Taxes | And The Insatiable Welfare State

  April 1, 2016| Category: Taxes| Tags: taxes , income tax, fbar, fatca,tax haven,economy,government, tax reporting


Income Taxes 2016:

How Come A Record Year For Tax Collection Is Still Not Enough ?

The Treasury Department of the United States Government hit another all time record high for tax revenues collected for the first five months of fiscal year 2016 (the fiscal year for them runs October to October, so we are talking about October 2015 through February 2016).  What was the haul?  Over US$1 Trillion Dollars just in the first 5 months alone.  This follows the record tax haul of over US$3 Trillion Dollars in loot collected for the entire fiscal year of 2015, which means 2016 could be on track for another new record for the carpet baggers in Washington.  And who is paying?

Individual US income tax payers are the largest contributors, forking over US$21,000 for every person working either full or part time.  The second largest source of booty was Social Security payments are other kinds of so-called payroll taxes (most Americans do not realize the true tax percentage of income taxes they pay because they often forget to calculate social security and other taxes taken out which puts many people way past 50 percent of income paid in terms of TOTAL taxes).  Corporate income taxes collected for fiscal year 2015 amounted to about US$350 Billion which compares to US$1.6 Trillion collected from individual taxpayers and roughly US$1 Trillion Dollars taken in from social security and other kinds of taxes.

Despite this all time new record in the roughly 250 years of the US Government being in business, they still ran a deficit in fiscal year 2015 of more then US$400 Billion Dollars.  In other words, despite a record haul, it still WAS NOT ENOUGH.  And figures for the first 5 months of fiscal year 2016 show a difference of US$350 Billion in terms of spending verses loot collection (they took in US$1.2 Trillion and spent US$1.6 Trillion just in the first 5 months!).  And another new record of course involves the official national debt of the US Government, which is quickly approaching US$20 Trillion Dollars, resulting in an amount that equates to about US$60,000 per US Citizen and US$160,000 per taxpayer (remember that the per citizen figure includes children, the retired and anyone else not working for what ever reason, which is comical when you realize even the homeless guy you find on the New York City subway platform owes US$60,000 as his share too – should we tell him?).  I will not even dive into the issue of unfunded liabilities, which some have estimated to be roughly US$100 Trillion Dollars, if not more (the proverbial 800 pound gorilla no one wants to acknowledge).

Divining some other interesting statistics, the number of retired persons in the US is approaching 50 Million people, there are about 44 Million currently on the food stamp program and the total of ALL Americans taking some kind of government check, social assistance or benefit (including social security) is about 160 Million People.  Ladies and gentlemen, considering the population of the United States is roughly 330 Million (give or take a few illegal immigrants running around) that is HALF the entire country.  HALF, as in 50 percent, as in look around the people you see passing you on the street and realize you are indeed your brother's keeper.  For how long can this continue? 

Part of the reason the US tax revenues are up is because the esteemed politicians in Washington have increased the taxation rates back in 2013, which are now showing up in the revenue collection data.  The top federal income tax bracket was increased from 36 to 39 percent, capital gains and divided taxation rates were increased from 15 to 20 percent and specialized deductions eliminated for anyone earning more than US$250,000 per year.  So, for those that say all we need to do is increase taxation and all will be well forget that if the spending in not brought under control, all the increased tax collection matters not if the adolescents continue spending their allowance on recreational pharmaceuticals and potato chips.

I recall a posting I have seen recently on a social media site whereby a gentleman who supposedly is a accountant specializing in tax matters and someone who also supposedly has some kind of affiliation or some kind of accolade from the IRS (the tax equivalent of John Perkin's Economic Hit Man, we assume).  In any event, the gentleman opines and warns all US citizens to make sure they complete their FUBAR report declaring all foreign bank accounts (we know the acronym is FBAR, we are simply being sarcastic as usual).  He goes on to say we (meaning he and the IRS, which presumes they are married or at least cohabiting in some way) have had success chasing down you vile and repulsive non reporting people and in essence was saying the equivalent of: We're Coming To Get-Cha.  Now, please do not get me wrong, as I do not profess to suggest that anyone do anything in violation of the law or regulations.  But I think it comical that various kinds of taxes have already been increased, the metaphorical equivalent of donating your left foot for the common good, and now they want your kidneys and your lungs as well.  I cannot help but be reminded of the statistics already mentioned that indicate about half the US population is getting some kind of check or benefit from the US Government.  So, again metaphorically speaking, the rest of the 50 percent that are still working to pay for all these benefits and checks will be on dialysis and iron lungs as their contribution to society. As Moishe the Jewish lawyer from Panama used to always say to me: Such A Deal!

The one very interesting thing about this FUBAR business is that technically ALL legal residents inside the US (read Green Card holders) are subject to the exact same rules and regulations regarding taxation as US citizens.  However, I would wager to bet the overwhelming majority of such US legal residents have not and are not presently reporting that bank account they have in their previous native country of origin.  In fact, many immigrants currently working in the US had the mindset and paradigm of sending money back home to said bank account as a means to saving for their eventual return and retirement.  How many Mexicans have returned back to Mexico in the past few years and built a home for cash utilizing all the remittances they had been sending back over the decades they were working and saving?  Personally I say God Bless and I applaud anyone with the determination and discipline to save.  But it does seem a bit ironic and maybe even hypocritical to focus on other US citizens that might have financial accounts outside the US and ignore the US legal residents that are in violation of such reporting.  I think I know the political reason, and the assumption is these are all poor hardworking folks that are just trying to get ahead, which they are, so why chase after poor Jose and his remittances to his savings account in Chihuahua.  But, on the other hand, when any government chooses whom they are to harass and prosecute then we no longer have a fair and just system.  The laws, regulations and rules apply to all equally or they apply to none.  Just my own opinion, and I know many will accuse me of being politically incorrect for even bringing it up.

With regards to the financial condition of the US and various kinds of social insurance spending, I do not mean to necessarily highlight the US situation alone as many Western European nations have embraced the social welfare concept far more enthusiastically than the Americans ever did.  In fact, the idea of various kinds of social insurance first originated in Germany by Otto Von Bismark, who ironically was characterized as being a sort of tough guy, a macho man or the era's equivalent of say Vin Diesel.  Ironic that it should be a person of that stature to come up with the idea of the government becoming the cow that gives the milk of human kindness to the masses.  But, Otto was a very shrewd politician and he knew the implementation of these programs would help quell the growing worker discontent of the time that came about from some negative aspects of industrialization, not to mention the contemporary writings of Karl Marx that were floating around and stirring things up.  However, we tend to believe a staunch nationalist such as Mr. Von Bismark would roll over in his grave if he knew present day politicians were giving away all kinds of government social benefits to newly arrived foreigners who never paid one pfennig into the system.

In any event, this is not a treatise or criticism per say about social welfare and the problem of unbalanced national or sovereign books cannot be blamed on any social welfare program alone.  Just like any other kind of insurance, if funds are set aside and able to be set aside to cover whatever contingent liabilities of the program from existing revenues, then such programs can be solvent and well funded.  So, in short, the problem is not one particular area of spending in and of itself nor  expatriates not completing their FUBAR report, nor multinational corporations setting up tax advantaged scenarios nor the existence of tax advantaged jurisdictions either.  Granted, if members of any organization do not pay their proverbial dues, then the organization does not have the funds to pay the electrical bill, the rent and any other expenses they might have to keep the thing operational.  And of course taxes are the club dues, so to speak, in terms of membership in a country.  BUT, if the club management is disorganized, irresponsible, wasteful and even fraudulent with the club dues paid by it's members, then nothing else can resolve the pending bankruptcy.  The correct word is indeed bankruptcy because that is where they are headed, if not already there.

And in this regard it would indeed seem they have run out of rope.  A few pundits in the economics and financial analysis community have gone on to suggest that the US Federal Reserve interest rate increase back in late 2015 was a ruse and that QE+ (QE6, QE7, whatever number they are up to by now) will make a comeback in 2016 because they have no other tricks remaining in the magician's bag.  Some have opined through analysis that the US Treasury, via it's off book Exchange Stabilization Fund, has been buying up all the US Treasury securities now being dumped by China and few others, and that the US Federal Reserve Bank has really been monetizing most if not all of the new debt being issued, which maybe explains in part why they still cannot balance the books even with a record tax collection windfall (the money is going right back out the door to buy bonds nobody wants?).  All of this reminds us of Royal Bank of Scotland credit chief Andrew Roberts via a January 8 2016 report whereby he advises clients to: Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.  He also opines that Quantitative Easing has failed and was EXPECTED to fail.

The resulting and obvious question is what to do about it to protect yourself personally.  In other words, if you find you are pouring water into a leaking bucket then maybe it is time to get a new bucket, or more precisely a new country.  If the US and any other so-called modern industrialized nation still cannot manage even with a record tax revenue collection, then honestly there is something very, very wrong with the management.  Is is wrong to expatriate, to change countries, to change citizenship or otherwise just get the heck out?  Maybe.  But going broke is not fun either and definitely disconcerting when your own government is doing it to you.

John Schroder is the author of this article and his firm, Ascot Advisory Services, has been assisting clients for 17 years in The Dominican Republic with residency applications, citizenship applications, banking and investment accounts, and other legal services (real estate contracts and title transfer, company formation services)

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