Wednesday, December 16, 2009

Why You're Broke

By Alan Caruba

While it is incontestably true that a lot of people took out mortgage loans they could not afford to replay, it is just as true that they were encouraged to do so because banks were required by federal law to make these bad loans. Bankers even gave them an acronym, “Ninja” loans as in “No Income, No Job, No Assets.”

The result was the government created “housing bubble” that was coupled with the Federal Reserves’ policy of keeping interest rates so low that many were tempted to borrow beyond their means. When the financial crisis struck, these loans were called “toxic assets” requiring billions in taxpayer money to bail out the same banks forced to make them. Mortgage loan companies were not so fortunate.

Consistent with that government inspired economic disaster, however, has been the many ways federal and state governments have found to tax Americans directly and indirectly. A new book, “Bankrupting Joe the Taxpayer”, by D.J. Golio ($24.95/$16.95, Authorhouse, hard and softcover) reveals how taxation and irrational government spending has reached the present point and offers suggestions how to correct it.

A classic example of hidden taxes can be found in your telephone bill. This month mine was $63.00, but $14.00 of it was taxes, so my actual cost was less than $50. This occurs again every time I fill up my gas tank or pay my utility bill. For example, in 2007 the estimated take by states alone in gasoline taxes exceeded $50 billion.

The combined average of all taxes loaded into the price per gallon is approximately 56.4 cents. Fill up with twenty gallons and you’ve paid average federal and state taxes of more than $11.00! And the government has the nerve to call oil companies “greedy.”

One might be inclined to say that this money, if applied to highway and bridge repairs, was worth it, except that these repairs are often ignored by politicians who find that such expenditures are not sexy enough to garner reelection, so we end up with roads filled with potholes and, as occurred not long ago, a bridge collapse. Civil engineers have been warning about these failures for decades.

The gasoline tax is known as an excise tax and Golio points out that they have been around for more than 200 years and are older than income, estate, and gift taxes. They were initially imposed to finance wars.

In 1913, the income tax was introduced and, if the politicians could restrain themselves from spending every cent collected, government might not now be borrowing and, at the same time, raising its debt ceiling. Moreover, the nation might not be on the verge of losing its triple-A rating!

Federal and state governments have found ingenious ways to apply excise taxes. They include, in addition to gasoline and utility taxes, telephone services such as pre-paid phone cards, subscriber line charges, directory listings, WATS services, and long-distance toll charges, among others.

There are taxes on domestic and international air travel, wagering, occupation taxes covering importers and manufactures, firearms and ammunition, oil and chemicals, vaccines, and coal production sales.

As Americans are learning, the definition of “rich” now includes approximately 117 million households. In 2007, one group representing 28% of households that earned between $0 and $25,000 paid no income taxes, but received tax refunds in the form of credits such as earned income and child care. The federal government considers you to be wealthy if you earned $53,000 this year. About 25% of all tax filers fall into this category.

Golio is a Certified Public Accountant with an Masters degree in taxation. He has taught at the college level and knows the present tax system inside and out. He also knows that federal and state governments have long been spending beyond their means and places much of the blame for today’s high rates on the public employee unions that have negotiated huge pension programs well beyond those in the private sector.

These and other compensation, such as healthcare, cost taxpayers millions of dollars in the form of property and other local taxes as states and communities bludgeon homeowners to pay for generous contracts. Despite a failing educational system, teachers and administrators continue to enjoy exceptional terms.

That is why states also impose alcohol taxes, inheritance and estate (death) taxes, tobacco taxes, parking taxes, hotel occupancy taxes, leased vehicle gross receipts taxes, severance taxes in states fortunate enough to have natural resources, in addition to the aforementioned telecommunications and utilities taxes.

In 2008, forty-six states and the District of Columbia collected corporate income taxes and forty-four states and Washington, D.C., collected individual personal income taxes for the privilege of living there.

Entitlement programs like Social Security and Medicare, both of which could be addressed by private savings and insurance programs, are rapidly reaching insolvency which one might suppose was a strong argument against allowing the government to engage in their provision; particularly since Congress has dipped into the Social Security fund to pay for its endless pork-ridden spending programs.

And, of course, the Obama administration is currently engaged in trying to strip a trillion dollars out of Medicare and to sign up millions more so-called uninsured persons, many of whom are younger citizens, 20 to 40, who see no need to self-insure. If the Medicare “reform” passes, they will be hit up for thousands from their personal income.

It is, however, a matter of law that no one can be turned away and denied medical care at any hospital in the nation.

Americans are vaguely aware that illegal immigration adds enormous costs to the nation’s healthcare, education, and law enforcement functions, but right now in Congress, yet another “amnesty” bill has been introduced, virtually ensuring that millions more will enter the nation illegally in anticipation of a swift path to citizenship. It is a very bad idea.

Current costs associated with illegal immigration range upward to more than $636 billion. Meanwhile, some $235.8 billion is wired to Mexico and Latin America every year by those who have illegally entered the nation. There are 389,000 illegals incarcerated in our prisons and approximately 699,000 who are fugitives!

The real problem, however, in addition to federal spending, are the state legislatures that have abandoned all reason when it comes to spending. There are states like California and New Jersey that are, simply stated, broke.

The fact that the Obama administration has increased the national debt and appears indifferent to public protests against its Medicare “reform” and proposed new taxes on all energy use in the form of “Cap-and-Trade” suggests that it is either infantile or determined to bankrupt the entire nation.

The sad part is that Golio and many others are well aware of what must be done to correct and avoid the horror of America becoming another Zimbabwe, but many Americans have concluded they are powerless to stop it.


Rich Kozlovich said...

Great commentary Alan!

There have always been greedy, selfish businessmen, but they don't impact the economy of an entire world anywhere near as badly as incompetent bureaucrats and politicians who have no business experience and don't care if their programs meet any sensible business model at all because it isn’t their money and they can impose their will on those whose money it is.

People who have spent us into the poor house now tell us that the only way to fix the level of bankruptcy we have been driven to is to spend even more, and more quickly than in the past.

Greed I could at least understand; stupid is another thing entirely.

Abbie S said...

what is the total number of households in the US. I thought there were 95 million...
Of which probably 20 million are to be considered 'rich'.

Alan Caruba said...

Offhand, Abbie, I have no idea how many households there are in the U.S., but I bet you could Google the answer easily enough. The US Census Bureau surely has a number.

@Rich: Yes, there is no defense against stupid people or stupidity in general.