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Posts Tagged ‘Bush tax cuts’

Uncle Sam with empty treasury, 1920, by James ...

In their 2012 Index of Economic Freedom, Canada was ranked in 6th place, and the United States was ranked in 10th place.

With the upholding of Obamacare by the U.S. Supreme Court on June 28, 2012, I think it’s a very distinct possibility that the United States will fall off the Heritage Foundation’s 2013 Index of Economic Freedom Top 10 list, and that will be almost certain if the Bush tax cuts expire at the end of 2012.

Previously, I wrote the article, Canada more economically free than the United States for the third year in a row: Heritage Foundation.

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Combination of four currency symbols

Warren Buffett correctly points out that he pays less tax as a percentage of his income than his secretary does, as a result of her receiving nearly all of her income as personal income, while Buffett receives most of his as capital gains and dividends.

Thanks to the Bush tax cuts that were extended by President Obama, the man who promised change, long-term capital gains and dividends are taxed at only 15%, compared to a top rate of 35% for personal income over $200,000.

This is portrayed by the business community as a good thing, and even by some people making far less than $200k a year, with the justification that it’s important to promote investment.

I used to have the view that the government providing a preferential incentive for investing was a good thing, until I gained a better understanding of the proper role of government, and how preferential government incentives can lead to artificial boom-and-bust cycles.

You have three options with your money: You can either spend it, save it, or invest it.

Is spending a lot of your new money ever a good thing compared to investing it? Yes, for example, in the case of high inflation and low interest rates — as is increasingly becoming the case in 2011.

But why bother spending your money now when you can get a big tax advantage on dividends and capital gains, and can even claim any interest paid on borrowed money for such investments as a tax deduction?

Instead of spending your money and possibly putting more people back to work, more money is given to companies so that the executives at the top can award themselves more in stock options and bonuses, and hedge fund managers can make a killing off of manipulating the market, as Jim Cramer candidly admits.

If the market feels that more spending or saving is the order of the day, what business is it of government to create an artificial demand for more investment?

The problem of over-investment is acutely seen with so many would-be retirees who are dependent on their investments for retirement, and got a rude awakening in late 2008 when they depended on a government bailout in order to prop up the market back to its pre-2008 crash levels. Had they not been given an artificial incentive to invest, many would’ve made savings more of a priority, and put their money into less risky places than in a housing market propped up by junk mortgages sold as triple-A securities, and a stock market propped up by the financial services sector with its fraudulent financial vehicles.

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