Yesterday I finished a monologue by Manuel F. Ayau titled Not a Zero-Sum Game in which he explains the basis of economics with common sense passages like:
Understanding that in a market economy a person can only get rich by enriching others torpedoes claims to the moral high ground of those who propose that government redistribution of wealth is a means to alleviate poverty.
[In a market economy], one cannot "make a fortune" at the expense of others, but only by offering others a better deal and, thereby, making them richer.
On some levels some type of wealth is built through fraud (see the mortgage industry over the past 5 years), cronyism (see Iraq), and other nefarious means, but on average most entrepreneurs create wealth through efficiency improvements. Google makes so much money because they make advertising more targeted and automated. I do well because I help people get more exposure on Google at a rate much cheaper than what it costs to buy that traffic directly from Google.
You can take wealth creation and distribution as a concept and move it away from our own industries to everyday trade and consumption. For example, I had an eye appointment and just got my prescription today. Rather than paying retail in the store I decided to hunt online to save money. And that worked out well because
- I found a discounter
- that offered free shipping on a bulk purchase
- there was no sales tax
- I ordered enough that I got a $60 rebate coupon from the manufacturer
- I found an affiliate link for a coupon that got me another 15% off my order (before the $60 rebate)
The net result is that I saved hundreds of dollars today due to the efforts of the above people. But if the government takes away their incentive to take risks in the hopes of profit (through higher taxes), then those cost savings to me as a consumer disappear. Thus I pay more to get less. Worse yet, as government spending increases it drives up the costs in most marketplaces it touches because it is not as efficient as individuals are.
Brian Provost highlighted a WSJ article about Obama's tax plan.
As ugly as that chart is, the situation is even uglier than that. If I am only taking home ~ 37% of my earnings and many of my customers are only getting 37% I get hit both directly and indirectly...I get a smaller piece of a smaller piece.
The WSJ article also highlights 2 more frighting issues
While Mr. Obama also proposes an alternative minimum tax (AMT) patch, he could instead wind up with the permanent abolition plan for the AMT proposed by the Ways and Means Committee Chairman Charlie Rangel (D., N.Y.) -- a 4.6% additional hike in the marginal rate with no deductibility of state income taxes. Marginal tax rates would then approach 70%, levels not seen since the 1970s and among the highest in the world.
And the article also states that Obama is a protectionist who dislikes free international trade.
Mr. Obama has also opposed other important free-trade agreements, including those with Colombia, South Korea and Central America. He has spoken eloquently about America's responsibility to help alleviate global poverty -- even to the point of saying it would help defeat terrorism -- but he has yet to endorse, let alone forcefully advocate, the single most potent policy for doing so: a successful completion of the Doha round of global trade liberalization. Worse yet, he wants to put restrictions into trade treaties that would damage the ability of poor countries to compete.
All trade is from individual to individual. When intermediaries exist it is typically because they lower cost and/or make trade more efficient (like the use of cash does). If we block foreign trade we increase the cost of goods and services to our poor because they will not be able to benefit from the division of labor driven by lower overseas labor costs. Read Underdeveloping Indiana to see how absurd blocking free trade is as an international economic strategy.
The true reasons the US economy is so screwed up right now is because the government is already too big, we use our military in an attempt to force our view of the world onto other countries (economically inefficient and ineffective), and the average American feels entitled to consume more than they can afford while suffering from uncompromising intellectual sloth.
- I can't vote for McCain because I would feel like I was promoting the spread of unjust wars, torture, and murder.
- But I can't really vote for Obama if he wants to kill both my incentive to work and the economy.
- I wish Ron Paul would have been nominated. :(
If you live in the United States, at what point would a tax hike be high enough to make you work less or move overseas? A 65% to 70% tax rate would probably do it for me!
[Update: a reader pointed out a couple other tax charts that did not look as scary as the above charts. You would think you could trust the WSJ, but I probably should have done more research before posting this...too often I let emotions get the best of me.]
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