About Those New Taxes...

From the Stansberry & Associates Digest

From the front page of today's WSJ: "The new democratic-controlled Congress is looking to rein in looming tax increases on the middle class... by raising taxes on the upper-income households... Bush administration officials have signaled they may not oppose a likely method of covering those costs: Raising taxes on the nation's wealthiest citizens."

This kind of politicking is exactly what democracy brings.

The mob (the single-largest voting bloc) is, by definition, "middle-class." It will always demand more government services than it is willing to pay for. Thus, it will vote in favor of higher taxes – as long as someone else has to pay for them. None of this is surprising... but the big lie here is that these taxes will impact the wealthy. They will not. Wealthy people don't work, or at least they don't depend on wages for their lifestyle. Warren Buffett, for example, reports his $100,000 salary to the IRS... and pays next to nothing in income taxes compared to the amount his wealth increases each year.

Wealthy people, like Buffett, don't report "income." They report tax-sheltered returns, like muni-bonds, and they report dividend income. This kind of income doesn't trigger W-2 income taxes. That's why the elite powers behind the Democratic party are always in favor of higher income taxes: They won't be paying them. High taxes on income also reduce social mobility, making it very difficult for anyone to become wealthy from the income they get at work.

So, who will pay these new income taxes? Anyone who makes a high income at his job. Right now, high-income earners are paying about 46% of their incomes in taxes, when you measure federal, state, local, and sales taxes. The question the mob might want to consider is, at what point do these people – who make up the horsepower of our economic engine – simply quit? Would you go to work, and work to your full potential, if the government took more than half of what you earned?

Clearly, this kind of tax policy violates the ideal of being "equal before the law." But the worst damage it will cause will be economic. It provides people with a real incentive not to be an employee, which will make it more expensive to build efficient companies.

That's just what America needs...