Ok. Picking up where I left off, there is the suppression angle. This can be confusing, but I’m going to say it anyway. There are several kinds of “revenue models”. A few are: profit, non-profit, regulated, and governmental (for lack of knowing the right term, which might be called “forced or involuntary non-profit”).
In profit, the model is simple. You pay out overhead (materials, labor, facilities) and you charge for the product you deliver (be it a good or service). The difference between what you charge and what you pay out is the money you keep. This system thrives on competition, and where competition is lacking, it can be tough on the consumer.
In non-profit, the model is also simple. It is as above, though you attempt to match your charge and pay out as closely as possible so you keep your prices low. You are also allowed to accept “donations”, which is in essence receiving capital without producing a product or service (or the payee has you give that good or service to someone else).
In the regulated model we start to get more complex. I used to work for a utility company in San Diego. It was a regulated business. That is, because electricity was a monopoly, the government stepped in and regulated how much the company could charge so they didn’t gouge their clients (the theory being that you can’t get your electricity from somewhere else, so they could charge whatever they wanted). The government solved this by stating before the year started how much the company could “make”. They’d say, for example, you can have a 25% profit over materials. Or (and my math is not perfect here but illustrates close enough), if you spent at total of $75 Millon on materials (fuel, power stations, etc.) you were allowed to charge a total of $100 Million across all your customers. You had to fit your labor costs and other expenses into that $25 Million margin, and you could be given “bonuses” if you proved you had worked more efficiently or done certain environmental things. Thus, you actually made profits by being more efficient, not by producing more or servicing better or charging higher rates. This is a simplified model with some flaws, but close enough for this illustration.
Finally, governments operate on a percentage tax basis. That is to say, They get a percentage of the income of every citizen and business in its country. Let’s over-simplify and say it’s 20% (its way higher than that for “rich” people and companies, and way lower than that for “poor” people and companies). You would think that it would behoove the government to have a thriving economy where people are making as much money as possible. Thus, they would bring in more taxes. The more money you make, the more money they make. Right?
Here’s the problem. There is a perception that “ceteris paribus” applies to income. There is a narrowed outlook, and it is preyed upon by a certain segment of society. The government promotes the idea that if it needs more money, it should raise taxes. After all, if you want all the programs the government provides (welfares in the form of direct giving or medical subsidy, services in the form of roads and regulations, defense of our country, etc.) you need to fork over and pay for them. We understand the fork over and pay for it concept. We can see it. We can put our hands on it. Or, at least, we can see it as others put their hands on it.
Unfortunately, not “all other factors remain the same”. Let’s say the simplified tax rate is 20% across the population (just bear with me here, I know it’s actually higher), and taxes are increased to 25%. What happens? A company that is breaking even has to lay off workers. After all, they can’t sell equipment for regular income, they can’t suddenly force people to buy more, and they can’t raise THEIR prices without affecting the number of products and services they sell. So let’s say three workers get laid off. Two “blue” and one “white” collar. The net loss of those workers in direct taxed income is (again in the simple model) equivalent to the increase on TWELVE other people. Reverse that in simplistic terms, and with the HIRING of three people, you have the tax benefit of reducing taxes on TWELVE.
Now, before you get mad at the simplistic angle and say I’m an incompetent boob, here comes my entire point.
We’re talking about disposable income. Consider how much disposable income YOU have. That is, money you have left over every month. You know, that isn’t committed to anything. If the government increases taxes, that amount is going to shrink (unless it’s already negative). If the government decreases taxes, that amount is going to grow. If you have $100/month in disposable income (please don’t laugh, just go with me here) and the government increases taxes on your $50,000 income from the current 25% to 30%, you have to come up with $2500 more across the year. That’s just over $200/month.
Now... let’s say the government REDUCES taxes 5% instead. Your disposable income goes from $100/month to OVER $300 A MONTH. How many of you are already spending that money in your head. Saying to yourself: “wow, I would build a deck, buy a new entertainment center, get a new computer, go on vacations... think about it, in three months, if you saved your extra each month, you’d have $1000. Trust me, I was in this position a few months ago, and we had a great plan on the things we were going to do – and we did it!
Where does that money go? Into more companies, who have to hire more people, who have to pay them better to keep them from other companies who are hiring, all of whom pay taxes. Not to mention the companies THEMSELVES are paying more taxes, even if they DON’T hire more people, because they are taxed on their profits too. And higher than you are. So the $200 the government would have gotten 25% out of from you is $200 the government is going to get 35% out of when it’s extra profits for a company.
I know all this is simplistic, but here’s the sinister part of all this. When you realize that after every major tax cut in history the government has ended up with MORE money instead of less, there is only one reason to actually increase taxes, or at least only one reason NOT to decrease taxes. To remove your disposable income. After all, when you get right down to it, that kind of money changes your mood. Scared, panicked, or angry people are much easier to manipulate than happy, healthy, well-adjusted people.
I don’t think there’s some Vast Left-Wing Conspiracy out there, I think it’s done by a bunch of individuals, with the same goals, who aren’t so much helping each other or doing these things in a targeted, goal-oriented, sinister way, but rather it is just one step ahead of being subconscious. They’re doing it because it makes their jobs easier.
Heads up for the “work ethic” observation in a post coming soon. Warning, these posts are going to become tougher and tougher to read, not easier. I will probably be blogged right out of a readership.
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