A Connecticut Tax Attorney spells it out.
Business is not about taxes. It is about making money. A profit. And taxes are about destroying profits. There are no denying this facts (or you could deny them, but then you would be wrong).
These pillars were built over a lot of broken dreams
For many tax professionals we know, it is as if they have more sympathy for tax collectors than their clients. It’s true. And it sickens me. As over the last ten years, my eyes were opened up to the way things really are.
Truth #1. The more the government gets in revenue, the larger the deficit.
The more the government taxes, the more they overspend. Take my home state of Connecticut for example.
According to the New York Times, in 1990, the State of Connecticut had a budget deficit of $65 million. and this was after then Gov. Bill O’Neil signed into law — what was then — the biggest ever tax hike in Connecticut history.
So then what happened just a year later in 1991? After the O’Neil tax increases? Pick one:
- The budget deficit was quickly closed, the state learned a valuable lesson in restraint.
- The budget deficit increased by a factor of 12.
Option 2 is the correct answer: The budget deficit exploded to from $65 million to $1 billion.
So the solution?
Well, if tax increases increased the budget deficit, then surely more tax increases would increase the budget deficit. Yes, read that again. Because that is precisely what the new governor, Lowell Weicker, did. He implemented a new income tax.
So then. Are we surprised to learn? Can we really be shocked to learn that the deficit that was $1 billion in 1991 has blossomed to even more dizzying heights? This is what we get from the Connecticut legislature:
The more the government taxes, the larger the budget deficit, and the harsher the economic climate, which leads to more tax increases, which leads to larger budget deficits. And on and on. The death spiral will need some sort of economic miracle (they do happen BTW — and we’re definitely due) to avoid an eventual default of public debt.
Truth #2. Deficits are not good.
Keynesian economics is as dis-proven as phrenology (while phrenology went the way of eugenics, Keynesians are still partying like it is 1931). This idea that government can jump-start the economy by throwing a lot of other people’s money around. The problem with government spending is simple and much like the broken window fallacy (the most overlooked economics lesson of all time).
“Keynesian theory suffers from a rather glaring logical fallacy. It overlooks the fact that, in the real world, government can’t inject money into the economy without first taking money out of the economy. Any money that the government puts in the economy’s right pocket is money that is first removed from the economy’s left pocket.”
-Dan Mitchell, 2009
For example, in Connecticut, for every $579 million that is spent to link two economically distressed cities 10 miles apart though a busway, that is $579 million not in the hands of entrepreneurs seeking the maximum return on the investment.
Truth #3. Government spending for the sake of spending is actually pretty stupid
Government does not understand the broken window fallacy, how is it expected to efficiently allocate scare resources, when for government, resources aren’t scarce? There is no effective limit on deficit spending.
Truth #4. Government gets to double, even triple tax everything.
The is only one source of inflation. The increase in money supply. who increases the money supply? A privately held entity known as the Federal Reserve. As more money is printed for government spending, the value of what is in your bank account is decreased. Inflation is the stealth tax that is rarely talked about.
But that’s not the end of it. The government actually taxes this stealth tax as well.
For example, in 1960, Mary Goodwife buys an investment property for $100,000. And in 2010, she sell its for $727,807.20. The government will come along and tax the sale of her property claiming that she needs to pay taxes on the $627,807.20 that she profited. But did she really make that much money?
Well there is a reason I said she sold her property for $727,807.20. Because that is exactly how much $100,000 in 1960 dollars is worth in 2010. So even though there was no gain in the property relative to her purchase power, the IRS (and state) can still tax this phantom gain (of course there are ways around this, most notable the 1031 like-kind exchange)
So there’s the reality. Now what?
Taxing regimes are at war with prosperity. If your tax attorney doesn’t understand this, get someone who can see the truth. The IRS, state revenue agencies, they aren’t your buddies, they aren’t your pals. They are organs of legislatures that have no freakin restraint whatsoever. The legislatures have worked in their incumbency advantage to absurd effect. Bribed with our own taxes, choked for committing the sin of trying to make money.
Look, nothing is going to change. Some dope will say that we need to sacrifice and raise taxes. Of course governments NEVER sacrifice. They get every thing they need and more.
Every single time taxes are raised, the problem gets worse. Right now, Connecticut, Congress, are just trying to see how bad they can make it.
