The Evil of Income Taxes


When America was founded, there were no income taxes – just taxes on goods and on trade.  It wasn’t until about 150 years after the country’s founding, there was no income tax.  And there is a good reason for it.

Have you ever really thought about income taxes, and what a country is doing by imposing an income tax?  Most other taxes involve doing something.  You want to buy something, so you pay a tax when you make the purchase.  The tax helps fund the protections that allowed that marketplace to function.  You want to travel somewhere, so you pay a tax when you make the trip.  The taxes help cover the cost of the roads and protections along the route.  In both cases you want something that involves help from the government and use of government services.

With an income tax, you really aren’t doing anything or asking anything from anyone.  All you are doing is producing things.  And you have not even necessarily gotten anything for the items you produced yet – you just have a bunch of IOU’s that will allow you to purchase things later.  People just come to your home (symbolically, unless you don’t pay your taxes), see that you have produced something, and demand that you give up a share of what you have made.

Imagine if you had spent all summer growing corn.  In the Spring you dig up the ground and get everything ready.  You plant the seeds and spread fertilizer out.  All summer long you water, pull weeds, and chase off crows.  Finally, in the fall, you spend hot afternoons and evenings picking the corn and storing it away, until your barn or silo is full.

Then someone comes along and says, “You owe me 15% of that corn.”

Now I’ll agree that part of your money goes towards things that government provides that enable you to make an income.  The government provides the protections that are needed to allow you to focus on running a business or working in a factory.  The government provides roads and infrastructure that allow you to ship goods and travel to and from work.

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And actually, my example isn’t quite right.  If you just grew the corn and then stored it away, I don’t believe you would owe income taxes.  Things you produce for yourself are generally not taxed.  And that’s the really strange thing.  When you do things selfishly for yourself – build a home for yourself, grow food for yourself (and you family), or make clothes for yourself, you pay no taxes.  You could even make yourself a yacht or a private plane, and you would owe no taxes (if you produced all of the materials yourself).

If you do things for other people, however, like grow food for them, build houses for them, or make clothes for them, you are taxed.  And the more you do for other people, the more you are taxed!  If you make a few clothes per week and maybe provide clothes for 100 families during the year, you’ll be taxed at 10%  If you manage a group of people, making clothing for 10,000 families a year,  you are taxed at 25%.  If you run a company that provides clothes for hundreds of thousands of people, you’re taxed at 40%!

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So think about that – the more you do for others, the more you produce, the more you make the lives of others better, the more you are taxed.  Does that sound like a good system?

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Picture Credits:  Kevin Abbott , downloaded from stock.xchng.

A Missed Chance to Change American Healthcare History


 

Regular readers to the blog will remember the “Parable of the Pipeline,” which was created by Burke Hedges.  This is an excellent analogy to show how the rich become wealthy and why the “normal” person doesn’t.  (You can buy your own copy by clicking on the book cover below.)

To paraphrase:

Once in a town in Spain there were two brothers who were paid for each bucket of water they carried from the spring to the village.  They each worked hard and made a reasonable living.

One brother went out at night and had big meals and wine with friends, spending any money he had left after paying for his basic needs.  He saw a lot of money go through his hands with little to show for it, but he was not concerned because he was young and healthy.  Whenever he needed more money he simply worked harder, carrying more buckets.

The other brother also worked hard, but he spent his nights building a pipeline from the spring.  He spent any surplus money he had on materials for the pipeline.  While his brother was spending his money on fancy meals and good wine, he was eating a simple dinner he brought from home in the field.  While this brother was buying fancy clothes, he was content to buy durable, functional clothes that would last a long time.

The Parable of the Pipeline: How Anyone Can Build a Pipeline of Ongoing Residual Income in the New Economy – Get your copy of the original!

The first brother ridiculed the second brother, saying that he was wasting his time and not enjoying life.  He and the other men and women in town laughed at his simple clothes and pipe dream.  “We have always carried buckets from that well,” they would say.  “Our parents were bucket carriers, and their parents before them.  Quit wasting your time on this fancy.”

But the second brother continued to work on his pipeline each chance that he got.  Finally, he completed the pipeline all the way to town.  The second brother was now able to bring as much water to the village as he ever could in his youngest days simply by turning a valve.  If he also carried buckets, how could easily sell twice as many buckets as his brother could. 

When he was sick, his income did not decline.  He would travel and still have the same steady income.  He could now buy nicer clothes, using the income from his pipeline, and still have his whole salary to pay for his needs and materials.

Because he did not need to work as hard to provide for his needs, the second brother could now spend more time working on his pipelines.  Because he had even more surplus money, he could also hire others to help.  As time passed he used his wealth to build more pipelines, eventually becoming very wealthy.

As they grew older, the number of buckets each brother could carry each day decreased.  The first brother, no longer able to work, saw his income decline, making it tough to pay for necessities.    The second brother, however, was able to live comfortably on his income from the pipelines.

Note in this parable no one was cheated.  The second brother did not build his fortune by taking advantage of his workers – he paid them what they considered a fair wage for their efforts.  It is true that he worked harder for his income when carrying buckets than when he was using the pipeline he built, but he certainly worked very hard when building the pipelines and he delayed using the fruits of his labor in order to build them.  He was using his income in a smarter way than the first brother was using his – something the first brother could have done had he chosen to do so.

There is currently an assault on those who have built their pipelines and are now receiving the fruits of their efforts.  Jealousy and envy are being used as tools to divide.  So that people will not notice the political promises that have not been kept (because the economics made it impossible to do so), the blame is being placed on those who saved and invested.

Other books by Burke Hedges that you should read:

This nation is great because of those who have built the pipelines.  Henry Ford created a way that would allow average people to own an automobile and in doing so created the factory, employing thousands.  Sam Walton filled the need for a greater selection of products at prices the average person in rural communities could afford and in doing so raised the standard of living for thousands.

Even those who did not found multibillion dollar corporations, but who did save and invest so that they had a few million dollars by their 50’s benefit society.  They ensure that they will not be a burden on others as they age.  They also have the means to help individuals and organizations in their communities (as many do).

If we are all bucket carriers who spend every dime we will not be able to take care of ourselves in old age.  If we tear down all of the pipelines out of envy there will be less for everyone.  Less money, less taxes, fewer jobs, and fewer goods.

We will be like a lake full of frogs who find that the pond is dry.  As an old Texan once told me, when the pond runs dry, frogs eat frogs.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Picture Credits:  Kevin Abbott , downloaded from stock.xchng.

A Missed Chance to Change American Healthcare History


I’m extremely disappointed that one of our Senators, Lamar Alexander (R-TN), went along with nine other Republicans and all of the Democrats and voted against the straight Affordable Care Act  repeal bill put forth in the Senate the other day.  The repeal would have been phased in over two years, giving plenty of time for people to shift to new health plans (that would become available once the markets were freed to sell insurance plans that people wanted, rather than those mandated by the government) and for Congress to pass free-market measures that would reduce the cost of healthcare such as mandated Health Savings Accounts, transparent pricing,  and portable health insurance, sold to individuals instead of through work.

When I wrote to Senator Alexander about the repeal of the ACA, he said that he would not vote for any bill that caused people to lose access to health insurance.  Yet Obamacare is imploding as we speak, and it is likely that many insurance markets will have no providers, so people will lose coverage.  Others will have only one or two providers, and those ones will charge so much that those who can’t afford standard health insurance won’t be able to afford the Obamacare plans anyway, so people are losing their health insurance even if Congress does nothing.  And even if people have insurance, that doesn’t mean they have access to healthcare through their insurance.  Many people right now need to pay thousands in premiums and thousands for their deductible even with the Obamacare plans, so they end up needing to spend $10,000 or more per year before their insurance covers anything.  How is this helping them?

And what about Senator Alexander’s other constituents?  How can he vote to protect a small subset of the people in Tennessee while forcing the majority to pay for their protection.  I strongly believe that individuals should voluntarily provide for those who they find in need due to circumstances.  Certainly we need to care for the 21-year old who gets brain cancer and needs expensive treatments.  We need to help the young single mother who has a child who need round-the-clock care.

But think about what we’re doing by enacting forced welfare.  We’re telling productive members of society that they must surrender a portion of their income to us to give to someone else, either through taxes or by forcing them to purchase subsidized health insurance on a sliding payment scale, or we will go to their homes and seize their property and/or throw them in jail.  We are taking people’s money by force and giving it to other people, some who truly have no other way, some who simply choose not to produce, and some  who are unable to take care of themselves because they always have made bad choices and continue to do so.

In many ways, forcing everyone to contribute to what is effectively a public healthcare system, which is poorly run, has an inferior product, and is way over-priced as all public systems are (see public schools for another example) is worse than simply having taxes and providing overpriced, poor quality benefits (see Medicaid) to those who qualify for them.  At least with just taxes people can take whatever money is left over and maybe get better healthcare than what is available in the public system.  By forcing people to buy into the public system (which is what you’re doing when the government fully controls the insurance offered and the prices that can be charged, even if private companies are providing the insurance), you take away that ability for all but the very wealthy to find better healthcare since they have no resources left with which to do so.  Note the similarity with public education, where because people are already paying for the public system through property taxes, only the very wealthy are able to afford private schools, even in places where the private schools are far superior.

But what about the people being helped by public welfare programs?  At least it is a good thing for them, right?  Maybe not.  Think about people in your family who could get a full-time job and take care of themselves, but choose not to.  This is different from a family member who loses a job and needs to move in for a couple of months or needs some help with the rent until they get back on their feet.  This is someone who always has an excuse about why they can’t work here or work there.  Often there is someone in your family who is an enabler – a very sweet person who pays for the food, apartment, and lifestyle of the non-working family member.  In doing so, the needy family member never gets a job or makes anything out of their life.

When we give through private charities, the charity is normally able to do a better job of figuring out who truly needs help and who would be better served with a kick in the pants.  Public programs often give money out blindly, and often even encourage individuals to not work or do anything or the hand-outs would decline.  Get a job, you see your housing allowance cut.  Have another child, see your food stamps payments increase.  If you’re religious, imagine needing to stand before God, having had two good arms, two good legs, and a good brain and having done nothing with the gifts He had given you.  If you’re not, just imagine spending your whole life and doing nothing of value.  How kind is it to encourage others to face that fate?

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.