Saturday, June 30, 2012

Tax Primer

Ok, I've had it with reading all the Obamacare "mandate" discussions over whether it is effectively a tax or not.  People seem to want it both ways.  Conservatives first screaming it was a tax when enacted then lambasting Chief Justice Roberts for calling it one while they want it to be called an individual "mandate" to make it unconstitutional under the Commerce clause.  Liberals claiming it's not a tax, but reveling in the SCOTUS decision.  Well, you can't have it both ways, choosing whatever to fit your want.

First of all, they (the government) already can and do tax everything, to include non-activity. Think about this Obamacare “mandate” as you would in terms of a mortgage “deduction”. The mortgage interest deduction can also be called a "mandate".  What they are telling you is you must buy a dwelling ~and~ you must take out a mortgage to get a “deduction”.   Simply renting one or buying your house for cash and not being in debt isn’t good enough.   You must have a mortgage or you will pay a "penalty" by being taxed more, plain and simple. And the bigger the mortgage and the more debt it puts you into forcing you to pay more interest (that translates into more profits for the banks which is also taxed) the better will be your reduction in the tax “penalty” for not having a mortgage.  It's win-win for the banks which sell more mortgages and the government which collects more taxes (they only get 15% on your income, but 35% of corporate profits) and a huge loss for you being forced to go into debt to buy something you may not need.  All in all, it's simply designed to take more money from you.  I won't go into how corporations lower their tax exposure today, but be assured that it is a pyrrhic victory for the consumer who must pay the corporate tax, regardless.

So, do you think the banks helped create the mortgage interest deduction, just as the insurance industry helped create Obamacare?

As the great Shakespeare once wrote:

What’s in a name? that which we call a rose
By any other name would smell as sweet;

The take-away from all this is that any time they take money from you for licenses, registrations, fines, penalties, fees for service, tolls, regulations, etc, etc… It is a tax. It's the same for when they graciously propose they're giving money back to you through deductions, subsidies, grants, loans...  Whatever.   It’s just the people who go to college to learn how to manipulate the language who come up with ingenious and deceptive words to call them and make us feel like we’re getting away with something when we don’t personally have to pay one of them ourselves. But they are all taxes nonetheless.

People say the mandate is unconstitutional because the Constitution does not allow them to force you to enter into commerce to buy something.  That is patently untrue.  Just like the mortgage interest deduction "forces" you to go into debt to buy a home or dwelling with a mortgage to avoid paying a tax penalty assessed to everyone who does not enter into a mortgage, many governmental agency regulations (which also result in taxes) force you to buy things that you do not need or want.  Just start with your local building department and look at their codes.  I sold a house with a small utility room in the back w/ access from the outside.  It had 3 steps.  According to the new building codes enacted after the house was built, I was forced to put a railing up to be able to sell my house to anyone entering into a mortgage with a bank or else hold the mortgage myself or wait for buyer paying cash (Yea, right!  In the current market, no less.).  So, I was forced to buy stuff (and taxed on it) and pay someone to construct it (which they were taxed on).  So it goes will nearly all governmental regulations, increasing the cost on all of us. 

Yes, Virginia, they do indeed tax the air you breathe.

It’s the same with corporate taxes. Corporations don’t pay one single penny in taxes. They merely collect them from you and I from every single thing we must buy.  Every rule and regulation imposed by the EPA under the authority of the Clean Air Act that corporations must spend money in order to comply is a tax on those corporations that we pay whenever we buy their products.

Every corporate tax goes into the cost of producing and selling something to us and the end price of the product is determined to create a profit.  The more corporations involved in producing something, the higher the cost of the product at the market.  The corporations which produce parts for final assembly and the trucking companies that get those parts to the end product manufacturers all pay corporate taxes that make the materials more expensive.  Then the manufacturers who put the parts together and the trucking companies again that get the end products to market pay more corporate taxes that get added into the price.  When politicians cry that we must hold corporations accountable for obscene profits by making them pay higher taxes, what they are really saying is the money is to come from your pocket.

Next week:  Economics for Dummies:  How minimum wage laws cost those getting "higher" wages.  Ha, ha.

(Update 18 Sep 12) - Interesting legal perspective from the Oct edition of Reason Magazine, "We Won in Our Effort to Preserve the Constitution".

(Update 30 Sep 12) - Joseph Farah highlights more unintended consequences of mortgage interest deduction.

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