Residential Space A creative outlet during residency, turned ongoing virtual soap box

In response to James’ new country…  2

Posted on January 11th, 2006. About Ramblings.

James recently replied to my post about eliminating states with his own about using one of them to start his own country (a Galt’s Gorge of sorts, it seems). 🙂 I tried adding a comment to his blog, but the computer here does not like MSN for some reason. So I will post my response here.

I can understand his desire to go to a consumption tax rather than a graduated federal income tax. Here are my concerns though:

– Initially, it benefits me because I am sharing the tax burden with the lower class.

– Then, I realize, being the frugal-to-a-fault person that I am, that I can get by with paying less tax if I never spend any money. I stop eating at nice restaurants because I can pay minimal tax by preparing meals at home. I do not purchase a new television because the idea of paying that much tax makes me cringe. Anything non-essential, I refuse to buy.

– Retail businesses begin hurting due to decreased sales. Eventually, if it continues, they begin laying people off. Stocks are down.

– My uncle, who owns his own building company in Austin, TX, now hurts because no one wants a new house. Other builders are in the same situation. Because he is hurting, the lumber and plumbing companies are hurting.

– The country enters a recession, stocks are down, and eventually it does hurt me, because in my efforts to save money my investment portfolio has now taken a dive.

Of course, this may be a bit melodramatic, but it is something to consider. People in Europe pay high consumption taxes and it doesn’t necessarily stop them from spending, but then again they are funding healthcare and education through the government, and I know James is not in favor of bigger government controlling these sorts of things.

You may say – yes, but most people are not that frugal and will continue to spend money. I would agree, but then I think the idea of paying tax results in a psychological aversion to spending. Look at the “tax-free” days just prior to the new school year starting each year. In Charleston, SC, sales tax is 6.0%. The stores are FLOODED with people during the tax-free weekend. I mean, they are flooded to the point of chaos at times. Now, if I were to run a tv ad stating: “Everything is SIX PERCENT OFF for ONE DAY ONLY!!!” people would say, “Yeah, right. It’s not worth it.” But I would argue that because they are not having to pay TAX on items, something compels them to spend money. So I do believe consumption taxes on every day items, other than those that are expected to be heavily taxed, will lead to less spending.

I like the happy medium the state of Washington has attempted to create. We have no state income tax (a beautiful thing, I must admit!), and there is no sales tax on essentials, such as groceries. Items that are very heavily taxed, though, include tobacco, alcohol, gasoline, property, and vehicle registrations. Heavy taxation provides the extra incentive away from driving cars when public transportation is available too, so it helps to keep the city clean! 😀

Finally, though – the biggest reason I have difficulty getting behind eliminating the federal income tax in favor of a consumption tax is because Jim DeMint, R-SC is strongly in favor of it. Since he heavily supports the consumption-only tax, and he’s just a huge douche-bag, I cannot help but see red flags.

The Dow rises above 11,000  1

Posted on January 11th, 2006. About Money.

I was intrigued to see the Dow Jones Industrial Average climb above 11,000 this week, because I could not recall it being that high since I first started investing a year ago. Then, my local news informed me last night that this is actually the first time it has hit 11,000 since the September 11th catastrophe. I find it exciting and unsettling – exciting because, of course, MS Money is much more fun to open in the evenings. 🙂 Unsettling, though, because I am hearing so many gloom and doom forecasts already. Billionaire investor George Soros is predicting recession again in 2007. Of course, every investor has been incorrect at some point, and perhaps the financial experts are wrong now, in which case they will miss out if they are too cautious. By the way, I do find Soros’ comment in the article about the two greatest threats to our economy being the War on Terror and global warming. However, it’s another topic for another day.

It always infuriates me when the markets aren’t that hot, and public figures (ie, President Bush) and “experts” in the media (are you also intrigued by how CNN’s Miles O’Brien is an “expert” on both astronomy and finance?) use words like “tanking” to describe the market before an audience of millions. Wow, what a way to boost investor confidence. We have to be harshly pessimistic about our markets, but we can’t show flag-draped coffins returning from Iraq.

 Now everyone is freaking out over the housing market and how it, too, will deflate very soon. Will this be a self-fulfilling prophecy? It makes sense that rising interest rates will detract from the amount people can afford to spend on housing, but at least in Seattle the housing market seems strong, and it’s a great place to live, and our prices aren’t nearly what they are in California, so why can’t the market remain strong? (Sorry for the run-on sentence, but you get the point.) There are many arguments against this but I think there is also good reason to be optimistic.

Finally, I would like to announce that I just started taking advantage of yet another wonderful benefit offered by most employers – the Flexible Spending Account. I got braces on my bottom teeth in December and figured – hey, if I have to pay for half of my orthodontic care (insurance covers the other half, another great benefit!), then I might as well do it on income that is tax-free. I do not believe in paying ATM fees, paying for parking when I could take the bus, or paying late fees when a bill can easily be paid on time. That being said, I do not believe in paying tax on income that is going straight to medical or dental bills when there is a tax-free option available. Waste – ugh – it makes me shudder to think of it.

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