Inflation as a taxation mechanism

[Fenrisúlfr]

Say I purchase an asset, valued $1'000 on 1 January 2001. On 31 December 2001, I sell said asset for $1'100. Inflation is at 10%, so in effect, I have only maintained my purchase power, as $1'100 at the end of the year purchases, on average, the same goods which $1'000 would have purchased at the beginning of the year.

So nothing was gained in real terms, but $100 was made. Thus, the transaction is subject to taxation.

Thus reveals the insidious nature of taxation of income or even capital gains: government, through the Central Banking system, can inflate and debase the currency. The more it inflates, the greater the capital gains overall. The greater the capital gains, the greater the taxation.

Ergo, a moral hazard emerges, as if government wishes to increase tax revenue, all they need to do is keep issuing debt (US: through the Treasury Dept.). Debt is taken onto the books of the Central Bank (in the US' case: the Federal Reserve, aka 'The Fed'). Against these bonds, currency is issued to fund expenditures, diluting the money supply.

Friedman, who won the Nobel Prize in Economics, said "inflation is always and everywhere a monetary phenomenon." All other things being equal, more dollars being used to bid up anything under the sun equates to higher prices. Costs of all things are going up because of this inflation, anyone who drives or eats may observe this.

And what of one who is selling an asset that only held its value against inflation? Last year, the Dow Jones Industrial average returned for investors a paltry 6,5%. This year, it has lost over 12%. Net-net, it would have been a loss, but last year's gain would have been taxed, but this year's loss could not be used against it! Thus reveals the bizarre nature of the taxation: it creates an incentive not to put capital to work within the jurisdiction of taxation.

Thankfully, or not-so-thankfully if you live in a country that is taxed, there are other places to stash money. Capital markets require liquidity to function; a company that cannot raise capital on the market is a factory not built, a wage not paid, and goods not purchased. All down the line, every industry eventually takes a hit. Interest rates rise, making refinancing more expensive for existing borrowers, and prospective borrowers that much more reluctant to raise capital to do business. The demand for labour thus suffers in this stagnating environment. The currency depreciates as dollars are exchanged for yuan, dinars, and - this I do on a daily basis - gold.

Meanwhile, places like Hong Kong and Dubai offer 0% capital gains. It is not uncommon for a CEO to get paid in company stock, which at the point of sale incurs not so much as an arched eyebrow from Beijing. This is the trend ever since the passage of the Sarbanes-Oxley act, and more so as petro-dollars and China-trade-dollars are recycled into these capital markets.

Thus, the remedy is apparent: the taxation reigme must be brought into line. A lively economy is built upon a lively capital market, and a lively capital market requires a favourable tax reigme.

 

[razoredge]

Balogna, a lively economy in today case exists on cheap labor. Beijing probably still has its vast population pedeling around on bicyles and eating rice while the handful are getting rich off their backs.

What ever capital gains lost this year was simply due to everyone not investing solely in oil and gold stock. Those that invested elsewhere in optimistic faith lost what went in free donations to those that gained from their oil and gold speculation and manipulation. Any gains in what ever aspect of life comes from the loss of others.

 

[Fenrisúlfr]

Pish-posh! Hong Kong's free market policies have made itself the boom-town of the Pacific. As for wages, they are rising by 11% in Shanghai, yet the economy is still growing in double-digits. Keep in mind these numbers are denominated in an appreciating currency.

The growth is not based upon cheap labour, but greatest productivity, which all other things being equal would yield greater profit. 1 worker paid $9/hr with capital goods to produce 10 widgets/hr is more valuable than a worker paid $1/hr that may produce 1 widget/hr. Say I profit $0,50 from each widget; if I am taxed 40%, $0,30x10=$2,70, versus $5,- if I outsource the labour. Though I pay less in wages in the former, more productive (i.e. high tech, capital-intensive) worker, it is more profitable for me to hire 10 of those other guys. Additionally, the marginal cost of the widget is higher by $0,10, a cost passed onto the consumer, all other things being equal. The consumer thus pays a $0,10 tax, the engineer who designs the high-tech widget maker does not get hired, and of course the more-productive employee does not get hired either. The jobs they support on top of that - everyone from the engineer's hairstylist to the factory-worker's maid (part time, he hasn't made supervisor yet) - do not get hired at all.

As for the gains from oil stocks: yes, it does. There is not an infinite supply of oil or gold, and when demand increases and supply stagnates as it has (or in the case of gold: declines), prices of course go up. Would you prefer oil be pegged at $30, so demand does not decrease in line with supplies, causing shortages? That is what happens when supply and demand are propped up: when prices are pegged too high, excess supply floods the market in the short-term, creating dis-incentive for long-term investment in the sector, so one way or another, the market reaches equilibrium at that price. It penalizes the consumer, causing prices of any products using such a widget to increase. As for pegging a price too low: demand exceeds supply, as more things are economical at a low price of a good than a high price. For instance: corn syrup in lieu of sugar due to corn subsidies. Thus, a shortage ensues, as those who would bid up the price are crowded out of the market and goods are available at no price! Long-term investment is not made as they could only bring their goods onto the market as the pegged price, and capital otherwise invested in the sector is diverted to more lucrative investment.

 

[razoredge]

I dont give a hoot whats more profitable for the few, I only care whats profitable for the people of MY country. Those countrys are only doing good now becasue they are the boom town, just as America once was. One day they too will get caught up in the quagmire of the developed society with all its needs. You run around acting like the infrastructure in this country came cheap. All the concrete, land clearing, asphault, brick buildings and green grass where here when you were born so you assume it came and maintains itself all by itself. Sure our government squanders the money we give them but rather than call them to justice for thier impedence and draw and quarter them as they should be you want to pass everything off as there should be no tax's on the wealthy. I dont give a crap if someone cranking down 4 million a year is taxed even 75%, that still give them a million to live with. What... am I supposed to feel sorry for them ? You seem to only want to promote what will bring YOU wealth in your future and fog over the thousands that will earn that for you, you want to earn your 4 million and keep every last cent, as you drive down the roads you assume came free, and drink the water pumped through pipes that you think evolved with the earth. I am a homeowner and am sick and tired of the relentless increasing taxs. Much of which is due to the realestate speculation raising the assessed value of everyones measily little home, because those with money or that bought into the faux credit boondoggle were throwing money around the past 15 years like it was garbage out the car window. The speculation and "free market" that caused this housing fiasco is the very thing you want to promote for your wallstreet few. Im in an income tax bracket that doesnt pay much for tax's, I'm not proud of that, nor do I feel badly, I feel those of my effort and contributions are not paid enough and if we were would gladly give up a higher percentage to maintian what it all takes to keep this thing rolling. The problem is the mindset you promote wants to crush what was rolling because you want, want, want and through NAFTA have found a place to accomplish what you desire, screw everyone else. Your free market and no tax's or regulations or laws in this country would leave it looking like a landfill within 30 years and during that time millions would be out in the street, rotting corpses in the field because the 10 dollars a week they would be paid to get the work done that needed to be done wouldnt pay them enough for bread to eat and toilet paper to wipe their ass, let alone put a roof over their heads. But that would all be fine and dandy because the wealthy would be wealthier. This country was fine until we let the poor countries into our economy, now they will become us and we will become them, it has nothing to do with corporate taxs, capitol gains taxs, industrial environmental regulations only those looking to aviod them to increase their wealth, screw all else. Theres more damn money in this country but those that have it all are those your crying have to pay outragous tax's on their outragous incomes.

End of story

 

[Fenrisúlfr]

Why do you lend yourself so well to rebuke? It is fun to bat a lesser intellect about like a cat unravels a ball of yarn...

That which you say is the omega becomes the alpha. This country got along just fine without income tax. Was the country a landfill in 1776, when your ancestors rose up against the British over issues of taxation?

This country bloomed because the people were free to reap the fruits of their labours. It was not until 1913 with the passage of the 16th amendment that an income tax even existed! Again, a far cry from the landfill that you say this country would become without your proposed 75% income tax and iron-fisted trade policy. It is you who would turn the country into the landfill.

Instead, take a look at Taiwan. It rose from what was effectively a third-world rice paddy to a technological powerhouse through economic liberalization.

1910-1945: Japan's investment in infrastructure projects such as transportation and irrigation systems makes Taiwan an economically profitable colony. Sugar and rice production increase, and the trade deficit becomes a surplus. Exports increase by 980 percent, imports by 540 percent.

1946-1959: The vast majority of exports -- 86 percent in 1958 -- are agricultural products, primarily rice, sugar, and tea. An import substitution strategy encourages local manufacturers to produce goods that had previously been imported.

1960-1964: A series of reforms geared to stimulate exports are enacted. The first one is the Statute for the Encouragement of Investment, which provides generous tax incentives to businesses in the hope of attracting foreign capital to build factories that will create export products such as textiles, clothing, shoes, and other labor-intensive goods.

1965-1969: Laws are set up to manage new Export Processing Zones (EPZs), offering incentives for foreign enterprises which set up factories in Taiwan. The first EPZ is built in 1966 in Kaohsiung, and within two years it generates annual exports of 7.2 million U.S. dollars. Two more EPZs are built in Taichung. Foreign investment pours in, and exports increase exponentially.

1970-1979: Export-oriented strategy continues with spectacular success. Emphasis on labor-intensive production shifts to capital-intensive production. The 10 National Construction Projects develop heavy industries (steel, petrochemicals) to support growing infrastructure.

1980-1989: The '80s is a period of accelerated liberalization and tariff reduction. Import controls and restrictions on foreign investment are relaxed. Capital- and technology-intensive industries are developed as Taiwan competes for, and wins, a huge share of the world's information and electronics market. In 1988 the exchange rate is freed from the Central Bank's control and is determined by the market.

1990-1999: Liberalization and deregulation continue, as does an emphasis on high-tech industries. In 1992 the GATT Council appoints a working group to consider Taiwan's application for WTO membership. Taiwan's membership is contingent on China's admission. Regular surpluses, strong medium-sized enterprises, and lack of foreign debt allow Taiwan to emerge relatively unscathed from the Asian financial crisis.

2000-2003: Taiwan continues to be a leading exporter of computer hardware. The United States is Taiwan's largest trading partner, followed by Japan. In 2001 Taiwan is admitted to the World Trade Organization, along with China. Taiwan and China continue to gradually expand the scope of legal trade between them, but still shy away from full-fledged trade talks.

Then, take a look at English economic performance under Atlee after WW2. His socialistic policies, had they not been reversed by Thatcher, would have led to England becoming a third-world dump, a similar fate the US is facing because people like you cannot be bothered to educate yourselves on even the most basic of economic concepts.

However, methinks that the above text may blur together like static on a radio. This may well be evident on account of your response, as you did not offer any evidence nor logical argument as rebuttal. There is also evidence hinting at the reason you are in such a low tax bracket

Riesling wine makes me do funny things. Like take the resident Neanderthal off 'ignore'. I explained why prices - real estate included - increased in the starting post, either he did not read it, could not read it, or it just did not compute. Anyone have his SAT scores, and if divided by 100, would it be enough to buy an apple?

We do, however, agree on taxes being too high: one of us is just clever enough to avoid them legally.

 

[razoredge]

I would suggest you watch the personal attacks and I would suggest the moderator does the same.

America prior to 1913, everyone doing great, OK lets see...

post Civil War - carpet baggers, lawlessness in the west, theres lots of things there but why bother
industrial revolution - sweat shops, child labor, coal smogged skys, the roads were mud and horseshit pits, more river crossings than bridges, a toss out the window was one part of the sewer system, the other was this little out building, the garbage went out the window as well or if you had land, over the bank

this is part of the landfill I was refering to and represents some of our costly infrastructure

now another
no environmental regulations for industry, or automobiles, more smog filled skys, you prolly dont remember, all I can say is things are much better, most all rivers were dead in this country by the 60's, as were many lakes, combined with acres of toxic land.

military - men used to be guilted or reveled into it for starvation, gang green and frozen feet, they werent armies supported by Royality to protect their wealth. I cant seak for WWI, I really know little about that, however WWII, Nazi Germany would have controled all of Europe and Africa. However we would not have had big ships in Pearl harbor so that would have never happened, the Japanese could have just gone straight to California instead, after setting up shop in Hawaii. So all that would have been good because the cold war never would have happened. I would not be so sure that the industries in America did not fully support income tax, or other tax's, for purpose of the military alone, back at that time the military protected their interests, as well as created work and industry. Hover would never had built the interstate system in this country. Im sure one as smart as you knows our interstate system was initiated as a form of defence... right ? and cost alot of money which would have came from where ?

why ever I should have to show this evidence "for rebuttal" is beyond me, I have assumed it was stuff all Americans were aware of.

What gets me is your crys for less taxes and regulations are clear in my mind as solely for the benefit of the wealthy and scrupulous in this country and you certainly dont have a baseball bat big enough to hit me with let alone make me go blind... as I would need to be to swallow your load whole or to sneak up behind me with your bat in the first place.

Im well aware of the complicated economic theories you bring to the table but I see them for what they are, smoke and mirrors to hide the real truth which is to allow the rich to gain more wealth. Yes you can say "well this made them do this and go elsewhere" but it doesnt change the fact that it took alot of money to make this country what it was and everyone at one time was pulling their weight. It just wasnt enough for the few, they wanted more more more with NO responsibilities or accountability whatsoever.

So myself, with taxes, I would rather look at trimming the fat than let the corporate types have a free for all with the workforce and environment for their own gains. Once again I just cant feel sorry for anyone making millions a year or even $100,000 for that matter. I'd certainly live a damn good life with $70,000 through the front door, I would suggest others learn how to do the same and quit the crying... Im sure the Taiwanese would be pleased with $70,000 as well.

As for tax evasion I do just fine in the avoidance department, but its not something I take pride in, its a necessity. I live and work hard in this country, I would like to finish my years here.