_live