Taxing the Rich – 1765 to 2011, Part II

– War and Taxes: 1873 to 1963

– By: Larry Walker, Jr. –

“A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned – this is the sum of good government.“ ~Thomas Jefferson

From Taxing the Rich

In the post-Civil War years, a booming economy produced tariff surpluses for decades. However, Democratic members of Congress, not wanting to give up on the pursuit of legalized theft, introduced sixty-eight income tax bills between the years of 1874 and 1894. It was in the midst of the Panic of 1893 that an amendment to the Wilson-Gorman Tariff Act of 1894 was passed, establishing a 2.0% tax on all incomes above $4,000 per year (about $104,000 today). The amendment would have exempted from taxation the salaries of state and local officials, federal judges, and the president.

Believing the income tax to be unconstitutional, President Grover Cleveland refused to sign it. The Act became law in 1894 without his signature, but was ruled to be unconstitutional in the following year. In 1895, the Supreme Court ruled 5-4 against the income tax, stating that its provisions amounted to a direct tax, which was prohibited by the U.S. Constitution. Prior to the 16th Amendment, a direct tax could only be levied if apportioned among the states according to the census, a concept that America could easily restore through its repeal.

Article I, Section 8: The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.

Article I, Section 9: No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken. [This section was changed in 1913 by passage of the 16th Amendment.]

Thus America remained the land of the free, free of income taxes from 1873 through 1912. But behind the scenes, the Democratic Party was fast at work, conjuring legislation which would ultimately destroy the freedoms won by Americans in 1776. Democrats proposed a constitutional income tax amendment in their party platforms of 1896 and 1908. Theodore Roosevelt endorsed both an income tax and an inheritance tax, and in 1908, became the first President of the United States to openly propose that the political power of government be used to redistribute wealth.

In 1909, the income tax amendment passed overwhelmingly in the Congress and was sent off to the states. The last state ratified the amendment on February 13, 1913. The Sixteenth Amendment owes its existence mainly to the West and South, where individual incomes of $5,000 or more were comparatively few. Sold to the public as mainly a tax on the rich, the income tax initially applied to less than 1.0% of the population, but that would be short lived. The aspirations of power hungry, greedy and wasteful politicians would soon change the federal government into the conundrum it is today.

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” ~Ronald Reagan

Those hornswoggled by today’s Democratic Party, having been indoctrinated in the tired old “tax the rich” mantra of the early 20th Century, will eventually find themselves mired in an infinite array of new taxes: energy taxes, excise taxes, higher Social Security and Medicare taxes, mandated health care taxes, consumption taxes, value added taxes, and every imaginable form of regressive fine and fee. From 1776 to the present, a battle has been waged to determine the government’s fair share of a private citizen’s earnings, and it will continue until government is finally restored to its Constitutional limitations.

The Revenue Act of 1913

In April of 1913, President Woodrow Wilson summoned a special session of Congress to confront the perennial tariff question. He was the first president since John Adams to make an appeal directly to Congress. Under the guise of reducing tariffs, the Act turned out to be nothing more than a means of reinstituting a federal income tax. The argument followed that since a reduction in tariff duties would lead to lost revenue, an income tax would be required to makeup the shortfall. We should be mindful of this as Barack Obama attempts to twist arms during his upcoming special session.

The 1913 Act appealed to those of the “tax the rich” mentality. Its progressive rates were similar to our modern day model, with the exception that it contained 7 tiers and a top rate of 7.0%, versus the present 6 tiers with a top rate of 35.0%. Marginal tax rates, under the 1913 Act, ranged from just 1.0% up to 7.0%. And since a married couple was allowed an exemption of $4,000, which was more than most people earned, most of the population was exempt. At the time, less than 1.0% of the population was subject to the tax, which helps to explain how the 16th Amendment achieved ratification: i.e. “It won’t affect me, so why should I care?” The largest proportion of the tax was targeted to those with incomes higher than anyone could imagine, as at the time, the top bracket of $500,000 was the equivalent of more than $10,000,000 today.

From Taxing the Rich

In 1913, a married couple with taxable income equivalent to $250,000 today would have paid a tax of just 1.0%; those earning $1,000,000 would have paid a tax of 1.6%; and those earning $10,000,000 would have incurred a tax rate of just 4.9% (see table below).

From Taxing the Rich

The War Revenue Act of 1917

World War I commenced on July 28, 1914 and lasted until November 11, 1918. Since the income tax was initially imposed as a means to fund war (1861), its original intent, now combined with an element of wealth redistribution, lead to one of the most convoluted tax rate schedules of all time. The War Revenue Act of 1917 expanded the tax rate schedule from 7 to 56 tiers. Rates were hiked to a range of 6.0% to 77.0% in 1918. The 1918 tax rate schedule was so convoluted that taxpayers were thrown into a higher bracket with every $1,000 to $2,000 of additional income.

From Taxing the Rich

Under the 1918 Act, a married couple with taxable income equivalent to $250,000 today would have paid a tax of 12.9%; those earning $1,000,000 would have paid a tax of 25.7%; and those earning $10,000,000 would have incurred a tax rate of 66.9% (see table below).

From Taxing the Rich

The Mellon Tax Bill (1924 – 1931)

Although the war ended in 1918, income taxes were not significantly reduced until 1924. In 1919 the top rate was gradually lowered to 73.0%, then to 58.0% in 1922, and to 46.0% under the Mellon Bill of 1924. By 1924, the tax rate schedule contained just 43 tiers compared to 56 in 1918. The bottom rate also gradually declined from 6.0% in 1918 to 2.0% in 1924. Then in 1925, under the leadership of President Calvin Coolidge, the bottom rate was reduced to 1.5%, the top rate slashed to 25.0% with a reduced top bracket, and the tax rate schedule was simplified to 23 tiers from 43.

Finally, common sense had returned. It was peacetime, and with taxes greatly reduced, the “Roaring Twenties” ensued. Although Coolidge didn’t cut top rates back to 7.0%, the lower rates he put in place, lasting from 1925 through 1931, have never been matched since. Coolidge had it right when he proclaimed that, “Collecting more taxes than is absolutely necessary is legalized robbery.”

From Taxing the Rich

Even before being elected President of the United States, the former Governor of Massachusetts understood and opined that, “There is a limit to the taxing power of a State beyond which increased rates produce decreased revenue. If that be exceeded intangible securities and other personal property become driven out of its jurisdiction, industry cannot meet its less burdened competitors, and no capital will be found for enlarging old or starting new enterprises. Such a condition means first stagnation, then decay and dissolution. There is before us a danger that our resources may be taxed out of existence and our prosperity destroyed.” ~Calvin Coolidge (Address to the General Court beginning the 2nd year as Governor of Massachusetts January 8, 1920)

By 1925, a married couple with taxable income equivalent to $250,000 today would have paid a tax of just 4.9%; those earning $1,000,000 would have paid a tax of 14.4%; and those earning $10,000,000 would have incurred a tax rate of 23.9% (see table below).

From Taxing the Rich

Revenue Acts of 1932 to 1940

In the midst of the Great Depression, President Herbert Hoover relapsed, imposing higher tax rates and expanding the number of tax brackets from 23 to 55. In 1932, the bottom rate was increased from 1.5% to 4.0%, and the top rate was hiked from 25.0% to 63.0%. The tax rate on upper brackets was later increased to 79.0%, by FDR, in 1936, where it would remain through 1940. Hoover had in effect reinstated wartime tax rates during a time of peace. Errantly believing that higher taxes would increase government revenue, Hoover was the first president to prove that raising taxes during a recession only prolongs the downturn. Thanks to Hoover, and his successor Franklin Roosevelt, the Great Depression wouldn’t end until America entered the 2nd World War.

From Taxing the Rich

In 1932, a married couple with taxable income equivalent to $250,000 today would have paid a tax of 8.6%; those earning $1,000,000 would have paid a tax of 21.8%; and those earning $10,000,000 would have forked over 54.8% of their taxable income (see table below).

From Taxing the Rich

Revenue Acts of 1941 to 1963

The next major tax hike would occur in 1941, with rates remaining at accelerated levels through 1963. After Hoover opened the door, FDR removed the hinges, gradually raising rates from the bottom up. President Franklin Roosevelt believed and stated that, “Taxes, after all, are dues that we pay for the privileges of membership in an organized society.” This would mark a critical turning point in American history, as the purpose of the income tax had shifted from a temporary means to fund the Civil War, to a measure reinforcing lower tariff duties, to the price of living under the rule of a tyrannical dictator.

Following suit, bottom tax rates were raised from 4.0% in 1932, to 10.0% in 1941, to 19.0% in 1942, and to a record high of 23.0% in 1944. His successor, Harry Truman, would continue the tradition. After initially lowering the bottom rate to 20.0% in 1949, Truman raised it to 20.4% in 1951 and to 22.2% in 1952. The bottom rate was then locked in at 20.0%, by President Dwight Eisenhower, where it remained from 1954 through 1963.

The top rate was likewise increased by FDR, climbing from 63.0% in 1932, to 79.0% in 1936, 81.0% in 1941, 88.0% in 1942, and to a record high of 94.0% in 1944 during the 2nd World War. Truman later lowered the top bar to 91.0% in 1946, and then raised it yet again to 92.0% in 1952. Eisenhower would fix the top tier at 91.0%, where it would remain from 1954 through 1963.

From Taxing the Rich

In 1941, a married couple with taxable income equivalent to $250,000 today would have paid a tax of 23.1%; those earning $1,000,000 would have paid 46.9%; and those earning $10,000,000 would have forked over 71.0% of their taxable income (see table below).

From Taxing the Rich

During the entire 23 year period, a married couple with taxable income equivalent to $250,000 today would have faced an average tax rate of 32.2%; those earning $1,000,000 paid an average tax of 57.6%; and those earning $10,000,000 would have forked over a whopping 85.5% of their taxable income (see table below).

Summary

“The government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the government and the buying power of consumers. By adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.” ~Abraham Lincoln, 16th US President (1809-1865)

From Taxing the Rich

During the first 51 years after reinstatement of the income tax, from 1913 to 1963, the bottom rate commenced at 1.0%, peaked at 23.0%, and settled at 20.0%. Meanwhile, the top rate was nudged in at 7.0%, peaked at 94.0%, and ended the period at 91.0%. Imagine being in the top tax bracket with an opportunity to make an extra $1 million, and facing the prospect of handing over $910,000 of it to the government, while clutching to a paltry $90,000. Was that fair? Does it sound like a plan for economic prosperity and jobs growth? As we shall see, neither John F. Kennedy nor Ronald Reagan thought so.

The average rates on the wealthy during each significant wave between 1913 and 1963 are shown above. It is important to understand that a small imposition, upon the rich, blossomed into grand theft taxation. That’s what happens when citizens allow a government to act without restraint. Those seeking to usher couples with taxable income of $250,000 into the upper echelons of taxation should recognize that the highest tax rates ever assessed at this level, when wartime taxes were at a peak, averages out to 32.2%, while pre-1941 averages were below double digits.

It’s time for America to return to her roots. We cannot and will never again allow our government to lead us, as blind men, into the abyss. To raise taxes on one is to raise them on all. Those who believed they would always be exempt from taxes, in 1913, would soon find themselves paying nearly three times the rate initially assessed on the wealthy. Today, every worker is subject to Social Security and Medicare taxes totaling 15.3% (temporarily 13.3%), a rate which is more than double that paid by the wealthiest Americans under the Revenue Act of 1913. There is no escape; you’re either for higher taxes, or lower taxes. Don’t believe the lie. Those advocating higher taxes on the rich have always and will always ultimately raise them on every soul, from the bottom up.

To be continued… Taxing the Rich – 1765 to 2011, Part III

References / Related:

Taxing the Rich – 1765 to 2011, Part I

Spreadsheets: Historical Income Tax Data

Images: Tax Tables and Charts

Tax Foundation – Income Tax Tables: 1913 to 2011

Tax Acts of the United State, 1861 through 2010

The Origin of the Income Tax

Quick Revolutionary War Tour 1765-1777

#Taxes

CPI Adjusted Dollars:

http://www.measuringworth.com/uscompare/

http://www.dollartimes.com/calculators/inflation.htm

Taxing the Rich – 1765 to 2011, Part I

War and Taxes: 1765 to 1872

– By: Larry Walker, Jr. –

“There is a limit to the taxing power of a State beyond which increased rates produce decreased revenue. If that be exceeded intangible securities and other personal property become driven out of its jurisdiction, industry cannot meet its less burdened competitors, and no capital will be found for enlarging old or starting new enterprises. Such a condition means first stagnation, then decay and dissolution. There is before us a danger that our resources may be taxed out of existence and our prosperity destroyed.” ~Calvin Coolidge

From Taxing the Rich

The American Revolution was the product of war and taxes. There are few topics more cantankerous, for war has oft been used as an excuse to enslave a populace through taxation, and unfair over-burdensome taxes have oft led to war. With the United States government’s passage of the quixotic Affordable Care Act of 2010, which would regulate the lives of every man, woman and child from cradle to grave, and add a new set of taxes and mandates; the Tea Party revolution was reborn. Elected officials who take the movement flippantly are likely to find themselves buried in the trash heap of human history.

In 1765, Great Britain imposed a series of taxes upon the American Colonies, in order to pay for its lengthy French and Indian War (1754-1763). After the war, the British forced upon the Colonies, the Stamp Act of 1765, requiring the purchase of tax stamps for any printed documents including newspapers, legal documents, marriage licenses and more. This was followed by the Townshend Acts of 1767 which were passed: to raise revenue in order to pay the salaries of governors and judges so that they would be independent of colonial rule; to create a more effective means of enforcing compliance with trade regulations; to punish the province of New York for failing to comply with the 1765 Quartering Act; and to establish as precedent the British Parliament’s right to tax.

Just like the Tea Party Movement of today, our founding fathers resented insidious taxes and regulations imposed upon them without their consent. Then as now, it is simply a matter of ‘taxation without representation’, an act which early Americans likened to tyranny. By 1773, when the East India Company was granted a virtual monopoly on the importation of tea, it was the last straw. In protest, a group of Boston citizens disguised as Mohawk Indians boarded a ship and dumped 342 chests of tea into Boston harbor. The Revolutionary War ensued, and the United States of America was born. Today, the Affordable Care Act is only a symptom of the disease. The disease being: over-regulation, over-burdensome covert and overt taxes, unsustainable federal debt, and a small minority of ideologues with socialist tendencies forcing its will upon the people.

“Collecting more taxes than is absolutely necessary is legalized robbery.” ~Calvin Coolidge

Far-left demagogues often speak in platitudes, but the utopian paradise they seek, through raising taxes on millionaires and billionaires, is a myth. Behind closed doors, they secretly plot to raise taxes on every soul, from the bottom up. They seem to have no recollection of American history, a history in which Americans have only been subject to an income tax for 110 out of 236 years. The United States has only endured an income tax between the years of 1862 to 1872, and 1913 through 2011. The income tax was initially spawned to fund the Civil War, errantly raised during the Great Depression, hiked to the max during both World Wars, and is today being exploited by left-wing politicians whose only goal is to reduce American exceptionalism to a failed, redistributive, collectivist state.

Ever since the income tax was introduced in the United States, the balance has tilted between having no income tax at all, to a top marginal rate of 94.0% (1944); and from a top tax bracket of $15,200 in 1867, to $79,412,681 in 1936 (in today’s dollars). In this series, we will examine the tax rate schedules in use from 1861 through 2011, and in so doing, will uncover the rates levied on incomes of $250,000, $1,000,000, and $10,000,000, throughout U.S. history. We will discover how the purpose of the income tax has shifted from a means to fund war, to an apparatus of wealth redistribution.

We will determine the average historical tax rates, and weighted average tax rates imposed upon upper incomes. We shall learn that throughout American history, an income of $250,000 has been taxed at an average historical rate of 23.6%. We shall hopefully gain some sense of what the term “fair tax” really means, as for some no income tax at all is considered fair, while for others a tax of 94.0% upon the rich is deemed just. Yet we believe as Calvin Coolidge, John F. Kennedy, Ronald Reagan, and George W. Bush believed, that ‘there is a limit to the taxing power of a State beyond which increased rates produce decreased revenue, and that if taxes are too high America’s resources may be taxed out of existence and our nation’s prosperity destroyed’.

The Revenue Act of 1861

The first income tax levied by the United States Government was imposed to fund the Civil War (1861). Prior to this, the government was funded strictly through customs duties, tariffs levied on imported goods. During the War of 1812, the government experimented briefly with excise taxes on certain goods, commodities, housing, slaves and land, but a tax on income was out of the question. What is significant is that prior to 1861, or for the first 86 years of American history, whether a citizen had an annual income of $800, $250,000, $1,000,000 or $10,000,000, every dime was considered to be private property of the individual, and not subject to any federal claim.

The Revenue Act of 1861 included the first U.S. Federal income tax statute. It introduced the federal income tax as a flat rate tax. The income tax was to be “levied, collected, and paid, upon the annual income of every person residing in the United States, whether such income is derived from any kind of property, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever”. Rates under the Act were 3.0% on income above $800 ($20,400 in 2011 inflation adjusted dollars) and 5.0% on income of individuals living outside the country.

From Taxing the Rich

Under the 1861 Act, a married couple earning the equivalent of $250,000 (in 2011 dollars) would have paid a tax of just 2.8%; those earning $1,000,000 would have paid 2.9%; and those earning $10,000,000 would have incurred a tax rate of just 3.0% (see table above).

It is important to note that: (1) America’s first income tax was a flat rate tax, (2) it was meant to be temporary, with the proceeds used solely to fund the Civil War; (3) for the preceding 86 year period, personal income of American citizens was not subject to any federal tax; and (4) that no revenue was ever raised under the 1861 Act, because it was revised (on June 30, 1862) before any tax was due.

The Revenue Act of 1862

In 1862, the initial Revenue Act was revised to reflect the first progressive rate tax in U.S. history. The office of the Commissioner of Internal Revenue was established. The Act specified that the Federal income tax was a temporary measure that would terminate in the year 1866. Annual income of U.S. residents, to the extent it exceeded $600 ($13,400 in 2011 dollars), was taxed at a rate of 3.0%; those earning over $10,000 per year ($224,000 in 2011 dollars) were taxed at a 5.0% rate. With respect to the income tax liability generated by the salaries of “officers, or payments to persons in the civil, military, naval, or other employment or service of the United States, including senators and representatives and delegates in Congress,” the law also imposed a duty on paymasters to deduct and withhold the income tax, and to send the withheld tax to the Commissioner of Internal Revenue.

Under the Revenue Act of 1862, a married couple earning the equivalent of $250,000 (in 2011 dollars) would have paid a tax of just 3.4%; those earning $1,000,000 would have paid 4.6%; and those earning $10,000,000 would have incurred a tax rate of just 5.0% (see table below).

From Taxing the Rich

The Revenue Act of 1864

Since in 1862 the Union War Debt stood at $505 million, and since the income tax only raised $2.7 million in 1862 and $20.2 million in 1863, rates were raised in 1864. The 3.0% tax on incomes above $600 ($8,590 in 2011 dollars due to devaluation) was increased to 5.0%, a new 7.5% rate was introduced on incomes over $5,000 ($71,600 in 2011 dollars), and the old rate of 5.0% on incomes above $10,000 ($143,000 in 2011 dollars) was raised to 10.0%.

Under the Revenue Act of 1864, a married couple earning the equivalent of $250,000 (in 2011 dollars) would have paid a tax of just 7.7%; those earning $1,000,000 would have paid 9.4%; and those earning $10,000,000 would have incurred a tax rate of just 9.9% (see table below).

From Taxing the Rich

Ending the Income Tax (1865 to 1872)

When the Act finally expired, the United States was again without an income tax; a condition that would last from 1873 until 1912, adding another 40 years to our tax-free heritage. By 1865, the 7.5% rate was increased to 10.0% leading to the highest tax rates for the period. By the end of 1866, when it was to have expired, the income tax was instead gradually phased out. The top rate was lowered to 5.0% between 1867 and 1869, and then to 2.5% from 1870 to 1872 (see tables below).

Between 1865 and 1866, a married couple earning the equivalent of $250,000 (in 2011 dollars) would have paid a tax of 8.4%; those earning $1,000,000 would have paid 9.6%; and those earning $10,000,000 would have incurred a tax rate of 10.0% (see table below).

From Taxing the Rich
From Taxing the Rich

Summary

“The freedoms won by Americans in 1776 were lost in the revolution of 1913.” ~Frank Chodorov

During the first 137 years of American history (1776 – 1912), the income tax only existed for 11 years, while no income tax was imposed upon private citizens for 126 years. The highest tax rate assessed on married couples occurred between 1865 and 1866, when those earning the equivalent of $250,000 (in 2011 dollars) paid a tax of 8.4%, those earning $1,000,000 paid 9.6%, and those earning $10,000,000 incurred a tax rate of just 10.0%. In the current tax debate, those caterwauling for higher taxes on the wealthy should, if it is within them, remember their own heritage. An understanding of the origin of the American income tax system, its original intent and early rates, is essential to any meaningful dialogue.

To be continued… Taxing the Rich – 1765 to 2011, Part II

References / Related:

Spreadsheets: Historical Income Tax Data

Images: Tax Tables and Charts

Tax Foundation – Income Tax Tables: 1913 to 2011

Tax Acts of the United States, 1861 through 2010

The Origin of the Income Tax

Quick Revolutionary War Tour 1765-1777

#Taxes

CPI Adjusted Dollars:

http://www.measuringworth.com/uscompare/

http://www.dollartimes.com/calculators/inflation.htm

2011 Tax Increase : A Reality Check

Income Tax Reality Check

Compiled by: Larry Walker, Jr.

“If you make less than $250,000, you will not see your taxes increase by one dime.” ~ B. H. Obama

Left-wing pundits are claiming that the Bush tax cuts were for the wealthy, which is simply not true. Next year when the 10% tax bracket disappears, and tax rates return to pre-2001 levels, will represent an across the board tax increase affecting every American. In addition, the child tax credit will return from $1,000 (per child under age 17) to $500 representing a tax increase for everyone who has children, not the wealthy. The fact is that the Bush tax cuts applied to every American at every level of income, and when they expire taxes will rise from the bottom up.

In 2011, if you make over a nickel in taxable income, your taxes will increase a minimum of 9%, and as much as 50%. Since our tax rates are progressive, taxes on the first $16,750 for couples ($8,375 for singles) will increase by 50%. Taxpayers who make under $8,375 in taxable income will see the largest tax increase at 50%. Middle income earners will see their taxes rise by no less than 9%. The contention that the Bush tax cuts only affected the wealthy is a bald-faced lie. Similarly, the contention that Obama’s tax increases will only affect the wealthy is nothing but a fairy tale. Americans are educated and can comprehend income tax tables. You can choose to believe whatever you want, but reality should not be optional.

2010 Tax Brackets

Nickel over at fivecentnickel.com has projected how the 2011 income tax brackets may look. The commentary below is attributed to Nickel. I have retouched his 2011 table (below), and added the 2010 table (above) for comparison.

Income tax bracket changes for 2011 – In case you weren’t aware, the Bush tax cuts of 2001 and 2003 are set to expire at the end of 2010. Thus, if Congress doesn’t act, the relatively low income tax rates that we’ve been enjoying (hah! enjoying?) will soon be a thing of the past. They will be replaced by the pre-2001 tax brackets.

In other words, the 10%, 15%, 25%, 28%, 33% and 35% tax brackets that we’ve grown accustomed to will be replaced by 15%, 28%, 31%, 36%, and 39.6% brackets. It’s hard to say exactly where the income cutoffs will lie, but if we base the numbers on the 2010 income tax brackets and add 3% for inflation, the 2011 tax brackets might look something like this:

2011 Projected Tax Brackets

Capital gains tax changes in 2011 – Beyond the increased federal income tax brackets, the capital gains tax rates will also be changing (and not for the better). The top rate for long-term capital gains will be rising from 15% to 20%, and the 0% rate for those in the lowest tax brackets will be replaced by a 10% long-term capital gains rate.

Why worry about 2011 income tax changes? – Since the 2011 tax year is so far off, you might be wondering why we’re even talking about it right now. Well, as I noted above, the time to be planning for things like this is right now – before the changes go into effect as these potential income tax rates have the potential to take a big bite out of your savings account.

What sort of planning should you be doing? I can think of several things off the top of my head. For starters, if you’re in a position to accelerate income from 2011 into 2010, you might want to do so. In many cases this is easier said than done, but it’s worth exploring if you’d like to shield your income from the potentially higher rates.

Also, if you’re anything like me, you may wait until the end of the year to make your charitable donations. If so, then by waiting just a few more days (until January 1, 2011) to write that check, you could net a substantial tax savings. While you’d have to wait longer to claim the deduction, it might be worth it.

Similarly, if you anticipate selling investments to generate cash during 2011, you might consider moving that up to the end of 2010 to get in on the (presumably) lower capital gains tax rates.

Reference: http://www.fivecentnickel.com/2010/02/15/2011-federal-income-tax-brackets-irs-income-tax-rates/

Health Care Expenditures vs Income

Click to Enlarge

A Fiscal Conservative Opines: Where is all the excess?

By: Larry Walker, Jr.

I am once again attempting to overlay data upon data from different sources, not being certain whether any of them are accurate, yet they are all so called ‘reputable’. There are some who will look at the table, above, and think that health care expenditures are out of control. I look at it and my take is that the lack of growth in real incomes is the problem.

In fact, health care expenditures have been on the decline since 2003. Granted I was not able to find the rate of change for 2009, even if there was no increase, health care expenditures have grown faster than incomes, the consumer price index, and GDP. This doesn’t tell me that there is necessarily a problem with health care expenditures. What it tells me … is that there is a problem with the economy.

Over the past ten years, consumer prices have risen by 25% while incomes have only risen by 9%. Does this mean that prices are out of control? Not to me. To me it means that our incomes are not keeping pace with inflation.

GDP is growing slower than prices. GDP is only growing at an average of 1.9% per year. For the past decade, GDP grew by 19% while prices grew by 25%. So again, is the problem with prices, or with GDP?

Let’s be real. Unless prices rise, incomes will not. How can a business provide raises for employees every year unless the business is also raising its prices? One way would be to keep prices static and to increase productivity, which generally means doing more with less employees. Everyone expects to get a cost of living increase each year, however, in order to receive one, your employer must generally raise its prices in line with the consumer price index. Yet, if that was reality, then incomes would be rising as fast as inflation. Yet, prices have risen nearly three times as fast as incomes. So where is all the excess?

My suspicion is that the problem lies more in the area of manufacturing, international trade, unionization, and the growth of government. We don’t make things anymore in America, we have become a service economy. Most of the products that we buy are imported from other countries. Unions are constantly demanding higher wages and better benefits. The number of government employees is growing as is their pay and benefits. The end result is that our Federal and State governments are going broke, jobs are being lost to emerging market economies, and the incomes of non-governmental and non-union employees are going down.

So the question is how do we improve the growth prospects for our economy? The answer lies in finding ways to increase exports and decrease imports, to lower income taxes and reduce the size of government, and to remove the restraints currently being imposed upon the free market. Our economy doesn’t need more controls, but rather less.

You say rising health care costs are at the center of all of our problems. I say, you’re focusing on the wrong statistic. If a man or woman has no way to earn their livelihood, then what good is a government run health care program. You will have your health care, but you will live in poverty. You will be taxed, but you will lack the wherewithal to pay your taxes. The poor will remain poor. The middle class will cease to exist. The government will continue to spend more than it can tax until even it falls by the wayside.

You cannot fix a problem, until you have identified one. So where is all the excess?

If the price of say automobiles rises, yet most of the autos are purchased from Japan, then there’s your answer. Sure, some jobs were provided in America, but the excess (also known as profit) has left the country.

If the price of health insurance has risen, yet most of the insurance is purchased from domestic providers, then where is all the excess? The answer is in a broken governmental system. The government (federal and state) spends nearly twice as much on health care as does the private sector. The government gets its revenue by taxing those who are viable and paying for the health services of those who are not. The government pays less for services than does the private sector which in turn, means prices will rise for everyone to compensate for the shortfall created by government providers. Thus, prices rise, but incomes do not.

A major reason why incomes are not rising is because the cost of income taxes, social security taxes, and medicare taxes are set to rise every year. It’s not that the rates have necessarily changed, but that the income ceilings have. So you work hard to make more than the social security cap, but by the time you reach that goal, the government has raised the bar (or removed it completely). This is not a progressive tax system, it’s a progressive annual tax increase. It’s a system designed to keep our economy in chains.

So where is all the excess? One need only look at our national debt. If there were excess, the United States Federal government would not be $13 trillion in debt. So there is no excess.

The problem lies not in price controls but rather in wealth creation. Wealth is not created through price controls. In fact, wealth is restrained by controlling prices. If prices did not rise, then neither would wealth. Yet, when wealth is not rising along with prices there is a breach.

If every American either worked for the government, or received government services, how would the government be able to continue as a going concern? The answer is that it would not. So then part of the solution, which is ingrained in your soul, is that bigger government is not the answer. On the other hand, if everyone worked in the private sector, and if everyone were able to sustain themselves, what would be the role of government? Most likely the role that was intended by our founders. So once again we can conclude that government is not the solution to our problems, government is the problem.

Message to uncle Sam, “get out of my way, and get off my back.”

End of rant….

References:

http://www.ers.usda.gov/Data/macroeconomics/Data/HistoricalRealPerCapitaIncomeValues.xls

http://stats.bls.gov/cpi/

http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf

http://www.bea.gov/national/txt/dpga.txt

Other Links and Solutions:

http://citizenownership.blogspot.com/2010/02/every-citizen-owner.html

http://citizenownership.blogspot.com/2010/02/expanded-capital-ownership-now.html

http://www.aipnews.com/talk/forums/thread-view.asp?tid=12453&posts=3#M33855

http://www.freerepublic.com/focus/f-bloggers/2460284/posts