Thursday, April 22, 2010

Raising taxes is stupid, stupid, STUPID…and what to do

By Paul Mladjenovic
Copyright 2010. Paul Mladjenovic. All rights reserved.

The rumblings coming out of Washington and out of many state capitals is about growing deficits and many politicians and commentators are talking about raising taxes. The talking points include…

1. Many states are talking about raising tax rates to increase their revenue.
2. Unless renewed, federal income tax cuts are set to expire Jan’11: Higher taxes next year.
3. More politicians are talking about instituting a European-style VAT tax.

Of course, many of the politicians and pundits will find some bonehead economist that either thinks raising taxes is a “good idea” or a “painful necessity”. What nonsense! Any economist that thinks that raising taxes in the midst of the worst economic conditions in our lifetime is a good idea should be fired for incompetence. This “economist” is better off in a new job where he can say things like “Would you like fries with that?”

All the government deficits in our country (Federal, state, etc.) have not been due to a lack of taxation.


Government at every level gets sufficient revenue to run its necessary operations. The problem is that politicians spend and spend and spend to increase their elect-ability. They spend money to curry favor with public unions, influential corporations and many that simply want the fruits of other people’s labor. Look… government officials over-spend money freely because it is NOT their money. They over-spend because money from taxes does not come voluntarily…


When politicians run deficits, they have no constraints or incentives to shrink spending. Why should they? If they have a revenue shortfall, they know all they need to do is to FORCE TAXPAYERS TO PAY MORE.

You now come to the biggest difference between a business and government. Business is a “voluntary” entity; if a business wants your money, it must please you enough so that you VOLUNTARILY give it money. Business must provide goods and services to survive and make a profit. Consumers are not forced to buy these goods and services from any particular business; remember that there is choice and competition. In the free market, the one paying has the greater power.

Government, on the other hand, is a “coercive” entity. In government finance, the one paying to support the government (the taxpayer) does not have power. If a taxpayer gets frustrated and feels that taxes are too high…well…too bad! The government doesn’t care and they don’t have to care because…again…the money they get is through FORCE.

The problem for government is that at the personal level, taxpayers are not stupid. They will not sit idly by and willingly get plundered. Taxpayers will find legal (and sometimes illegal) ways to hold on to the fruits of their labor. The most common responses that over-burdened taxpayers do are…

1. Employ tax-fighting strategies and hire experts to decrease their tax burdens.
2. Work less!
3. Produce less!
4. Leave! In recent years, high-tax states have seen a growing number of taxpayers go elsewhere.
5. Fill in the blank___________________. People can get creative with tax avoidance.

This is where the stupidity of tax increases becomes obvious to all. Tax increases unleash lots of unintended consequences. People spend more of their time and effort figuring ways to escape punitive taxes rather than using the same time being productive and innovative in more sensible economic pursuits.

Government officials keep seeing time and time again that increasing tax rates does NOT result in more revenue. These near-sighted officials don’t realize that higher tax rates punish economic growth and job creation. When businesses and employers are struggling with high tax rates and stringent compliance regulations and paperwork burdens, they don’t have the ability to hire (or keep!) employees. Money that is forcibly shifted from the private sector to the public sector only makes the revenue situation worse, not better for government.

When you hurt the private sector, you are killing the golden goose. A or struggling or shrinking private sector ultimately means less revenue for government, regardless of how high tax rates go. It becomes a vicious cycle. The end result is that government deficits become unmanageable and sources of tax revenues are sucked dry and then there is no choice but to reduce the size of government…either by consent or by the force of financial collapse. Had the reduction of government happened much sooner, much economic pain would be avoided.

Keeping tax rates low is not just good for taxpayers. Ultimately it is good for government as well. In turn this is good for those dependent on government assistance. It is no coincidence that most of the very-high tax rate states have the deepest deficits while most of the states that are in fairly good shape have relatively low taxes. A good example of this is the comparison of California and Texas. California has high taxes and high spending and it is in danger of collapse. Overall, Texas has low taxes yet it is in good shape given today’s economy.

The bottom line is that raising taxes…
• Does not increase revenue
• Is not moral, ethical or practical
• Does not make any economic sense
• Is bad for the private sector
• Makes matters worse…not better.

Seriously, how can you grow and sustain a prosperous economy if you keep taking more and more money from production (the private sector) and forcibly shift it to consumption (the public sector)?

In a word, raising taxes is STUPID. But until common sense returns to Washington and the state capitals (don’t hold your breath!), we as consumers and taxpayers must deal with it.

What to do…
1. Find ways to cut your taxes. I have recently set up to address this. I will keep adding tax-fighting resources and I will alert folks through

2. Start a home business. A home business is a great way to save big on taxes! This is why I have taught a class on starting a home business for over 20 years since I think that a home business is a powerful financial planning & wealth-building tool. You can find my class at There are other ways, of course, but starting a home business can be easy and inexpensive to do.

3. Vote for low taxes. I don’t care which party or person you choose, just make sure that on the singular issue of government fiscal policy that they are STRONGLY in favor of lowering taxes and government spending. The National Taxpayer Union (NTU) is a good place to start and they are at

A good example of a pro-taxpayer, pro-smaller government candidate is one of my favorite real estate experts, David Corsi. I have known him for over 20 years and guys like him are badly needed in the rat-infested halls of Congress (Dave’s site is it out).

The NTU compiles more information on what politicians and candidates are doing in regards to tax matters. Get their free email alerts. Be informed for the coming election.

Look… it is crisis time for our nation. The economy is struggling big time yet…federal and state governments are lavishly spending at mind-boggling levels…the worst in our history! Economic pain is certain now.

Even if tax rates were raised to 100% and they also pulled out the gold and silver fillings in your kid’s mouth, they would STILL be trillions in the hole! The profligate and irresponsible spending has gone beyond disgusting and raising taxes will NOT help government but it definitely WILL HURT the economy and those that support government…millions of honest, hard-working taxpayers like you and I.

It’s an election year… tell them “NO” to raising taxes.