One day, I took a vacation day, picked up my girl friend, and headed for Lake Tahoe. On the way, we stopped by a restaurant owned by a mutual friend. As we walked in the door, the friend said, “Sit down, I’ll be with you in a minute. I’ve only got ten more minutes on this shift.” We sat down and ten minutes later she joined us. She said, “One of the girls called in sick, so I had to take her shift.” She sipped her coffee, asked how we were, and stated taking her tips out of her pockets and counting them. I watched in amazement as she kept pulling bills and coins out. She began counting the money and I was astounded to find that she had made about $120 in tips. At the time, minimum wage was $5/hr, so the normal waitress would have made $40 for the shift in pay, plus $120 in tips. I asked about the “normal” waitress and was told that she was a college freshman working at the restaurant during summer break. I thought, “That gal is making more than ME. Maybe I should get a ‘minimum wage’ job.” (I’m sure the waitress claimed ALL the $120 for income tax purposes.)

I have been thinking about the concept of “minimum wage” for several years. One of the first questions that come to mind is, “Why does the government have the right to tell me the minimum I must pay someone?” or alternatively, “Why does the government have the right to tell me the minimum I must charge for my labor?” I recall that at one time in this country, people would work for room and board in order to have a job that would teach them a trade. It was a mutually beneficial arrangement—the employer obtained help he could not afford to pay and the employee obtained training. I recall talking to a restaurant owner that hired an employee for “nothing” (except tips). The employee “cut a deal” with the owner that if the owner would train him to be a waiter, he would work for nothing. I went back to that restaurant six months later and asked about the employee. I was told that he had gone to San Francisco and obtained a very well paid job in a fine dining restaurant. Such would not have been possible under a strict interpretation and/or enforcement of the minimum wage laws.

When one considers the logic underpinning the minimum wage laws, it is quite apparent that the laws are politically motivated. It is a blatant attempt to gather and garner the “poor” vote—even if that vote is harvested at the expense of that very population.

Let us consider some economic assumptions:

Assumption #1: It is assumed that the only reason an employee employs someone is to make a profit from that labor. The employer expects to “package” the work the employee performs and “resell” it for a profit.

Assumption #2: If you recall your pay last raise, you will note that you “saw” about half of it. The tax laws in this country are such that, at the margin, you receive about half of your wages.

Assumption #3: Generally, for every dollar you receive in wages, it costs your employer TWO dollars. This is a function of payroll taxes (Social Security, unemployment, disability, etc.), time off (e.g. holidays, vacation), and benefits. (Use some other figure if you wish.)

Assumption #4: Typically, product costs are 2/3 labor.

With the above assumptions in mind, let us consider some of the economic aspects of the minimum wage.

An acquaintance once said to me, “I wouldn’t mind paying a nickel more for a hamburger if the employee could get paid a dollar an hour more.” I suspect contained in that statement is the entire philosophy of those that support the minimum wage. First, they wish to speak for everyone. My immediate reaction was, “Why don’t YOU pay TEN cents more for YOUR hamburger and let ME pay the price I am presently paying?” Second, the statement is made with such assurance that one takes no notice of the fact that there is no thought behind it. When the statement is analyzed, it becomes absurd. In order for the employee to make a dollar an hour more, the employer is going to have to pay TWO dollars an hour more (assumption #3). In order for that employer to “break even” charging a nickel a hamburger more, that employee is going to have to sell FORTY MORE hamburgers an hour. However, for every employee at the cash register selling hamburgers, there are at least two (and probably three) employees preparing the food, cleaning up, on the drive-up window, etc.), so in order to pay each employee a dollar an hour more, that store must sell about a hundred hamburgers more EACH HOUR to break even. (Ironically enough, while the employer is paying two dollars an hour more for each employee, the employee is “seeing” only fifty cents because of the tax laws [assumption #2].) I suggest that the only way the employer can make this situation “work”—i.e. break even—is to reduce staff and work the remaining employees harder.

One must consider how small businesses work. In many cases, the owner is working right beside the employees. It is not unusual to see the owner of a small business sweeping the floor. Oftentimes he would rather hire someone to perform that task, but cannot afford the wages to do so. Assumption #1 states that an employer hires people to make a profit. Consider an employee making minimum wage. If the employee’s wages are increased by one dollar/hr, it costs the employer two dollars/hr (assumption #3). That means that in an eight-hour shift, it will cost the employer sixteen dollars. If the product markup is ten percent, then that employee must sell an additional $160 in merchandise each shift in order for the employer to “break even”. Clearly, in all probability, the employer is going to raise prices and/or reduce staff.

Finally, let us consider the impact on the population we are attempting to help. Let us assume a 10% raise in the minimum wage. Because of the payroll taxes, this will cost the employer 20% (assumption #3), and the employees will “see” 5% because of the tax laws (assumption #2). If 2/3 of the product costs are labor (assumption #4), then the employer will have to raise his prices by 2/3 x 20% or about 14% just to break even. (This assumes that his raw material costs do not increase due to the wage increases imposed upon his supplier.) So, the employer increases his costs by 14% and the employees see their (real) wages rise by 5%. As the increase percolates through the economy, the minimum wage employees are actually WORSE OFF than they were before the raise due to prices higher than their wage increase. It is a gradual, almost unnoticeable effect.

The reader may well wonder how this is different from (e.g. union) negotiated raises. It is quite simple. At contract time, labor and management sit down at the negotiating table and “divide the profits”. When the company is doing well, a generous settlement is made; when the company is doing poorly, labor may well believe it is best to settle for less rather than to bankrupt the company. The raise given to the employees is a function of the ability of the company to pay. On the other hand, the minimum wage is imposed upon ALL businesses, regardless of how well they are doing or their capability to comply. It is imposed by an external “force” regardless of the ability of the company to pay, and there is no “negotiating”.

One must be somewhat skeptical of a “system” that:

1. Causes people to lose jobs.

2. Curtails the rights of people to sell their services.

3. Hinders the efforts of people to obtain training.

4. Bankrupts businesses.

5. Causes woe and hardship for the very people it is supposedly designed to help.

In closing, I wish to state that at one time, the highest paid employee in Reno, Nevada was the head waiter at the show room at Harrah’s Club. He was officially paid minimum wage. He drove a Mercedes.

Regards,
Tony De Maio
Whiskey & Gunpowder

July 26, 2010

The Destructiveness of Minimum Wage Laws was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Folks, I think its time. Clearly, the government(s) have gone completely bezerk with our money. It’s time to do something about it.

What are our options? Clearly, one is armed revolution. I don’t know about you, but I’m too old and fat to participate. If you wish to go that route, know that you have my best wishes. However, PLEASE don’t go the way of other armed revolutions and institute a more oppressive state than the one you overthrew.

Another option is to move. Again, I’m old and tired. I’m tired of moving. Furthermore, I cannot help but recall Ken Hamblin’s book “Pick a Better Country”. Overall, I just don’t know where to go. True, it may get to the point where other places ARE indeed better, but not quite yet. Furthermore, if we can turn things around here, it could be a lot less trouble than moving—particularly if I can get YOU to do the work.

Voting the bums and thugs out is always a possibility, but there are several things wrong with it. One is it takes too much time; another is that they have managed to Gerrymander the districts so that their re-election is fairly certain. Not only that, but it appears that even if we throw them out as we did in 1994, we just get a new crop of bums and thugs.

The problem seems to be money. Now, we all have (some) money, but Congress’ money problem seems that they have too much, so they have to find a place to spend it.

I once calculated that the average person in this country pays over 2/3 of their pay in taxes. The reasoning went something like this.

Tax freedom day is about April 1 or so. That’s about 25% for federal tax. Add in 15% Social Security and Medicare and you end up with a total of about 40% federal tax. Using the figures of 6% state income tax, 2% sales tax, 5% payroll tax (unemployment, disability, etc.) 6% property tax, and 1% gas tax yields a 20% state tax rate. That’s 60% total combined federal and state tax rate. Then add in marriage license, hunting/fishing/dog licenses, hotel tax, motel tax, phone tax, building permits, driver’s license, car registration, parking meters, traffic tickets, and any and all of the various and sundry other “miscellaneous” taxes and you easily reach 2/3. (Of course, that does not include the costs of complying with the tax laws or the added costs of products since taxes are included in their prices.)

Upon recalling that paper, I have concluded that there IS a way to fight the beasts—starve them. Cut off their money supply.

I suggest that we engage in a REAL “tea party”; a REAL tax rebellion. No, I’m not advocating anything illegal like refusing to file or pay taxes. Nothing as inane as sending tea bags to Congress. I’m not saying commit fraud or up your exemptions. Committing fraud to avoid taxes is like shooting a cop to avoid a traffic ticket.

What I AM advocating is that you take an active interest in your taxes. There are thousands of tax loopholes that you can legally take advantage of and decrease your tax bill. I am not advocating tax evasion; I AM advocating tax avoidance. (The difference between tax avoidance and tax evasion is 5 years.) These tax strategies were placed in the tax code so others could use them. There is no reason why YOU cannot also use them. (Do you know that you can rent your house for two weeks and not claim the income? Sam Nunn, Senator from Georgia, has a home in Athens, Georgia which he rents out for two weeks during the Master’s golf tournament. How “fortunate” for him.)

If you need $100 more each month and you get a part time job, you will have to earn $200 in order to have $100 “left over” for your expenses. On the other hand, if you can find a tax deduction strategy or “loophole” that will allow you to keep $100 of your money, you keep the whole $100.  For most people, since their marginal tax is about 50%, reducing their tax bill 10% will give them a 5% raise. However, since they pay no taxes on that money and get to “keep it all“, it is effectively a 10% raise. That raise is good every year, year after year after year.

I suggest that you go to Barnes and Noble, Amazon, or even Good Will or The Salvation Army and pick up a book (or two) on tax avoidance. There have been many written and I won’t recommend one. Try to pick one that is a “cookbook” in that it describes what can be done in a recipe format. As you read them, you can determine if each one is “right” for YOU. Some will obviously not be relevant. Some will clearly be applicable. You may have to consult a tax professional to determine if you can use some of them.

The first book you use will probably yield about 10 courses of action that will reduce your tax liability. The second will probably yield about 5 more, in addition to repeating some from the first. The third book will probably yield one or two.

Here are some of the courses of action you may consider to reduce your liability.

Do you like to go to garage sales? Try buying all the clothes left over on Sunday afternoon. Value them according to fair market value (there are books to help you do this) and give them to Good Will. Take a deduction at FAIR MARKET VALUE. You will find that for $10, you have purchased $300-$400 of charitable tax deduction. Don’t forget to deduct the mileage to obtain the clothes (going to the garage sales). Make it a family outing. Have some fun and starve the bums.

Do you have a business? If not, you should. Try AMWAY or a similar organization. Use your garage to store the products, and take off a percentage of your electricity, rent, insurance, phone, repairs, mileage, etc. on your home as “business expenses”. Since you must make a profit 3 out of 5 years, fold the business after 2 years, and open up a different one (e.g. Mary Kay Cosmetics, Shaklee). By the time IRS gets around to audit you in three years, all physical records are gone with no hope of reconstruction. YOUR paper records will be the only source of information. Not only do you starve the bums, but who knows, you may be the next Bill Gates.

Do you have kids? Do you want them to go to college? Have the government subsidize their expenses. Have them advertise on the radio for your business. Pay them $2,000 or so. Normally that income would be considered family income and be taxed as part of your tax. However, since they have “earned income”, they qualify for an IRA. You get to deduct the “advertising expense” and they get a college fund that compounds tax deferred. At withdrawal time (college), they will have little income and they will pay little taxes. Since they are using the money for education, there is no penalty. This should be a traditional, not Roth, IRA. (Note #1: If you have no business, you can still pay the kids to do chores, and get the IRA. It just won’t be deductible. In such a case, use a Roth. Note #2: Since these are “retirement funds“, they do not count when determining “need“ in terms of student aid. Note #3: $2,000/yr for 16 years at ten percent is over $70,000.)

Speaking of college, one of the saddest stories I’ve heard (many times) is the story of the parents who carefully “put away” for their kid’s college fund by investing in a mutual fund. When college time came, they sold part of the fund and gave the money to the kid. Someone should have told these folks that they should have given the STOCK to the kid as a gift. The way THEY did it, they paid taxes on that money. Had they given the stock to the kid instead of the money and had the kid sell the stock, no taxes would have been due.

IRS says you cannot deduct commuting costs. However, if you have a business, you may deduct the costs of obtaining materials and supplies for that business. As such, each day, do not drive directly to work. Drive to a nearby store and pick up something for your business (e.g. a pencil). Do the same on the way home. As such, the costs of travel from the store to your home/business are not deductible, but the costs from your home/business to the store are. If there is a post office nearby, renting a post office box to get “business mail” will also work.

Going on vacation? While you’re there, apply for a few jobs. In doing so, your vacation becomes tax deductible as “searching for employment”.

Going on a cruise? Find one that gives “investment classes” and deduct the cruise as “investment expense”. In like manner, if you wish to take a trip to a certain city, buy stock in a company that has stockholder meetings in that city—then deduct as investment expenses going to the meetings. Traveling to find investment property has possibilities. Want to travel? Write a book and travel to research material—business expense.

Forming a church has certain benefits, though it is somewhat complicated and takes a bit of work. Tax laws pertaining to “farming” and “commercial fishing“ are “interesting“. Ronald Reagan paid little taxes due to his “ranch” in California.

There are MANY such “loopholes”. It’s your money—until you send it off to the various governments. I know you are concerned—IRS has deliberately cultivated such an attitude on your part. You need not be. One should consider the procedure for (e.g. income) taxes. If there is any doubt about whether or not to take a deduction, you should take it. What can happen??

1. The computer could simply pass it through—no problem

2. It could be kicked out for human review

a. the human could say, “This is acceptable”—no problem

b. the human could say, “I need an explanation”, and write for one

3. You write the explanation and tell them what you did

4. The human gets the explanation

a. the human says, “This is O.K.”—no problem

b. the human says, “This is NOT O.K. Pay up.”

5. You say, “O.K. here’s your money.” BUT you’re in no worse a position as if you didn’t take the deduction in the first place.

The worst that can happen is that you end up paying a few bucks in interest. Penalties are seldom assessed unless there is fraud or unreported income.

As an example of the attitude IRS has cultivated in the population, let me ask this question. “What happens if you are a month late filing your income tax?” Many folks stay up to all hours on April 15 in order to get their tax form in. No one has ever said what will happen if you don’t, but the whole country has been terrorized into thinking something horrendous will happen to them.

In actuality, it IS stated what will happen. You have to pay interest on any money owed. First of all, when you consider the deluge of mail coming into IRS on April 15th, do you REALLY think they have someone there checking the post marks? If you’re a week or two late, trust me, no one will notice. Second, if you owe no money (i.e. more was withheld than your tax liability), there is NO penalty. Third, assume you’re a month late and owe $1,000. At 6% (presently set at 5%) penalty, if you are a month late, the penalty is one half percent of $1,000 or five bucks!! Hardly worth staying up all night for.

If you own your home, you should protest your property taxes. It takes very little effort, and generally your assessed valuation will be reduced up to 10% with little or no conflict. The reason is that it is not worth their time to go through the formal hearing procedure for such a “little amount” of money. If you fail, you have lost nothing. If you do not fail, you can easily save as much a $1,000/yr. With the present situation in real estate, property valuations are being routinely lowered.

State governments generally get their money from their citizens (not corporations) in three ways—income tax, sales tax, and property tax. If you show me a state where there is no income tax, I’ll show you a state where the property taxes and/or sales taxes are quite high. Given a choice, the “trick” is to move to a state where the high taxes do not “hurt” you as much as you benefit from the other lower rates.

For example, Oregon has no sales tax. If you are a senior citizen that has purchased all the major items you intend to purchase, this is not as big a benefit as it would be for younger folk. Property taxes and income taxes in Oregon are high. If you want a “nice” house, you will pay dearly in property taxes.

Texas has no income tax. If you are working for minimum wage, this is of little benefit to you, but the high 8.25% sales tax is particularly onerous.

New Hampshire has no sales tax and no income tax; however, the property tax is quite high. New Hampshire would be tax heaven if you don’t mind living in a single wide trailer or a camper.

If it is possible, you should live on the border between two states with different tax exemptions and play one off against the other. For example, you could live in Vancouver, Washington (no income tax) and shop over the Columbia River in Oregon (no sales tax).

If you have an IRA, you should realize that when that money “comes out”, it will be taxed as ordinary income. It is MY recommendation that people should have traditional IRAs as long as their tax bracket is above 15%. Use a Roth IRA if your tax bracket is 15% or below.

During the years before exhausting the traditional IRA, quickly estimate your tax liability/rate before December 31. You will have some “lean” years—medical expenses, capital losses, lay off, etc. If your tax bracket is 15% or less, transfer as much as you can from your traditional IRA to your Roth without raising your tax bracket. Hence, you are putting money into your IRA and saving 30% tax, then transferring it to your Roth and paying 15% tax. In particularly lean years, you may well pay NO tax on the transfer.

If your IRA is “sizeable”, you may consider moving to a state where there is no state income tax. Such a move may effectively “increase” your IRA by the amount of the state tax you would pay—as much as 10%. You may consider moving to a state with no income tax for one year, converting any remaining money in your traditional IRA to a Roth, then moving back to your “home” state. A year’s “vacation” in Nevada might be worth pursuing in and of itself, in addition to saving enough money to pay for it. (While there, look for a job.)

So folks, it’s up to you. It may take a bit of work, some study, but the rewards are there. Not only do you starve the beast, but you can use the money to feed yourself a bit better. Remember, once done, the results are good until they change the tax laws. You continue to save with no added effort year after year after year.

Regards,
Tony De Maio

December 22, 2009

Starving the Tax Beasts was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I propose that “taxes” are money extracted from the people for the purpose of running the government and providing for the common good. As such, it would make sense that to provide the maximum “common good,” the maximum amount of revenue should be generated. (I shall not address how the tax money is ACTUALLY spent, and I shall only consider “income taxes.”)

The obvious question is: “What rate of taxation should be applied in order to achieve maximum revenue?”

A superficial response would be, “The maximum possible.” A little thought will show this to be incorrect. Consider a 100% income tax. Very little revenue would be obtained, since no one would work if all of their income were taken from them in taxes. In like manner, a 0% tax would achieve no revenue since NO tax would be taken. The “revenue curve” looks like an “inverted U,” or perhaps a “bell curve.” Clearly, some percentage “in between” must be the desired number/percentage. I believe no one knows that number — i.e., it is unknown.

Let us consider some “standard” economic assumptions:

1. People work for a salary — as many hours as they wish.
2. People play and receive no economic benefit for doing so.
3. People would rather play than work.

Let us now consider a lawyer who wishes to have a load of firewood. Consider:

1. The lawyer makes $100/hr.
2. The wood costs $100.
3. The tax rate is 90%.
4. The lawyer can cut and split the wood himself in 5 hours.

The lawyer has two choices. He can work and make enough money to purchase the wood, or he can cut the wood himself. In order to purchase the wood, the lawyer must work for 10 hours and make $1,000 in order to pay the taxes of 90% and have $100 left over to purchase the wood. On the other hand, the lawyer can go out and cut the wood himself in 5 hours, and have 5 hours “left over” to “play.” The choice is obvious. At this tax rate, the government receives no tax revenue.

Let us now consider a tax rate of 50%. Under this assumption, the lawyer need work only TWO hours to make $200, pay the taxes of $100, and he will have $100 left over to purchase the wood. The lawyer will have 3 hours “left over” to “play.” The person selling the wood will be paid $100. Under this tax rate, the government will receive $150 in taxes-$100 from the lawyer and $50 from the wood supplier. An additional gain is that the woodsman has an “extra” $50 which he can use to purchase goods and services which will generate an additional $25 in taxes.

For the above example, the “break even” tax rate for the attorney is 80%, where he works 5 hours either way. The “best” tax rate will vary from person to person and task to task, but there IS SOME (UNKNOWN) OVERALL OPTIMUM RATE FOR THE COUNTRY AS A WHOLE.

The above example is an explanation of why LOWERING the tax rate may actually result in MORE revenue — in spite of the ignorant claims that “It makes no sense.” Clearly, it does not HAVE to work as it depends upon where the present tax rate exists on the curve relative to the optimum rate-but it DOES “make sense.” People who claim otherwise are grossly ignorant of economic theory.

Part II: Inflation

Consider a population of people such that each has $1,000. They trade with each other and there are just enough goods and services to survive. At the end of the month, each person ends up with $1,000-and the cycle is repeated. Suppose the government imposes a 50% tax on this population, and removes $500 from each person. What effect would that have on the standard of living of the population? If you think about it, it will have NO impact — all prices will simply be halved. In like manner, doubling the amount of money available to each person will simply double the price of everything. There would be no change in the standard of living.

Let us now consider a situation where only SOME of the population is given $2,000. Clearly, these people are at an advantage in that they can purchase MORE goods and services than their neighbors. In doing so, they drive the price up to where their neighbors will suffer a decreased standard of living. Clearly, when the government infuses money into a certain segment of the economy (stimulus), it benefits that part of the economy. Due to the influx of money, prices in all sectors of the economy rise as those who “benefit” drive prices up as they spend the money.

Consider a “benign” 3% inflation rate. Over a three-year period, the cumulative inflation will be about 10% (with compounding). Intuitively, one would think that one needs a 10% raise over three years to accommodate that inflation. Such is NOT the case-for (at least) two reasons:

1. Unless you receive your raise at the “start” of the inflation cycle, you must tap into your “reserves” as prices rise UNTIL you get your raise. At that time, you are “back to where you started,” but you suffered a decreased standard of living up to that time or an unrecoverable monetary loss. (Of course, if you receive your raise at the START of the cycle, you are “ahead” in some sense. Since the government is “creating” the money it is always at the “start” of the cycle, and thus always benefits.)

2. Due to our tax structure, most people pay about 50% in taxes. (How much of your last raise did you actually see?) Since you pay your bills with after tax dollars, you will need a raise of 20% in order to have 10% left over to pay your bills. This is quite insidious as will be described in Part III.

Part III: Minimum Wage

I do not enjoy “picking on” minimum wage folks, however they are the best example. In trades, businesses, services, etc. management and labor “come together” and “share” the profits. In some cases labor chooses to reduce their “share” because the business is not doing well. Labor would much rather have a job that paid less than have no job. Minimum wage is “different,” as it is imposed by the government regardless of the effect on the business and with no negotiation.

One of my left wing friends once said that he would “Not mind paying a nickel more for a hamburger so that the employee could make $1.00/hr more.” My first thought was, “Why don’t YOU pay TEN cents more and I’ll keep paying what I’m paying now. Why do you think you can speak for me?”

My second thought was, “Let’s look at the numbers.” In order for the person to make $1/hr more, the owner is going to have to pay about $2/hr more due to benefits, social security, medicare, unemployment, disability, leave time, etc. Thus, the employer is going to pay $2/hr more so that the employee can get a raise of $1/hr and realize a raise of $ .50/hr more after taxes.

The next thing that comes to mind is that to simply “break even,” in order to pay that $2/hr, that employee is going to have to sell about 40 hamburgers PER HOUR at 5 cents additional cost per hamburger. Furthermore, for every employee at the cash register, there are (at least) two (and more likely three) employees in back preparing the food. Thus, at a nickel per hamburger more, that store is going to have to sell about 150 hamburgers PER HOUR-if there is only one person at the counter. I suggest this is highly unlikely. It always amazes me how people can pull numbers and “facts” right out of thin air to support what they think is “right,” and then IMPOSE THAT SITUATION UPON OTHERS WITH IMPUNITY AS THEY WILL SUFFER NO ILL EFFECTS REGARDLESS OF THE RESULTS; AND THEY NEVER LOOK BACK TO SEE THE HAVOC AND DEVASTATION THEY HAVE CAUSED. When confronted with the results of their actions, invariably the response is, “Well, you’ve got to break a few eggs to make an omelet.” Funny thing, they are always talking about someone else’s eggs.

Let us consider a more general case. In general, small business must make about 20% profits to survive. The “high” profit is necessary because of the high risk-with something like 80% of the small businesses failing in the first five years. Now, in order to give an employee a $1.00/hr raise, it will cost the employer about $2.00/hr (as stated above). In order to “break even,” the employee must sell an additional $10/hr of goods/services, or about $80/day. (If one assumes a 10% profit margin, then the employee must sell $160 more per day.) Such is unlikely to happen, so the employer must raise prices in order to accommodate the pay raise. He cannot simply raise the prices by the amount of the pay raise because of his increased costs beyond the raise-he must raise prices by (at least) DOUBLE the amount of the pay raise. (Of course, depending upon the business, the employer’s wholesale costs may also rise because of the increase in minimum wage, which may result in greater price increases in order to maintain the profit margin.)

Interestingly enough, while the employer is raising his prices by (at least) TWICE the pay raise, the employee is seeing only HALF the pay raise because of taxes. As the price increases reverberate throughout the economy, it can cause some hardships — on the very people it was designed to help. Because of their “pay raise,” the employees actually “lose ground,” so demand a higher wage-and a new cycle begins.

Consider that typically product costs are 2/3 labor. If a merchant increases his labor costs 20% (10% to the employee, 10% in benefits/taxes), then the price of the product will increase by 2/3 of 20% or about 14%. The employee will receive a 10% raise, of which he will “see” 5% due to taxes. As such, product prices will increase by 14% and the employee’s wages will increase by 5%. This presumes no increase in raw materials costs due to a general minimum wage hike.

It is even more sinister in that because the minimum wage folks get their money “first” in some sense, they believe they are “getting ahead,” but as the effects permeate the economy, they gradually lose ground without realizing it. As previously stated, quite insidious.

Part IV: Conclusion

The careful reader will note that I have placed no “value judgment” upon this situation. I have simply taken what I consider to be “reality” and described it through numbers. What is most interesting is the reaction I get when I state the contents of this paper to left-wingers. It ranges from, “That’s not true,” to “I don’t believe it,” to “You’re a brainwashed neo-con.”

When I attempt to converse with such people, they often scream, shout, and launch personal attacks. They will not (can not?) address the underlying rational discourse. I cannot state that my statements are true — I can state that they have yet to be refuted.

Regards,
Tony De Maio

December 15, 2009

How Do You See on the Left Side of the Classroom? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I queried the ranger, “Why NOT feed the animals. It looks like they could use a bit of food.”

The ranger replied, “Well, there are MANY reasons. One reason is that we have many visitors here each year. If all the visitors routinely fed the animals, they would grow quite fat. Also, they would not have to forage for their food, and would become dependent upon the visitors for food. They would ‘forget’ how to forage for themselves and lose their independence. Not only that, but they learn to eschew their natural food and prefer ‘human’ food—which is not healthy for them. Also, since they don’t forage, they don’t get exercise, they develop health problems, and die early because of the improper diet and lack of exercise.

“If they become accustomed to being fed by the visitors, they will EXPECT to be fed by the visitors. As such, any visitor that did NOT give them food would disappoint them. A disappointed animal is a dangerous animal. The animal might well attack to secure the food to which he expects and believes he is ‘entitled’. This is not particularly hazardous if the animal is a squirrel—a bear is another story. Raccoons “vandalizing” garbage cans are quite common.

“If visitors were allowed to give out food, animals from all over would migrate here. The area would be overrun with various animals—which would lead to territorial fights among the animals. As more and more animals migrated and the supply of food remained constant, the animals would become very aggressive in their demands for food.

“Feeding such animals is fine if they are in some form of ‘captivity’, where the amount and type of food can be controlled, but it is not a good idea to feed such animals in the wild when they are free—particularly when the type and amount of food cannot be controlled.

“If an animal is injured in some manner, we often take them in and care for them and feed them—but it is strictly a temporary measure. We cut them off from dependency as soon as possible and place them back in their natural habitat.”

I asked the ranger if it wasn’t something like a “co-alcoholic”—a person that lives with and/or supports an alcoholic in his behavior. The support may be financial or moral or other, but it allows the alcoholic to continue to lead a destructive life. I asked, “When we feed the animals, is it that we do it to ‘feel good’ about OURSELVES that we are doing ‘something charitable’ by feeding the animals, when in fact we are doing great damage to their lives?”

The ranger agreed with me and said that in his opinion I was correct.

I left the park thinking about what I had seen and my conversation with the ranger. As I drove out the park entrance, a “street person” was there with a “please help” sign. I reached for my wallet for some money to assist this person in need when I recalled my conversation with the ranger. In a moment of insight, it was clear to me that I should NOT give this person money. In doing so, I was simply allowing this person to lead the kind of life he was leading—I was being a “co-alcoholic”. I was “Feeding the animals”.

I did not give the person money. Instead, I thought about our whole welfare system and the way is works (or does NOT work). It became clear to me that we are encouraging generation after generation to become dependent. They are essentially a slave to the welfare system. In some sense, they are in captivity.

I thought about the “families” of three and four generations of welfare recipients—many obese—living in poverty; people that have been “trained” to ask for “handouts” and have never learned how to “forage” for themselves.

I thought about the people in New Orleans during hurricane Katrina that had no ability or desire to fend for themselves and simply waited for the government to provide a handout and save them.

I thought about the “migration” of welfare recipients to various states where the welfare benefits are most generous—in particular to major cities in certain states. (Where the various politicians court their votes.)

I thought about how, as more and more people are receiving “subsidies”, each segment becomes more and more aggressive in their “claim” to “their share”.

I thought about the “demands” of the welfare recipients, the riots, the “welfare rights” organizations, the demonstrations, the court cases, and thought, “The similarities are so great they cannot be ignored.”

I thought about the “War on Poverty”, and wondered about the “exit strategy”, or the “definition of victory”.

I thought about all these things and thought, “What have we done through a mistaken notion of benevolence? In a sense, we have not only accepted inappropriate behavior and dependency, but we have encouraged and solicited it for our own purposes. We have been ‘co-alcoholics’ to these people. We have not helped them; we have domesticated them.”

May God forgive us.

Regards,
Anthony De Maio

October 29, 2009

Please Don’t Feed the Animals was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

As a child, the situation is necessary. However, as a child, it never occurred to us that we were paying a price for this state of affairs. It was a necessary price, but a price nonetheless. The price was obedience and loss of freedom (actually, not a “loss”, since we never had it). You cannot have someone feed you without expecting them to determine what food you eat. You cannot have someone heal you without expecting them to determine the medication (or doctor/method) used. You cannot have someone provide you with a bed, without expecting them to determine the type, size, and place of that bed (home). The clothes they buy you are the clothes THEY buy you—THEY have the final say. If “they” are paying the bills, YOU must pay “the piper”.

As we grow older, we take on more responsibility. We get a job and support ourselves, giving up the security of the home for the independence and freedom of adulthood. We buy our own food and cook it. Some of us get food stamps—and that limits what we can buy for food. We pay for our medical attention. Some of us seek government aid—and we are limited to what doctors we can patronize. We get our own housing and pay our own rent. Some of us seek government assistance—and we are limited to the types of housing we can obtain and the amount of rent we can pay.

It is said that the “government must provide a ‘safety net’ for the citizens”. To my way of thinking, the purpose of a safety net is to protect someone from harm that is doing something they shouldn’t be attempting; and allows the attempt of just all kinds of stupid deeds and inappropriate, unsuitable behavior. One must wonder if the citizens would save for their own retirement if Social Security were not available. One must wonder if the citizens would save for periods of unemployment if unemployment insurance were not available. Does the availability of “Small Business Loans” (which do not have to be repaid if the business goes bankrupt) allow people to go into business rather cavalierly without raising their own money and thus almost guarantee failure? With no penalty for failure, do they not limit the effort put forth? Does the student in high school not worry about saving for college because of the availability of student loans? Does our present illegitimacy rate stem from the “safety net” of welfare?

I wonder if the wish for a government “safety net” is just a longing for the childhood security we remember so fondly. Is it a desire for “mommy” and “daddy” to comfort us and protect us from the consequences of our own behavior and “make things better” as only parents can do. Is it to take the place of our parents and take care of and support us so we don’t have to suffer the responsibilities of adulthood and the consequences of our actions? Is the present trend toward “children” staying at home until the mid or late twenties indicative of something other than economics?

I hope not, because one must remember the OTHER aspects of childhood. Being told when and what to eat; where and when to go; when to come home; who you can and cannot see; what chores you must do and when you must do them; what to wear; what you must NOT do; where you must not go. Remember hoping someone will GIVE you what you want—perhaps for Christmas or a birthday? That was also a part of childhood. I fear the present desire (perhaps craving) in our population for security and the demands that our government “provide” for the population—everything from bread to disaster relief; from medical care to housing; from “A” to “Z”. The government that will “provide” for us and make us “secure” will also enslave us.

Ben Franklin said, “Those that would give up liberty for security will have neither.” Ben Franklin was correct. Just how “secure” are you if someone ELSE has control over your food, shelter, medical attention, and safety? Do you dare to challenge that “person”?

The left has said that “the people” believe in God as a replacement for their father. It is comforting to believe that there is “someone” who knows everything and looks out for you. They say that there appears to be an innate need for humans to believe this, but it simply isn’t a true belief. There is no God. I cannot dispute the left. I do not know if they are correct or not. On the other hand, it is transparently obvious to ME that the left has simply substituted “government” for “God”.

AFTERWORD

I am haunted by the specter of the people on that overpass during hurricane Katrina. They stood there and waited for help. It never occurred to them to help themselves by walking north. When no help was forthcoming, they began to chant, “We want help. We want help. We want help.” It was very clear to ME that they perceived that the way to get help was to “demonstrate” and demand it—to create a disturbance until someone took notice of them and helped them so they would be silent. It was so similar to a child throwing a tantrum that no imagination was needed to draw the parallel. It was clear that they were going to stand there and scream until “daddy” (government) came along and solved their problem. It never dawned upon them that no one was withholding help, there was simply no help to give. What have the “safety nets” done TO our population, not FOR our population? May God help us. We are clearly incapable of helping ourselves—like a papoose that has been carried to long, we cannot walk.

It is an interesting observation that in shielding our citizens from the consequences of their own actions, we have provided “mercy”—and cheated justice.

Regards,
Anthony De Maio

September 28, 2009

Safety Net: The Path to Slavery was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

One guy called in and talked about the Scandinavian countries where you paid 48% tax but didn’t have to pay for garbage pick-up or many of life’s other irritations. He also stated that the minimum wage was 18 dollars an hour—and the Guilder exchange rate was essentially one to one against the dollar.  When you got paid, most of your (remaining) income was disposable. (I suspect the caller did not know that our poor live better than most of the middle class in those countries. Most do not have cars or own their own homes. They do not eat as well as us and depending upon how you define it, their medical care is not as good.  Their economies are basket cases, and they are “rethinking” their governmental philosophy. I suspect that the caller also did not know that the Guilder is extinct—it was replaced by the Euro. Also, according to Frommers, a quick midday meal can cost $7.50—$15.00 (US). At ten bucks for a sandwich, I suspect one isn’t going to live very high on $18/hr. One can stay in a 6th floor walk-up garret for $340/wk.  The 3-star hotels are around EUR 115 ($93) for a double room.

I guess it’s a wonderful thing to be able to have all your needs provided for you and not have to EARN them. I suspect it’s a case of “Let the SUCKERS work.” Or, as one pony-tailed male said at a Kerry “Town Hall” Meeting: “Senator Kerry, we are your CHILDREN. We want you to take care of us.” I guess it is convenient to have your necessities provided to you (like a child) and to receive them whether or not you work and earn them. The host seemed to also think this was a “good idea.”

As one Air America host said, “I think people have a RIGHT to a free house, food, clothing, and medical care.”  I believe it would be “nice” if this host took a course in Philosophy. Perhaps she would realize that her wish is the desire of a loser—someone who believes they cannot provide for themselves, so begs others to provide it for them. It is the plea of a beggar or a parasite if applied to herself; and an arrogant, egotistical, self-important fool if applied to others. It states, “I am so much better that others, I can take care of myself AND it is necessary for me to take care of the others who CANNOT take care of themselves.” (White man’s burden??)  The very definition of “slavery” implies that a person is a slave if he works for others with no right to compensation. Hence, if I am compelled to work to supply a home (or food or medical care) for someone who does not pay me in some fashion, then I am his slave. Yet if you asked this host if she believed in “slavery,” she would be offended and insulted. I suspect it is called “doublethink” or ignorance. Perhaps in lieu of a course in Philosophy, this host should take a trip through a neighborhood where homes were “given” to people and not earned. If she does so, I suggest she use an armored car—or a tank.

I wonder how the caller and host would react if I were to show up at their door one day and forcibly take their food budget for the year from them. Then I would provide them with a year’s supply of (dried) food. The food would consist of an “appropriate” mixture of broccoli, cabbage, squash, sauerkraut, brussels sprouts, pumpkin, beans, corn, rice, ten pounds of beef, ten pounds of pork, thirty pounds of chicken, eighty pounds of fish, etc. For liquid, I would provide water. If they complained, I would lecture them on the value of “healthy eating” and how because of the waste in their past practices, many other people were starving; how it was their DUTY to help feed the poor. If they complained about the amount of food, I would counsel them on how it was healthy to be thin.  I would apologize that no health foods or organic foods are available and explain that they are just too labor intensive. I would also tell them that there was barely enough meat, wine, coffee, tea, and organic food for the program administrators.

If they continued to complain, I would inform them as to how they were much better off than other planned economies. For instance, in Cuba, their “free” State supplied food would be per family member: Beans 4 oz per week, Rice 5 lbs. per week, Fish 2 lbs. per week, Meat none n/a, Sugar 4 lbs. per month, Milk none n/a. Food is scarce and very limited to all Cubans and provided by the government in the form of rations to the people. Each citizen has to go to a town ration distribution place, no matter of their profession, status, etc. within society. This process of distribution means long waiting lines for all Cubans. Such is MUCH BETTER than the planned economy/free food of North Korea, where according to a UN study, “crop failures” have caused such a drastic cut in daily rations in 2003 that North Korean households have to rely on alternative ways of getting food including rearing livestock, growing kitchen gardens and collecting wild foods like edible grasses, acorns, tree bark and sea algae.

Once they accepted the idea that I was only looking out for their best interests, I would take their clothing budget and supply them with clothing for the year. Since I would be doing this for everyone, I would achieve great economies of scale and could produce identical clothes for everyone. By utilizing tunics, robes, and smocks, I could produce very few sizes and supply everyone with clothes quite reasonably. Sandals would replace shoes, and I could mass-produce many items at little cost. As such, I could supply everyone with clothes. I would even have enough resources left over to produce special clothing for the program administrators.

I would come back a month later and inform the caller (and host) that it would be necessary for them to diminish their usage of electricity. In order for the government to pay for the electricity, it would be necessary for them to conserve so that EVERYONE could have 300 kilowatt hours of electricity a month. Consequently, I would be putting a monitor on their meter so that they could not use more than the designated amount. The supply would be shut off after 300 kilowatt-hours until the end of the month when it would be reset. I would tell them how healthful cold food was; how cooking food destroys the vitamins and minerals. I would inform them how the program administrators were sacrificing and giving up THEIR meters because there were not enough meters for everyone.

In September, I would return to put a limiter on their heater so that the temperature never got higher than 65 degrees. As everyone is (or should be) aware, there IS a shortage of natural gas. Burning wood in a fireplace would not be permitted in order to save the trees and assist with the air pollution problem. I would tell them how healthful cold showers were. As with the electricity monitors—not enough limiters for the program administrators, much to their sorrow.

If I find out that they are considering purchasing a vehicle, I would return and take the money they had saved and supply them with a Yugo. If they complained, I would have to educate them on the value of saving gasoline, and how it was necessary for them to economize so that OTHERS could also have a vehicle. If they continued to complain, I would retract the offer of a Yugo and replace it with a motor scooter. Such would serve as an example to other greedy citizens. In order that they not get the wrong impression, I would explain to them as I leave that program administrators do so much driving as part of their job that they must be comfortable in order to always be at peak efficiency—and that’s why I have a SUV.

Once the principals of “sharing” and “common good” had been firmly established, I would again visit my new found friends. I would inform them that too much gasoline was being wasted in commuting to work. It would be necessary for them to move closer to their jobs. (If they have one—if not, I would just have to find them one and demand they work there—else no food.) Also, since there were only two people living together, they would be supplied with a rather nice two-bedroom apartment close to their workplace. Their three-bedroom, two-bath home would be given to a nice needy family with three kids. They would be instructed to leave their SUV (the one they owned and had kept previous to obtaining the scooter) since the new family would need it, but they could take their motor scooter with them. Also, considering the neighborhood to which they would be moving, the government would supply them with a taser and pepper spray. They need not worry once they were inside—the metal door has triple locks. I would assure them that when my sister moved into their home, she would take very good care of it.

After my new friends became ensconced in their new home, I would visit them with instructions on how to access their new doctor(s). I would notify them that they would not be going to their old doctor, since he was so far away and it is necessary to conserve gasoline. I would inform them that they were assigned to the clinic a block away where some nice young newly graduated doctors were practicing. (Before the doctor shortage, these doctors would have been classified as “interns.”) The older, more experienced doctors (those that had not left the country) were working in other neighborhoods where they were needed more—for example, in MY neighborhood. I would tell them of the benefits of EVERYONE having access to medical care—not just the chosen few.  I would lecture them on the sin of “greed” and wanting the best for themselves while others went wanting; and the joy of “sharing” with others.  I would tell them that they are fortunate in that their clinic only has a two-month waiting period. It was achieved by not treating emergencies. All emergencies should be scheduled two months in advance.

I would further inform them of one of the great benefits of their new home—free garbage service. I would educate them on how to use the new system. Since we compost, food waste must be separated out and put in a separate can. Since we recycle, aluminum cans must also be separated out. Metal cans must also be separated—as must newspaper. Bottles must be washed clean and placed in a separate container, as must plastic containers. All other garbage must be placed together in a separate container. As such, you must put out seven cans each week. Each can is a different color to reflect its contents. Garbage pick up is between 6.00 a.m. and 6:30 a.m. Cans must be placed at the street corner 100 feet north (not in front of the home) each Saturday after 5 a.m. and must be removed before 7.00 a.m. Each can costs $50, and no other type of can may be used. Failure to comply with either separating the refuse or timeliness of placing the cans or neglecting to put the cans out or using the wrong color can for contents or using an improper can is a $50.00 fine for each occurrence. We recommend having several backup cans since if one gets lost, stolen, or damaged, it will take three weeks to replace it. During that time, you will incur a fine for each week you fail to comply with the requirements. It is necessary to set these rules as it is quite expensive to provide free garbage service, and costs must be curtailed where possible.

If you ACT like a child that must be “taken care of,” you will be TREATED like a child that must be “taken care of.”

Regards,
Tony Demaio

September 24, 2009

Sharing the Wealth in a Planned Economy was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.