With all the talk about taxing the rich, we hear very little talk about taxing the poor. Yet the marginal tax rate on someone living in poverty can sometimes be higher than the marginal tax rate on millionaires.
While it is true that nearly half the households in the country pay no income tax at all, the apparently simple word “tax” has many complications that can be a challenge for even professional economists to untangle.
If you define a tax as only those things that the government chooses to call a tax, you get a radically different picture from what you get when you say, “If it looks like a tax, acts like a tax and takes away your resources like a tax, then it’s a tax.”
One of the biggest, and one of the oldest, taxes in this latter sense is inflation. Governments have stolen their people’s resources this way, not just for centuries, but for thousands of years.
Hyperinflation can take virtually your entire life’s savings, without the government having to bother raising the official tax rate at all. The Weimar Republic in Germany in the 1920s had thousands of printing presses turning out vast amounts of money, which the government could then spend to pay for whatever it wanted to pay for.
Of course, prices skyrocketed with vastly more money in circulation. Many people’s life savings would not buy a loaf of bread. For all practical purposes, they had been robbed, big time.
A rising demagogue coined the phrase “starving billionaires,” because even a billion Deutschmarks was not enough to feed your family. That demagogue was Adolf Hitler, and the public’s loss of faith in their irresponsible government may well have contributed toward his Nazi movement’s growth.
Most inflation does not reach that level, but the government can quietly steal a lot of your wealth with much lower rates of inflation. For example a $100 bill at the end of the 20th century would buy less than a $20 bill would buy in 1960.
If you put $1,000 in your piggy bank in 1960 and took it out to spend in 2000, you would discover that your money had, over time, lost 80 percent of its value.
Despite all the political rhetoric today about how nobody’s taxes will be raised, except for “the rich,” inflation transfers a percentage of everybody’s wealth to a government that expands the money supply. Moreover, inflation takes the same percentage from the poorest person in the country as it does from the richest.
That’s not all. Income taxes only transfer money from your current income to the government, but it does not touch whatever money you may have saved over the years. With inflation, the government takes the same cut out of both.
It is bad enough when the poorest have to turn over the same share of their assets to the government as the richest do, but it is grotesque when the government puts a bigger bite on the poorest. This can happen because the rich can more easily convert their assets from money into things like real estate, gold or other assets whose value rises with inflation. But a welfare mother is unlikely to be able to buy real estate or gold. She can put a few dollars aside in a jar somewhere. But wherever she may hide it, inflation can steal value from it without having to lay a hand on it.
No wonder the Federal Reserve uses fancy words like “quantitative easing,” instead of saying in plain English that they are essentially just printing more money.
The biggest and most deadly “tax” rate on the poor comes from a loss of various welfare state benefits– food stamps, housing subsidies and the like– if their income goes up.
Someone who is trying to climb out of poverty by working their way up can easily reach a point where a $10,000 increase in pay can cost them $15,000 in lost benefits that they no longer qualify for. That amounts to a marginal tax rate of 150 percent– far more than millionaires pay. Some government policies help some people at the expense of other people. But some policies can hurt welfare recipients, the taxpayers and others, all at the same time, even though in different ways.
Why? Because we are too easily impressed by lofty political rhetoric and too little interested in the reality behind the words.
Vote for me, the other guy’s an asshole! 🙂
Vote Me, I will grab “free” stuff for you from evil rich bastards! 🙂
John Stossel: Politicians claim they make our lives better by passing laws. But laws rarely improve life. They go wrong. Unintended consequences are inevitable.
I wonder how unintended they are, really…But that’s me I’m much more cynical. 🙂
Most voters don’t pay enough attention to notice. They read headlines. They watch the Rose Garden signing ceremonies and hear the pundits declare that progress was made. Bipartisanship! Something got done. We assume a problem was solved.
Intuition tells us that government is in the problem-solving business, and so the more laws passed, the better off we are. The possibility that fewer laws could leave us better off is hard to grasp. Kids visiting Washington don’t ask their congressmen, “What laws did you repeal?” It’s always, “What did you pass?”
And so they pass and pass — a thousand pages of proposed new rules each week — and for every rule, there’s an unintended consequence, or several.
It’s one reason America has been unusually slow to recover from the Great Recession. After previous recessions, employers quickly resumed hiring. Not this time. The unemployment rate is still near 8 percent. It only fell last month because people stopped looking for jobs.
Dan Mitchell of the Cato Institute understands what’s happening.
“Add up all the regulations and red tape, all the government spending, all the tax increases we’re about to get — you can understand why entrepreneurs think: “Maybe I don’t want to hire people. … I want to keep my company small. I don’t want to give health insurance, because then I’m stuck with all the Obamacare mandates.” We can see our future in Europe — unless we change. Ann Jolis, who covers European labor issues for The Wall Street Journal, watches how government-imposed work rules sabotage economies.
“The minimum guaranteed annual vacation in Europe is 20 days paid vacation a year. … In France, it starts at 25 guaranteed days off. … This summer, the European Court of Justice … gave workers the right to a vacation do-over. … You spend the last eight days of your vacation laid up with a sprained ankle … eight days automatically go into your sick leave. … You get a vacation do-over.”
It’s only “fair”, right? 🙂
Such benefits appeal to workers, who don’t realize that the goodies come out of their wages. The unemployed don’t realize that such rules deter employers from hiring them in the first place.
And the media sure as hell isn’t going to tell them. Those Evil Capitalist bastards!
In Italy, some work rules kick in once a company has more than 10 employees, so companies have an incentive not to hire an 11th employee. Businesses stay small. People stay unemployed.
“European workers have the right … to gainful unemployment,” says Jolis.
Both European central planners and liberal politicians in America are clueless about what really helps workers: a free economy.
Because they want everything to be “fair” which ends up being very authoritarian. The very opposite of free.
Funny how that worked out… 🙂
The record is clear. Central planners failed, in the Soviet Union, in Cuba, at the U.S. Postal Service and in America’s public schools, and now they stifle growth in Europe and America. Central planning stops innovation.
Yet for all that failure, whenever another crisis (real or imagined) hits, the natural instinct is to say, “Politicians must do something.”
In my town, unions and civil rights groups demand a higher minimum wage. That sounds good to people. Everyone will get a raise!
The problem is in what is not seen. I can interview the guy who got a raise. I can’t interview workers who are never offered jobs because the minimum wage or high union pay scales “protected” those jobs out of existence.
The benefit of government (SET ITAL) leaving us alone (END ITAL) is rarely intuitive.
Because companies just want to make a buck, it’s logical to assume that only government rules assure workers’ safety. The Occupational Safety and Health Administration sets safety standards for factories, and OSHA officials proudly point out that workplace deaths have dropped since it opened its doors.
Thank goodness for government, right? Well, not so fast. Go back a few years before OSHA, and we find that workplace deaths were dropping just as fast.
Workers are safer today because we are richer, and richer societies care more about safety. Even greedy employers take safety precautions if only because it’s expensive to replace workers who are hurt!
Government is like the person who gets in front of a parade and pretends to lead it.
In a free society, things get better on their own — if government will only allow it.
And this government most certainly won’t. But that’s what the American people wanted, so let them lie down in that bed of mediocrity and socialist utopias.
Maybe all the bed bugs will finally shock them, but I doubt it.
Unenlightened Narcissism has a way of blind the stupid to reality and that is surely the main focus these days.