THE ELITE DON’T PAY NO STINKING TAXES

18 comments

Posted on 5th July 2012 by Administrator in Economy |Politics |Social Issues

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Neil Howe with a new post that confirms my destruction of the middle class theme. The middle class always pays the taxes. In Italy they get hammered with VAT and payroll taxes. The non-working dregs suck off the teat of state and the ruling elite scoff at the thought of actually paying taxes. Ultra-wealthy pricks in Italy flaunt their wealth driving their $300,000 Ferraris. The ultra-wealthy pricks in the U.S., like Romney, hide their wealth in the Cayman Islands and pay a tax rate of 13.9%, while senior citizens living on a fixed income pay a total tax rate of 30%. Howe is too academic and too connected to the ultra-wealthy crowd to tell it like it is. The middle class is systematically being exterminated across the globe while bankers and their ultra-wealthy cronies party like its 1999. This will not end well for the elite.

Thoughts from Europe

I just got back from eight days in Italy, on a trip that featured a wonderful stay in Tuscany hosted by my friend John Mauldin, the world-famous market analyst. While there, I got to enjoy leisurely discussions of economics and history with a handful of eminent financial experts and political notables whom John manages to entice to his villa (among them, David Tice, Rob Arnott, and Newt Gingrich.) I brought along my daughter Giorgia, whose astounding fluency in Italian saved us all on more than one occasion. We saw several Euro 2012 soccer matches in village squares with large outdoor TV screens. Italy’s victory against Germany brought screams of joy. Italy’s crushing defeat against Spain brought groans and tears. Italian flags were hanging everywhere—soccer being perhaps the sole exception to the age-old rule that Italians would rather quarrel with each other than come together as a nation.

It has been some 35 years since I was last in Italy. This is obviously a much more educated and affluent country than the one I recall. The main “autoroutes,” for example, are vastly superior to those I drove on in the 1970s—with wonderful bridges and tunnels and high-speeded entrances and exits. Intercity trains are very fast and efficient. Poverty is much less visible. Yet there are signs of recent economic stress. Driving across the Apennines, from Siena to Ravenna, we saw construction projects halted before completion and large stretches of highway closed due to lack of maintenance.

The mix of traffic on Italian autoroutes is peculiar: It’s all either trucks or high-end cars like BMWs and Volvos. Because gas is heavily taxed and because the trains are so fast and inexpensive, the middle class doesn’t use the autoroutes. The resulting speed differential between the slowest truck and fastest Beemer is dangerously large, leading to deadly accidents when two vehicles collide. We witnessed the aftermath of one deadly accident only moments after it occurred.

As everyone knows, Italy has a large public debt and, even worse, a poorly performing economy that has not managed much growth over the past decade—putting it, along with Spain and Portugal, as one of the sick “Club Med” economies that worry Euro Zone leaders and traders. PM Mario Monti is trying to whip Italy back into shape by some well-time fiscal austerity measures. Against that backdrop, let me relate an astounding scene we witnessed while touring Florence. All of a sudden, just a block or two from the Duomo, we hear a roar of automobiles and then witness a parade of about 90 Ferraris come into town. After cruising in circles around the narrow streets for a half hour, they all then parked row by row in the middle of the Piazza della Signora, right next to the Medicis’ Palazzio Vecchio and the copy of Michelangelo’s David. All the drivers, dressed in beautiful Italian racing uniforms, then just hung out for a while in the local cafes.

Now think about this for a moment: Each of these Ferraris (depending on the model) cost about $175,000 to $390,000, so that the total value of that parked machinery was somewhere in the range of $20 to $30 million. Wow. Does this look like a nation that has no wealth? Or rather like nation whose elite still has lots of fancy toys to play with while its public sector cannot make ends meet. Most of Italy’s fiscal woes are due to an unsustainable growth in total government spending (now over 50 percent of GDP, including an amazing 15 percent of GDP just in public pensions). Yet some of these woes are also due to undertaxing—or at least Italy’s chronic failure to enforce tax laws, especially on capital and business income. (For the heavily taxed middle class, which pays through VATs and payroll taxes, compliance is not a problem.) PM Monti has started a campaign to stigmatize tax evasion. He has also authorized dragnets that stop drivers in fancy cars (like Ferraris) and check their records to find out if they are hiding income. Many of the southern European economies suffer from chronic underpayment of taxes. (Some of you may recall the recent scandal in Greece over its tax on swimming pools, which almost no one pays—even after a satellite image confirmed tens of thousands of pools within the Athens area alone!)

Is it quixotic ever to expect the Italian elite to pay their fair share? In a culture which historically winks (both on the right and the left) at the dandy or anarchist who cleverly manages to defy authority? We will see. Super Mario is trying his best to reconstruct this cultural heritage. Some Italians vigorously support him. Some despise him as the technocratic errand-boy sent by Angela Merkel to make Italy sober up, dry out, and do Germany’s bidding. (Good thing we beat them in soccer!) Still others support Beppe Grillo, now number one in some polls, the comedian-turned-politician who denounces all current parties in favor of something he calls “hyper democracy,” a regime of total accountability and disgust at corruption. Grillo’s Five-Star Movement has some striking parallels in Germany’s Pirate Party. Both, interestingly, are disproportionately popular among young Gen-X voters. In future posts, I hope to say more about this multi-national movement.

One thing is certain: The image of Ferrari drivers being required to stop at Italian roadblocks and answering awkward questions about their income is an apt image of the 4T coming to Europe. In the United States, we do not have the same problem with tax compliance (at least not to the same degree). But if we did, where would we place our roadblocks? Maybe on drivers of Land Rovers. Or on amazon purchasers or Bugaboo baby strollers. I’m just guessing here.

One last note. In the Tuscan countryside, one notices virtually no new construction. Occasionally, yes, one sees an old building being retro-fitted with new interiors and amenities. But taking new pristine woods or fields and cutting trees or bulldozing roads to build a new home? Nope. It just doesn’t happen. The reason: Iron-clad regulations against any new development. Now on the one hand, you can marvel at this regulatory regime as a guarantee of a verdant and pristine countryside for generations to come. Or you can reflect on how easy these regs are to implement in a low-fertility society whose working-age population (age 15 to 64) has just begun to enter negative growth, according to the UN official projections. This declining population trend is expected to accelerate in the decades to come. Unless Italy’s fertility rises again, Italy will lose roughly two-thirds of its current population by the year 2100. As western Europe discovered during late antiquity (from the fourth to eighth century), it’s easy to leave nature alone when your numbers are shrinking.

 

18 Comments
  1. Administrator says:

    Submitted by Charles Hugh Smith from Of Two Minds

    The Real-World Middle Class Tax Rate: 75%

    If we include all taxes, the real-world tax rate is much higher than the “official” income tax rate.

    For those Americans earning between $34,500 and $106,000, the real-world middle class tax burden in high-tax locales is 15% + 25% + 5% + 15% + 15% = 75%. Yes, 75%.

    Before you start listing the innumerable caveats and quibbles raised by any discussion of taxes, please hear me out first. Let’s start by defining “taxes” as any fee that is mandated by law or legal necessity. In other words, taxes are what is not optional.

    If we include all taxes, the real-world tax rate is much higher than the “official” income tax rate. These “other taxes” vary from nation to nation. France, for example, has a “television tax.” It is mandatory, and since virtually every household has a TV this operates as a universal tax. The argument that this is “optional” is specious.

    In every other advanced democracy, basic universal healthcare is paid by tax revenues. In the U.S., healthcare insurance is “optional” but this too is specious: in the real world, private healthcare insurance is mandatory because the alternative–having zero insurance–places your entire net worth and income at risk of catastrophic loss.

    Having no healthcare insurance only makes sense if you have no real assets and a low income. At that point, your care will be provided by the taxpayer-funded Medicaid program, which is the default universal-care program in the U.S.

    For this reason I consider the cost of private healthcare insurance in the U.S. the equivalent of a tax. We pay over $12,000 annually for barebones healthcare insurance, which amounts to about 15% of our gross income. Some countries pay for healthcare with a 15% tax, here we pay the 15% directly. There is no difference except the process of collecting the 15%. (The only real difference is that healthcare costs twice as much per person in the U.S. because the system is operated by cartels whose business model is fraud, opaque pricing and the elimination of competition via Central State regulation.)

    Yes, the super-wealthy can absorb a $150,000 hospital bill, but the 99.9% cannot. Thus any claim that healthcare insurance is “optional” is specious.

    Property tax is mandatory. Some countries have no property tax, others do. Once again, only counting social-insurance and income taxes as the “official tax rate” is horrendously misleading. For countries without property taxes, the revenues are collected as value-added taxes (VAT) or higher income taxes. One way or another, the services paid by property taxes in the U.S. are paid by other tax schemes in countries without property taxes. So property taxes must be included in any accounting of total taxes paid.

    Many of us who reside in states such as Illinois, New York, New Jersey and California pay $12,000 or more annually in property taxes. That is about 15% of our household income.

    Renters pay the property taxes indirectly, but to the degree that rents would be lower if property taxes were eliminated and the tax burden shifted to a VAT, then renters “pay” the tax just like property owners.

    Employees looking at the paycheck stubs do not see the entire tax paid on their labor. Empoyees may wonder why their net pay has stagnated for decades. One reason is that the total compensation costs of employees has risen substantially.

    To give but one example of many, Social Security taxes were once modest, 3% paid by the employee and 3% paid by the employer for a total of 6% of the wage. Now the total for Social Security (12.4%) and Medicare (2.9%) is 15.3%. Self-employed people pay the total 15.3% as “self-employment tax.” This is the real-world tax burden of Social Security and Medicare.

    The 15.3% Social Security/Medicare tax starts with dollar one of net income. The Social Security tax goes away above around $106,000 in income, the Medicare tax does not.

    Most employees do not know how much healthcare insurance “tax” is paid by their employer. To the degree that wages would rise if the healthcare “tax” was not paid by employers, then employees pay for this “tax” indirectly. To act like it isn’t a mandatory part of compensation costs is both specious and misleading.

    The only transparent way to calculate the total tax burden is to count all taxes (or equivalent) paid by self-employed property owners. Not counting the indirect taxes of healthcare and property taxes is misleading to the point of blatant misrepresentation.

    The basic Federal income tax gives each individual earner $9,500 in standard deductions and exemptions. The tax rate for all income above that is:

    $1 to $8,500: 10%
    $8,501 to $34,500: 15%
    $34,501 to $83,600: 25%
    $83,601 to $174,400: 28%
    $174,401 to $379,150: 33%
    Above $379,151: 35%

    These rates are scheduled to rise at the end of 2012 unless Congress acts to maintain rates at current levels.

    Many households have gigantic interest deductions stemming from gigantic mortgages, but let’s set aside outsized debt-based tax deductions as far from universal.

    Above a rather modest $34,600 in taxable income and up to around $106,000, the real-world middle class tax burden in high-tax American locales is 75%:

    Social Security and Medicare: 15.3%
    Federal income tax: 25% (28% above $83,600)
    State income tax: 5% (mid-range)
    Healthcare insurance: 15%
    Property tax: 15%

    15% + 25% + 5% + 15% + 15% = 75%

    Clearly, the percentage of income devoted to healthcare insurance and property taxes declines as income rises. Someone earning $200,000 has not only dropped the 12.4% Social Security tax for income above $106,000, healthcare insurance and property taxes as a percentage of their income drops from about 30% for those earning around $86,000 to 15%.

    We can argue fruitlessly about how many tax angels can dance on the head of a pin, but all the caveats and quibbles don’t change the basic fact that real-world tax rate for the “middle class” earning more than $34,500 in taxable income in high-tax locales is a confiscatory 75%.

    Please don’t tell me the U.S. is a “low-tax” nation; I might suffer a breakdown that I couldn’t afford due to exclusions in my “voluntary” healthcare coverage.

    Well-loved. Like or Dislike: Thumb up 9 Thumb down 0

    5th July 2012 at 12:55 pm

  2. Colma Rising says:

    Time to dig up some Veblen quotes to indirectly point out that flaunting wealth is an impulse relegated to sentient apes papering over their defenseless inner woman….

    Like or Dislike: Thumb up 3 Thumb down 1

    5th July 2012 at 1:13 pm

  3. Administrator says:

    fat-cat-bankers.jpg

    Well-loved. Like or Dislike: Thumb up 9 Thumb down 0

    5th July 2012 at 1:41 pm

  4. Administrator says:

    The LIBOR scandal is shaking the remaining confidence that people have in the financial system.

    It is the equivalent to rigging the US benchmark interest rates with advance insider knowledge to benefit the banks’ personal accounts to the loss of everyone else.

    Oh wait, they already do that, don’t they?

    Bear in mind, the Federal Reserve is a private institution, owned and managed by the Banks. The government itself uses the bankers to achieve their own policy ends, both domestically and abroad, and turns a blind eye to their more brazen extracurricular privateering for their own accounts out of professional courtesy, and blackmail.

    What is equally outrageous is the long term manipulation of gold and silver, which are also foundational benchmarks of the monetary system.

    The manipulation in the metals has been exposed for some time now, and is virtually in plain sight.

    The same parties involved in LIBOR are involved in manipulation across multiple markets, actively mispricing risk and misallocating capital to serve the greed of the privileged few.

    And the pity is so few people get it. But they will. As I had forecast, this is the year of revelations.

    When it comes out they will say, ‘we did it for the sake of the system.’

    And don’t be a sap, because after all, everybody knows.

    JESSE

    Well-loved. Like or Dislike: Thumb up 8 Thumb down 0

    5th July 2012 at 1:43 pm

  5. ASIG says:

    FYI — Once you reach retirement age you no longer have to pay the TV tax in France. Now isn’t that special. I think I’ll buy a vacation home in France. Oh-No, wait, forget that.

    Like or Dislike: Thumb up 4 Thumb down 0

    5th July 2012 at 2:06 pm

  6. Colma Rising says:

    If the uber wealthy could figure out how to tax baby-batter deposits given to their expensive trophy-wives, expense free, by poor hunks such as myself, we would have that deficit under control in a matter of weeks.

    Well-loved. Like or Dislike: Thumb up 5 Thumb down 0

    5th July 2012 at 2:08 pm

  7. Colma Rising says:

    Those Prada heels in the air, perched behind my ears, are like displaying the Hope diamond on a big mac box.

    Like or Dislike: Thumb up 4 Thumb down 0

    5th July 2012 at 2:21 pm

  8. Administrator says:

    “We can’t solve problems by using the same kind of thinking we used when we created them.”

    —Albert Einstein

    Like or Dislike: Thumb up 3 Thumb down 0

    5th July 2012 at 3:39 pm

  9. Llpoh says:

    It is the fucking government expenditure that is the real problem. But even cutting it in half will not help – they already spend twice what they take in. To be effective, they need to cut expenditure by 75 percent. Bwahahahaha. That’s not gonna happen.

    They need to double taxes to balance the budget. That means taxes on the middle class need to be 150%. No problemo.

    Well-loved. Like or Dislike: Thumb up 6 Thumb down 0

    5th July 2012 at 7:21 pm

  10. Llpoh says:

    Seriously, there is no good answer except to slash spending and social welfare. The top 10 % already pay almost half of fed taxes – and that is fair how? The next 40% pay the rest – and that is also fair how, give the bottom 50% pay – you guessed it- zero? We are only talking fed taxes here, of course.

    A total slash and burn of government spending is required. Taxes will NEVER cover current expenditure. Never. For the FSA – too bad for you. The money to keep the FSA going simply is not there. Same goes for the military and government drones and those ex-drones sucking up 50 years of pension. It is what it is.

    BTW – I for one feel no compunction to pay for those that will not work. If they starve they starve. The operative word there is “will”,not can.

    Like or Dislike: Thumb up 5 Thumb down 1

    5th July 2012 at 7:35 pm

  11. Colma Rising says:

    FlagGreed.gif

    Like or Dislike: Thumb up 4 Thumb down 0

    5th July 2012 at 8:07 pm

  12. Colma Rising says:

    Somebody’s got to stir the pot around here.

    Like or Dislike: Thumb up 3 Thumb down 0

    5th July 2012 at 8:08 pm

  13. AWD says:

    Lipoh:

    A 100% tax on those making $250,000 a year (everyone, if it could be done, and progressives would like to) would only generate about $800 billion. The deficit is, what, $1.4 trillion? A 90% on every person with a job might get there, but I doubt it.

    Obamacare is going to break the bank, and I couldn’t be happier. It’s time for a big reset, piano wire and lampposts. There is no other option. If you don’t work, you don’t eat.

    Thank God for Obamacare
    obamacare.jpg

    Like or Dislike: Thumb up 2 Thumb down 0

    5th July 2012 at 8:15 pm

  14. AWD says:

    Almost $16 trillion in debt. The U.S. of A is bankrupt. So, why not spend $9 trillion on Obamatax? Hell yea!

    Running-on-Empty-1.gif

    Like or Dislike: Thumb up 2 Thumb down 0

    5th July 2012 at 8:18 pm

  15. Jmarz says:

    Llpoh

    Is there a business commentary in the works? I enjoyed reading your short stories on your experiences as a small biz entrepreneur.

    Like or Dislike: Thumb up 1 Thumb down 0

    5th July 2012 at 8:21 pm

  16. AWD says:

    “Add to this the projected costs of Obamacare ($17 Trillion in estimated long term unfunded obligations), and what you get is a broke-ass country”

    I’m sorry I misquoted. Obamatax is $17 Trillion, not $9 trillion. $16.8 trillion for bureaucracy, 200 billion for actual healthcare.

    Obamatax is more than our current $16 Trillion deficit. Game over.

    Like or Dislike: Thumb up 3 Thumb down 0

    5th July 2012 at 8:28 pm

  17. Nonanonymous says:

    I’ve stated this before, the national debt could be paid off by assessment, i.e. a percentage of wealth, with a balanced budget amendment and requiring a two thirds majority in both houses of Congress to raise taxes.

    I’ve also stated that adding a national VAT and national wealth tax would distribute the tax burden across the spectrum of economic activity, instead of placing it directly on the shoulder of wage earners, although the best solution would be to abolish the income tax.

    Ron Paul would begin to move the country in the direction of less government by cutting spending. The average citizen’s lives haven’t gotten bad enough to convince enough of them to vote against the status quo. After November, it will be too late, as whatever reset is going to occur is going to happen in a two to three year time frame, maybe sooner, as soon as September, if financial markets implode, or later, within two decades as demographics simply overwhelm the entitlement system.

    The vote in November will be a choice between Socialist Marxism and Capitalism. Socialism hasn’t worked anywhere it’s been tried, ever. Free market Capitalism needs to decentralize, which is exactly what the status quo doesn’t want. For them, the elite, by divine providence or otherwise, the choice is simple, relinquish control or be destroyed.

    Milton’s Paradise Lost includes the phrase, “it’s better to reign in hell, than serve in heaven”, and this seems to be the mindset of the controlling elite. These unwitting dupes know not whom they serve, for their master, the Devil, will as surely destroy them as he would those of us remaining.

    Like or Dislike: Thumb up 1 Thumb down 0

    5th July 2012 at 8:12 am

  18. Gloria says:

    alot of noise about nothing. the idea of money and especially of “debt” is a deception. think about it: it´s all just a bunch of paper, worth nothing.

    but to print this paper and distribute it, “costs” more money, which is sloughed off onto the government (i.e.: us) in the form of “debt”.

    It´s all a lie folks, this whole system.

    One day, when the elites have pillaged mother earth to the core and taken over the water and general energy supply and after they have plundered our bank accounts with false charges for taxes etc., they will decide that – there is no more money: that it has lost it´s value (which it never had in the first place).

    We will then live from a credit card. Those who obey will get “credit”, those who do not, will starve, freeze or god knows what – to death.

    Like or Dislike: Thumb up 2 Thumb down 0

    5th July 2012 at 9:35 am

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