Viva La Taxes…What?
Did you know the U.S. is in a race? We are now racing France to increase taxes on jobs producers. France is also in the Presidential election process this year and there is a striking difference between the French Presidential Candidates regarding the taxation of the “rich.” Sound familiar? Will this tactic really work or will it shatter our economy and destroy the jobs future for all American’s?
In France’s election, Socialist nominee Francois Hollande is running against current President Nicolas Sarkozy on a “tax the rich” platform. Sarkozy has been a leader of reform in France and his moderately conservative approach to spending has not been popular with Socialists or many of the unions in France. This “tax the rich” plan proposed by Mr. Hollande may have some excited, but at what cost to France?
In early March 2012, Mr. Hollande announced he wants to raise France’s top income tax rate to 75% from its current peak of 41%. Hollande said “patriotism” and “justice” should convince French citizens to support his candidacy and his tax hike. What is this new tax proposal? The new tax rate would apply to those making more than €1,000,000 per year (about $1,300,000). Those making more than €150,000 ($200,000) would face a new tax rate of 45%.
Let’s do the math for the top taxpayers in France and see the impact on economic growth.
The current top income tax rate is 41%. For each euro a worker in this tax bracket spends, he is only able to spend 59 cents. When this money is spent, a (VAT) value added tax of 19.6% is taxed. What does this mean? For every euro spent, the French government gets 52.6 cents and the earner of that euro gets 47.4 cents!
Now the proposed income tax for those making more than €1,000,000 per year would be 75%. The same VAT would be applied to any spending, meaning the government would get 79.9 cents of every euro and the earner “gets” to keep 20.1 cents!
How excited will the top producers be to live under these huge tax burdens and keep 20 cents from each Euro they earned? Will the top taxpayers and job creators stay in France, or leave to use their skills in another country where the tax burden is not so punishing? Will they be forced to close their businesses and lay off people under this extraordinary tax burden?
Taxing the Rich in America
The United States is quickly moving towards France’s aggressive tax system.
Here are some statements from President Obama:
* President Obama made a defiant call for $1.5 trillion in new taxes in a plan to find $3.2 trillion in budget savings over the next decade. Obama adopted a posture that cedes far less ground in cutting the nation’s social safety net and demands much more in terms of new levies on millionaires, other wealthy Americans and some industries.
* “You can call this class warfare all you want,” Obama said. “But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.“
* In his most recent budget, Obama for the first time proposed raising the tax rate on dividends, from 15% to as much as 39.6%, for households making more than $250,000 a year.
What happens in the private sector when taxes increase? There is less money to spend, and the rate that money is spent decreases rapidly due to taxation. The solution is not higher taxation on the rich or producers; the solution is in the velocity of money.
Velocity of Money
The velocity of money is the speed that money moves between consumers, businesses, manufacturers and suppliers of raw materials. If I buy a suit, I pay the merchant, the merchant pays the manufacturer, the manufacturer pays the suppliers for the fabric, etc. At all those points of purchase or payment, taxes are paid. The greater the frequency of this spending by consumers and merchants, the more taxes are collected for use by government for necessary programs such as national defense. This spending is good for the economy, as businesses grow when consumers spend money for the goods and services being sold.
The tax regulations from this government, and those proposed by Obama to tax the rich, will have a crippling effect on the private economy. More productive people will have less money to feel confident in spending which will reduce the velocity of money and taxes. Consumer confidence is destroyed when you believe your taxes will be increased. The result is people spend less and our economy can grind to a halt; this is bad for job creation in the private sector.
The decrease in the velocity of money also affects small business owners heavily. They won’t hire workers if their sales decline and consequently they will not buy as much from their suppliers due to decreased demand. Tax revenue will actually decline by this slowing of the velocity of money. The only winners are the bureaucrats and politicians who take and spend our money to retain their power through what they spend on pet projects like bridges to nowhere or entitlement programs whose recipients become “indebted” voters to the politicians. In fact, the increased taxes on the rich are not large enough to cover the $1.2 trillion deficit in the President’s most recent budget proposal, and the politicians know it.
Facts on Taxing the Rich
So how would increasing taxes affect the “ultra-rich”? I went to the Forbes 400 most wealthy in the world for some answers. The total net wealth of 1,226 billionaires globally is $4.6 trillion, averaging $3.7 billion per person. In the 2012 Forbes study, the U.S. is home to more than 425 billionaires.
If this “ultra-rich” group had all of their money taken by the U.S. government, not just taxed, we could pay for the President’s proposed $3.8 trillion 2013 budget entirely and have approximately $800 billion to pay for the 2014 budget. This is outlandish! What if America was like France and taxed these billionaires at 75%? The taxes collected would be about $3.45 trillion and would not cover the proposed Obama 2013 budget.
But wait…almost 2/3 of the world’s billionaires are not Americans and the U.S. can’t take their money! What’s scarier is thinking if these billionaires, who are job creators, had all their money confiscated, what would happen to their companies and employees?
“It’s the Economy (and Spending) Stupid!”
Isn’t our real problem spending? Isn’t it a problem that in an election year the President is pointing at job creators and successful people and saying they are greedy and harmful to other American’s?
You can’t blame the rich for the doubling of oil prices since Obama took office. You can’t blame the rich for the exploding number of costly regulations from Washington. You can’t blame the rich for increasing governmental spending on programs like Obamacare, and the list goes on. The responsibility lies in the White House.
Principles for Action in 2012
The solution is to stop this President from inflicting further economic disaster on America.
1. We must demand now that we have a budget that does not shackle job creators and successful people in this economy.
2. We must demand now that the out of control spending and regulations in Washington stop.
3. We must live within our economic means and we can’t cripple, through taxation, the job creators.
These principles are critical in America. All will be lost if we slip into the ranks of Greece, Italy and France, where fiscal mismanagement and high taxation lives. Any candidate running for office who does not adopt and defend these core principles should not get your vote. Any elected official who does not adhere to these clear principles must be held accountable by all of us.
You have a voice, through our grassroots efforts and powerful message of economic freedom; you don’t have to be a billionaire to be heard. Join us at American Citizens for Economic Freedom, with a simple $10 per month contribution, so we can tell Washington that the average person will be heard in November 2012. If Washington doesn’t listen, those candidates, bureaucrats and politicians must not represent us in Washington anymore!
 First Trust Monday Morning Outlook – http://www.ftportfolios.com/Commentary/EconomicResearch/2012/3/5/viva-la-france
 The Wall Street Journal – http://online.wsj.com/article/SB10001424052970204795304577221063135502908.html