By Sean Hyman
Last Wednesday, my CPA finally sent me my tax forms so I could sign them and send them in by today. Man, I couldn’t believe how much I owed Uncle Sam this year.
Also, my CPA’s timing couldn’t have been worse.
My paperwork arrived just hours after President Obama revealed his new tax plan to the world - a plan that includes less tax breaks and higher taxation to come.
The president announced a $4 trillion deficit reduction plan, which on the surface sounds like a good thing. But this plan will force the Bush tax cuts to expire, and it calls for an ADDITIONAL $1 trillion to be taken (I mean taxed) from the top two income brackets.
I’m by no means a millionaire. But this new tax plan is going to affect me and you - and 300 million or so other Americans - whether they realize it or not.
In fact, it could nudge our still-fragile economy off a cliff. Let me explain...
Why Do They Think the Government Can Manage This Trillion Better than Other Trillions They’ve Wasted?
If you had $1 trillion to “fix” the economy, would you rather give it to savvy businessmen who would use it to expand and create countless jobs, or our “efficient” government to use at their discretion?
Personally, I’d choose the businessmen every time.
So that’s mistake #1. Obama is increasing the taxes for the wealthiest people in the country... a.k.a the businessmen who create jobs for the rest of us. He’s also going after businesses with his proposal to remove some business tax breaks. He’s cutting industry off at the knees. Take more of that money away and you create unemployment (more on that in a moment).
Mistake #2: Obama mentioned he wants to make the tax system fairer. That sounds great in theory, but here’s his thinking on what’s “fair.”
Obama proposes taking away all the tax breaks you get on your mortgage interest. He also wants to remove all the tax benefits you receive when you give some money away to churches and other charities.
Sound fair to you? In my world, that’s not fair.
Mistake #3 lies in the IRS’s definition of “rich.” It’s simply not rational. Obama wants to raise taxes for the top two tax brackets. That includes any single person making over $200,000 a year, or any married couple making $250,000 a year.
While that may be decent money in the great state of Texas where I live, nobody in California or New York making $200,000 a year would consider themselves “rich.” The cost of housing alone in those areas is so outrageous. That $200,000 may just be enough to consider themselves “middle-class.”
The Rich Create the Jobs...
Over-Tax Them & It Creates Unemployment
When you put it all together, it’s hard to disagree with the Congressman from Ohio who remarked, “Any plan that starts with job-destroying tax hikes is a non-starter.”
This sounds like a man who has his head screwed on straight. In fact, if “sound economics” could talk, I’m guessing it would say that too.
You see, most everyone works for a rich person. How many poor people employ others? None that I know of.
So if you over-tax the rich, you eat away at the heart of the job-creating system. Tax rich people more, and they have to make up for that somewhere. Where is the easiest place to make up for the additional loss of tax money? It’s cutting payrolls.
In the end, tax increases take money away from businessmen and hand it over to the government. Sadly, the government hasn’t been good at managing money in years (case in point: the $14 trillion in debt that this $4 trillion plan is not even likely to help).
Why Obama Could Learn a Few Things from Reagan
Former president Reagan knew how money traveled around in the economy.
Give the rich tax breaks and what do they do? They use the extra money to expand their businesses. They have to hire more people to do this, so more people find jobs. Meanwhile, their current employees get promoted and enjoy higher salaries. In the end, everyone made more money.
When businesses and individuals make more money, you can charge them more in income taxes. So the government makes more money on the back-end. But since everyone is making more money anyway, it’s easier to take.
As a side effect, businesses grow faster. That increases corporate earnings. That gives the stock market a boost - while you’re making more money for the government. Overall, you have a healthier economy.
On the other hand, tax increases are simply transferring wealth from people to the government. The government is one of the most wasteful, inefficient entities around, so that money goes nowhere.
That’s why no matter how high they have ever taxed the people, they still can’t work with that amount of money. If you or I got raise after raise - and we still couldn’t live within our means - our neighbors would think we were idiots. Yet the U.S. government does it and it’s okay? Not in my book!
Obama Reminds Us to Get the Heck out of the Dollar
Think the economy is shaky now?
Take away people’s mortgage interest deductions. Take away the breaks on their charitable contributions. Take away their corporate tax breaks. Then see if we’re on the road to economic expansion and lower unemployment.
Personally I don’t see how that’s possible. If anything I believe it could be a catalyst to send stocks plummeting later this year.
It’s also one more reminder to take some assets and get the heck out of the dollar.
Other nations don’t have these bizarre tax practices - or our dreams of paying off our debts without any kind of fiscal management. That’s why countries like Norway, Sweden, and Australia have some of the soundest currencies to buy and hold over the long-term.
Bottom line: Assuming this tax plan goes through, it could do more harm than good. Make sure you take cover as soon as possible.
Have a Nice Day.