199 lines
8.7 KiB
Plaintext
199 lines
8.7 KiB
Plaintext
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(word processor parameters LM=8, RM=78, TM=2, BM=2)
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Taken from KeelyNet BBS (214) 324-3501
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Sponsored by Vangard Sciences
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PO BOX 1031
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Mesquite, TX 75150
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August 16, 1990
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TAX1.ASC
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ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿
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³ INCOME TAX = PRODUCTIVITY TAX ³
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ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ
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As an economic observer, one notes that there are basically three types of
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taxes a government can impose:
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1) Income tax,
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2) Consumption tax
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(e.g. sales taxes, value-added taxes, tariffs)
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3) Asset tax.
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In a free-market economy, the imposition of each type of tax will differently
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influence the choices of individuals with regard to income (i.e. work vs.
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leisure), savings/investment, and consumption.
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In the absence of taxes, people will presumably work, save and consume
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(spend) at levels commeasurate with their own ability and desires. This
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would theoretically produce an economically optimized society.
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However, given the necessity for taxes to support services that government
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can best provide, it seems desirable that taxes should be structured so as to
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at least not cause economic sub-optimizaton.
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Viewing current taxes from the point of view of an average taxpayer of
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middle class means, the approximate tax burden on a two income, home-owning
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married couple grossing $50,000/year living in a state with a hypothetical
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5% income tax and 5% sales tax is as follows:
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Gross Income : $50,000
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IRA contribution : -$ 4,000 (savings/investment)
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Mortgage/Other Deductions : -$ 8,000 (non-taxed consumption)
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State Tax Deductions : -$ 3,000
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--------
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Federal Taxable Income : $35,000
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Federal Income Tax : -$ 6,047 (an INCOME TAX)
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-------
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$28,953
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State Income Adjustments : $ 3,000
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-------
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$31,953
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State/Local Income Tax : -$ 1,600 (an INCOME TAX)
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Property Tax : -$ 1,400 (an ASSET TAX)
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Social Security Tax (6.5%) : -$ 3,250 (an INCOME TAX)
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-------
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Consumable Income $25,703
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Tax-Exempt Consumption : -$ 7,000
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Other Savings (4% * 50K) : -$ 2,000
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-------
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Taxable Consumption : $16,703
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Page 1
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Sales Tax (@5%) : -$ 835 (CONSUMPTION TAX)
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Gasoline Taxes : -$ 200 (CONSUMPTION TAX)
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Excise Tax on Home : -$ 100 (CONSUMPTION TAX)
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(Amortized over 20 years)
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Breaking the tax burden down by category shows:
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INCOME TAXES $10,897 81%
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ASSET TAXES $ 1,400 10%
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CONSUMPTION TAXES $ 1,135 9%
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-------
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$13,432
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This example shows that the American tax burden is imbalanced between the
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three types of taxes, with the majority of the burden by a wide margin being
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comprised of an income tax.
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The impact of this disproportionate tax burden on the economy as a whole can
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be seen by examining how income taxes affect the utility of income to the
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individual. Since income can only be spent or saved, a rational individual
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will look at how an income tax affects those two options.
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By saving income, an individual foregoes current consumption in favor of
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future consumption. He or she will be less willing to do so unless they
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believe that saving will enable a higher level of future consumption.
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For this to be possible, the income which is saved must itself earn income
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which means it must be invested. However, income taxes reduce investment
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income, thus reducing the value of savings. Income taxes thus act as an
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incentive for the individual to consume and as a disincentive to save and
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invest.
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Despite the cuts in the top marginal U.S. income tax rates over the past 30
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years, the real income tax burden on the average taxpayer has actually
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increased.
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This is the result of inflation induced bracket creep, higher state and local
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income taxes, and expanding social security taxes. It is not surprising
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therefore, that over this time period the savings rate of individuals has
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dropped from 7% down to below 3% of income recently (1988).
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The declining savings rate has resulted in higher interest rates. It has
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also resulted in corresponding lower rate of industrial investment than our
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strongest foreign trade competitors whose real interest rates are relatively
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lower.
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The lower industrial investment means that on average, American companies are
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turning fewer out new products and processes, and are operating with older,
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less efficient plant and equipment.
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A severe unfavorable trade imbalance and a decline in relative per capita
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income are the already apparent result of these policies.
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Reversal of this situation will require either an economic calamity to re-
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stimulate savings, or alternatively, but unlikely, a recognition by
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politicians that the income tax is not a "progressive tax", but is rather a
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"Productivity Tax".
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Page 2
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ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ 40% Socialist ? ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿
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³ ³
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³ In the example above, the total tax burden of $13,432 comprises 27% ³
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³ of the couple's gross income of $50,000. Adding the 6.5% matching ³
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³ Social Security payment made by their employer, plus corporate ³
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³ taxes and inflation paid indirectly through the price of goods and ³
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³ services will raise the couple's total direct and indirect tax burden ³
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³ to over 37%. This is the percentage of Gross National Product that ³
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³ is spent by local, state and federal governments in the USA. ³
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³ Although we view ourselves as a capitalist, free market nation, these ³
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³ figures belie the fact that we are already almost 40% socialist. ³
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³ ³
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³ Stated in other terms, almost 40% of spending in this country is ³
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³ a result of "collective" decision making as opposed to individual ³
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³ decision-making. This raises the question: If a majority of the ³
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³ income of the majority of people is channeled through government ³
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³ offices, will the private sector ever stand a chance with a public ³
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³ dependent upon public payroll and political handouts? One would ³
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³ think not. Perhaps it is time to place a constitutional cap on total ³
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³ government spending so we will remain a country of free individuals. ³
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³ ³
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³ Robert Nile Hobbs, Pres., Techserve, inc. ³
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ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ
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ÖÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ·
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º Copyright (C) 1988, Techserve, inc. (Box 70056, Bellevue, WA 98007) º
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ÓÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄĽ
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ÖÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ·
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º This article may be reproduced in whole or part provided copyright º
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º notice is preserved. Persons concerned with this subject are in º
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º fact encouraged to send a copy of this to their congressmen and º
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º legislators with a request for action to cap governmental spending º
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º and to re-structure taxes in an economically balanced fashion. º
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ÓÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄĽ
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--------------------------------------------------------------------
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If you have comments or other information relating to such topics as
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this paper covers, please upload to KeelyNet or send to the Vangard
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Sciences address as listed on the first page. Thank you for your
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consideration, interest and support.
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Jerry W. Decker.........Ron Barker...........Chuck Henderson
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Vangard Sciences/KeelyNet
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--------------------------------------------------------------------
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If we can be of service, you may contact
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Jerry at (214) 324-8741 or Ron at (214) 484-3189
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--------------------------------------------------------------------
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Page 3
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