Say Anything Blog

UPDATE: OK, so the original title isn't quite so clever when the strikethrough font doesn't work the way it does over at Blogger. The original title to this post, "Death and to taxes! (and Congressional economic meddling)" doesn't work as well this way, so I'm changing it so I'm not construed as some complete wing-nut tax dodger.

Remy’s back with another seasonal video (although he came up with this one last tax season).  My tax thoughts below…



For the first time since fatherofsonofasillyperson paid his accountant $45 to file a 1040-EZ (quite possibly the biggest ripoff since the income tax itself) for me, I eschewed the ol’ pencil and paper method and downloaded TurboTax to aid my annual reminder of why I dropped my Income Tax course in college.  I don’t think there’s any product in existence that can make tax filing pleasurable, but TT at least made it pain-free (well, the process of completing the forms, anyway).

What I really want to discuss today is the government’s increasingly frequent exercises in stupidity that they do in the name of “fixing” the economy, namely, diddling with interest rates and the ludicrous “economic stimulus package”.  I blogged this bit over 15 months ago - well before the adjective “sub-prime” became tip-of-tongue for most lay economists, and it deserves (I think, anyway) re-reading now:

We’ve had artificially low interest rates for the better part of the last 10 years, and we’ve seen skyrocketing home prices and the advent of 125% equity loans as a result. But now that interest rates are on the rise again, monthly mortgage payments are going up (even with housing prices staying relatively flat), which means that more and more people are stuck in their homes, because they won’t sell their home with their inflated second mortgage and wind up OWING money at closing rather than GETTING it. I’m no Nostradamus, but the future of mortgage foreclosures and student loan defaults should be relatively clear to most people. It’s time for government to stop meddling with interest rates and just let the business cycle (boom and bust) run its course.

What’s this got to do with paying my taxes, you ask?  Plenty, mister, plenty.  You already know that daughterinlawofasillyperson and I relocated last summer; you may not know that, due to the aforementioned mortgage foreclosures and the increased-by-900%-over-normal inventory of homes on the market, we were unable to sell our just-a-notch-above-modest home.  Without the proceeds of a home sale to finance the down payment and closing costs of a new one, we turned to an emergency fire-sale of the stock options that my employer had granted me upon my hiring 6 years ago, and hired a property manager to find tenants for our Minneapolis house (though we stubbornly kept on trying to sell the house for 3 months more before doing so, but that’s another story).  Back to the fire sale…

Many of you may see where this is going: the entirety of the proceeds of the options sale went to the bank and/or closing company, so none was withheld for tax purposes.  I’m not a live-paycheck-to-paycheck kind of guy, so we have our proverbial rainy-day fund to turn to in order to pay the bill, and as it just so happens, the “economic stimulus” check we’re due to receive in a couple of months will just about perfectly replenish the rainy-day fund when all is said and done.

My epitomologically long-winded point is this: “Hey Uncle Sam: stop tinkering with the economy!  You’re not making any progress toward ‘stabilizing’ anything, and it’s just causing more paperwork for the lot of us!” Not to mention creating a huge population of people that now have to rent houses instead of buying them, because their credit is ruined because of foreclosure!  But hey, there’s also a growing number of rental properties available because people like me refused to sell low when other alternatives were available. 

You see how it all works out?  Responsible people who make informed and reasonable choices end up right back where they were before the feds’ interference.  And uninformed people who make unreasonable choices get the shaft.  When are the ego-maniacs in Washington (and Wall Street) going to realize that they can’t conjure up a booming economy with spending bills (no matter what pretty names they put on them) and interest rate cuts?  In our increasingly globalized world, the supply of US dollars (which is really what they’re controlling by tweaking interest rates - if you don’t understand that, get this book) holds less and less sway over the domestic economy.  Sound tax policy (i.e., low personal and corporate rates) that make people and businesses want to live and operate in your jurisdiction is the way to revive the economy, not shaky fiscal policy.  Is it a coincidence that more and more U.S. companies are ratcheting up operations in Europe and Southeast Asia at a time when U.S. tax rates are probably going to go up (thanks to Democrats) and every other advanced economy in the world is slashing tax rates?

It works like this: think for a moment on a purely domestic scale.  How do states (like South Dakota and Nevada, for example) drive incredible growth in their economies?  Mainly by providing a favorable tax structure vis-a-vis their neighbors.  Sioux Falls, SD is witnessing amazing growth because of South Dakota’s smart tax policies (i.e., low rates!) and good marketing.  You don’t listen to talk radio in Minneapolis very long before you hear spots touting South Dakota’s favorable business environment; I know a guy considering moving his business from Minneapolis to Sioux Falls right now for one reason - lower taxes will help him keep his business afloat during this economic downturn.  Nevada: same story.

Think even smaller-scale.  How is it that deep discounters like Wal-Mart and Best Buy are some of the most financially successful business models out there, despite operating on a lower margin (that’s profit-per-widget for you non-business types) than their competitors?  By earning a smaller profit on a vastly increased volume of sales, that’s how.

This is how cutting tax rates produces higher tax revenues (to a point, anyway - no one thinks cutting your tax rates to zero will produce higher revenues) - i.e., the Laffer curve.  You rely on an increased number of transactions to produce greater profits, even if individual transactions result in lower profits.  Much like a sale at Target.  “Hmm, we’re not making much money lately - how can we get more people into the store?  I know!  We’ll have a sale!  And advertise it!  Brilliant!”

Go back to the international scale now.  Somehow “outsourcing” has become a 4-letter word that Democrats love to throw around as an epithet, but only GOP stalwarts are putting forth tax policies that make outsourcing less desirable as an operating strategy, much less complete relocation of companies to overseas markets.  Hillary and Barack have put forth suggestions that they’ll penalize companies that do this, and reward companies who stay put.  How do you suppose that will work out?  Here’s how: Companies who need to relocate or outsource to overseas markets in order to stay afloat will find a way to do so without paying this “relo-tax” - even if it means shutting down (temporarily).  And companies who stay put will receive their incentives, only to have to re-invest those incentives in themselves in order to stay temporarily competitive with their rivals who are now located in a more economically-friendly place.

People, this isn’t complicated.  It takes a left-leaning Congress to make it complicated.  Enough with the tinkering already.  Let us take our lumps, economically speaking, and let markets work themselves out.  Figure out how to cut tax rates beyond what other similar economies are doing (mainly by reducing government spending), and you’ll be impressed with the results.  Really.


Cross-posted at or I shall taunt you a second time-uh!