Thanks to government meddling in the free market and individual greed, we are living in serious economic times. During any economic downturn, the government has four basic options:

Reduce government spending – When a family has less money to spend, it just makes sense to cut back on the extra expenses. Yes, it might mean sacrificing your favorite morning pick-me-up, but do you realize that skipping your daily Starbucks drink could save you over $1,000 in a year? Do you have any other daily or monthly expenses that you could reduce? Not that the government lives in the real world. Can you remember the last time our government voluntarily cut back on its own expenses? Neither can I.

Raise taxes – Any time the government sees a need for more money, a cry will echo down the halls and rooms of D.C. to raise taxes, often targeting those evil, nasty rich. While campaigning, President Obama said that he’d only tax people making $250,000 a year, but that promise was quickly broken when he raised taxes on cigarettes. Most of the people who smoke make nothing close to $250,000 a year. Setting aside Obama’s broken promise, raising taxes acts as a damper on whatever is being taxed, so raising taxes on income will have the effect of damping people’s efforts to raise income. You can think of raising taxes as similar to placing a few stones into a hiker’s backpack. It’s unlikely that the extra pound or two will cause the hiker to give up altogether, but the added weight will make him work harder than he would have done. And that extra effort means less energy for other activities on the hike. That’s similar to raising taxes in real life. When people are already burdened with bad economic times, it’s a dumb idea to add to their burden with tax increases.

Borrow more money – The government can always raise more money by borrowing, but to do so, it would have to find someone willing to finance the debt by buying our bonds. In his excellent post, Peter Murphy explains that China, Japan, and Russia are not in the position to buy up our bonds. And as the economic problems echo around the world, the pool of people able and willing to finance our debt will shrink even more. But borrowing even more money while already deep in debt is foolish at best. If you are already maxed out on ten credit cards, will you be any better off financially if you max out another five? (And is it really all that wise to attempt to raise money from people who consider us their enemies?)

Print money – The government could just print more money. If the money were backed by something concrete like gold or silver, then producing more gold or silver would make it possible to print more bullion-backed bucks. But our money is fiat currency, meaning it isn’t backed by anything tangible, just the full faith of the U.S. government. But what tangible items does the government actually produce? I see government producing laws, regulations, press conferences, and scandals, but I don’t see anything of value actually produced by the government. It is the people of these United States that do all the real producing. So any additional money printed by the government is backed by the future productivity of the people, not the government. When borrowing money and raised taxes won’t bring in the needed funds, the only option left to the government is to print more money. So get ready for the coming looming threat of inflation.

100 Quintillion Pengo Bill

Americans haven’t had to deal with high inflation since the early 1980s, so the coming inflation may be a nasty surprise to those who haven’t been through it before. But it could be worse–we could experience hyperinflation, when the government shifts money printing into overdrive. The bill in the image above is a 100 quintillion Pengo bill, printed by the Hungarian National Bank in 1946 during its worst period of hyperinflation. Since there are no zeroes on the bill, allow me to make it clear just how much that bill is worth:

100,000,000,000,000,000,000 Pengos

That’s 20 friggin’ zeroes! It’s no wonder they used text instead of numbers on the bill, or the peasant girl would have fled in shame. Unless our government reins in its rampant spending, we will see inflation hit the U.S. hard.

Hopefully, we won’t experience hyperinflation like that experienced in the Weimar Republic of Germany, when it was cheaper to burn stacks of money than it was to buy firewood. Don’t forget that the German hyperinflation damaged the Weimar Republic’s reputation and left it impoverished and dispirited, allowing a certain poisonous charismatic leader to be elected. And don’t forget the effort it took to remove him from power.

Burning money

I have a simple proposal to solving our recession woes in three easy steps:

  • Drop the current corporate tax rate from the high rate of 35% to 10%.
  • Cut in half the capital gains tax rate for everyone.
  • Cut in half the income tax rate for everyone.

I choose these three steps based on the principle that you get more of what you reward, and less of what you punish. In each three cases, taxes punish business, investing, and working. By dropping the tax rates on all three, the punishment will be less, so the activity by the people will be more. If these three steps were taken today, the economy would go into overdrive almost instantly.

“But a lower tax rate means the government will get less money!” Really? Good! If we as a family or business have money problems, we respond by cutting back expenses. Government should do the same. Instead, government has responded by ramping up the spending. If you are up to your eye-balls in debt, does it make sense to max out even more credit cards for additional things you don’t need? In hard times, the government should be spending less, not more.

A trillion dollars spent here, a trillion dollars spent there. When will the government stop spending huge amounts of our money?

Here is a very interesting graph published in the Washington Post about the past 9 years and the upcoming decade of debt.

Deficits

The graph is a comparison of the Congressional Budget Office and the White House Office of Management and Budget numbers. You can see that the 2008 deficit is over $400 billion, almost certainly due to the last minute government “fix” that has worked so well. When asked about his drunken-sailor spending in a recent press conference, President Obama put the blame on President Bush:

Chip Reid: Thank you, Mr. President.

At both of your town hall meetings in California last week, you said, quote, “I didn’t run for president to pass on our problems to the next generation.”

But under your budget, the debt will increase $7 trillion over the next 10 years. The Congressional Budget Office says $9.3 trillion. And today on Capitol Hill, some Republicans called your budget, with all the spending on health care, education and environment, the most irresponsible budget in American history.

Isn’t that kind of debt exactly what you were talking about when you said passing on our problems to the next generation?

PRESIDENT OBAMA: First of all, I suspect that some of those Republican critics have a short memory, because as I recall, I’m inheriting a $1.3 trillion deficit, annual deficit, from them. [emphasis added - CM]

You are inheriting a $1.3 trillion deficit?!? Big fat bull patooties, President! The Democrats in power are spending money with all the self-restraint of an alcoholic in a brewery. But it’s not his fault. Oh, no. It’s all the fault of those eeeeevil Republicans. I have this mental image of a father chewing out his kid for spilling his sippy-cup on the floor when right next to it is the father’s spilled 96-ounce Uber-Gulp.

I have to admit that I can’t think of any new program or spending put forth by this administration that I can support, but I’m sure there must be some that both make sense and are actually constitutionally specified.

But there is a new government spending program I could support 100%. Recently Senator Jim DeMint spoke on the floor of the Senate about the Serve America Act1, and he made the following comment:

Unfortunately, our history shows us when Government gets involved, it tends to take something that is working and make it not work nearly as well. Civil society works because it is everything Government is not. It is small, it is personal, it is responsive, it is accountable. Civil society must be protected from any effort to make it more like Government.

I could fully support the government placing these words in a large frame in every government office across this land to remind every elected office-holder, every appointed official, and every faceless flunky in the bureaucracy that government meddling in civil affairs only makes things worse.

If these words succeeded in reining in the expansion of government into every sector of our lives, it would be money well worth spending.

 

1 “It’s a cookbook!”

Once again the Democrats’ hatred for the rich is showing. Senator Joe Biden, the Democrat Vice Presidential candidate, is calling for the rich to do the “patriotic thing” and pay more taxes.

Democratic vice presidential candidate Joe Biden said Thursday that paying more in taxes is the patriotic thing to do for wealthier Americans. In a new TV ad that repeats widely debunked claims about the Democratic tax plan, the Republican campaign calls Obama’s tax increases “painful.”

Under the economic plan proposed by Democratic presidential candidate Barack Obama, people earning more than $250,000 a year would pay more in taxes while those earning less the vast majority of American taxpayers would receive a tax cut.

Although Republican John McCain claims that Obama would raise taxes, the independent Tax Policy Center and other groups conclude that four out of five U.S. households would receive tax cuts under Obama’s proposals.

“We want to take money and put it back in the pocket of middle-class people,” Biden said in an interview on ABC’s “Good Morning America.”

Noting that wealthier Americans would indeed pay more, Biden said: “It’s time to be patriotic … time to jump in, time to be part of the deal, time to help get America out of the rut.” [emphasis mine - CM]

Oh, where to begin? Is Biden calling for the rich to voluntarily pay more taxes, or is he telling us that the rich should feel patriotism swelling in their breasts as the federal government taxes them more? Past behavior tells me that the Democrat idea here is for the federal government to levy more taxes on the rich. After all, vowing to hike taxes on the rich is a major plank of the Democrat party. Or as one person said, “From each according to his ability, to each according to his need.” The author of that little gem is Karl Marx, and the left loves it. Ain’t it interesting how mad they get when we correctly identify them as Marxists?

I wonder how Senator Barack Obama can say with a straight face that his tax plans would result in a tax cut for most Americans. Oh, wait! I know how he can do that — he’s a Marxist! Here’s the truth: Obama won’t renew the Bush tax cuts of 2001 and 2003 when they expire in 2010. When they do expire, every tax bracket will go up — every one. So how exactly does this plan cut taxes for the “vast majority of American taxpayers”? I’ll whisper the answer: it won’t.

The truth of the matter is that in life you get more of what you reward, and less of what you punish. And taxing people’s income is the same as punishing their income. When you punish an activity less, you shouldn’t be surprised to see that people voluntarily engage in that activity more often. Want Americans to earn more? Then stop punishing them for making money.

Don’t believe me? Fine. How about believing history?

In 2003, capital gains tax rates were reduced from 20 percent and 10 percent (depending on income) to 15 percent and 5 percent. Rather than expand by 36 percent from the current $50 billion level to $68 billion in 2006 as the CBO projected before the tax cut, capital gains revenues more than doubled to $103 billion. Past capital gains tax cuts have shown similar results.

Obama’s plan will call for the capital gains tax rates to go back to 2003 levels, reversing the trend that caused federal revenues to double because people were being punished less for investing. If the Democrats are serious about increasing federal revenues, they would make the Bush tax cuts of 2001 and 2003 permanent. But Democrats won’t do that — because, even more than they love tax monies, they hate the rich and want to punish them.

Bigots.

The Washington Post is reporting about how the Democrats are eyeing more ways to take money from the rich. But taking from the rich is OK because it benefits the poor and middle-class, don’t you know?

House Democrats looking to spare millions of middle-class families from the expensive bite of the alternative minimum tax are considering adding a surcharge of 4 percent or more to the tax bills of the nation’s wealthiest households.

Under one version of the proposal, about 1 million families would be hit with a 4.3 percent surtax on income over $500,000, which would raise enough money to permit Congress to abolish the alternative minimum tax for millions of households earning less than $250,000 a year, according to Democratic aides and others familiar with the plan.

Rep. Richard E. Neal (D-Mass.), chairman of the House subcommittee with primary responsibility for the AMT, said that option would also lower AMT bills for families making $250,000 to $500,000. And it would pay for reductions under the regular income tax for married couples, children and the working poor.

Notice the spin on the article? Taxing the rich an extra 4%+ would pay for tax reductions for others. The government can’t reduce some people’s taxes without socking it to someone else because the government certainly can’t do without. It needs every penny, and then some. Government looks at tax revenues as its right. If House Democrats really wanted to “spare millions of middle-class families from the expensive bite of the alternative minimum tax”, they could do so by a simple law getting rid of it.

And just what is the alternate minimum tax? The article explains how it came into being: government arrogance.

The alternative minimum tax is a parallel tax structure created in 1969 to nab 155 super-rich tax filers who had been able to wipe out their tax bills using loopholes and deductions. Under AMT rules, taxpayers must calculate their taxes twice — once using normal deductions and tax rates and once using special AMT deductions and rates — and pay the higher figure.

Congress wrote those tax laws, with all their loopholes and deductions. And when some very rich people were playing by the very rules Congress had written and were paying little or no taxes, Congress reacted by closing the loopholes and deductions. Hah! Just kidding. No, Congress decided to sock it to them by coming up with the AMT. If you succeed in winning at their game, they do a Lucy Van Pelt and pull the football away. You will pay taxes, even if it means Congress has to write laws that apply only to the richest 155 people in America. But history shows that when you target the rich, you end up causing major collateral damage. The 16th Amendment and the income tax were trumpeted as a tax on the rich, and not much of a tax anyway. No need to worry, America, Congress was only going to tax the rich people. In 1917, people making more than $3,000 were taxed 1% of their income, and earning more than $500,000 got you taxed at 7%. That’s equivalent to $50,000 and $8,000,000 in today’s money. But just as the income tax expanded to hit more than just “the rich,” so did the AMT.

Because the AMT was not indexed for inflation, its reach has expanded annually, delivering a significant tax increase this spring to an estimated 4 million households. The AMT would have spread even more rapidly after President Bush’s tax cuts reduced taxpayers’ normal bills, but Congress enacted yearly “patches” to restrain its growth. The most recent patch expired in December, and unless Congress acts, the tax is projected to strike more than 23 million households next spring, many of them earning as little as $50,000 a year.

The problem comes from using class envy to tax the rich. As the phrase goes, “He who robs Peter to pay Paul will always have the support of Paul.” Congress has been successful with the income tax in general and the AMT in specific in targeting the rich Peters, but the problem is that Congress keeps expanding the ring of targets. Pauls who once happily smirked as Congress vacuumed Peter’s wallet are now finding that they have turned into Peters themselves. And now they hear the D.C. vacuums moving towards their own wallets. The AMT started out affecting only the very rich, but now making as little as $50,000 can classify you as “rich” in the eyes of the AMT.

And what is Congress doing about this? Well, predictably, they want to talk about it first:

In the House, some Democrats argue that more time is needed to explain the issue to the public. The vast majority of households have yet to pay the AMT and may not fully appreciate the value of eliminating the tax, while the wealthy are sure to feel the bite of a new surtax.

“I don’t think there’s enough of an understanding right now that you’ve got this tidal tax wave about to hit everybody,” said Rep. Chris Van Hollen (D-Md.), a Ways and Means Committee member who is also chairman of the Democratic Congressional Campaign Committee. “From a political perspective, we need to lay the groundwork.”

Congress needs to talk about the AMT because Americans are too dumb to “fully appreciate the value of eliminating the tax” unless Congress lays the groundwork first. I hope they use really small words to keep it simple for us dunderheads and short enough to fit into their sound bites between commercials. Heaven knows we don’t want to miss this episode of “House.”

So how do you like the idea of an extra surcharge of 4% on single people making more than $100,000 or families making $200,000? Isn’t it time that the rich pay their fair share? I guess it depends on your definition of “fair.” Back in 2001, “fair” meant that the richest 5% of Americans paid 53.3% of all the income taxes. Yeah, that sounds fair. And it sounds familiar, too.

Congress could spend months talking with Americans, or they could just get rid of the AMT. It all boils down to whether Congress believes your money belongs to you, or to them.

Ask not for whom the tax man comes, he comes for thee.

Tim Worstall over at TSC Daily posted a very interesting article today dealing with prosperity — namely, how our American prosperity stacks up to that of other European countries. Since this article deals with economics, and since I know some of you break out in hives at the mere mention of economics, I have a cute Easter Ferret for your viewing pleasure. Feel free to skip the rest of this post.

Worstall’s article is titled, “America: More Like Sweden Than You Thought,” and it is an interesting read for an economic article. He begins by discussing a, uh, “fun” economic paper which he recently read that extols the virtues of Europe, especially the Scandinavian countries. He writes:

I will admit that I do find it odd the way that only certain parts of the, say, Swedish, “miracle” are held up as ideas for us to copy. Wouldn’t it be interesting if we were urged to adopt some other Swedish policies? Abolish inheritance tax (Sweden doesn’t have one), have a pure voucher scheme to pay for the education system (as Sweden does), do not have a national minimum wage (as Sweden does not) and most certainly do not run the health system as a national monolith (as Sweden again does not). But then those policies don’t accord with the liberal and progressive ideas in the USA so perhaps their being glossed over is understandable, eh?

As part of their propagandizing, they produce the above cited reports each year. And this time it’s being released chapter by chapter in the lead up to Labor Day. I can tell you that policy wonks are breathless with anticipation waiting for each part as it comes out (I myself was most excited to get chapter 8 linked above). For there is the great joy of seeing that what they think they’re telling us isn’t, in fact, quite what they are telling us.

People with an agenda? Say it ain’t so! While there is some very good news pointed out in the article that Worstall analyzes, there is also a very telling graph.

Purchasing Power Parity

This graph is based off the Purchasing Power Parity, a means of calculating the diverse prices and salaries of all these nations in a way that makes them roughly comparable. What the writers of the article want you to notice first is that seemingly huge gap between the rich and poor in the United States. But my wife didn’t see that when I showed her the graph. Instead she noticed right away that the top 10% of wage earners in Finland and Sweden only make 111% and 113% of the median income, respectively. She noticed this because her Great-Uncle Kurt, who lives in Sweden and worked for an international insurance company for many years, had 90% of his income taxed away to support other able-bodied Swedes who simply chose not to work. And this is something we should emulate? I don’t think so! Worstall wraps up his column by analyzing the left side of the graph.

In the USA the poor get 39% of the US median income and in Finland (and Sweden) the poor get 38% of the US median income. It’s not worth quibbling over 1% so let’s take it as read that the poor in America have exactly the same standard of living as the poor in Finland (and Sweden). Which is really a rather revealing number don’t you think? All those punitive tax rates, all that redistribution, that blessed egalitarianism, the flatter distribution of income, leads to a change in the living standards of the poor of precisely … nothing.

Such may lead us to a conclusion that the EPI probably wouldn’t like:

If we accept (as I do) that we do, indeed, need to have a social safety net, and that we have a duty to provide for those incapable or unlucky enough to be unable to do so for themselves, we need to set some level at which such help is offered. The standard of living of the poor in a redistributionist paradise like Finland (or Sweden) seems a fair enough number to use and the USA provides exactly that. Good, the problem’s solved. We’ve provided — both through the structure of the economy and the various forms of taxation and benefits precisely what we should be — an acceptable baseline income for the poor. No further redistribution is necessary and we can carry on with the current tax rates and policies which seem, as this report shows, to be increasing US incomes faster than those in other countries and boosting productivity faster as well.

As I said above I’m sure this isn’t quite what the EPI actually wanted to tell us. But there it is, from their own report. Which is why I rather enjoy my working life — sad case that I am — because I get to read all those reports that really don’t tell us what the authors think they are telling us.

Go read the whole thing. And the next time someone tells you we should be more like Europe, you can point out to them that we care for our poor and downtrodden masses just as effectively as they do, and we don’t have to tax ourselves into an economic slump to do it. No nation has ever taxed itself into prosperity. If they can’t accept that truth, it’s probably a lost cause. Just have them check out the cute Easter Ferret instead.

Happy Tax Day!

OK, so it may not be all that happy, but I have some good news for you! I just saved a bundle on my car insurance with Gei… The deadline has been pushed to April 17th because the normal 15th deadline falls on a Saturday today. And if you live in the states of Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont and the District of Columbia (which really isn’t a state) your deadline is Tuesday, April 18th because Monday is Patriots Day in those states.

Hmm… I wonder how popular a state would be if it made April 15 thru the 30th legal holidays so the state residents wouldn’t have to file their taxes until May 1st. While you ponder the idea of procrastinating your tax filing, how about reading my comment about Iran I posted today?

And for the religious people, Happy Easter and Happy Passover, too.

Today is April 15th, 2005. Here in the United States, it is Income Tax Day. Ugh.

Well, that’s not over a thousand words, so I’ll blather on a bit more about taxes. Did you that people used to write out the full check to pay for their taxes on this day? Withholding of taxes by one’s company or business didn’t start up until 1943, during World War II. At that point the federal government was desperate to get its hands on the tax money as soon as it could. And even if you ended up getting all of your money back, the government was still able to generate interest off the loan of your money. Nice racket, no?

Do you know that the bottom 50% of wage earners pay less than 5% of all the federal income taxes? Did you know that the top 5% of the wage earners pay over 50% of the federal income taxes? Whenever there is any talk of a reduction of tax rates, it will affect the top 50% of the nation’s wage earners because they are the people paying the vast majority of the taxes in the first place. This is why the Marxists in the Democratic Party love to vilify any tax cuts as being “just for the rich.” Since the top half of the wage earners in the U.S. pay over 96% of all the income taxes brought in, any reduction in taxes will affect the rich by definition.

Neither of these two issues should be news to you if you read my comments from last year. Also mentioned last year was Tax Freedom Day, as described by TaxFoundation.org. Tax Freedom Day was described last year as “the day when Americans finally have earned enough money to pay off their total tax bill for the year.” This year Tax Freedom Day will come on April 17th, up from last year, but still lower than the high point of May 3rd in 2000. Since President Bush’s tax cuts came into effect, Tax Freedom Day has come earlier. Looking at the following image outlining the historic trends of Tax Freedom Day, you can see the last four years are lower than anything since President Reagan’s first term.

Tax Freedom Day over time

There must have been some adjustments of the data with this year’s graph more than the leap year change mentioned, because there are several years that have shifted more than a single day from last year’s graph.

Figuring out taxes is a rite of passage for most American adults. And swearing at the complicated tax forms is commonly a part of this activity. The Drudge Report linked to a news article by Mary Dalrymple saying that Americans will spend 6.6 billion hours this year figuring out their taxes, 1.6 billion of those hours on the common 1040 form. That calculates to over five hours of tax swearing for every American man, woman, and child on just the 1040 forms alone. I don’t know about you, but I find it distressing to imagine the children I know spending five hours this year swearing at a pile of papers.

Time to put this article on pause while I run to pick up dinner — Indian food. Mmm… lamb korma.

Still here? Good. Now that I have some yummy food inside me, I think I can tell you that our bane this year has been state taxes. Filling out the 1040 was easy, but we spent our 5 hours swearing at Utah’s TC-40. We moved from Utah last year, so I knew I’d have to fill out two state income tax forms. Figuring out our new state’s taxes was pretty easy. Enter how much you made this year in the state, subtract the standard deductions, and calculate the tax from the result. The bottom line was a rebate of some of my money, and that was to be expected.

Since I knew how much I had made in Utah, I figured I’d be getting most, if not all, of the state taxes back. We were unpleasantly surprised to find out that we owed over $100 more to Utah. Cue the tax swearing. How the [bleeping bleep bleep] did we manage to owe more to Utah when we made less money there? Time to go through the agony of doing the taxes again, this time manually filling out the Utah forms rather than using TaxCut. Add this, swear, subtract that, swear, carry the 2, swear, look at the bottom line — more swear thoughts! It was exactly the same amount that TaxCut said we owed! Grrr!

OK, time to figure out why this was different. Let’s see — take the amount we earned in Utah, subtract the standard deductions — no wait! We didn’t start with the amount of money earned in Utah. It called for the whole amount we earned last year in both states, then subtracted the standard deduction. That is what Utah considers our state taxable income. Here’s the kicker: this method showed that our Utah taxable income was over $4,000 more than the amount we actually made in Utah. Double-you tee eff?

So TaxCut wasn’t on the fritz; it simply recognized the screwy way that the Utah legislature had written the tax code. With our faith in software rekindled and our poor expectations of government confirmed, we wrote out a check to the bloodsuckers in the capitol building.

I hope they get a paper cut.

A common biology lesson deals with how energy is passed from one layer of creatures to another, as demonstrated by the graphic on the right. The yellow bar is 1000 pixels tall, representing the energy that comes from the sun. The next bar is only 100 pixels tall, and this represents the energy taken from the sun by plants for their own use. The next bar is 10 pixels tall, representing the energy which herbivores get from the plants they eat. The final bar is 1 pixel tall, representing carnivores and the energy the get from the animals they eat. I could go on a few more levels, but it’s hard to draw a bar only a tenth of a pixel tall. Each level only gains about 10% of the energy from the layer below.

Vegetarians often use this principle to illustrate how much more efficient it would be if we switched from the carnivorous level to a plant-based diet. Doing so would mean that we would have a tenfold increase of energy available to us. But there’s one big problem with this idea — a carrot just doesn’t barbecue as well as a steak. The carrots slip right through the bars and onto the coals.

Ignoring grilling carrots for the nonce, the laws of thermodynamics explain how energy moves from one layer of life to another and why the energy levels keep dropping in each layer. While an in-depth discussion of thermodynamics is way beyond the scope of this article, it’s still worth taking a quick look at the principle.

1st Law of Thermodynamics — energy can be changed from one form to another, but it cannot be created or destroyed.
2nd Law of Thermodynamics — the disorder in an isolated system will never decrease.
3rd Law of Thermodynamics — absolute zero, the absence of any kinetic energy, cannot be reached, only approached closely.

Since that’s a little dry, here’s how C. P. Snow, a British scientist, described these three laws:

1st Law — you cannot win
2nd Law — you cannot break even
3rd Law — you cannot leave the game

The laws of thermodynamics tell us that any time we do work, we are converting energy from one form to another. Dams take potential energy and convert it into kinetic and electrical energy. Cars take chemical energy and convert it into kinetic energy. That’s the 1st law in action. The 2nd law explains that each time energy is converted, at least some energy is lost in the process. No car engine can convert gasoline into kinetic energy (the vroom) with complete efficiency. Some of the energy from the gasoline is turned into noise and waste heat, neither of which is used. The same thing happens in living machines like you and me. As we eat our grilled steak and carrots, we imperfectly convert that chemical energy into new skin, muscles, and 5K runs.

The 2nd Law describes entropy. Entropy is the spreading out of energy in a system, going from more organized and useful energy into disorganized and less-useful energy. There is no way to reverse this trend other than on a small scale, and doing so will still increase the overall disorder and energy change in the total system.

Bored already? Have you remembered why you didn’t like science classes? Now for the kicker — these laws, but most especially the 2nd Law, apply to life, as the diagram above shows. On average, only 10% of the energy from one layer makes it into useful energy for the next layer. This loss of energy also applies to people, nations, and organizations.

So what is the most efficient way to move money (that’s financial energy for you and me) from one person to another? Notice the trend below:

– You give $100 to someone.
– The Federal Government taxes $100 from you and gives money to someone.
– The Federal Government taxes $100 from you, gives money to a state welfare department, which hands money to the local welfare department, who hands money to someone.

Do you see the extra layers appearing? Remember, as money moves from one layer to another, this movement costs money. So as this $100 passes through the layers of bureaucracy, some is skimmed off to pay for salaries, the buildings and maintenance, and petty cash expenditures. Of our original imaginary $100 taxed from you, the end recipient on welfare gets less than $25. That means over $75 of your hard-earned tax money was lost in pushing your taxes from one department to another. In other words, for every one welfare person you help with your taxes, you have funded three bureaucrats. Gives you a nice warm fuzzy feeling, doesn’t it?

This is one reason why I instinctively favor smaller government over larger government. Smaller organizations cost less to staff, not only in numbers of people on the payroll, but because with fewer layers of bureaucracy there is less entropy as money (energy) passes through. We do need government and the services it provides, but these services come at a cost, both seen and unseen. This is why Thomas Jefferson was correct when he said, “That government is best which governs least.” This is true even on a thermodynamic level.

Some people discuss and fantasize over a world-wide government that would make world-wide laws and policies just as the Federal Government currently makes national laws and policies. But I cannot look on this idea with as much eagerness, because the principles of thermodynamics tell me that adding this extra layer of bureaucracy will sap even more of our financial energy. Knowing how inefficient government already is, why would I want to add yet another layer?

I see no benefit of a world-wide government that would outweigh the cost of having it in the first place.

Well, it’s after April 15th. I sure hope you have your tax forms filled out and in the mail by now. The government really doesn’t like slow-pokes when it comes to paying taxes. If you want to really grasp the concept of “eternal torment,” just skip paying your taxes one year. The government will be more than happy to explain in great detail just how tormented your life will become.

What would you do if you could make three wishes and change the way taxes are handled in the U.S.? What would you change if wishing would make it so? Let me give you my three wishes:

I. No tax withholdings

I wish that Americans didn’t have their taxes withheld from their paychecks. I would much rather make the full tax bill due and payable on April 15th. Withholding taxes from paychecks was one of the sneakiest changes made to the federal income tax. The change came in 1943 to help finance World War II. This temporary (yeah, right) change to the tax laws required employers to withhold federal taxes with each paycheck. The cash-strapped government couldn’t wait until April 15th for the revenue to come in, so it started collecting taxes all year long. This change allows the government to collect interest on tax money, basically putting your money to work for them before they would normally receive it.

The result of this tax withholding is a numbing of the pain of paying taxes. Since the tax comes out of our paychecks each payday, we don’t really miss the money. Granted, there is that first-time pain of looking at your paycheck and seeing just how much the government has taken, but you get used to it. Humans are remarkably resilient this way. I can’t tell you how many times I’ve heard people cheering about their tax refund. “Look at all the money the government is paying me!” But it’s not the government’s money; it’s your money. You granted the government the right to gain interest from your money, and in exchange you receive nothing other than the mistaken feeling that you have somehow made money.

This change would require that people set aside their own money each paycheck to pay for their income tax, but homeowners are used to paying for their property taxes in one lump sum. Some municipalities will break the property tax bill into 12 monthly payments to make it easier for homeowners to avoid a single large payment when the bill comes due. Removing withholdings would require people to exercise the fiscal self-control not to spend all their money without saving up their tax payments. It would also make people aware of just how much they pay each year in taxes.

II. A government that spends only what it is lawfully allowed to spend

My second wish would be for a Federal Government that would only spend money on things it is permitted by the Constitution to spend. Article 1, Section 8 of the Constitution outlines the only things that Congress is permitted to do. Sadly, it is the normal state of things for government bureaucracy to grow. Ours has had two centuries to grow far past its normal and Constitutionally permitted bounds.

If the government were only to spend money on those things that were mandated in the Constitution, it wouldn’t need a budget in the trillions. Thomas Jefferson was correct when he said, “That government is best which governs least.” Ours has been doing more and more for the citizens of this country, since we as citizens have been asking, even begging, the government to do more and more to take care of us. The problem is that the government which can do much for you, can also do much to you.

III. A simple flat tax

My final wish would be for a simple flat tax. This would apply to everyone, and there would be no tax loopholes, penalties or deductions. Since my second wish would reduce the overall cost of government, the resulting tax burden to the people would be dramatically less. I would guess that such a flat tax need not be more than 10% of a person’s income.

When I described these wishes to my wife, she asked at what point the flat tax would kick in. I explained that the tax would be 10% of all income. In other words, a CEO who makes $60 million would pay 10%, just the same percentage as a minimum-wage burger flipper would pay. When I have proposed this before to people, they point out that 10% of $1 million doesn’t hurt as much as 10% of $100 because the millionaire with $900,000 left over certainly has more buying power than the kid with only $90 left. I agree that this is true, but I still would not exempt the people at the bottom end of the wage scale. People who pay taxes are participants in their country’s government. Currently the bottom 50% of wage earners in the U.S. pay less than 4% of the overall income taxes. That means that half the country doesn’t care about tax rates because they don’t pay a significant amount of the taxes that run the government. Is it a coincidence that we never reach a voter turnout of 50% or more during an election? Could it be that those who stay home feel they have no part in choosing the people in government since they do not contribute with taxes? If everyone paid the same rate, it would make it much harder for Congress to pass a law increasing that rate. Democrats get away with demagoguing the issue of tax cuts/hikes by claiming that they are only for “the rich.” But with a flat rate, you could not gore the rich without having the ox also goring you.

“But charging rich people the same as the poor isn’t fair!” Really? How do you define fair? Is it fair that half of the U.S. sits on its hands while the other half does the heavy lifting? I cannot see that as fair. But if everyone is taxed at the same 10%, then everyone pays at the same rate. That is fairness. It would also mean that computing your taxes would be much easier than it currently is. All you’d have to do is take 10% of your income and write the check. You’re looking at a task that would take a few minutes of time, rather than an average of 28 hours as estimated by TaxFoundation.org. I don’t know about you, but I have things I’d much rather do with my time.

Speaking of which, I think I’ll go off and do some of them.