Thursday, June 7, 2012

Taxes. Taxes?! Taxes! The Buffett Rule and the Intangibility of Unfairness

So I came across this interesting piece of article. Oh wow, more taxes!

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Before the insights, let's remind ourselves what the Buffett Rule is. According to Wikipedia:  

The Buffett Rule is a tax plan proposed by President Barack Obama in 2011. The tax plan would apply a minimum tax rate of 30 percent on individuals making more than a million dollars a year. According to a White House official, the new tax rate would impact 0.3 percent of taxpayers.  

This just basically means more taxes for the richer brackets of American society. It's not like most US citizens, even non-Americans, should be concerned about this, but we have to wonder what lessons and principles we can pull-out of the hat from discussing this lingering issue.

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The amount of taxes to be collected from this new tax plan is probably just a drop in the bucket, but the gesture and the philosophy behind it means so much more. To be at the upper crust of society (the well off and super rich people) means that they enjoy the privileged life, image, and reputation in American society. And most of the time, these come with the respect (whether fake or authentic) elicited from other people just because rich people "made it". 

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It's beyond me to opine, however, on how circumstances, opportunities, luck, and morality come into play with the success stories of people around the world. When we talk about confluence, I think it just happens! Why wouldn't a 50 ton satellite just drop on you out of the sky, when everything is going so well for you in your life?

They are blessed enough to be in a position to lead, create jobs, and help society in general through their influence and power. These well off people can't expect the people in the lower and middle classes to pick-up the slack when they face the daily struggles presented to them by the economy. Although, I really get their point, if the thoughts passing through their heads were something in the theme of:

a) Why the hell should I help those below me? Clearly I got through my hardships and earned everything I have now without anyone sympathizing with me or helping me out.
b) Would they do the same for me, if it were the other way around?!
c) The world is cruel and unfair, get used to it.
d) I don't owe any of these people. I don't even know them!
e) Most of these lobbyists are just slackers looking for a scapegoat.
f) Why am I even shouldering the expenses for illegal immigrants, slackers, and other unproductive citizens dependent on social programs and hand-outs?
g) Some other justification on how the world is, has been, and will always be unfair and merciless.

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If these rich people don't do anything, hoard their wealth, and or ship their money off to some other country (tax haven territories, anyone?), then they are running the USA to the ground. Case in point, Eduardo Saverin moving to Singapore. Although, we can all merely speculate as to why he did make the move of renouncing his US citizenship. It's his money after all, isn't it?

One can easily say that this is tantamount to defecting to another country or economy and leaving the US populace to fend for itself. With great power or an immense amount of wealth comes great responsibility.

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With this adage in mind, it is a humbling lesson to those who aspire and have the ambition to make it to the top. You can't climb the mountain expecting to leave all responsibilities behind when you reach the summit.

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While we yap and yap about government revenues through taxes, some argue that reigning in spending would instead be the best solution. Cutting costs is indeed a sensible thing that all budget-conscious households do.

In my opinion though, the economic framework on which the US has found itself in will not be conducive enough to do so. A macroeconomic premise taught in Economics 101 is more expenses equals more revenues. Unfortunately, the US economy is not a major exporter anymore, so money is going out instead of coming in. Other countries buy their goods and services from other countries, too. The statement of Marc Faber still hits me today and it's even in Wikipedia (!

Faber has been long term bearish about the American economy for a number of years and continues to be so. He concluded his June 2008 newsletter with the following mock quote:

    "The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part."

The Made in the USA brands are hard to come by these days. This stems from the addiction for cheap goods made by cheap labor abroad. Prior to the full fledged initiative of globalization, which saw the integration of most major global economies, citizens of third world nations feared and condemned this so called globalization because it was a symbolism of oppression and slavery to a master-country, an "empire state". This globalization was being endorsed and "inculcated" by the only leading superpower left in the world, the US. With the collapse of the Soviet Union and the proof that Communism doesn't work, capitalism took over as the only choice. Now most countries are playing this capitalism game and obviously US society has grown spoiled and complacent of its privileges as it paid its way to a life of higher standards of living and luxury. 

 This article ^ is an extremely interesting read. I didn't know that we were in the $1.25/day regime now.

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Those countries "working" as exporters to the US (the imported goods Americans buy) are now hoarding all the dollars. Guess, who's lending money to the US government? China, right!? Japan has been well off and Korea even, but the US got lucky with them because after the Second World War, they were influenced and inculcated to value democracy and freedom so they have an affinity to the mindset of civil liberties and freedom. Even the Philippines, one of the few US colonies, has found its people embedded in American society. 

 Without sounding racist, Asians love The White (subconsciously or not)!

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Unfortunately, the US didn't occupy or get a chance to influence China, so their loyalties obviously lie with themselves. The US government is spending and pump priming the economy just to stave off a collapse. All this blame should actually be put on the loans officers of banks. Investment banks and credit rating agencies turned a blind eye on the obvious time bomb, but these loans officers gave loans to people who couldn't pay for their homes. Interestingly, these borrowers also wanted to get a home so they probably colluded with loan officers, agents, and brokers so they can book the loan. It was a win-win for them, but in the long run it had a domino effect and the economy paid for it BIG TIME. One interesting anecdote told by Donald Trump on CNBC was how he was applying for a loan, $1M I think, but the loan officer didn't want to give it to him unless he asked for a $2M loan. Guess why? Because that would mean a higher commission rate for the loan officer! So, there you have it, THE mess. That's why Obama is encouraging entrepreneurship and risk-taking from the rich instead of them hoarding the money because of fear they might lose it. To earn something you have to risk something. Job creation is important, but you can't expect the hobo from down the street to build a business and employ 30 people. That's where creativity, risk-taking, and financial literacy come in. That's what they call entrepreneurship.

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All compositions, statements and opinions of the author are copyright © Earl T. Malvar 2009-2012. All rights reserved. There is no honor, respect, admiration, intellectual and academic dignity garnered through plagiarism.

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