Monday, May 3, 2010

Why the Poor Get Poorer

I have had several people ask me to once again explain how taxing the rich, or businesses, results in taxing the poor. Others have flatly disagreed - they cannot see the larger picture. So, if you will bear with me for just a few minutes, perhaps I can clarify.

First, I can state emphatically that the rich do not pay any taxes - not ever. And the poor pay all the taxes - always. And that is precisely how the rich get richer and the poor get poorer. Now for proof of the pudding.

Let us say Joe is poor, and Mark is rich. Joe eats a lot of Ramen soup because it's cheap. Mark's company makes the Ramen soup. Joe works for Mark.

The government increases Mark's taxes. They also increase the taxes on capital gains. This pleases Joe.

Since Mark's taxes have increased, and he is not in business to lose money, he must now raise the cost of the Ramen that Joe buys. Suddenly, Joe is not so pleased.

Mark also reduces company benefits, and lays Joe off because the increase on capital gains has forced investors to stop investing in his company. Needless to say, Joe is REALLY unhappy now - and poorer than ever.

But it is much worse than that - increased taxes on EVERY business and rich person has resulted in the prices of all products and services to increase. Joe is now paying more for gas, his lawn mower, milk, pizza, movies, tires, car - everything he buys is now more expensive, because businesses always pass off any increase in costs - including taxes - onto the customers and employees. They have to.

The only people who cannot pass these added costs onto others are the poor - there is no one below them to pass them to.

This is how capitalism works. Every time.

Increasing taxes - regardless of who you tax - always harms the economy, increases unemployment, decreases investments that make the economy grow, and makes the poor even poorer.

Even you, the working stiff, pass on your taxes to people below you. Yes, you do. In order to pay taxes, you must earn more money than if you did not have any taxes to pay. Your paycheck reflects that. As businesses increase prices because of higher taxes, those higher prices mean YOU pay higher sales taxes (when the price goes up on an item, so does the amount of tax - you pay 5 cents on a one dollar item, and 6 cents on that item when the price increases to $1.20). So, when you get hit with higher property taxes, higher sales taxes etc., you have to ask for a raise, or you fall into poverty. And where do you think your boss is going to get that money - he has no money tree. He will get it from his customers by way of higher prices (again), which results in even higher cost of goods, plus higher sales taxes on those higher prices. But you have effectively passed on your taxes to those below you.

Every penny of tax is passed down to those below. And it stops with the poor, because they cannot pass it down - they are already at the bottom. Who would they pass those costs onto?
When businesses are taxed more, or capital gains taxes are increased, the business must do one of three things if they are to stay in business. They must either increase the costs of their products/services, OR they must reduce company benefits and/or lay people off, OR a combination of the two. Regardless which they choose, it will result in a sagging economy, higher unemployment, fewer people insured (lost benefits), and the poor getting poorer.
There can be no other result.

On the other hand, you get the opposite result when you LOWER taxes. The cost of business becomes less costly, so businesses can hire more people. They become more competitive, driving prices down. This means the poor would have jobs and income, and the items they buy will not be increasing in price.

Here is a tidbit for you - until the income tax was passed into law in 1913, virtually everything remained reasonably stable in prices for over 100 years. As soon as the income tax was passed, it caused all prices to rise. And ever since 1913, prices have steadily risen according to the rise in taxation.

Virtually all economic problems originate from taxation. The higher the taxes, the bigger the problems.


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