Income Tax Rates Do Matter

Today’s Courier Herald Column:

1220 South Ocean Boulevard is for sale.  But it is not cheap.  In fact, Business Insider has called it the second most expensive home available for sale in Florida.  For the asking price of $75 Million dollars, the buyer will receive 9 Bedrooms, 10.5 baths, a pool, an expansive view of the intercoastal waterway and a dock for your yacht.  And, located on Palm Beach Billionaire’s row, you’ll have some fairly exclusive neighbors.  But for the right buyer, the state of Florida is willing to give this house away for free.

Well, not exactly free.  But if you’re Phil Mickelson, it would be like it was free, only better.

Mickelson created a bit of a stir creating the public faux pas of complaining about his new tax rates.  Many of us have, as nobody likes to give the government “just a little bit more”.  But with Californians deciding that “the wealthy” can solve their problems, combined with the New Year’s fiscal cliff tax package both increasing the top federal marginal tax rate and limiting the deductibility of state income tax, Mickelson now faces a marginal income tax rate of over 50%. 

But back to the free house.  Mickelson now faces a 13.3% state income tax rate courtesy of California voters.  There weren’t public referendums from voters asking to receive less government benefits in hard times.  Instead, they decided they should all keep getting what they’re getting, and that only a select few should pay a little more.

In Mickelson’s case, that “a little more” now totals $8 Million per year based on his $60M earnings (courtesy of Sports illustrated) and California’s new top 13.3% marginal tax rate.  Sooner or later, even if you’re making tens of millions, that “a little more” starts to be real money.  And in Mickelson’s case, it could pay the mortgage on that nice mansion on Billionaires row.

At today’s interest rates, the amount of taxes that Mickelson would pay to California would service a 30 year mortgage – including principle, interest, taxes, and insurance – for roughly $100 Million worth of debt.  Mickelson could buy the Florida mansion, declare residence there, and STILL have enough left over to pay the mortgage on a $25 Million home in California for when he would like to visit.

Differences in tax rates matter.  As we have seen with several new internet billionaires who have recently sought citizenship in other countries, eventually the price of “just a little bit more” becomes a financial decision that distorts even the most basic of behaviors.  For those who are constantly told they will pay “more”, eventually they will find a way to pay less.  And often, to a different government entity that thought they would get to expand services on the backs of a small portion of the population.

While few of us will ever relate to Mickelson’s income or tax dilemma, the effects are the same.  Imagine you’re instead earning at a lower level.  Take two zeros’s off and divide in half.  That’s a two income couple each making $150,000.  In San Francisco, that’s barely middle class.  In Atlanta, that’s two professionals at mid career.

Now imagine recruiting that couple from the tech center around Palo Alto to a new location where you want to attract them and those of their emerging technology industries to your town, and you do so by offering them a $500,000 McMansion, free of charge.

That, exactly, is the recruiting tool the states of Florida, Tennessee, and Texas currently have over Georgia when trying to recruit business here.  At 6%, Georgia’s income tax is less than half of California’s top tax rate.  But we would only give them half of that half million dollar home.  Two of our neighbors and several other states would give them the whole thing.

There are proposals pending before the Georgia legislature to phase out the state income tax.  To do so would require significantly raising the state sales tax.  The issue has pros and cons.  But as we continue to try to attract industries with high wage earners, we have to consider that our neighbors have a built in advantage of what their citizens can buy with their salaries given the disparity between the states.

73 comments

  1. SOWEGA says:

    From a recent WSJ article: “A new analysis by economist Art Laffer for the American Legislative Exchange Council finds that, from 2002 to 2012, 62% of the three million net new jobs in America were created in the nine states without an income tax, though these states account for only about 20% of the national population. The no-income tax states have had more stable revenue growth, while states like New York, New Jersey and California that depend on the top 1% of earners for nearly half of their income-tax revenue suffer wide and destabilizing swings in their tax collections.”

    It went on to highlight an effort by Governor Jindal to make the elimination of income tax more politically palatable: “Critics will call the income-for-sales-tax swap regressive because everyone pays it. Mr. Jindal is countering by exempting food, medicine and utilities from his sales tax and providing a rebate for low-income families so their tax bills would not rise. But Governors will have to trump the critics by stressing the larger economic benefits for the state.”

    This is certainly an effort the General Assembly should pursue – and pass….particularly since we are surrounded by states who readily peddle this enticing offer (example: Body Central’s choice of JAX over GA).

  2. Max Power says:

    Comparing the California’s income tax rate to Georgia’s is like comparing U.S. tax rates to Denmark. California has a very progressive income tax with a very high rate for top earners 13.3%, Georgia has a very flat tax with a top rate of only 6%. There are arguments to be made for getting rid of the income tax, but arguing Georgia’s wealthy are going to flee the state over 6% isn’t one of them.

    • Charlie says:

      I think you’re missing the point(s). But to your argument, it’s not so much about people fleeing Georgia (despite evidence to the contrary – see Boortz, Neal. see Turner, Ted).

      The point is we would kind of like to have those people who are going to leave California. But if leaving a high tax base is part of the problem, why would they stop at a state that only cuts their pain in half when Nevada, Texas, Florida, Tennessee, or several others would eliminate it entirely.

      • SOWEGA says:

        Exactamundo. I don’t think individuals or corporations already well established in Georgia are the audience here; but rather potential businesses seeking more favorable tax treatment along with retirees, etc. moving south after decades of higher state income tax payments.

      • Max Power says:

        Well if they’re fleeing to Tennessee it’s not because of tax rates. Most very rich folks make their money from investments, which are taxed in Tennessee. I think people tend to put too much emphasis on tax rates when they examine this kind of thing. The fact is Georgia isn’t attractive to these type of people for a variety of reasons that I’ve droned on about ad nauseam.

        We’ve concentrated on growth in Atlanta and ignored the rest of the state. Price an international flight out of Savannah. Lack of beachfront development. Warmest part of the state tends to suck. We’re not Florida, we never will be, changing our tax rates won’t make Baxley into Punta Gorda. We’re not Tennessee, we never will be, we don’t have a series of large lakes nestled in the mountains. We’re not Texas, filled with oil and lots of warm dry cheap land.

        Georgia is my home state but like Atlanta, its always had this identity crisis. It’s always wanted to be something it’s not. It’s time to stop looking at our neighbors trying to be what they are and instead making the best of what we have.

  3. peachstealth says:

    I believe that while Tennessee does not tax earned income, it does tax capital gains, dividends, interest and other “unearned” income.
    Florida taxes neither at the individual level but at one time, and may still have, an “intangibles” tax which is similar to a property tax levied on the value of stocks and other intangible assets. Florida also has an income tax on corporations.

  4. Three Jack says:

    Great column Charlie! My favorite line, “There weren’t public referendums from voters asking to receive less government benefits in hard times.”

    That would be a perfect resolution to put on the next statewide ballot, “Would you support reducing freeloader payouts as a means to balance the state budget”?

  5. gchidi says:

    There are network and cluster effects that significantly impact the decision to locate, and can easily overwhelm a simple tax calculation.

    Take San Diego. Great beaches … but Miami has great beaches too. Weak schools, both places. Crime is similar. Housing costs are similar. But Florida doesn’t have the tax issues that California has. Why not move?

    Well … it depends on what you do for a living. If you’re in biotechnology and you move out to Miami, you’re going to be looking for a job for a while, you’re probably going to earn less money and you’re going to have more job insecurity. In San Diego, which has a serious cluster of biotechnology and life sciences companies, if your firm folds or lays off … you can walk across the street to get another job. You’re in a community where you can network to other opportunities and probably learn your craft better.

    When a geographic area has a self-reinforcing economic cluster like that, they can effectively charge for the privilege of access to it. This is why tech firms have been moving a bit slower than the boom years in Silicon Valley and San Francisco, but aren’t exactly abandoning California en masse. The talent won’t take the risk to move with them.

    Atlanta has some economic clustering activity that’s pretty promising: there’s a graphics design and video game cluster, a small but growing cluster of film and television production, rap music, payment processing systems, motor-driven products, small electronics manufacturing, a few specialized flavors of marketing consulting and business services, construction materials and logistics, among others. Most of these clusters are pretty small — the economy is diversified here. But they’re real.

    You want to play games with tax rates? Fine. But do it in a way that creates sustainable advantage for your community, by building up clusters of competence. Then you’ll have something to tax.

  6. Trey A. says:

    Please drop the “on the backs of the few” argument. Mitt Romney and the GOP just got walloped in the most winnable election in a century (incumbents don’t win with unemployment rates this high) because they tried to win over everyday Americans with such nonsense.

    It’s not payers v. takers. Everyone pays taxes. You can either have a progressive tax, which charges people more based on their ability to pay, or you can have a regressive tax, like a sales tax (or Georgia’s essentially flat income tax), that burdens the poor, working poor and middle class far more than the wealthy. Ask *ANY* economist which model is better for long term economic growth. Even Fair Tax advocates recognize that regressive taxes are bad for growth–that’s why they go out of their way to explain how the Fair Tax structure would correct for low earners.

    If tax policy so directly affects economic growth, why did Silicon Valley pop up in high tax California in the first place? Even before the new law, high earners were paying 10%. Why is high tax New York City the nexus of the U.S. economy? Wouldn’t Nevada or New Hampshire make more sense, you know, for tax purposes?

  7. Trey A. says:

    “As we try to attract industries with high wage earners”

    Charlie. Come on. “How high will our executives’ tax rates be?” is not even a question that gets asked when companies look to relocate. They move in search of excellent infrastructure, educated workers, low cost of investment and a host of reasons far, far removed from personal income tax rates. In fact, sales tax rates–for supplies and materials–would seem to matter much more to me.

    • IndyInjun says:

      The states have systematically gutted sales taxation as it applies to most industries.Sales taxation bores down on the beleaguered middle class. No sales tax is applied to SNAP purchases.

      On the spending side, Georgia and the states made promises to employees and retirees that were at the time to be funded by sales tax on industry. They cut probably $1 billion a year in tax revenues, but left the obligations intact.

      This is not ‘fiscal conservatism’ in my reckoning.

  8. John Konop says:

    This is fairly close to my experiences………. The only difference is location of the money guy if he is an owner operator. BTW this is why I stress so much about Georgia Tech, Emory being key assets as well as infastrucure…………

    ………..According to data released in 2012 by Area Development magazine, the top 10 site selection criteria are:

    1. Labor costs
    2. State and local incentives
    3. Highway accessibiity
    4. Availability of skilled labor
    5. Energy availability and costs
    6. Proximity to major markets
    7. Tax exemptions
    8. Occupancy or construction costs
    9. Corporate tax rate
    10. Availability of buildings ……….

    http://www.treoaz.org/ED101-Location.aspx

  9. Dave Bearse says:

    Can we follow the Tennessee lead and spend even less on transportation too?

    Georgia can’t match Florida’s and Texas’ resources, tourists and tea respectively.

  10. taylor says:

    From page 9 of the 2010 Special Council on Tax Reform and Fairness for Georgians
    “Overall, Georgia’s taxes are low, have not increased over the past 30 years as measured by taxes as a share of personal income, and are competitive. Research on business firm location finds that while taxes matter, other factors seem to play a larger role. Factors such as function transportation system, availability of water, and the quality of public education are important components of the decision-making process.” (page 9)

    Of course tax rates do matter. But I believe that other factors matter even more. And those other factors require “investment.” Definitely not government spending, that would be wrong. And government doesn’t create jobs. (Even when it dredges a river or builds a stadium.)

  11. seekingtounderstand says:

    Ok so Charlie is right and while your at it lets stop collecting property taxes and double the sales tax. Lets ban non-profits as they are takers. Lets hire Del Webb to run our state government like the do their communities and turn middle south ga into senior heaven with affordable homes.
    Reduce the time GA legislature is in session to 4 weeks with no pay. Elected folks could use vacation to serve their state and not make it a job for life.
    But most of all lets figure out a way to have a two party state where voters have options when voting. Otherwise we are in a state where “we” don’t matter and corruption wins.
    Oh and if you really want the state income tax to change to a sales tax just make sure of one thing
    that the Good ol boys profit and its sure to pass.

  12. IndyInjun says:

    Why not lower income tax rates to zero, federal and state? The Fed and Treasury have a fairtax and it is called QE. They create $trillions, part of it goes to fund government and all of it dilutes purchasing power of the private sector to fund the public sector. It very effectively funds government with minimum consternation and no regulation. It has been proven to work for decades. If you create sales taxation on top of it and that feeds upon it, the redundancy will crush everyone.

    It works so well repeal all taxes and fund government the easy way. Just don’t create sales taxation to compound the wealth extraction.

    • Charlie says:

      In the midst of that is the fundamental question:

      Do you tax income which prohibits wealth creation,

      Or do you tax sales that taxes weath accumulation?

      • I don’t know that sales tax taxes wealth accumulation so much as it taxes “stuff” accumulation. I know some wealthy people who you’d never guess are wealthy by the house they live in or the car they drive. On the same note, plenty of people buy stuff they can’t afford to make it appear that they are wealthy / well off.

        • Charlie says:

          True, but not really at the root of the question.

          If we’re going to have a government that costs money, we’re going to have to pay for it somehow.

          Taxes on income take money away from those who are earning it. Taxes on income take money away from those who already have it but are spending it.

          If you’re trying to accumulate wealth, an income tax is a barrier. If you have wealth and are trying to live off of it, a sales tax is a barrier.

          There are many implications here. Generational differences being one of the biggest.

          • IndyInjun says:

            ” Generational differences being one of the biggest.”

            It is surprising that more folks don’t see this truth.

          • Doug Deal says:

            This is why small tax rates on several different entities might make the best sense. (I say might because this has hazzards in that government can use it to hide how much you are really paying.) Low tax rates have high compliance and spreading around means no one group is targetted unfairly, savers or spenders.

          • mpierce says:

            We have a large trade deficit. Moving taxes from income to sales will lower the cost of our exports and raise the cost of our imports.

            • IndyInjun says:

              I offer 2 points in rebuttal, after noting that a VAT (a consumption tax) is rebated back to domestic entities in VAT countries.

              One, the net advantage from cutting tax inputs out of exports and applying taxes to imports will be confined to industries/sectors where the tax ‘savings’ exceed wage arbitrage. If the wage differential still exceeds that tax savings, then you have put your populace under crushing pressure to buy the cheaper good out of the overarching need to stretch murderously-strained budget and the knowledge that the consumer, in saving $1 before consumption tax, is leveraging up his savings to $1.30 by buying the cheaper import.

              Two, (I sort of like this one) abuse of import sales tax exemptions will force tax compliance to the port of entry and create real impetus to control borders. I have to note that the Fairtax bill leaves the treasury open to nearly universal looting because it allows importation free of the FT and does not provide for enforcement to collect tax after dispersal from port of entry.

              Too much credence is given to the 22 to 26% embedded tax figure that originated from early FT theory development, a time when supply chains were more domestic and layered instead of flat supply chains featuring predominant imports with no embedded tax. Gambling that the embedded tax is indeed that high would have ruinous consequences if it is only 8 to 12% of sales, as my own research showed, and there are huge wage differentials.

              • mpierce says:

                1)the net advantage from cutting tax inputs out of exports and applying taxes to imports will be confined to industries/sectors where the tax ‘savings’ exceed wage arbitrage.

                No true. People don’t always buy the cheapest product. Some people prefer a product based on a perceived quality difference or personal preference. In such cases a narrowing of the price gap can lead to additional sales.

                2) This was not a question of the FairTax vs current tax code, but a question of income taxes vs. consumption taxes. Specifics in the FairTax bill are not applicable. There have certainly been other places on PP provided to discuss FT particulars.

                • IndyInjun says:

                  All I can tell you is that sales of private label and store brands that are cheaper are so brisk, they cannot keep the shelves stocked, and this is before hyperinflation melds with a double digit consumption tax. Yes, the affluent are not price sensitive, but the masses are and those are the folks who drive the economy.

                  I would guess that we get a consumption tax as an added tax to the income tax a lot sooner than we like.

                  • mpierce says:

                    We export machinery, services, etc.. where there can be large differences in quality. There is a difference between paying a 25% premium for a preferred product vs 10% premium.

                    a double digit consumption tax.

                    And we don’t have a double digit production tax?

                    • IndyInjun says:

                      Probably not on a cash basis. GOPers yell and scream that the US has the highest corporate tax rates in the world, but that is on an accrual basis. Labor has gotten to be a falling cost component, so the 7.65% SS/Med tax is on a smaller piece of the pie.

                      The way the FT folks got to tax burdens of 22 to 26% was by taking into account income taxes included in employee and contractor wages/ costs in addition to employer tax costs. This means employees would have to take pay cuts by the amount of the taxes for the company to see that component of tax savings.

                      If ideology causes the horrendous policy mistake of going with a heavy domestic consumption tax on higher priced domestic goods in the face of pronounced low costs of imported alternatives, don’t be surprised to see the remainder of US manufacturing decimated.

                    • mpierce says:

                      You mean 15.3% SS/Med tax + income tax + corp tax doesn’t add to double digits? Those are all production taxes.

                      The FT is revenue neutral and broadens the base to include those not reporting their income. Thus those reporting will see lower taxes as a whole. But again, I thought we were comparing taxation of production vs consumption as opposed to the FT.

                      If ideology causes the horrendous policy mistake of going with a heavy domestic consumption tax on higher priced domestic goods in the face of pronounced low costs of imported alternatives, don’t be surprised to see the remainder of US manufacturing decimated.

                      Domestic goods would replace their currently embedded taxes with the sales tax whereas imported goods will have a sales tax on top of there embedded taxes.

          • The Last Democrat in Georgia says:

            Charlie, February 1, 2013 at 11:43 am-

            “If you’re trying to accumulate wealth, an income tax is a barrier. If you have wealth and are trying to live off of it, a sales tax is a barrier.”

            Then why not remove the both the barriers to accumulating wealth and spending/living off of wealth and eliminate both income taxes and sales taxes? Seriously.

            Why not eliminate all income and sales taxes and replace them with one simple corporate tax and simplify the heck out of tax code so that a preschooler could understand it as opposed to the convoluted mess we have now?

            • Charlie says:

              Because anyone that has ever successfully passed a basic entry level economics class understands that tax incidence never falls on the corporation. Ultimately, the consumer will still end up paying, and the net effect would still look a lot like a sales tax except that much like today, most corporations will be able to avoid most of this tax by heavily utilizing offshore subsidiaries to warehouse their profits and make sure their US operations operate at break even.

              • The Last Democrat in Georgia says:

                Well, of course corporations never pay taxes as the cost of all sales and property taxes are always passed along to their consumers and the cost of all income taxes are always passed along to their employees.
                The difference is that by saying that you’re eliminating all income and sales taxes and replacing them with corporate taxes, you’re effectively psychologically hiding the cost of paying taxes like the way that the payment of gas taxes are effectively hidden from the public when they pay for gas.
                Heck, most drivers don’t even seem to be aware that they are paying the fuel taxes that provide for the maintenance and upkeep of the roads when they buy gas, at least not until politicians threaten to raise those virtually invisible gas taxes that consumers are barely aware they’re paying as increasing seemingly invisible gas taxes increases the cost that drivers pay for fuel.

                Effectively hiding the cost of paying taxes would provide a huge psychological boost to consumers for whom it will seem as if all individual tax burdens have been not only lifted but totally eliminated with no more taxes paid on sales transactions and, most importantly, no more demoralizing dealings with the bullies at the I.R.S.

                Eliminating all sales and income taxes would provide an unprecedented psychological lift and boost of morale to the American economy.
                Replacing those sales and income taxes with a simple corporate tax would make tax collection infinitely simpler as there would far fewer ports of collection through a system where the government only collects taxes from hundreds-of-thousands of corporations instead of collecting taxes from hundreds-of-millions of individual citizens.

                Besides, what would it matter if the vast majority of Americans happily felt that they didn’t have to pay taxes anymore as long as enough were still collected to operate the core functions of government?
                Tax collections are only guaranteed to increase dramatically (more than likely through the roof) as economic activity is directly propelled upwards by the overwhelming psychological lift of a substantially and dramatically decreased tax burden.

                  • The Last Democrat in Georgia says:

                    So you mean that you wouldn’t jump at the opportunity to not have to deal with the I.R.S again, ever?

                    I don’t mean to sound the fish in the tuna commercials, but sorry, Charlie 🙂 just the thought of never having to deal directly with the I.R.S. again, ever, is almost too much for many Americans to handle.

                    Besides, I don’t know what problem anyone could ever have with freeing the vast majority of American consumers and most of the American economy from what has been an ever-increasing tax burden in recent years?

                    • The Last Democrat in Georgia says:

                      You mean like the “fact” that our antiquated and convoluted tax system sucks beyond all belief or the “concept” that ridding the country of said needlessly punitive tax system would likely spark an unprecedented economic boom?
                      You’re right, those are facts and concepts that I am wholly unable to comprehend.

                    • Charlie says:

                      No, I mean the fact that you can’t comprehend the basic forces that undermine all the simple solutions you regurgitate ad nausium here. The fact that you generally aren’t actually engaged in participative discussion, but look at this as a vehicle to express your ongoing bitterness at the world, and the fact that despite the ridiculous amount of words you type, it remains clear that you don’t even comprehend what is going on around you in here, much less out in the real world.

                      In short, you’re wasting your time and ours. Fact.

                    • The Last Democrat in Georgia says:

                      Well, God forbid that someone would ever suggest making life infinitely more simple by scrapping an economy-suppressing and morale-sapping income tax code that is totally outdated and has completely outlived its usefulness to the American economy by more than a decade.
                      God forbid that anyone would ever want to scrap an antiquated tax system that is only being kept around by a bunch of insecure bureaucrats in Atlanta and, ESPECIALLY in Washington so that said government bureaucrats can continue to boost their own overinflated egos by personally feeling good about the unnecessary status they hold in society and the unnecessarily overwhelmingly powerful grip that they have over peoples’ individual lives.

                      Sorry that you think improving American quality-of-life by ridding most of the country of the endlessly power-hungry monster that is the I.R.S. would be such a waste of time.
                      I’m truly sorry that you seem to feel so protective about an increasingly-counterproductive status quo when it comes to taxation.
                      Though I do thank you and am very appreciative to you for bringing much-needed attention to a very-important issue about the continued negative effects of overtaxation.

                • mpierce says:

                  what would it matter if the vast majority of Americans happily felt that they didn’t have to pay taxes anymore as long as enough were still collected to operate the core functions of government?

                  Are you kidding? People who don’t think they are the ones paying for government inevitably want to increase it.

                  • IndyInjun says:

                    And those people are on the extremes of the scale, with some – government employees – right smack dab in the middle of it. They are the SNAP getters, TSA agents and folks like Arthur Blank.

                    When “stuff” went south in 2008 all of these types tightened their grip on the government money spigots.

                    Middle Class USA – RIP – the parasites are swarming from your nose.

                  • The Last Democrat in Georgia says:

                    “Are you kidding? People who don’t think they are the ones paying for government inevitably want to increase it.”

                    Most of the time it’s not people who want to increase government, it’s GOVERNMENT that wants to increase government because governments often think of the people they are governing as subjects whose only purpose is to further the goals of government power instead of customers who are to be served by the government they are paying for.

                    Government always wants more power over the people that it is supposed to be serving.
                    Getting rid of what was supposed to be a very-temporary income tax setup would be a very good way to reduce the growing power of an increasingly overbearing government.

                    • mpierce says:

                      Most of the time it’s not people who want to increase government

                      I think recent elections show otherwise.

                    • The Last Democrat in Georgia says:

                      But the only reason why people may have voted for the the big government vision is because that vision of big government was sold to them by a big government.
                      A really-big government Obama only got elected after the stage was dramatically set for his election by a big government Bush who was handling out government “stimulus” left and right in his final year or so in office.

                      And the only reason why a really-big government Obama was re-elected was because of a “ruthlessly-efficient” voter turnout operation and the failure of the GOP to effectively or even adequately communicate why limited government is so critically important to the well-being of the American Republic.

              • IndyInjun says:

                I passed several economics courses and didn’t believe a word of what I was forced to regurgitate. The whole discipline has failed and done so in spectacular fashion. Now all that is left is the power of the Fed to monetize the tomfoolery away. To be honest, accounting is no better because we got so implicated that we changed the rules to legalize fraud.

                The notion that “corporations don’t pay taxes, consumers do” is one of the tenets of folks who have seized the “conservative” moniker that I find most laughable and I say this out of decades in the field of ‘consumer’ taxes. Taxes are born out of profits for a corporate person, just like the fruits of labor are taxed for a real person. Of course, where I make my error is in assuming that free market forces of competition are in play. So much of industry now is cartelized, monopolized and price fixed that “economists” can probably make the claim now that corporations don’t pay taxes. For that matter, neither do the financiers and manipulators who control it all.

                Sometimes errors in thought and deed get to be so egregious and universal that they take down all of society. We are now in those times. Economists and accountants have lost sight of MATH, but math stands next to God and will not be mocked or denied.

        • Doug Deal says:

          I.e., increasing money supply, devaluates the value of cash assets. (So I guess I should rephrase that as it would tax cash wealth by driving inflation.)

        • IndyInjun says:

          It – the monetization tax -doesn’t just tax wealth, it taxes earnings as you are working. If it gets aggressive enough, you can lose significant money from the first hour of the work week through pay day.

          • Doug Deal says:

            If it gets aggressive enough, but for practical purposes, the rate of deflation would not be high enough to be significant before you had time to convert it to something else. (Well, until the system collapsed and hyper-inflation hit.)

            • IndyInjun says:

              In Weimar, it was said that folks paid their restaurant tabs upon entry, because the prices would leap so much while they were eating and drinking.

                • IndyInjun says:

                  Not so much these days. Just in the last week……”100% lemon juice” shown to have lemon juice content of 10 to 35%…….Subway admits that its “foot-long” sandwich is only 11 inches…..A Sig Sauer M400 was $600 in November and now is $2500….In UK meat genetically tested shows high use of horse meat….I could go on.

                  • Doug Deal says:

                    I read an article about legal whale meat in Japan being replaced with easier to obtain illegal whale meat like dolphin, porpoise, and killer whale.

                    In the same article, they talked about certain types of trout being sold as more expensive salmon and white fish being almost all talapia instead of the more expensive labeled product. Pretty much the only things in seafood that are what they are labeled more than half the time were shrimp, lobster and crab.

                  • IndyInjun says:

                    Yesterday morning I read that pecans were so expensive that they are being replaced by walnuts in sweet rolls and other foods.

                    Yesterday afternoon I went to Sam’s to get my usual variety box of Nature Valley granola bars, whose 3 granola bars included Pecan Crunch. When I got home I discovered that pecan crunch had been replaced by Oatmeal and Chocolate.

                    The Republican Bernanke and the Democrat Obama have been at it again.

                    You gotta wonder what Nature Valley Molasses and Sawdust is gonna be like and whether the box will cost $75.00.

      • IndyInjun says:

        I think the political reality is that you do neither and use monetization, because no one understands how they are being taxed. This is the reason that monetization will continue to its inevitable conclusion. I would say that a truly fairtax applies to both real and corporate people.

        Back in the early 80’s Georgia’s sales and use tax did that to a very serious degree. Now it has been shifted over to real people. I have been mostly retired from that area of endeavor and never tried to get the legislature to stop is gutting of sales taxes on corporate entities, but I did take the initiative to call the cited “experts” charged with scoring sales tax cuts. I found that they might have be ‘credentialed’ , but largely clueless in predicting revenue losses. In one case the Revenue Commissioner gave away $500 million a year that was not scored at all. Not only that, he made it retroactive to mid-year, giving rise to huge refunds , including interest, that coincided with the revenue melt-down. I also talked to the better media who cover state government and they were clueless, too.

        The impetus was competitiveness with other states for jobs, but without offsetting the revenue losses (and accurately assessing them) with long term budget cuts, the legislature was committing financial lunacy.

        To answer your question, I do not think a flat tax prohibits wealth creation. I also would argue that sales taxes on necessities of life are not a tax on wealth accumulation. My ‘best’ system would be a flat tax.

        • Doug Deal says:

          I used to like the flat tax, with most deductions removed save perhaps one standard deduction that exempts the average cost of basic necessities, but now I find all tax systems are ugly and invassive and modify behvaior in unproductive ways.

          At this point I lean toward the Feds sending the states a bill for their share and just allowing the 50 states to pay that in whatever way they see fit.

          • Harry says:

            It would obviously require repeal of the 16th Amendment, however I agree with your Federalist (or anti-Federalist) idea.

        • IndyInjun says:

          The Monetization tax also hits corporations. In the 70’s it hit them so hard that the stock market was flatter than a pancake. The monetization tax tends to make corporate cost inputs unpredictable, hence they are hit as well.

  13. IndyInjun says:

    Either way, we are headed to having to file net worth or assett statements with our income taxes. This is exactly where we are headed with ACA and it would be that way under a Fairtax regime, too. Afficiandos of the FT miss that it is a TAX system, complete with enforcement needs. Since there are 3 year audit periods like with income tax, the tax is imposed on consumers, it is on barter transactions, and the consumer has to keep receipts, then it doesn’t take long to having to prove when you acquired an asset, how you got it, and whether it is fairtaxable.

    • Doug Deal says:

      I have been trying to make this argument to FT zealots, but they seem incapable of understand what enforcement means. They think that magical Fair(tax)y dust will keep the government out of auditing their assets when the government realizes it is losing significant amounts to the black market when people are paying upwards of 30% (state and federal) taxes on things.

      • IndyInjun says:

        I grin in the knowledge that the FT would (deliciously) put broadcast media and talk radio out of business.

        It is just like what the auto dealers ran into after they foisted that “tax reform” only to find out that it punitively taxed rentals.

        No wonder we are in such bad shape. NOBODY looks into details. I do it so as not to be caught vulnerable….and to spot OPPORTUNITY.

  14. The Last Democrat in Georgia says:

    The State of Georgia needs to do more than just “phase-out” its state income tax, Georgia needs to eliminate it immediately at the first opportunity.

    Heck, the State of Georgia should go one step further and eliminate all state and local income and sales taxes.

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