The 'Fair Share'

Whenever a politician appeals to either his fellow citizens' patriotism or employs the term 'fair' (as in 'fare share' or 'fair trade', to name two examples), he is about to embark on a policy that is deeply injurious to same citizens. The term 'fair' specifically means that the rapacious paws of the State are about to be thrust deep into their wallets on some pretext. Usually it is either to 'protect' favored interest groups that can afford to send their lobbyists to the centers of political power, or it is a simple tax grab due to the perennial problem that treasuries are weighed down by the deficits of the past and need new sources of income to buy the next round of votes.

What is not going to happen after citizens have coughed up the share deemed to be 'fair' is that they will enjoy an improvement in the services they never asked for in the first place. The funds just disappear in the maws of Leviathan never to be seen again. This policy of 'fairness' can be implemented up to a point; there is a threshold beyond which the economic damage it inflicts becomes so large that the government's revenue actually shrinks instead of increasing. These negative repercussions are then held to require even more interventions and so a vicious circle ensues. The eventual long term outcome is either that the system gives up the ghost in some shape or form (often by means of a destruction of the underlying currency system) or that the governments concerned decide to embark on war.

 

The French Example

France's socialist president Francois Hollande, a.k.a. 'the welfare state incarnate', has implemented a taxation policy that has not only crossed the threshold where it injures the interest of both the taxed but that of the government collecting the taxes. It is not only indefensible on utilitarian grounds – it is a glaring injustice. A number of France's tax payers have been forced to pay more than 100% of their income to the State in taxes last year. No despot of yore ever dared to impose such punitive taxation. Evidently, those who have wisely accumulated capital by serving consumers better than others are now to be eradicated by outright confiscation in the name of socialism. French courts have opposed this scheme, but this has merely motivated the government to 'redraft' its confiscatory tax law so as to achieve the same outcome.

 

“More than 8,000 French households' tax bills topped 100 percent of their´income last year, the business newspaper Les Echos reported on Saturday, citing Finance Ministry data.

The newspaper said that the exceptionally high level of taxation was due to a one-off levy last year on 2011 incomes for households with assets of more than 1.3 million euros ($1.67 million).

President Francois Hollande's Socialist government imposed the tax surcharge last year, shortly after taking office, to offset the impact of a rebate scheme created by its conservative predecessor to cap an individual's overall taxation at 50 percent of income. The government has been forced to redraft a proposed bill to levy a temporary 75 percent tax on earnings over 1 million euros, which had been one of Hollande's campaign pledges.

The Constitutional Council has judged such a high rate of taxation to be unfair, leaving the government to rehash it to hit companies rather than individuals.

Since then, a top administrative court has determined that a marginal tax rate higher than 66.66 percent on a single household risked being considered as confiscatory by the council.”

 

(emphasis added)

So taking 66.66 percent of someone's income is not yet confiscatory? Consider in this context that not a single citizen of France can hope to escape paying taxes, even if his income tiny. After all, VAT is charged on every item a consumer buys. So if the State imposes a 'non-confiscatory' 66.66 percent tax on someone, that someone then still has to pay another 20% from what is left over if he spends the money. Since people cannot live from air, they will have to spend some of their income.  Can anyone blame Gerard Depardieu for saying 'thanks, but no thanks' to this government? Is it any wonder that London is today brimming over with French expats to such an extent that it has become the 6th largest French city?

 

The EU's 'Savings Pact'

Combating tax evasion has become a top priority for governments all over the world since it has become obvious that political leaders have in recent decades step by step bankrupted their nations. It began with a concerted media campaign against tax havens, which we have discussed previously. It is obvious that today's political leaders are economically ignorant. In this particular case, their ignorance is likely to exacerbate Europe's economic depression and thereby contribute to the eventual collapse of the euro and the dissolution of the European Union. They have not listened to a single of Dan Mitchell's arguments (which we have presented here).

One of the most important aspects they are ignoring is that the great bulk of the funds parked in tax havens is reinvested in their own economies and thereby helping to prop up economic growth. If they cut off this source of funding, there may be a one-off windfall collected by governments, which will then be wasted on government consumption. Thereafter, the capital will simply be gone and no longer contribute to economic progress. The UK's David Cameron has sent a letter to all British dominions with low tax regimes, admonishing them to disclose the identities of all owners of corporations and accounts on their soil. Dictators around the world are presumably rubbing their hands at the prospect of being able to identify the assets of those that have fled their authoritarian repression.

Bloomberg reports:

 

“European Union leaders in the coming week will pledge to step up efforts to fight tax evasion and conclude work by year end on an updated savings-tax pact that covers how countries share data, according to draft conclusions for their May 22 summit.

The EU leaders’ commitment comes after finance ministers failed to reach a deal on the savings pact last week because of reservations voiced by Luxembourg and Austria. The leaders also will endorse efforts to expand tax information-sharing worldwide, as sought by the U.K., France and other nations, according to the draft, dated May 17.

“Priority will be given to efforts to extend the automatic exchange of information at the EU and global levels,” according to the draft conclusions. The draft also notes “consensus on the scope” of the updated savings tax accord and calls for its adoption “before the end of the year.”

The EU savings-tax accord sets standards for how countries can collect information on income from savings that their residents earn in other nations. The updated accord aims to close loopholes in the previous pact by including savings income from trusts, foundations, funds and other financial products.

The update also requires all EU members to take part in information exchanges after a transition period. The original accord, passed in 2005, offered Austria and Luxembourg an exemption from automatic information exchange requirements, and those nations now have agreed to revise their policies.”

 

(emphasis added)

No better foundation for a socialist tyranny of full-scale central planning could be put into place than ending all financial privacy on the pretext of catching the tiny handful of wealthy tax evaders. Note in this context that in all these countries, a huge so-called 'shadow economy' exists without which their economies would likely collapse. It is already happening in nations like e.g. Italy, which is among those that have imposed heavy restrictions on the use of cash payments and has in addition instituted a special task force that controls the spending patterns of all citizens (anyone suspected of spending too lavishly relative to his income is immediately seized upon and audited). The immediate consequence of this policy is that spending on all items that might be considered 'luxuries' by the bureaucrats has completely dried up. Entire industries are going under as a result. The government loses more revenue due to this fact than it could ever hope to gain by catching those who have evaded taxes. The evidence so far suggests however that the political classes don't care about these finer points. It is fine with them that the living standards of their fellow men are spiraling down: their own living standards after all remain secured by the most generous incomes and perks imaginable.

 

The True Nature of the Problem

What governments fail to realize is that if there is a perceived problem with tax evasion, the solution for nations that purport to be democratic and free cannot be to eradicate all financial privacy and institute the foundations of a system of outright tyranny. Whether they are held to have 'something to hide' or not, citizens are no longer free when such invasions of their privacy are made law.

Rather, it must be recognized what the problem really consists of: both spending and taxes are much too high. The best method to get rid of tax evasion is to lower taxes. How can the French president expect citizens who are forced to pay more than 100% of their income in taxes to stick to the letter of the law? It is guaranteed to either make criminals of them or it will force them to starve.

As the reaction to the euro debt crisis has shown, it seems inconceivable to the governments of Europe that it might be a good idea to actually diminish the size of government. Everywhere but in the most severely stricken crisis spots, spending has increased further. Even the countries in crisis have done everything to make the ever shrinking percentage of productive wealth generators in the private sector bear the cost of the fiscal incompetence of previous and current governments. Now they are surprised that the EU continues to wallow in a severe economic downturn and have the chutzpa to blame 'insufficient deficit spending' for the situation.

Luckily, citizens have begun to see through this. An overwhelming majority of citizens supports spending cuts as the solution of the debt crisis in Europe – in spite of the fact that the survey question was of course formulated in a manner that implied that Keynesian deficit spending policies should be favored. As Freedom Watch reports:

 

According to new polling data from Pew, the people of France support spending cuts over spending increases by a margin of 81-18, an astounding result. I’m also surprised that the Spaniards and Italians support spending cuts. The polling results are especially impressive considering that Pew asked the question in a very biased way, presupposing that Keynesian economics actually works. The fact that so many Europeans saw through this inaccurate wording is very encouraging.”

 

(emphasis added)

 


 

pew-european-spending-cuts
Europeans want their governments to reduce spending and shrink – via PEW Research Center.

 


 

Cutting spending is the best way of laying the foundation for successfully combating tax evasion, as it will make it possible to lower taxes. The low tax jurisdictions of the world not only enjoy the by far highest living standards, they also report no problems with tax evasion. They must be doing something right and deserve to be emulated. We are not holding our breath however.

 


 

 

 

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One Response to “Dear Citizen: We Want it All”

  • The fairness doctrine has always raised my blood pressure. But, I have gained a sense that the real political class is the super wealthy and government bureaucrats. I suspect under a true libertarian system, there would be very few super wealthy, but there would be a lot of rich people or upper middle class, as wealth in today’s society is gained by personal initiate, but massive wealth is quite often gained by government and banker manipulation.

    What pile of money and capital are generally attacked by government? It is rarely ever the incomes paid to the bureaucracy. This day and time, it is never the police state, especially that portion directed at protecting the state and its preferred cronies. Generally, it isn’t the oligarchs. Usually it is the upper middle class and moderately rich, who have capital and could, through personal effort or through a combination of capital with others like them, compete with the oligarchs or royalty. An example is the tax on households with assets over 1.3 million Euros. That household isn’t rich in today’s terms and with todays asset prices, would be lucky to not go into poverty upon retirement.

    Should there be high taxes on high income? I suspect there should be, if you can define high income. It is not $200,000 a year and despite the confiscatory tax load, I would suspect that Hollande located where it would likely start, before they inflate to the point it isn’t. There should be excises on bank income, as long as there is reserve banking and the system of debt depends on the compound interest equation to stay afloat. Debt should be discouraged and a means of liquidation should be encouraged, to the point that capital spending through borrowing should be amortized against future income and actual reinvestment of income without borrowing should be directly written off. This should be the true purpose of taxation, to keep private capital flowing, to discourage the manufacture of more and more paper money and credit and if there is any redistribution, to do so in a manner that keeps the finances solvent. The world of oligarchs and high living bureaucrats, with literal life or death powers, should be discouraged and done away with if possible.

    Lastly, corporations should be taxed higher than individuals. The state grants them and their owners privileges not enjoyed by the public at large, to the point that wealth can hide behind corporations and leave others holding the bag with little liability on their own. The problem is, unlike the individual, the corporation can move, without much effort or emotional attachment. With this in mind, some countries around the world would do well to arrange themselves at long term destinations for personal capital wealth, while the system still floats. Bring your money and invest in the location. I doubt the state could restrain itself over a generation and the multinationals would likely move in and destroy the system.

    The US Constitution prohibited the granting of titles of nobility by the central government and the states. Clearly they have failed miserably in that endeavor, starting with massive land grants, moving to granting bank charters and creating a banking monopoly under the Federal Reserve and centralizing power in the central government to allow control by a few. The current system is circling the drain, but as we see in France and other countries, it won’t go down without destroying what is left. Everything revolves around the state and banking and most of us are merely pawns in the game. It is difficult to discuss any of this stuff, totally discarding the state designed system and going to a free market, due to the fact that substantial capital, in relation to the whole, rests in the hands of statists, who, like those in the former USSR, would still be in control.

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