Category Archives: Taxation

Cut Withholding To Create Libertarians

Tonight, the wife and I were working out our taxes using TurboTax. Our taxes aren’t very complex, so I don’t feel the need to employ too much help to understand the byzantine tax code we live under.

Well, I am usually not very good at saving money for rainy days, so I tend to manage my finances to ensure a refund at the end of the year. I still check each time to see how much ends up getting paid to the government. This year, adding in the employer contribution to SS and Medicare, it works out to a pretty sizable 5-figure number. Now, I’m not a rich man. While I make a pretty decent income, my net worth is barely positive. Yet I pay taxes like a rich man, and it makes me angry every year.

My wife, on the other hand, doesn’t have the same level of anger. She looks at our refund (about $2K this year), and thinks “oh well, at least we didn’t have to pay!” We’re planning a trip to Mexico, and she sees this refund as the quick and easy way to pay for the trip. We get $2K back on a total payment of $25K+, and she’s happy about it.

So here’s an idea for all of you readers, or at least those who are married folks who don’t have spouses of libertarian bent. Start claiming too many dependents on your W-4. Work it out so you owe every year. It won’t take long before your spouse is complaining about taxes, when he/she is scrambling to find $2K instead of trying to figure out how to spend the $2K the benevolent government is sending you.

Should Capitalists Be Added to the Endangered Species List?

“Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.”- Ronald Reagan

These days, it seems as though capitalism is under relentless attack. We hear almost daily the demagoguery of such terms as “economic inequality,” “the income gap,” “price gouging,” “obscene profits.” Just yesterday the Senate overwhelmingly passed an increase in “the living wage” for “the working class.” On any given day, politicians use this language to show how much they “care” about us poor working stiffs and lament the rewards for high achievers.

John Edwards likes to give his “Two Americas” speech to illustrate how unfair it is that some Americans, through hard work, investing, perseverance, and making difficult choices, make disproportionately more than those who make poor choices and underachieve. Hillary Clinton wants to take the profits away from “BIG OIL” and “invest” in government programs to find more efficient, cleaner, and less expensive alternative energy sources. Never mind that government has been investing in such programs for decades with very little return.

Capitalism has always had its adversaries but where are its defenders? They are not in the halls of congress and certainly not in the Oval Office. President Bush, ever the “compassionate” conservative chastised business leaders for “overpaying” executives. Meanwhile, only three Republican Senators (no Democrats) voted against raising the minimum wage. With all this angst against profit makers, it’s only a matter of time before these same politicians will want to impose a “maximum wage” with higher “windfall profits” taxes or by some other means.

Where are the Republicans who stand for small government? Where are the disciples of Ronald ReAgan, Milton Friedman, and Ayn Rand? Is it time to put capitalists on the endangered species list?

Maybe, maybe not.

Wayne Dunn writing for Capitalism Magazine seems to believe that this type of anger towards achievement is as old as time. In Dunn’s article “An Open Letter to Businesspeople” he writes about how its time for the achievers to stop apologizing to the low achievers for being successful.

Throughout history, those of you who actually invent the things the rest of us use, who create the jobs the rest of us need, who produce the goods the rest of us merely purchase, haven’t been awarded even so much as a shred of recognition from traditional moral codes. Instead you are maligned as “materialists,” condemned as “profit-chasers,” reviled as “ruthless,” vilified as “greedy,” disparaged as “worldly.” They who couldn’t create a match stick or run a dog pound sneer at you who create microchips and run factories.

But when the castigators need money, or a labor-saving device, or a bridge built, or a building erected, or a disease cured, to whom do they run? They who renounce “this world” rely on you who do not. They who scorn “mere” human achievement depend on you who achieve. They who repudiate money bank on you who earn it. They who proclaim that the mind is impotent benefit from minds that are not.

It’s high time that we who believe in capitalism stand up and extol its superior values and support those who will do the same if we do not want to see our free market system go the way of the dinosaurs.

Rich Atlanta Towns vs. Robin Hood

In Atlanta, there’s been a fight brewing for some time. Fulton County consists of some of the poorest parts of the city, and some of the richest. For decades, the political calculus in Fulton County ensured that those poor sections had the voting power, and thus the richer sections found themselves getting eaten alive by taxes to pay for services benefitting other parts of the city, while their own infrastructure was ignored by Fulton County’s government.

Fulton County, Sandy Springs (red)
The area known as Sandy Springs (pictured to the right), a very wealthy area that was an unincorporated portion of Atlanta, brought the issue to a head in 2005 when they voted to incorporate. Sick of seeing their tax dollars squandered on vote-buying programs in South Fulton, they decided they could do better on their own.

Now the issue has blown up again. If you look at the map of Fulton County, you can see that it doesn’t make any sort of geographic sense. Nor is there any sort of demographic cohesion, as the North Fulton area is full of rich towns like Alpharetta, Roswell, and Sandy Springs, while South Fulton includes some of the poorest areas of the city. The North Fulton folks have history on their side as well, as they were previously known as Milton County, which was absorbed into Fulton during the Great Depression.

But while the incorporation of Sandy Springs caused a small uproar, the recent secession movement of North Fulton has created a firestorm.

A potentially explosive dispute in the City Too Busy to Hate is taking shape over a proposal to break Fulton County in two and split off Atlanta’s predominantly white, affluent suburbs to the north from some of the metropolitan area’s poorest, black neighborhoods.

Legislation that would allow the suburbs to form their own county, to be called Milton County, was introduced by members of the Georgia Legislature’s Republican majority earlier this month.

Supporters say it is a quest for more responsive government in a county with a population greater than that of six states. Opponents say the measure is racially motivated and will pit white against black, rich against poor.

“If it gets to the floor, there will be blood on the walls,” warned state Sen. Vincent Fort, an Atlanta Democrat and member of the Legislative Black Caucus who bitterly opposes the plan. Fort added: “As much as you would like to think it’s not racial, it’s difficult to draw any other conclusion.”

“Blood on the walls”?

There’s a reason why it’s easy for opponents to couch this in racial terms. It’s their only hope. The truth is far more hostile to their ends. In reality, they’ve been plundering North Fulton county for decades, spending the money in South Fulton, and ignoring the concerns of North Fulton. The numbers prove it:

Residents of north Fulton represent 29 percent of the county’s population of 915,000 but pay 42 percent of its property taxes, according to a local taxpayers group.

Now, for some people in North Fulton, race may play a part of it. It’s certainly true that the racial makeup of the two halves of the county are opposite. But it’s also true that when you’re getting mugged, you don’t care what race the mugger is. This is a lot more about money than it is about race. The people of North Fulton county want a responsive government, and want to benefit from the fruits of their labor. They don’t have either of those now, and the strange geography and history of Fulton County give them an easy option to get out.

Vincent Fort worries that this will hurt Atlanta’s reputation as a “progressive” city. I’d say it might help the reputation of the Atlanta metro area as a place where residents can actually opt out of Atlanta’s failing “progressive” government, and that’s something I’m always in favor of.

Hat Tip: The Pubcrawler

Texas Raises Taxes, Creates A Black Market

At the beginning of the year, Texas increased taxes on cigarettes by $ 1.00 per pack. Now it appears that the tax increase has helped fuel a black market in cigarettes ?

Now that Texans have to shell out $1 more to the tax man for a pack of smokes, many may look elsewhere for their fix. Like “under the counter” of some neighborhood corner stores or smoke shop, authorities say.The tax increase, which took effect at the beginning of January, means the tax on a package of cigarettes is now $1.41 — pushing the average overall price to almost $5 per pack.

Authorities predict the price increase may be followed by an increase in black-market cigarettes in the state.

Just how much of an increase isn’t known because no agency could provide statistics.

Officials acknowledge they’ve seen black-market smokes hit the streets even when Texas’ tax rate was among the lowest in the country. Before January, the state’s most recent cigarette tax increase — from 26 cents to 41 cents — was in 1990.

Of course, black markets like this don’t just exist in Texas, they’re a worldwide enterprise:

Julie Myers, assistant secretary of U.S. Immigration and Customs Enforcement, told a congressional committee in July that international and domestic rings are lured to cigarette smuggling and the low risk of prosecution.

“International cigarette smuggling has become a lucrative criminal enterprise, resulting in the annual loss of billions of dollars in tax revenue and customs duties around the world,” Myers testified. “While the extent of cigarette smuggling in the United States is unknown, it is ICE’s formal assessment that the volume of this illegal trade is significant.”

The lesson seems pretty clear. Increase taxes on a product that people want to buy and some of them, maybe not everyone but enough to make it worth the while of people willing to break the law to make money, will find ways to buy the product without paying the taxes.

In other words, increasing excise taxes creates incentives that can lead to other forms of criminal behavior.

H/T: Radley Balko

How About A Charity Tax Credit?

I was thinking about this yesterday. Our elected officials love to use money to help the “less fortunate”. They are either “compassionate conservatives” or “progressive”, both of which believe that rich people’s money should be redistributed to poor people.

So how much hypocrisy can we point out if we suggest that in addition to excluding charitable giving from taxable income, we also offer a 25% tax credit for it?

Think of it this way. Let’s assume that the only deduction allowed by law is for charitable giving, and $100,000 of income is in a 30% tax bracket, while $30,000 income is in a 10% tax bracket.

So the guy with the $100K income, assuming no charitable giving, owes $30K in taxes to the government. If he gives $10K to a charity, his taxable income drops to $90K, making his tax bill $27K. Obviously he hasn’t come out “ahead” on the deal, because he’s given $10K to save $3K in taxes.

The guy with $30K owes $3K in taxes. Likewise, the $30K person decides to tithe 10% to his church, or $3K. In doing so, he saves $300, so his tax bill is $2700 instead. Again, he hasn’t come out ahead, because he’s given $3K to save $300.

However, because the richer person is in a higher tax bracket, he gets a greater tax reduction per dollar donated than a poorer person. He reduced his taxes by 30% per dollar he donates, while the poorer person only reduces his taxes by 10% per dollar. What if we added a 25% tax credit (on top of the exclusion of donations from taxable income), in order to help spur on charitable giving? (Note, I’d make the tax credit only apply until you get to $0 taxes paid, not allow you to get a refund for taxes never paid).

So in the first scenario, the rich person donates $10K and thus reduces his tax burden by $5500. Again, he’s still not coming out ahead, but instead of owing $27K in taxes, he owes $24,500. Essentially, by adding a tax credit, he gets a benefit as if he had donated a little over $19K. So from a tax perspective, it’s like slightly less than doubling his donation.

In the second scenario, though, the person who donates $3K reduces his tax burden by $1050, making his final tax burden $1950 instead of $2700. Again, he hasn’t come out ahead, because he donated $3000 to save $1050. But his $3K donation has the same effect on his tax burden as if he had donated $10,500, making the effect on his tax burden of more than tripling his donation.

To make a change like this encourages charitable giving, while giving lower income people greater tax reduction per dollar donated than higher income people. To elected officials who like to play God with our paychecks, while “helping the poor”, this would make a lot of sense.

If our elected officials really wanted to encourage charitable giving, which many of us outside of Congress would argue is much more effective at helping people than letting government have the money, we could get a lot of people in Congress to sign on to this proposal. However, I doubt it will happen. I think our elected officials believe that all money for good purposes should flow through Congress, and the idea of interrupting their own revenue stream in favor of private charity goes against everything they stand for. After all, they’re more interested in power and control than results, as we’ve seen from pretty much every government program ever designed.
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