High Taxes Breed Tax Cheating… and Trade Deficits

Warning! The Truth is sometimes disturbing!

Let us consider the Foreign Trade Deficit. Officially the statistics show that the US economy has been falling behind in International Trade for decades.  I can assure you that companies make a profit on almost every single trade made, otherwise they would close the doors. Furthermore, it is not logical that the any Country would be able to maintain a trade imbalance for so many decades. Any thinking person would conclude that there  must be more to the trade deficit then appears on the surface.

Here is a question to ponder. Do you seriously think that the owners of any company are going to submit to the ridiculously high taxes that the US Government demands? Does anyone expect business owners who take the risk of investing capital into a business to just hand one third of their profits over to someone else who took no such risk? It is really counter intuitive. Companies have an incentive to under-report profits, hence the illusion of a trade deficit. It is my observation… that the high taxes in this country have turned ordinary businessmen and women into criminals.  This has been a very common trend throughout all of history. The higher taxes and tribute are, the more effort people will put into beating the tax system rather then being productive.

The fact is that at once you get above the point were you are working for a salary, taxes are voluntary. Business-owners objectively consider how much they have to pay in taxes and how much it costs to beat he system. As long as it costs less to beat the tax system, ordinary people will take that option.  The way it works is simple. Hypothetically,  if I buy a product from China (or any other country) that costs $1, I will have my buying-agent in China record the cost as $8 on the invoice and I will send $8 in payment to the agent in  China.  I then sell it for $10 in the US and show a profit of $2 to the IRS.  Meanwhile my agent in China wires $6 to my bank account in Panama or some other country and keeps $1 for himself for his assistance. The fact is that there is more US dollars outside the US then inside the US.  Taxes are way to high when ordinary businesspeople will go to such great lengths to avoid them.

The underlying misconception has been that American Companies prefer to import rather then buy domestically. This is false. Purchases made domestically fall under US jurisdiction and records can be easily obtained by seopena. This is not the case with international transaction going through foreign banks who have every incentive to protect their account holders and none to help US government agencies… and are not legally obliged to do so.

The average businessman today is more concerned about his potential tax liability then he is about his competition. That is contrary to free market ideology where government is not suppose to interfere. Taxes are way to high when peoples actions are influenced by the tax consequences to the extent of Trillion Dollar Trade Deficits.

Take a look at the Form 1040 from 1913: http://www.irs.gov/p…rs-utl/1913.pdf

The first tax tier was….1% (20k to 50K)
The second……………..2% (50k to 75K)
The third………………..3% (75k to 100k)
The fourth………………4% (100k to 250K)
The fifth………………….5% (250k to 500k)
The sixth and final ……6% (500k plus)

The average income in 1913 was only 15k. The median was about 3k. The vast majority of people were exempt. Do you know how rich you were in 1913 to be making 500k a year?  These are tax rates at which the the govt would have the people’s support and cooperation. This is how they got the 16th Amendment passed, legalizing the Federal Income Tax. The American people would have never had allowed an Income Tax Amendment to the Constitution if they knew how far the congress would have gone with it. The people have responded in kind by working around it. If the government would reduce taxes to 1913 rates, they would find that people would be more willing to pay a fair share.

About Bill Tsafa

Swordman, Gunman, Scholar, Accountant, Patriot
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4 Responses to High Taxes Breed Tax Cheating… and Trade Deficits

  1. tsafa says:

    Its a lot of information to swallow at once. Once people read it a few times and digest it, they will begin to understand why flat out policies like “Tax the Rich” don’t work and can not work in a International Free Open Market. The “Rich” have options. They can choose to play ball in your backyard or somewhere else. Trying to keep changing tax laws to contain them is futile. The government is simply too big and slow to keep up. Corporations and individuals are far more agile and will always run ahead of tax laws. The type of laws that would actually contain them would be either cost more then the revenue the seek to raise… smuther the economy… or be tyrannical. The truth of the matter is the high taxes and big government are just not compatible with a free market and individual liberty.

  2. bill tsafa says:

    I have often herd of people propose a national sales tax over an income tax. The way the current tax system works is that Government obligates employers to collect an income tax from from employees. Employers have little incentive not to cooperate…. especial with regard to below management level employees. As a result the US government collects almost every penny due via the Tax Withholding system. Business must pay what they collect to the govt because employees expect a W2 at the end of the year so they can file for a tax refund, as is a tradition. If the employer failed to pay in the tax collected, the employee would not get his refund and raise hell. There is a check and balance between employer and employee with regard to tax collection.

    If the income tax system was thrown out in favor of a National Sales Tax the Government does not get any help in enforcing tax collections laws. Business are expected to pay what they owe on their own. Anyone who has ever owned a business knows that money is always scarce and payments are prioritized. The fed govt will never switch to a national sales tax or anything other then the current system because it would require the voluntary payment of taxes and make enforcement difficult and expensive.

    It seems like I am favoring a tax system that taxes the poor. The rich will voluntarily pay taxes as long as paying them is cheaper then beating them. Anything more then that is excessive. If government does not try to abuse them with heavy taxes, they will respond in kind with job creation and reinvestment in the economy. If they feel their money will be forcefully taken from them they will put their efforts into protecting thier accumulated wealth.

    • Vernon Etzel says:

      “If government does not try to abuse them with heavy taxes, they will respond in kind with job creation and reinvestment”

      Ah, but this is certainly not the case, as we’ve seen with the cuts made under the Bush administration. Job creation implies a need for labor, something corporations can easily find in slave states like Indonesia and Mexico (governments our country subsidizes). There is no implicit motivation for financial wealth to create jobs, only profits.

      Don’t get me wrong. I’m 100% free markets. It just seems that the notion of taxing productivity is the real issue. This is my argument for shifting tax burdens from productivity to resources.

      Consider that heavy severance taxes on oil and coal, for instance, would internalize the actual costs of these resources without violating anyone’s rights in the process. Shifting away from sales and income taxes, to taxes on resource extraction and pollution, would be a moral alternative and would actually solve more problems than our present system offers.

      But this idea makes people crazy so I’ll drop it for now. If rich people want to live in Morocco that’s they’re business. Income generated in the US should be the basis for income taxes, so it shouldn’t matter if “rich” people want to live elsewhere. Generating the income here implies an obligation to pay income taxes, which our present tax code currently prevents.

      It is simply a poor analogy (not that you’re making it) that a hedge fund manager is somehow the Atlas that is holding the world on its shoulders. He is not. While I enjoy discussing economic ideas with people and considering Rights and Principles, my fiduciary responsibility is to the general public; that is: Liberty and Justice— for All.

      Trust me, John Boehner is no patriot, and our society won’t collapse because of a 3% increase in taxes against the top 1% of wage earners. Consider HIS fiduciary responsibilities and why this argument in favor of modern aristocracy persists.

      • Timothy Havener says:

        There is no such thing as a truly progressive tax. If it was truly progressive the rate at which rich people were taxed would approach 100% after a certain point but it doesn’t.

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