Inflationomics

As Costs Rise, Opportunities Decline

Did you ever think about how many mandatory costs Americans must pay? First came income tax (1913). Today, income tax rates range from 10% to 39.6%. This tax must be paid out of what I call “first dollars”; i.e., the first dollars that are earned and used to pay for essentials (to keep one alive and out of jail or bankruptcy). “Second dollars” are used to purchase luxuries (non-essentials).

After income tax came the Social Security tax (1937). Social Security taxes are 6.2% for employees and 12.4% for self-employed persons. The employers must contribute 6.2% for the employee as well, rather than paying it to the employee (in effect, the tax is on the employee). This tax is also paid out of “first dollars.”

Medicare was added in 1965. Medicare taxes are 1.45% of one’s paycheck and 2.9% for self-employed persons. As with Social Security taxes, the employer “matches” the tax, paying 1.45% to the government, rather than to the employee. Also paid out of “first dollars.”

Most places also have state and local income taxes that are paid out of “first dollars.”

There are also federal and state unemployment taxes (paid by the employer, hence not to the employee).

And starting in 2014, we have Obamacare, which the Supreme Court recognized as a tax.

How Much is the Penalty Fee for Not Having Insurance?

Shared Responsibility Payment for 2014 – If you Went Without Coverage in 2014
The annual fee for not having insurance in 2014 is $95 per adult and $47.50 per child (up to $285 for a family), or it’s 1% of your household income above the tax return filing threshold for your filing status – whichever is greater.  You’ll pay 1/12 of the total fee for each full month in which a family member went without coverage or an exemption.
Shared Responsibility Payment for 2015 – If you Go Without Coverage in 2015

The annual fee for not having insurance in 2015 is $325 per adult and $162.50 per child (up to $975 for a family), or it’s 2% of your household income above the tax return filing threshold for your filing status – whichever is greater. You’ll pay 1/12 of the total fee for each full month in which a family member went without coverage or an exemption.

All of these expenses come out of the taxpayers’ first-earned dollars, thus reducing the number of dollars received per paycheck. In short, as more and more money is withheld from taxpayer paychecks, taxpayers have fewer opportunities to spend “their” money as they see fit. And this doesn’t count the cost of compliance; i.e., the time taken to calculate all those “difficult to calculate” taxes.

Then comes the hidden tax…inflation…which raises costs. By printing more U.S. dollars than there is demand for, the Fed makes each newly-printed dollar worth less than the one before it…costing everyone more dollars to do/buy the same things they did/bought last year with fewer dollars; thus reducing the purchasing power of everyone’s first dollars.

And then come the low interest rates, making it impossible for savers to earn a decent return on their savings/investments. In time, as incomes decline, people turn to debt (instead of savings) for education, housing, cars, vacations, and just about anything else for which credit is given…I’ve even seen stores that sell mattresses on credit! This debt must be serviced with “first” dollars. What do you think is left after all that? Is it any wonder that income inequality grows, too, as more poor people’s first dollars are consumed with government costs?

And adding to the pain caused by these rising mandated costs, there’s international competition in manufacturing, ready to grind what’s left out of U.S. manufacturers, thus reducing American workers’ paychecks down to third-world levels.

Ask yourself, what opportunities exist for anyone earning a third-world income in a first-world debtor country?

Robert F. Sennholz

For comments, suggestions, or replies to the author, please e-mail