The vanishing cash flow


Government drives away the one thing it needs the most
It's getting tougher to make a profit. Emphasis in original.

…taxes extracted 74.2% of any added (marginal) corporate earnings, leaving only scraps for stockholder.

Companies that lost money, on the other hand, were often bailed out and/or nationalized.

A funny thing happens when government targets the "richest." The money disappears.

Maryland couldn't balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were "willing and able to pay their fair share." The Baltimore Sun predicted the rich would "grin and bear it."

One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.

Despite the best efforts of the FedGovs to prop up the economy and to keep people in housing they can't afford, delinquencies and foreclosures are up. Way, way up. Ordinarily, this would cause house prices to fall. Under the circumstances, it's going to cause the dollar to crash.

Money wants to flow free.

I told you before, the question isn't if government can fix it, but what the costs will be.

Government action most directly influences marginal behavior. It's an economic truth. Lower the cost of flood insurance by government decree and more people build in a flood plain. Tell banks that they don't have to cover bad subprime loans and of course there will be more loans. Pay unwed mothers and a majority will stay unwed.

It's these marginal behaviors that can lead to cascade reactions because it's at the margins.

If the income tax rate jumps three percent between 50 grand a year and 51 grand per year, that whole zone between 50 grand and 52 grand becomes a "no man's land" that everyone avoids because it costs less. People will resist moving above 50 grand until they can keep more of their money. That means that there is less movement up the income scale, and when income does change (if it changes), it's going to spike over the gray area.

Watch those marginal behaviors.

I asked the obvious question before. Do you think the behavior that led to this mess will change now that the FedGovs are officially "in charge?"

But when politics trump the free market, people don't take responsibility and the taxpayers are left holding the bill.

Nothing has changed since I told you this:

Every single social service "provided" by a government agency inevitably costs more than a private sector version. It will be looked upon as a right, not a cost. It will change marginal behavior for the worse. And it will discourage alternatives from developing.

The fact is that we could have handled the collapse without spending oodles of cash stolen from ourselves. It would have been rough, yes, but it would have been a burp. Bush opened the door and Obama took out the wall and most of the neighborhood on the other side.

GOVERNMENT IS MAKING IT WORSE.

About the only good thing that is coming out of this is the collapse of the central state, and I don't think most people would choose that.

— NeoWayland

Posted: Mon - June 1, 2009 at 12:37 PM  Tag


 ◊  ◊   ◊  ◊ 

Random selections from NeoWayland's library


Pagan Vigil "Because LIBERTY demands more than just black or white"
© 2005 - 2009 All Rights Reserved