Taxes
It
was the famous American Benjamin Franklin that is credited
with saying that in this world nothing can be said to be
certain, except death and taxes. However, while we have
not yet figured out how to cheat death just yet, we can say
that the taxes you pay will all depend upon how you structure
your business and personal dealings, plus of course where you
live as well. Interestingly enough, the entire theme of
taxation often invokes debate and emotion all depending upon
where you line up in terms of your own political
leanings. Those considered to be more liberal minded
will usually consider taxes as a necessity for an active
government to provide for the social good whereas the more
conservative minded will usually prefer to see less government
interference and less taxation as well.
Taxes of course have been with us
since the dawn of organized political social structures, and
the age old question is how much is enough? What is fair
in terms of what you turn over of your salary or earnings and
what do you get in return? Quite interestingly enough,
even previous forms of government headed by monarchs or other
authoritarian rulers often taxed at a top rate of no more than
20 percent, and usually pegged the tax to goods value or
transaction amount. In other words, NOT a tax against
income but rather a sort of import duty tax and or what we
would deem to be a sales tax today, with taxes on land
holdings as well that more often effected the nobility with
large estates rather than individual citizenry.
Occasionally these governments did institute a one time or one
off tax in order to finance war or some special project, but
these were not perpetual and on going taxes. So, how was
it possible that a government could operate and complete it's
tasks as a provider of services by simply taking a relatively
small amount of taxes from the citizenry previously and yet
today modern democratic governments take up to 70 percent of
citizen's earnings and still cannot balance the budget?
Part of the answer can be found with the Germans. Yes,
the Germans. While many Europeans today are divided over
the Greek Crisis and resultant recalcitrant attitude or
response from Berlin and other EU Parliamentary functionaries
regarding the debt owed by Greece, it was a staunch right wing
conservative German monarchist that gave us the modern day
welfare state (and resultant higher taxes to go along with
it). And we of course are speaking about Otto Von
Bismark, the one time Prussian military leader and statesman
initially known for his blood and iron doctrine that was the
catalyst behind the social welfare paradigm we know
today. How so? Well it was Von Bismark that
convinced the reigning monarch at the time to send a letter in
1881 to the German Parliament proposing the very first social
welfare program for: those who are disabled from work by age
and invalidity have a well-grounded claim to care from the
state (his own words from the letter). This new German
welfare state paradigm that was created intended to provide
for retirement benefits of workers and disability benefits as
well. All of this to be paid for out of worker
contributions, employer contributions and both financial and
administrative support from the government. And
incredibly enough, all of this a full 50 years before such
social welfare programs were even considered by the 1930's
depression era US President Franklin D. Roosevelt.
So, for those of you that might think this to be an American
invention, the credit goes to a Prussian (German). Of
course the irony of all this was not lost as Von Bismarck had
his many contemporary critics chastising him for such a
socialist policy, in which case he replied: Call it socialism
or whatever you like. It is the same to me. But was the
Prussian Statesman a true humanitarian or did he have some
more practical and political reasons for doing all this?
There is an old saying that a dog would never bite the hand
that feeds them, or at least never turn on his or her own
respective master. Thus, consider a few reasons why a
populace might seek to revolt and what would be at stake for
them personally. Mr. Gerard Celente, the current editor
and publisher of the Trends newsletter has famously said many
times that when people have nothing to lose, they lose it
(meaning all forms of social niceties or otherwise said
respect for authority). But the key term here is nothing
to lose. However what if you did have something to lose,
in the form of your government pension check, disability
check, food assistance check and whatever else the all
encompassing welfare state was providing to you? All of
these social welfare benefits directly tie the recipient to
the state as a child is tied to and dependent upon his parents
for his own welfare and well being. While children are
often angry and hurt when parents scold them, they will
certainly not rebel to such a point IF mom and dad get
sufficiently angered to withdraw financial support. Of
course, if that financial support goes away then all bets are
off the table. Or yet another corollary and one
possibility directly attributable to the current situation,
the problem also comes into play when mom and dad still want
to offer financial support, but are unable to do so
financially (metaphorically speaking in terms of the
government of course).
To be fair, various forms of government social welfare
payments do not constitute the entire budget and the current
financial situation we see today cannot be blamed upon such
social welfare initiatives alone. However, we can
suggest that the previous role of government was to maintain
law and order, and provide for the national defense.
Thus the limited and lower rates of taxation at the time to
cover these basic services of government. Contrast that
to the 1881 German foray into a new role whereby government is
responsible for all sorts of social (and now corporate)
welfare, which opened the door to the leviathan government
bureaucracy we all know too well today. It was a
justification and catalyst for government intervention into
all sorts of things that have become almost intrusive.
However, this can only go one for so long, as someone needs to
first earn the money in order to turn it over in taxes so it
can be disbursed to someone else. Former British Prime
Minister Margaret Thatcher once said something to the effect
that socialism works just fine right up until the point the
government runs out of other people's money to give away
(regardless if we are talking about social programs, corporate
welfare, bail outs and so on). We are at that point
right now, we believe. And for that reason we also tend
to believe many governments will seek to tax and expropriate
funds out of desperation from whomever is still solvent.
After all, the money has to come from somewhere, and with much
of the manufacturing already gone to lower wage jurisdictions
(and the related tax base with it) plus an anemic economy
growing at only perhaps 2 percent annually, there is not much
else to tap.
Looking at the US Federal Government as just one example, the
2015 budget indicates spending of US$3.8 Trillion
Dollars. But, the US Government only will take in US$3.2
Trillion in 2015 from various forms of taxes, leaving a
deficit of a little more than half a Trillion. The real
story though is where that money is spent as 62 percent of the
US Federal Government budge is for so-called entitlement
programs (health care, pensions and welfare). With 6
percent allocated to paying interest only on the US government
sovereign debt in 2015 (that amount is predicted to only go up
in the future), that leaves 32 percent for everything
else. The most costly item of the entire budget
continues to be the US Government social health care
programs. In it's recent July 22, 2015 annual Medicare
Trustees Report, the trustees themselves report that the
Medicare Hospital Insurance (HI) Trust Fund AGAIN FAILS the
test of short-range financial adequacy, as its trust fund
ratio is already below 100 percent and is expected to decline
in a near continuous fashion until reserve depletion in
2030. The Social Security and Medicare Boards of
Trustees go on to comment in their combined report that:
Lawmakers need to act soon to avoid automatic reductions in
payments to Disability Insurance beneficiaries in late 2016.
Social Security’s Disability Insurance (DI) Trust Fund now
faces an urgent threat of reserve depletion, requiring prompt
corrective action by lawmakers if sudden reductions or
interruptions in benefit payments are to be avoided.
Lawmakers should address the financial challenges facing
Social Security and Medicare as soon as possible. Taking
action sooner rather than later will permit consideration of a
broader range of solutions and provide more time to phase in
changes so that the public has adequate time to prepare (end
of quote from the report). I repeat and I want you to
pay attention to the comments SO THAT THE PUBLIC HAS ADEQUATE
TIME TO PREPARE. Ladies and Gentlemen, if they are
insolvent now, where are they going to get the money from
tomorrow? And we have to wonder what are the similar
financial balance sheets like for the Governments of Europe
and elsewhere?
Our contention is they will seek to take it from the remaining
solvent citizens still standing. Where else would they
get it from? They could of course simply continue to run
the presses Zimbabwe style, but that will not end well.
They could actually decide to cut back on government expenses
and truly balance their respective budgets (miracles do happen
or so we are told when one visits fantasy land in the Walt
Disney theme parks). They could also cut back on social
welfare payments, but that would leave a whole lot of very
angry citizens as a result. No, we think they will be
coming after everyone else, which means you might want to
start thinking about ways to padlock your wallet (or you bank
account).
