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Before Tax and After Tax Dollars.
23 February 2007We see the money that is withheld from our paychecks but more insidious are the taxes that are slowly drained from our wallets. Take the gas tax for instance, Connecticut levies a tax of 25% on all our gas purchases.
Even during the peak gas prices, the state assured they received their share while their subjects groaned under the strain. Gov Rell was worried that if the state cut the 25% excise tax and help her subjects bare this burden, that it would not get passed on to her subjects, so she and the duly elected officials kept it.
The excise tax on gas used to be a fixed amount per gallon, however a couple of years ago the state felt they were getting short changed when gas prices rose and their “take” stayed the same, so they changed it to a %, namely 25%. How the government could feel they were getting shortchanged when their take stayed the same while their subjects got increasingly hosed at the pump shows just how arrogant and isolated our public servants are. So they piled it on and we carried not only the oil companies and various middle eastern countries but our own public servants on our backs and wallets. Reminds me of Kevin Bacon’s scene from “Animal House”, “Please Sir, some more Sir!”.
While all taxes are inherently bad, paying for taxes with after tax dollars is particularly loathsome. Taxing after tax dollars for gas essentially raises the effective tax rate for gas to over 43%.
Assume your effective tax rate is 25%, both federal and state, so your $1.00 paycheck is really 0.75$ after the first tax round. Now you load up the minivan for that trip and buy gas, now the 25% gas tax turns that 0.75$ (after tax dollar) to 0.56$, or 43% of your original $1.00. You’ve been double taxed. The price of gas has been raised or inflated by 1.777 it’s natural free market price.
When they double tax life’s requirements it hurts.
The sales tax is double taxation, it raises your effective tax rate to 29.5% or inflates your purchases by 1.42. What if you don’t spend it but you save it or invest it? When you take that interest or take the stock sale profit you are taxed again, this time as income. Now just what did the state/federals do to deserve a double tax on our profit? We took the risk!
Taxes are a de-incentive, they discourage people from using their money in natural ways and causes un-natural movement of money. Any time you think about tax consequences when moving money around, the process has become less efficient and less profitable and your sum of wealth is diminished and the society suffers a loss.
There are two economies, the productive and non-productive. There are those who create value and wealth and those who take it and spend it. Manufacturers are creators of wealth and belong to the productive economy, whereas governments are non-productive and don’t create wealth but inherently slow down the creation of wealth with taxes.
Governments slow down the creation of wealth in two ways, First by bleeding off captial that could be used to create more wealth. Second by creating dis-incentives to the wealth makers by taxing them.
Governments do have legit functions, national defense, enforcement of fair trading laws, police departments, social safety net. But we need to recognize that government can never become the main focus of a social system, governments do not create wealth, they live on wealth created by other people. If governments get too big or wasteful they stifle and can destroy the very people they were created to serve.
And that is what is happening in Connecticut, the exodus of our young people is the highest in the country. Our business growth is lagging the country and while the rest of the country enjoyed a rebound from the last economic downturn we stayed stuck in it.
Why???? Because the wealth creators walked. They can get a better deal in other states.
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