What income tax rate do we need to have in order to cover government spending without incurring more debt (or printing more money)?
The US Debt Clock as of today shows government spending of just over $10 trillion (Federal, State, and Local combined)
Since taxes ultimately come from income (directly for the income and Social Security taxes or indirectly for taxes like property and sales) - What is our national income?
Social Security publishes an incredibly informative wage statistic every year - The 2020 Wage Statistics shows an average income of $53,383.18.
Total wages/salaries/commissions for 2020 was $8.9 trillion.
Can you see the problem?
To get $10 trillion out of $8.9 trillion in W-2 income would require a tax rate (no exemptions) of 112.4%.
In other words - if you made $1,000 this week, our governments need $1124 from you.
It takes work to try to figure out what our total income is. The Wage Statistics report does the best job of telling us what W-2 income is vs. IRS Tax Stats as some people don't have to file returns, but we need the tax stats to see other income.
Other income basically falls into 3 categories - business income, investment income, and retirement income. It takes many months to get the final personal tax stats for the year, and several years to get the C Corporation tax stats.
In researching for my book, I found that W-2 income comprises about 70% of all income.
This would give us a total income for 2020 of $12.7 trillion. This is just an estimate but should be within a few hundred billion of what the final stats will show.
That drops the required tax rate to just 78.7% of all income.
Now before you get too excited about getting to keep 21.3% of your income, there's more to the picture.
We haven't discussed public and private debt.
We haven't discussed the un and under-funded liabilities of Social Security, Medicare, and public and private pensions. I’ll talk about those next time.
Now your “loving” government gods have a solution - a wealth tax.
Before we discuss that, let’s look at the propaganda the Democrats spewed when pushing the income tax over a century ago.
Before the income tax (16th amendment from 1913) and Social Security (FDR and the Democrats) - we used to bring home what we earned - you earned $1000, you brought home $1000.
They said that the income tax would only be a small amount that would only affect some really rich people - mostly living in the Northeast. We know how the income tax has expanded over the years.
One thing that’s remained constant until now for both accounting and tax purposes, is that you didn’t have a gain (income) until you sold (or exchanged) the asset (be it real estate, stocks, bonds, or crypto).
Let’s say you bought some crypto for $10,000 and that’s now worth $100,000 - they want to change the rules to say you’ve got $90,000 in taxable income.
Of course, they say this will only be a tax on those worth over $100 million. That will change because they always need more money.
They say the wealthy aren’t paying their fair share and that you should covet what they own because it’s for the good of your government gods.
The current proposal says that they expect an additional $360 billion over a decade - that averages $36 billion a year.
Besides, those filthy rich people can afford it, right?
From the US Debt Clock - Federal income is $4161 billion. $36 billion doesn’t even add 1% to the kitty. Every little bit helps, right?
They say the wealth tax will make things fairer, but what’s the effect?
While these filthy rich people have a high net worth, most of that is in the form of stock (usually the company they started) and real estate. Very little is in cash which is what even the rich have to submit to our government gods.
In order to pay the taxes, the filthy rich will have to sell stock to get cash.
What does that mean for the little people?
First we should ask - who will buy the stock so that the filthy rich can pay their taxes?
Since all the filthy rich will be selling stock to get cash to pay taxes, they’re not the likely buyers.
Maybe we should start the United Federation of Planets now and we can get the Vulcans to buy the stock.
Since central banks are running QT (retiring assets from their books that they bought with money out of thin air) and raising interest rates to combat inflation - central banks will likely not be providing the cash to buy the stock.
I’m at a loss as to who will provide the cash to pay these taxes.
Next, when you have to sell more of something (especially in a short period of time - with a deadline to pay taxes) that causes the price to go down (too much supply for the demand).
So what if these stock prices go down?
The companies that these filthy rich people started are invested in heavily by public and private pension funds, and individual investors (including 401k and IRA accounts).
Pension funds are underfunded as are most individuals that do have 401ks and IRAs.
Driving stock prices lower will make the pension fund and retirement account problems worse.
But Wait - There’s More
It’s quite popular to use margin brokerage accounts because it allows you to multiply your profits.
With declining stock prices, margin accounts also multiply your losses.
When your account value drops below margin requirements, you get a margin call. That’s means you have to quickly add funds to your account.
Usually, people don’t have cash on hand to fund a margin call, so they have to sell stock. Selling more stock will drive the prices down. Sound familiar?
Hopefully at least one Senate Democrat will not support the wealth tax, but it is an election year and Democrats are desperate.
But Wait - There’s Even More
We’ve only discussed the problem with funding current government expenditures.
The government has made lots of promises and these promises cost money.
How much money?
More than all the money in the world.
I’ve been searching for a solution since 2007.
I’ve only found one.
That and more fun… Next time.