Wednesday, December 29, 2010

Our Government Stuck it To Us Again


Our government likes to pull the wool over our eyes. We have what they call a "lame duck" Congress and they went ahead anyway to pass legislation that the incoming Congress would likely not agree with. Arrogance is the best word to describe those who are in charge of our government.

The country is divided into two groups. One group believes in Old English Law. They believe that everything came from the Crown and everything therefore is owned by the Crown except for that which the Crown decides to allow the subjects to keep. We derived much of our laws based on this concept.

The other group, as expected, believes in the exact opposite, mainly those things that are guaranteed to the citizens of the United States by the Constitution. For those of you who attended private school, let me lay out the two relevant provisions: Amendment IV and Amendment X.

Amendment IV (of the Bill of Rights) assured that we are all secured in our "persons, houses, papers, and effects, against unreasonable searches and seizures...." by the government.  Amendment X reserves all powers "not delegated to the United States by the Constitution... for the States and the people". In other words, the people have all powers and only those powers granted to the Federal Government by the Constitution can be exercised by the Federal Government.

Over the years, Congress slowly changed things by passing legislation granting them powers over the people which are not authorized by the Constitution. The EPA (Environmental Protection Agency) needs to give approval for everything anyone does and can make things so prohibitively expensive that projects cannot be economically viable. A good example is the Superferry. The ADA (Americans with Disabilities Act) can also be used by activists to shut down projects by making things so expensive that projects cannot turn a profit.

I could go on and on, but other than those who went to private school, most of you get the picture.

Before we examine the legislation extending the current tax rates, let's lay some facts on the table.

1. The top 1% of wage earners pay 41% of the income taxes.

2. The bottom 50% of wage earners pay 3% of the nation's income taxes and many don't pay anything at all.

3. The top 1% of wage earners make only 19% of the nation's income.

4. Many who pay no income tax actually get back money from the State and Federal Governments in what is called "refundable credits".

Let me further elaborate on #4 above. A single person with two young toddlers makes $20,000 in income. With various tax credits, low income rental credits, child care tax credits, etc., this person gets $4,500 from the State of Hawaii and another whopping $4,000 from the Federal Government. In addition, this person can qualify for Section 8 rental assistance, food stamps and other welfare programs costing thousands of additional dollars. This could be the equivalence of a $40,000 salary.

Let me state it another way. The tax credits are in addition to welfare benefits and is a direct payment to the recipient through their tax returns, bypassing the Social Services agencies. So the taxpayer pays for Social Services with higher taxes and for the direct tax credits through the person's tax returns. No wonder our governments are in a state of insolvency. We give a vote to those who not only pay no income tax, but get whopping refunds called "tax credits".

Thomas Jefferson once said, "Democracy will cease to exist when you take away from people who are willing to work and give to those who do not".

Now, let's look at the major provisions of the recently passed law that was signed by our President.

Dumb thing # 1. The tax rates were extended for only two years. It should've been made permanent. This is because most businesses plan for things in five and ten year projected increments. Two years will not motivate businesses and investors to expand if the rug is pulled from under them in two years.

Dumb thing #2. A credit was given to employees that is equal to 2% of their payroll. This is a reduction of the FICA (Social Security tax). Now, unless you went to private school, you would know that Social Security will soon be insolvent and there won't be money to pay future benefits. When they cut the "deposits" that were to fund Social Security, how will that increase the funds required to pay benefits? They have to make up for that shortage somewhere and I suspect it'll come from future tax increases, reduction in Social Security benefits or they will again print more money. Either way, our kupunas fall further behind.

Dumb thing # 3. The law also extended unemployment benefits for another 13 months. Stated another way, they are going to reward more people for not working. The cost of the benefits are passed on to the various states who in turn will pass that on to the various businesses in the form of unemployment taxes. Businesses are already faced with increased health care premiums for future employees and now they face even higher unemployment taxes. I don't see it as an incentive for businesses to hire more people. Better to buy goods produced by foreign workers and distribute those goods in the United States.

Dumb thing # 4. The Federal Estate tax was raised. Essentially, you get the first $5 million free in the form of a Unified Credit. But all assets over $5 million is taxed at 35%. This is a tax on your right to pass on assets (acquire with previously taxed dollars) to your heirs.

Let me assume that a business is worth $7 million. The owner suddenly dies. The IRS declares that the business is worth $10 million using the "capitalization of earnings method". The owner is not around to argue otherwise. Further, the value is based upon what the business was worth as a "going concern" with the owner still available to guide the company through profitability. The tax needs to be paid with cash within 9 months from the date of death.

The estate must sell assets in order to pay the IRS. The tax bill is $1.75 million. To raise that cash immediately, a forced sale of $3 million in assets is made. In all likelihood, the business would need to be liquidated and perhaps $5 million in assets needs to be sold at liquidation prices to acquire the $1.75 million in cash to pay the tax. Every employee is left without a job.

Note that I did not differentiate between Democrats and Republicans. Both Parties have members who believe that they're the elites of society and want a bigger government in order to use taxpayers' money to wield power. Essentially, it is the government against the people. I fear my government.

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