Sunday, February 22, 2009

Taxing the Wealthiest Americans

Class warfare has a long history in our nation, and is often used by politicians to create things no one really wants. The 16h Amendment came out of just such a mistake. We really haven't slowed down much since then.

President Obama is facing a big problem with deficits, especially given the recently passed spending bill (entertainingly called the "Porkulus Bill" and the "Swindle Us Bill"). Predictably, he has the old solution ready: Let's soak the rich!

Most of us will immediately recognize we're not rich, and happily abandon the founding ideals of our nation to allow someone else to pay for the nation's expenses. However, there's a problem with that, and one most people may not be aware of.

The problem with the term "Wealthiest Americans" is that it doesn't just refer to people with massive incomes. It also hits small business. How? Many small businesses are corporations that have filed a Small Business Election with the IRS, meaning they're taxed as individuals. When you think of the income required for a small business to operate, it's significantly higher than an individual or household. That means if they are to be even minimally successful, most small businesses fall into the category of the "Wealthiest Americans" and are taxed as such.

If you're still not seeing a problem, take into account that according to the Small Business Administration, 60 to 80 percent of jobs since the 1990's have been created by small business. When you raise an individual's taxes, he or she will cut back in order to compensate. Small businesses do the same. How does a small business afford higher payments to the government? Usually, by making do with fewer hands to do the same jobs. In other words, they fire people.

One of the problems we're facing in our economy is that we sell to and buy from one another. We're a service economy now, producing very little. That means in order for you or me to succeed, we need a solid base of customers who are also employed. Once unemployment starts to rise, income to all of our businesses declines and soon more companies must fire people to stay solvent, creating a death spiral for the economy.

California has been pursuing this course for years, resulting in more than 140,000 established tax paying people leaving the state last year. With new tax increases this year, we can expect this to continue until, like Massachusetts, California faces a negative population emergency. Well, okay, with our sanctuary cities accepting in droves newcomers in need of public assistance, the state will probably not suffer a gross negative population change, but will very likely continue to see "revenue" (tax income) decline as those who can afford to do it leave for states with much more fair tax structures.

If you think people and companies can't or won't leave the United States for greener pastures, think again. It's already been happening, which is also part of our economic problems. There are still a few places where one can do business without constant government theft and intrusion. Many European countries have realized this and lowered their corporate taxes, attracting businesses from many other locations. Taxes on individuals are still high, but the corporations come to take advantage of a more favorable tax environment for business.

The key to maximizing income from taxes lies not in endlessly raising them, but creating an environment that encourages income-generating businesses to thrive. When growth is promoted, a lower tax rate can yield significantly higher income for government. Raising taxes too high strangles business and forces it to move elsewhere, depriving government of any tax income from departing enterprises.

In short, if you want to keep your job, the solution is not to soak the rich, but to insist on economic principles that actually work to create prosperity for everyone.

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