Wednesday, October 26, 2016

A Generous Governor

Those who analyze economies often overlook the powerful factor of private sector charity. An example of this significant variable is Rick Snyder, the governor of Michigan.

According to a Detroit Free Press report, he and his wife earned a bit more than $400,000 in the year 2015.

During that same year, they donated approximately $95,000 to charities. (This is the sum which went to true charities, i.e., not to professional organizations or political causes.)

By this reckoning, Snyder donated around 25% of his annual income.

For that same year, he paid approximately $31,189 in the form of income taxes. He paid many thousands more in sales tax, property tax, and other taxes.

By far, the greater impact was in the private sector, and this for three reasons: first, the actual dollar amount was greater; second, the private sector charities have lower overhead administrative costs than government programs; third, much government spending is counterproductive, i.e., it exacerbates the very problems it is designed to address.

Private sector charities have a greater, more efficient, and more effective impact than government spending.

Tuesday, October 25, 2016

The History of Taxation in the United States: An Unnecessary Evil

From the Han Dynasty in ancient China to the Roman Empire, people have demonstrated a strong antipathy toward taxation. Both government and taxes are necessary, but humanity is happiest when both are kept to an absolute minimum.

For several decades leading up to the 1770s, most of the grievances which caused the United States to declare itself independent of the British Empire were tax-related, from the quartering of soldiers to the Stamp Act to regulated imports.

After achieving independence, the U.S. government largely avoided taxing the citizens directly, as Steven Weisman, writing in the Washington Post, notes:

The American Revolution began as a protest against unfair taxation. In our early history, leaders avoided the question of income tax altogether, choosing instead to raise federal revenue with import tariffs.

One notable exception was a direct tax on distilled beverages, which led to the bloodless ‘Whiskey Rebellion’ of 1794. Although major violence was avoided, the rebellion demonstrated that U.S. citizens were strongly allergic to taxation.

The first income tax of note was imposed during the Civil War. Its top bracket levied as much as 10%, but approximately 90% of households were totally exempt, having incomes which fell below the lowest bracket. Weisman writes:

Since the federal income tax was introduced during the Civil War, U.S. citizens have complained about their taxes.

By 1872, the Civil War income tax was phased out. The people had tolerated the tax long enough to end the war, and pay war-related expenses in the first few years postbellum.

Public outcry against income taxes had grown by 1872, and in 1895, the Supreme Court ruled, in Pollock v. Farmers’ Loan and Trust Company, that income taxes were unconstitutional.

Less than two decades later, Woodrow Wilson and his ‘Progressivist’ movement would avoid both the Supreme Court’s decision and the popular vote, enacting an income tax of a much larger proportion than the short-lived Civil War tax.

Steven Weisman reports:

The income tax disappeared when the war ended. But it returned on the eve of World War I, enabling President Woodrow Wilson to raise the marginal income tax rate to 70 percent. Wilson called paying taxes a “glorious privilege” and a way for the businesses profiting from military buildup to give back. Sen. Hiram Johnson of California even attacked “the skin-deep dollar patriotism” of those who favored war but opposed taxes.

The citizens got a brief respite from the shocking tax burden during the Harding and Coolidge administrations. With the help of Congress, Coolidge brought Wilson's draconian 70% rate down to 25%.

The federal government, held hostage to ‘Progressive’ ideology savaged the citizens with income tax rates as high as 91% in peacetime and an astounding 94% during WW2.

The 94% rates applied during 1944 and 1945, and might be excused because of wartime urgency.

But a 92% top rate, during 1952 and 1953, was not justified by the Korean War, inasmuch as that conflict consumed a smaller segment of the total defense budget.

The long reign of the 91% rate, from 1946 to 1963, cannot be excused. It was this era which gave birth to creative accounting, tax shelters, loopholes, and offshore accounts.

For almost two decades, confiscatory rates were used against citizens. No war or natural disaster created a justifying urgency. The government was simply savaging its people.

It was only logical, therefore, that financial systems were developed to help citizens avoid as much income tax as they legally could. From this we have inherited both a large tax accounting industry and bullying IRS with its thousands of pages of Byzantine tax codes.