Tax Foundation: America one of the Most Stifling Countries, Hurts Economy

This is why we can’t have nice things:

-because the government takes them. The U.S.A. has practically the worst tax system in the industrialized world. According to the Wall Street Journal, the Tax Foundation has ranked the U.S.A. 32 out of 34 countries in terms of “competitiveness and neutrality” in tax laws. In fact of the two countries worse than the United States in their taxing policies, one of them, France, has an actual Socialist as President.

A competitive tax code is one that limits the taxation of businesses and investment. Since capital is mobile and businesses can choose where to invest, tax rates that are too high “drive investment elsewhere, leading to slower economic growth,” as the Tax Foundation puts it.

By neutrality the foundation means “a tax code that seeks to raise the most revenue with the fewest economic distortions. This means that it doesn’t favor consumption over saving, as happens with capital gains and dividends taxes, estate taxes, and high progressive income taxes. This also means no targeted tax breaks for businesses for specific business activities.” Crony capitalism that rewards the likes of green energy with lower tax bills while imposing higher bills on other firms is political arbitrage that misallocates capital and reduces economic growth.

But What about Sweden, Finland, and Norway with their Safety Nets and Universal Healthcare?

All those countries liberals talk about as being way better than the U.S. in terms of what “the government provides” for the citizens; yea they have better tax systems. You see, in those countries their tax systems do not seek to “punish the rich”, so they can collect more tax revenue, without discouraging business. This in no way negates other arguments about why it is bad to have centralized and socialized government programs, but it does however show that America is essentially immature in their taxing policies.

America has an almost 40% corporate tax rate, and a progressive income tax. This means people who earn more money pay not only a higher amount of money, but a higher percentage of their income to the government. It should be obvious why this limits growth, and gives incentive to move money to better tax regions outside of the United states. The poster children of socialized nations however—Sweden, Norway, Finland–do no “punish the rich”. They are far less likely to tax an estate when a person has died, or capital gains: money made from investment.

Keeping estate taxes at bay means people save more money, knowing they will be able to pass it on, leading to more capital for banks to give out housing loans for instance. And taxing investment income less means people are more likely to invest, since the reward is greater. That type of tax code therefore rewards saving, fiscal responsibility, and economic investment, while deterring frivolous spending through consumption taxes, like a higher sales tax. The rich still pay more if they spend more, but not just for simply earning the money.

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Newsflash: The U.S. is Corrupt

I know, we like to think of the U.S. as pretty good when it comes to governing. But the United States government uses its tax code to punish their “enemies” and reward their “friends”. This is crony capitalism: different companies and individuals play by different rules depending on who they know. Capital generally flows to the most successful prospective investment, but the government can change that by making one investment more risky, due to a higher tax burden. In turn, capital flows to companies who will not be as successful in general because they were chosen based on the tax breaks the government gives them, versus the quality of the product or service.

So here’s the recipe for a successful crony capitalist economy, where the government gets to pick the winners and the losers. 1) Set the corporate tax rate the highest in the world:

The accounting firm KPMG maintains a corporate tax table that includes more than 130 countries and only one has a higher overall corporate tax rate than the U.S. The United Arab Emirates’ 55% rate is an exception, however, because it usually applies only to foreign oil companies.

Check. 2) Now retain the ability to arbitrarily lower said tax rate on an individual basis, so that companies you favor have an economic advantage over companies who play by the rules you set. And there you have an economic dictatorship, or “Fascist” State. (Working definition of Fascism: Complete economic control by the government of a country; the system of government characterized by total control over the means of production, versus ownership of the means of production, as in Socialism).

But we could also take it one step forward and implement oppression over the proletariat using our high corporate taxes. You see, there is a misconception that somehow taxing businesses at a higher rate will be better for workers. This is absurd; if companies pay higher taxes this leaves less money for paying employees. While some of the difference is made up through higher prices for the consumer, workers’ pay also takes a hit.

Abundant economic research, by Kevin Hassett and Aparna Mathur among others, has shown that higher corporate taxes lead to lower wages.

Lower wages mean people must work longer hours, giving them less free time, and therefore a lower quality of life. But the cycle does not end there. Less free time means more dependence on government institutions to tell us which products are safe through the FDA, USDA, EPA, CFPB, etcetera, thus giving even more control to the government to pick the economic winners and losers. Diminished free time also means fewer people have the time to pay attention to politics, and must rely again on government controlled media to tell them who to vote for.

These are not the only factors, but some key economic methods used by government to control a population. Therefore based on the evidence, it would seem countries like Sweden, Norway, and Finland care less about controlling their population than the U.S., despite having arguably more socialist tendencies.

Wait, High Tax Rates Make Businesses Flee? Duh.

Here’s some statist logic: we continually raise taxes on businesses which burdens both the consumer and the business. The company cannot expand as quickly, nor hire as many employees due to the tax rate. When that company decides to move out of our tax jurisdiction in order to better provide for their customers, employees, and investors, we accuse them of being selfish, corrupt, and unpatriotic. Even though the money taken through taxes by force is often wasted, given to friends of the elite, used to benefit cronies, or spent on jobs and handouts to boost reelection chances of politicians, it is the companies who earned the money, and created the wealth who are the “greedy” ones.

I am talking of course about Burger King’s plan to move its base to Canada in order to take advantage of the 26% tax rate, instead of the 40% rate it pays in America. Hey, maybe they can afford to pay more than minimum wage with all the money they save? But that still wouldn’t make the state lovers happy. Unless businesses and people submit 100% to the government overlords, the state will demonize them.

Obama has called companies that engage in inversions “corporate deserters.” And Treasury Secretary Jack Lew has criticized the companies for failing to practice “economic patriotism.”

“I don’t care if it’s legal. It’s wrong,” Obama told a crowd last month.

But stealing 40% of the company’s wealth each year is not wrong? Why do we allow the government to posture as benevolent public servants, when it is so obviously not true. They are selfish thieves and public slave-masters. The government adds nothing of value to the economy, except by restricting private businesses from supplying particular consumer demands, at which point the government provides a worse product/ service for a higher cost.

The easiest examples of this are the post office, versus private shipping, or the failure of government backed green energy companies to produce alternative energy. The argument can also be made that government roads are more expensive and more shoddy than private roads, though the examples are few due to the government force exerted to complete the projects. And I would certainly argue that the police pose more of a danger to the public since they do not have to compete to deliver a better product for a lower price, as would be required in the private market.

But back to taxes: the Burger King Tim Hortons merger in Canada is one of these examples that leaves me exasperated saying “I feel like I’m taking crazy pills!” Warren Buffet is a main financial backer of BK’s move to a slightly less oppressive tax jurisdiction. Warren Buffet, you may recall, is the billionaire who inspired Obama to call for a minimum 30% tax rate on everyone earning $1 million per year or more… Because making a million dollars each year, and making a billion per year is like, the same thing, right?

But I don’t get it. What happened to the selfless Warren Buffet? Hasn’t he earned enough already? Why would he abandon funding the glorious U.S. government and all the philanthropic work it does? It seems Mr. Buffet understands quite well the detriments an excessive tax rate can have on business. Why would he advocate taxing millionaires more, when he himself will not pay higher taxes? Does he not think millionaire would likewise relocate to friendlier tax regions in the event that the government tried to rob them at a higher percentage than it robs most people?

You want businesses to stay in the USA? Repeal the 16th Amendment authorizing the income tax, abolish the IRS, and get rid of all corporate taxes. Defund the federal government, all the “good” they do is a myth. Let the states compete, and we will see what policies create economic opportunities, and which ones stifle growth by killing the individual freedom to keep the wealth you have created, and retain what is rightfully yours.

Gov. Bobby Jindal: Kill Income Tax to Grow Economy

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The Governor of Louisiana, Bobby Jindal, has called for the elimination of the state income tax and corporate tax, and an increase in the state’s sales tax to cover the reduced revenue. Finally, someone with sane economic policy! As I have argued in the past, any corporate taxes are in fact just more taxes on individuals (second section “Why Jobs Leave”), because corporations will not pay taxes–they will pass the cost on to the customers, or they will cut jobs and hours, or they will ship jobs over seas. Therefore reducing or eliminating the tax burden on corporations will preserve and increase available jobs, attract businesses to the state, and prevent businesses from leaving the state in search of lower taxes, and therefore reduced costs. Eliminating the corporate tax means more money will remain in the pockets of individuals to spend as they see fit.

Eliminating personal income taxes would also mean the prosperity of the state increases, causing the economy to grow. Demand is enabled by supply, meaning someone must first earn money, in order to spend it. Eliminating personal income tax means people are not discouraged from producing, but discouraged from consuming. This makes saving and investment more practical; saving and investment are what create capital to grow the economy and create jobs. If you have already paid taxes on income, then whatever you do with the money will not effect the amount you have to spend. But if you can avoid paying taxes by saving or investing, that is more likely to encourage those behaviors. It’s like the open bar effect, “well I’ve already paid taxes so I might as well spend the money and have fun”, versus, “well I don’t need to spend another 10 grand because then I’ll owe the government $1000”, or whatever the sales tax percentage is. Here’s what Governor Jindal had to say:

“Tax reform will remove administrative burdens from families and small businesses and improve Louisiana’s business prospects; create more business investment opportunities with increased job growth; and raise the state’s profile in national business rankings,” the statement continues.

“The bottom line is that for too long, Louisiana’s workers and small businesses have suffered from having a state tax structure that is too complex and that holds back economic prosperity. It’s time to change that so people can keep more of their own money and foster an environment where businesses want to invest and create good-paying jobs.”

The increased sales tax also encourages savings and investment, because taxes are paid based on the amount of consumption instead of being based on the amount of production. It also makes sure that “the rich pay their fair share”, because the more money someone spends, the more taxes they pay. By increasing the sales tax and decreasing the income tax, earning is encouraged, and spending is discouraged, leading to sounder fiscal policy.More investment and savings, and more skilled workers bring attracted to the state, to keep more of their hard earned money. Doctors, businessmen, teachers, laborers, and anyone who works will benefit, because they will keep more of what they produce. The less a person has confiscated from what he earns, the more he produces (because the incentive has increased), thereby growing the economy even more.

(A friend of mine who is a nurse was lamenting the fact that her paycheck barely differs between working 25 hours and 35 hours a week, because of the taxes taken out. If there was no income tax, she could work as many hours as she wanted, for the full reward of her time. Because of the tax system in Massachusetts however, she tends to work 25 hours, and forgo the extra ten hours of work, because the incentive, or reward, is not worth the time.)

Less debt is always a good thing, because credit is really taking future dollars to be earned, and spending them now. The economic set up which Gov. Jindal is advocating is more aligned with the truth that you cannot have demand, without supply. If no one worked, but we all got credit cards, there would be plenty of “demand”, but since no one works and produces, there would be no supply. Production must happen before consumption, which is why demand needs supply in order to function. So when the government says all we need is more spending, they are missing the crucial step of more production.

We should all hope for America’s sake that Governor Bobby Jindal is the next president of the United States. He has shown that he is interested in real economic improvement, and real solutions. He is not operating on passion, fear, or jealousy; Jindal is taking steps to increase the number and quality of jobs in his state, while attracting business, and discouraging excess spending. The simplification of the tax code would further free up resources, because it would remove more costs and burdens to doing business, and filing income taxes. If Jindal gets his proposal into law, I suspect I will be referring to the booming economy of Louisiana quite often, as an example of sane economic policy.