How Big Is Your Tax Refund?

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Here’s my secret when I am play-fighting with friends and family. I hold my left arm up and wave it around to distract my opponent so I can hit them with my right hand. It’s all fun and games. They know we are both goofing around.

Our government also distracts many of us who are unwary by getting us to focus on our tax refund at tax time. Many citizens gaze gleefully at their refunds without focusing on how hard they were just hit by the taxes they actually paid.

It makes me wonder about how many people think their government is giving them money? Many of these people have been fooled into thinking that when they receive their own money back, money they actually overpaid, that their government is benevolently rewarding them. In this case the distraction tactic has paid off. When people are happy getting their own money back and not focused on how much they have actually paid, it’s a Win/Win situation for the government. But you lose.

On the other hand, were you aware that some people don’t pay any taxes at all and get a refund? This is true. My understanding is that this is primarily due to child tax credits as part of the Earned Income Tax Credit. I personally know people in this category. They file their taxes without paying a dime and get a refund! Their refund comes out of your pocket. You have to feel good about that, don’t you? I don’t. My wife and I are very charitable so I would prefer to keep as much of our money as possible so that we can choose and monitor those who receive our donations.

Our government representatives have another great way of distracting us. A way of waving their left hand about while hoping to punch us in the face. Many representatives focus on the BIG BAD CORPORATIONS. Corporations have it made our representatives claim. They make more money than they know what to do with and don’t pay taxes. Or pay very little in taxes. However it is presented, corporations are evil for using the tax breaks legally offered to them by our tax code. Legal tax breaks that are part of our extremely complicated tax laws.

I’ve been doing my own tax returns for over 30 years now. I remember long ago reading some statement that said a 9th grader should be able to fill out and submit a tax return in around 2 hours. I may have the age specifics wrong, but I never believed this statement to be true. Why? Because taxes have always been too damn complicated! And who do you go to for advice, the IRS or a tax consultant? Good luck with that my friends.

Anyway, I do my own tax return for a few reasons. One is because I am frugal and I have never understood those who packed up their own receipts and took them to a professional to do the entry work. Another reason I do my own taxes is so I know what to expect in order to prepare for my next year’s taxes. I began my years of tax preparation by doing them with a pencil and paper forms that I collected from the post office or libraries. It was hard work reading all of the directions and making the right choices. For the past 20 years or more, I have purchased tax software and muddled through it hoping I make the right choices and receive all of MY money back that I deserve to get back. It’s not easy and it takes much more time than just a couple of hours.

There may be some of you reading this that are saying the same thing that I have had other’s tell me every year. “Delbert, that is why I take my taxes to my tax professional. For a fee, my tax professional gets me a better return than I have ever gotten on my own.”

Now the distraction has come full circle. It’s tax time and we are all focused on hoping we get a return and if so we hope we get a good ‘un. We’ve been trained to respond this way year after year. And the political leaders laugh all the way to the bank. They are thrilled that we are not focused on the amount of taxes we actually pay. They are thrilled that we get upset at Big Bad Cooperations. They are thrilled that low income and no income earners not only don’t pay taxes, but get a tax return. They are thrilled that we don’t take a step back and ask why our tax laws are so complicated. They are thrilled that no one seems to question why they have to buy software or pay a professional. They are thrilled because this ensures the longevity of their political careers.

Career politicians don’t want you to be thinking of a Fair Tax. No way would they want a flat tax. Could you imagine if there was a flat tax? Then everyone would have some skin in the game. Even poor people may start paying attention to the taxing and spending habits of their representatives. Corporations would no longer be the politician’s scapegoat.

If there is one thing I wish everyone would do this tax season, that would be to focus on the amount of taxes they are paying. I would want everyone to realize that their tax refund was their money. Money that the government could not figure out how to keep this year. The same government leaders are hoping for better luck next year.

I would hope that everyone would realize that these representatives work for us and that we need to work as hard to keep them from taking our money needlessly as we do to earn our money in the first place. The 2014 elections are a good time to hold those who play this game of distraction accountable by replacing them with conservative minded leaders.

What is Wealth, really, and why is the Left so Obsessed with Taking It from You?

The Left would have us believe there is only a finite amount of wealth and that wealth is tied directly to the monetary supply of the world. This is, of course, entirely false, but it is critical for Conservatives to be able to understand what this argument means, and how to disarm it.

The distinction between wealth and money is subtle, but it is clear. Wealth is the accumulation of material and immaterial things of value within a societal construct. Money is a system through which a currency is used, in varying values, to be bartered with in order to obtain items associated with wealth. Money in and of itself can be an item of wealth, and the accumulation of it is generally accepted as a means of measuring the wealth of an individual within a societal construct.

Human beings have an inescapable compulsion to measure everything around them. We are unable to ignore that there are those with more wealth and those with less. We’re also involuntarily predisposed to compare one another to the whole of society, and individuals against other individuals. These measurements create divisions within a society. Divisions create a basis for jealousy, and when jealousy is allowed to fester these divisions create fissures that can demoralize and destabilize regions, markets, and eventually the entire economic system of a society.

These fissures are why the Left wins the argument when posing these sorts of  notions to their Low Information Voters. The idea that wealth and the monetary supply aren’t directly tied to each other, and that the monetary supply can be increased without action from the Government is often too complex a concept to be grasped by those who are easily sated by handout legislation or promises thereof. Its easy to coerce someone into believing there is only a given amount of money in the world, and that the rich have so much of it that the poor will never be able to rise above their situation to claim their share because the class warfare concept incites jealousy against those who have more than another. This is the core premise behind wealth distributive socialism; the rich will never give up their share of the wealth so as to allow the poor to prosper, so Government must take that wealth from the rich and distribute it evenly to the poor. The Left will never concede that the rich gained their wealth through the creation of wealth which didn’t exist before they became successful; allowing for the idea that wealth can be created independently of Government interaction (i.e.: the printing of money or the regulation of markets) destroys the entire belief system the Left would have their voting base subscribe to. Their premise is that that any accumulated wealth was stolen from the whole of society at the time the wealthy became successful, and that their (the Left) just and righteous leadership is the only means of ensuring the playing field is level again.

Another point to make is that the Left sees and portrays the world in terms of “fair share”. This is a fallacy as well, as it implies that there is only so much energy that an individual can expend to influence their livelihood, and since there are those who have taken more than their fair share of that energy from the system the only just and right thing for them to do is give back what they don’t use. Success isn’t directly tied to the value of the possessions and/or wealth one consumes throughout their lives. Instead, mistakenly, wealth is directly associated with material accumulation above and beyond what is necessary for a “middle class” family to survive. Note, I didn’t say “thrive”, but to simply survive. The “middle class” is generally defined as those working class individuals who, through the progression of their working lives, have been able to develop enough personal purchasing power that they are able to take time away from work in order to enjoy that purchasing power. Simply put, if you are not living from paycheck to paycheck, forever tied to an occupation, regardless of its fulfillment and enrichment of your life, and you can take time off without a penalty to your quality of life, you are considered “middle class”. This creates a general societal hatred from those who haven’t been able to leverage their labor output into a career that supports an ability for the pursuit of leisure toward those who have, and even more so, toward those who have leveraged their careers into something more lucrative than a “middle class” existence.

Class warfare is something we, as Conservatives, are generally unable to defend ourselves against. Conservatism typically doesn’t recognize class warfare as a relevant argument when discussing economics because, in the economic systems we support, there are no barriers to upward mobility for those who find themselves at the relative bottom of the economic food chain, as it were, nor are there barriers to failure for those who find themselves at the top. The CEO of Apple today can find themselves unable to pay their mortgage due to failures on their part next month in a truly Free Market Capitalistic economy, the same as the janitor the Apple CEO used to employ could find themselves the CEO of their own billion dollar corporation as time progresses.

The Left has utilized the instruments of Government to reward their friends and punish their enemies. The primary tool is the Progressive Tax Code, which is specifically designed to levy a heavier tax burden on those whose incomes are above certain benchmarks. The argument supporting this type of system is “the rich have enough money, so they are better able to afford to pay their fair share of the Government’s obligations.” That sounds all well and good, unless you’re wealthy. Then it sounds like you’ve been singled out for your success, which is what has generated the money you have access to. According to the Left, if you make more you can afford more, so you should pay more. This ignores barriers that your income creates should you choose to attempt to access many of the Government social safety net systems that your wealth is being confiscated in order to fund. As a wealthy individual, your income taxes are all that the Left are interested in. Your access to means tested wealth redistribution programs designed solely to support those without your means is irrelevant, regardless of the language used to motivate the voting base to cast ballots that condemn you to a lifetime of supporting systems that do not support you.

Jealousy is such a strong emotion. The Left is able to show the stark disparity between the haves and the have-nots by creating a rift between their definition of the socioeconomic lower class and the classes they’ve designated above the poor, thus winning the argument. All the while they’ll hide the truth about what wealth creation really means, because to allow for their Low Information Voter base to understand the true power they hold is to risk the possibility of those voters realizing they do not need to support the Dependency State. The Left’s goal isn’t to tell the truth about how wealth is created, but to mislead the Low Information Voter into conceding their individual rights to the greater whole in return for a promise of normalcy and equality.

Why don’t we Link Spending and Revenue

Google Plus user +Paul Clayton Smith asked a fundamental question yesterday, which I’ll paraphrase here: “Are the dollar figures we see coming out of Washington DC taking into account the nature of the wealthy to avoid taxes, or do the assumptions of revenue gained by tax take into account only present day figures of GDP, incomes, taxes and other inputs into the economy?”

Budget
The question is key because to understand the way politicians and the Beltway play with our money is to understand the fundamental disconnect between the amount of that money they take from us and how much they spend on things that benefit only portions of society. For instance, the current “budget” for the Federal Government is over $3.79T, while current revenues only make up around $2.47T. Simple math would indicate the nearly $1.32T in deficit spending the Government takes out of hide based on these numbers. With all the talk in DC about the deficit and how it is a potentially crippling black hole that must be dealt with at some point, one would think that meant there should be a mechanism that would force Congress to keep spending to within a manageable range compared to revenue, but if you take our current “budget” numbers into consideration you’d find there isn’t much in a way of a link between taxes and spending at all.

What is the problem?
Why should there be a correlation between spending and revenue? What difference does it make whether or not the Federal Government balances its budget? Can’t the Treasury just print the money it doesn’t have to make up the difference, or borrow against the credit of the United States in order to keep the bills paid?

Technically, the Federal Government can’t ever “run out of money”. The Treasury can simply print every dollar that is required to fund the Government above and beyond tax revenues, or the Federal Reserve can borrow the money. Many Liberals believe this is acceptable as a course of action, and in fact, a combination of printing and borrowing has been the make-up of over $0.40 of every dollar the US Government has spent for the majority of the last four years.

Printing devalues the currency because it increases supply when there is not a corresponding increase in demand. Demand, in this case, is the productivity of the economy creating money out of products and services. The US Government requiring funding to accomplish its agenda doesn’t constitute demand for the dollar because there is no corresponding product or service created by the Government when the money is created.

Borrowing is expensive, and, if uncontrolled, as it has been for decades, can put the Government in a situation where its interest liability is so high that the revenues brought in by taxes are not enough to cover both spending goals and the mandatory servicing of the debt. Servicing the debt is the primary concern in every budget because to default is to damage the full faith and credit of the US Government on the world stage. If we don’t pay our bills no one will want to continue lending to us. What we’ve done, though, instead of paying our bills, is effectively taking out a loan to pay down only the interest on another loan. This is not a sustainable track.

Whats the solution?
We borrow and print over half the value of revenues into the Treasury every year (in the present budget model, which isn’t actually a budget, but a continuing resolution). In order to solve the fiscal problems the Government has this funding activity must be reversed. Currently the budget is set up so that safety net entitlement programs like Social Security and Medicare/Medicaid, which politicians have convinced voters are the Government’s responsibility, are considered mandatory spending. Items the Federal Government is actually Constitutionally charged with providing for its citizenry, for example, a strong defense, are considered discretionary spending. In order to reverse the overspending we’ve seen over the course of the last several decades there must be a concerted effort by all in Washington DC to stop spending more money than the Government can generate in tax revenue. To do this our politicians must come to terms with what the Government is required to provide for its citizenry and what it can afford to provide for its citizenry.

Why not just raise taxes?
Over the course of our Nation’s history there have been attempts in both local and Federal Government to increase revenues through higher taxation as a means of reducing deficit spending. The idea is that the increased taxes will bring more money into the coffers, and the spending can continue at its present rate, unabated. One major problem with tax rate increases is that the individual is free to make choices that will impact the overall revenue generated by the increased taxes. A prime example of this is the exodus of wealthy individuals from California following the recently passed Proposition 30 tax increases. The State decided to increase income tax rates for individuals with incomes over $250k/yr, up one percent to 10.3% (the increase is retroactive all the way back to January, 2012, due in April, 2013), while those making over $1M/yr will see their tax rates increase to 13.3% (again, retroactive to January 1st, 2012). These tax increases on the wealthiest in the state have made many consider taking action that will reduce or eliminate their tax liability in this regard. There are also considerations that need to be taken into account in terms of property taxes and other, locally generated government revenues, which are not able to be voted on directly by the citizens under the local government.

Human beings will all avoid pain, given the opportunity to do so and no motivations to do otherwise. As noted in the linked article, the financial planner being interviewed commented that until the tax rates reset down in seven years he will make sure his clients incomes are less than $1M/yr. Those who can shelter their incomes from the tax man will do so. Those who cannot may have no choice but to leave the state.

What about at the Federal level? The Federal Government has a captive audience when it comes to tax increases because its much more difficult to simply leave the country to avoid taxes than it is for Californians to go to South Dakota or Texas, right?

Well, when taxes, an inversely proportional input into the overall economy, are increased, overall economic growth decreases. This stems from the fact that when an individual or entity is forced into a liability that is payable before their income is realized that liability is taken into account when the individual or entity budgets their remaining income for a period of spending. For the micro scale, simply put, if the tax man takes X from individual Y based on income Z, net income Zn is the remaining spending power of the entity. If X is increased there is an inversely proportional decrease in Zn.

For the macro scale, when the economy sees a collective decrease in Zn, across all entities and individuals, the entire economy stalls. Since taxes are a function of a percentage of the Nation’s GDP, if GDP growth stalls so does tax revenue.

Conversely, when taxes are decreased, Zn increases, causing entities to purchase more, which causes producers to produce more, sell more, and the engine runs faster. When the engine runs faster tax revenue increases because the overall number of entities with tax liabilities increases along with GDP. As indicated before, tax rates being a function of a percentage of the Nation’s GDP, when GDP grows quickly Federal revenues grow quickly.

Coupling lower taxes with decreased spending will solve our Nation’s fiscal problems. The path to this lies in
the hands of the politicians we vote for. They won’t do it on their own, though. Once most politicians find themselves enjoying life in the Beltway they learn quickly that they need only give their constituents gifts from the public trust in order to continue their employment. Every dollar they earmark or bring home to their district is a dollar spent by the Federal Government on something that benefits a few, but is paid for by everyone.

To claw our way back from the brink of fiscal collapse we Americans must hold our elected officials accountable for not only their responsibilities to their constituents, but also their responsibilities in being proper stewards of the public trust. Until this happens, we’re going to repeat recent history every year until it is no longer sustainable to do so. Once it is no longer sustainable, we will find out very quickly what government services are luxuries and what services are necessary. We’ll also find out very quickly how to live with neither.

The Truth About Taxes

While all the wrangling in Washington about tax rates is important to our wallets, when it comes to government revenues, it is absolutely meaningless.

The fact is, our tax code has become less about raising revenue and more about buying votes, creating class tensions, and control over the lives and behaviors of US citizens.

As far as the federal government is concerned, it doesn’t matter what the tax rates are, nor does it matter how much money comes into the treasury. Congress will spend every single dime of it. And when our tax dollars inevitably run out before the year does, they will borrow or print more money and keep on spending.

Keep that in mind as our fearless leaders debate over the upcoming Fiscal Cliff.

(“Fiscal cliff.” I hate that phrase. This is no cliff…we’ve been flirting with the edge of the abyss for years. We’re just closer to it now, our president says, “Forward,” and the only response from House leadership is, “How fast?”)