Tuesday, May 3, 2011

States clamor for a new, more friendly tax system

Present taxation caps, devaluation of the dollar, and unfunded mandates are stultifying local economic conditions, stifling prosperity - retarding true growth and employment picture in manufacturing. People are taking action, asking "Why not?"

Caught between a rock and a hard place due to unfunded federal mandates, state and local governments have opted for the obvious expediency.

If property tax caps interfere, all you have to do is appraise peoples' homes – the true basis of personal wealth for any family – at higher and higher rates to keep pace with the devaluation of the dollar and the ever-present rate of inflation.

Employers are taxed at the rate of 6.2% of every dollar they pay their employees.


As a nation, we have discussed the ramifications of the “housing bubble” that burst in 2008 and plunged the global economy into a bottomless abyss - to death.

Who killed Cock Robin? Well, you know...

Add to that a huge surge in the cost of doing business, the increase in energy prices - and you have a formula for economic disaster that is terrifying to behold.

What's everyone looking for?

It's pretty simple, according to Tom Pauken, a veteran GOP operative and chairman of the Texas Workforce Commission.

Private sector job creation is the fulcrum, the focus point, the one true number that predicts whether folks will have any money to spend on fixed costs of living and discretionary purchases. That is the key to the lock that is causing all the economic uncertainty.

In short, as W.C. Fields often said during his various spurious campaigns for – whatever he was after - “What the country needs is money!”

The figures are grim to behold, but here goes.

Prior to 2008 and its global economic meltdown, Texas gained more than 640,000 private-sector jobs.

What about the rest of the nation?

The private sector lost 3.2 million wage earners during the first decade of the new millennium.

Broken down to nuts and bolts, the scenario is simple to understand. If you isolate the figures that tell the story about employees who work for manufacturers, according to Mr. Pauken and his troops at the Workforce Commission, one-third of the nation's employment base disappeared during the years 1999 to 2009.

No matter if firms closed or moved out of the U.S. - some just across the border to Matamoros or San Luis Potosi – 5.5 million jobs were gone – solid gone - during the course of that fateful decade.

Mr. Pauken points out that these were the highest-paying, most skilled jobs available. Those who were lucky enough to be employed soon found themselves working in a lower-paying service industry, one with few or no health benefits.

Two possible solutions have appeared on the horizon. Their proponents are sending smoke signals far and wide.

Eliminate property taxes

North Dakota voters will go to the polls in June of 2012 to consider a proposal that would eliminate the power of the state and local governments - and all their peripheral taxing entities - to impose property taxes on home and business owners, farmers – and anyone else who has invested their fortunes in real property.

According to Secretary of State Al Jaeger, 28,000 signatures were collected to place the constitutional amendment on the primary ballot, which will be listed as Measure 2. That's 1,000 more signatures than the 27,000 which are required.

If the measure passes, the state, county and municipal governments will no longer be authorized to appraise real property and collect an ad valorem tax on them. That will also apply to school districts, college districts, water management or conservation districts – or anything else on the books at the present.

The battle that looms in that state will obviously be fought between ordinary citizens and the proponents of Big Government. Stand by and stay tuned. Fasten your seat belts; it's obviously going to be a bumpy ride.

Replace payroll taxes with a business consumption tax

Private sector job creation is the main factor.

To compete on a global basis with anything like parity, says Mr. Pauken, and many others who have studied the problem, it would be better to tax the means of production rather than penalize people and corporations for their ownership of the true basis of wealth – real property.

How do you do that?

That's a fair question and it has many answers, but one of the easiest solutions to implement and explain is to just simply replace the present corporate tax structure with something radically different.

Impose an 8% corporate consumption tax, adjusted at the border, to be collected on all imported goods and services. House Budget Chairman Paul Ryan has signed off on that plan.

At the same time, give corporations an 8% tax credit or abatement on exported goods and services.

Does that make any sense?

According to published reports, California officials who sat in on the recent Workforce Solutions conference held at Lubbock, gave the suggestion an a-plus rating.

They seem to be working around the same kind of problems state and local officials are dealing with in the rest of the nation.

Has anyone else done it?

Look to Japan for the answer to that question.

The head of the Sony Corporation, the late Akio Morita, published an essay on the subject. “The Japan that can say no” became a watchword and a blueprint for that nation's solution to global competition.

Instead of sacrificing long-term economic health with a focus on short-term gains, he and others in that nation's corporate culture advocated giving the manufacturing economy a break.

The result, creation of more manufacturing jobs, aided the economy much more than an obsession with mergers and acquisitions to beat the onus of the elephant sitting in the middle of the living room – the one no one talks about – a job-killing culture of big government imposing top down tax increases to impose higher payments for government services, no matter the consequences.

Who benefits from that scenario?

First in line are the lobbyists who stalk the halls of Congress, for starters. They spread a lot of money around every two years to make sure they get their way.

Add the bureaucrats to the list.

They write the rules that go into the Code of Federal Regulations every time they enact a new federal law.

Who has the key?

It looks like Senators and Representatives need to learn how to “just say no.”

The illustration of the family home as an ATM is reproduced from the website of Empower the Taxpayer

Mr. Armey is the former Representative from Irving, Texas. He has termed the Tea Party phenomenon as a "hostile takeover" of the GOP.

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