Tags: fiat | purchasing | power | tax

Hidden Secret: What You Can Buy Is More Important than What You Pay in Taxes

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Friday, 12 Oct 2012 10:02 AM Current | Bio | Archive

Making any sort of decision on what tax policy is good for you seems difficult. However, it’s not difficult if you focus on the single most important factor: purchasing power.

Purchasing power is the only measure of the value of money or the impact of taxes.

To say that the economy, in terms of fiat dollars, is recovering, that the average price of a house is up or down or that your taxes are going down but somebody else’s is going up, doesn’t really tell you much.

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We have been convinced by our politicians, the investment industry, educators and the media that data based on dollars are the only realities.

In fact, merely using fiat dollars alone is delusional. It means nothing except when put into context.

The dollar is diminishing in purchasing power. Approximately a 95 percent loss since 1913. What this means to you is that sellers of goods and services are requiring more fiat dollars for them to effectively deliver the same amount of, as George Carlin says, “stuff.”

Howard Ruff tells the story in two of his books of the man who falls asleep for many years and finally wakes up.

The first thing he does is call his broker to find out how his $28,000 of IBM stock has done over the years. He told that it is now $280,000, which delights him to no end.

But his joy is crushed when he finds out that his telephone bill for the three-minute call to the broker is $30,000.

When seen in the best light, using fiat dollars as a base for determining your financial security is a charade. In harsher terms, this form of misrepresentation is a fraud.

The hidden secret is that measuring your economic welfare by an index of purchasing power is the context you need to look at rather than measures that only talk of fiat dollars.

This type of index exists, but the government, Wall Street and the investment media never mentions it. If they did, then there would be a significantly different conversation going on right now as to governmental, economic, investment and tax policies.

Quantitative easing, for example, the Federal Reserve’s cover words for legally counterfeiting fiat currency, would be seen for what it really does. That is, each of us will walk out of the grocery store with less beer, cornflakes and chocolates than we could have gotten before the quantitative easing.

Editor's Note: 5 Signs Stock Market Will Collapse in 2013

How about marginal tax rates based arbitrarily on fixed levels of income measured in fiat dollars?

Same principle applies. Income (whatever the government tells you that is) is subject to higher marginal rates, but do you know whether you are paying the correct amount of tax or if you’re paying a surcharge?

The surcharge comes about since the fiat dollars the government graciously allows you to keep buys less stuff.

Somebody earning, say, $100,000 last year and paying hypothetically a 25 percent tax rate is certainly paying a higher rate this year since the purchasing power declined for each of their fiat dollars.

Depreciation schedules, as set by the tax code, have arbitrary fixed allowances. But if depreciation is treated as a loophole by Washington, D.C., and is limited because they say it is a cost to the government (depreciation being viewed officially as a tax expenditure), then effectively the amount of tax paid is a greater burden on the taxpayer.

What is a charade is this whole notion of tax loopholes. Tax loopholes are primarily deductions for things that the taxpayer actually pays for.

A depreciation deduction or even a direct write-off against “income” for purchasing equipment is not a gratuitous blessing bestowed by a caring government, rather it is bought and paid for by the taxpayer.

To the extent that taxpayers pay for things that are not allowed as a deduction against income, the actual cost to them in tax paid is all the greater. Not only does the taxpayer lose the availability of fiat dollars to buy stuff, but the taxpayer also loses even more in the way of overall purchasing power.

Editor's Note: 5 Signs Stock Market Will Collapse in 2013

What should count to you is not how much you pay in fiat dollars for taxes, but what impact paying taxes has on your ability to maintain or increase purchasing power.

Think about that when deciding what tax policy or tax system would be good for you.

At least now you know the hidden secret when it comes to understanding the impact to you from taxes.

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Kleinfeld
Making any sort of decision on what tax policy is good for you seems difficult. However, it’s not difficult if you focus on the single most important factor: purchasing power.
fiat,purchasing,power,tax
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2012-02-12
Friday, 12 Oct 2012 10:02 AM
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