What Will The Tax Bill Do For You?

To listen to the SBG Cast, click here: http://tinyurl.com/24dpuvu

Most of us, 67% of Americans that is, were happy that Washington passed the extension of the tax rates for another two years. But what impact does this really have? Hi, I’m Steve Beaman and welcome to this SBG Cast on the Financial Path!

Phew, that was close. At least that’s the feeling most financial professionals have when it comes to these tax increases being stalled. There was widespread concern that a sharp increase in taxes as proposed could put a significant stall on stock prices, real estate prices and much else thus leading to a second downturn in the non-recovery recovery we’ve been experiencing. And there was a sigh of relief among seniors who are looking to pass their hard-earned money down to their heirs, with a continuation of the death tax exemptions; $5m for singles, and $10m for couples.

But let’s take a moment and look beyond the short-term good feeling to the longer term for a moment. Keep in mind, this extension was only for 2 years and the money to pay for it will be borrowed on our nation’s visa card. Believe me, I’m not negative about reduced tax burdens, we’re incredibly overtaxed in my opinion. But this political manipulation of our federal tax code is more of the same that’s gotten us into the financial trouble we’re in. My point I guess, is that this political decision is just more evidence that we desperately need a complete overall of the revenue and expenditure sides of government. We cannot hold the economy hostage to the political whims of Washington… Period! This near miss on another tax only continues to put uncertainty in the minds of business people who are debating growth, and you know what, while evidence shows an increase would have HURT, in my opinion, this won’t help all that much. We’re still deleveraging our economy, and the point that this will “stimulate” the economy, I think not. Remember, just because we have more to spend, doesn’t mean it’s spent here, in the United States. Manufactured items are largely done abroad, remember the trade deficit!

I believe this, like so many things in Washington is just one more clarion call for a total re-thinking of the revenue side of government. What is the purpose of taxation? It’s NOT for social management? Is it? Isn’t it just to pay for the things government feels the need to do? As such, let’s stop the idiocy of micro-managing the economy with thins like special tax breaks for this person, or that person, and just have all of us pay equally. Why should a home owner be treated preferably to a renter (who by the way tend to be lower income)? Why should any person in our society be penalized for succeeding? How many businesses pay someone LESS commission as they sell more? Reality, if anything, we should CUT tax rates as you make more thus incenting people to work harder and make more! But that’s not right either. How about we just simplify the debate and make one fundamental decision? Should we tax income, or expenditures? Expenditure is much easier to measure frankly and it does provide inherent incentive for people to save. So, the notion of a VAT tax isn’t all that bad, but that’s IF we ELIMINATE the income tax. Similarly, if we want to tax folks incomes, why not simply do it evenly. Yes, that’s a flat tax. No deductions, no exemptions, everybody who makes more than some notional level pays the same percentage. That way, Bill Gates will pay the same percentage as the person making $110,000 which today he doesn’t.

So yes, we should be thankful that taxes didn’t go up. But the fight to reform the financial misconduct of Washington must not stop. Without serious reform, our nation does in fact face bankruptcy. At some point, you can’t kick the can down the road any further.