This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Wednesday, April 7, 2010

Tyranny through Taxation: The Power of Few over Many

With April 15th quickly approaching, we thought it appropriate to spend this week discussing taxes and current issues facing government cash flow in this country. We’d like to first preface our argument thus:

Not everyone is going to agree with the opinions presented here, that is for certain. However, it is undeniable that this country is now and has long been headed down a path, a path that leads only one place. This path is not set in stone, but unless we change from current bearing, someday we will arrive at our destination, and it will not be a pretty sight.

As Americans prepare to pay their pound of flesh to the government on April 15th, many government bodies – at all levels – and agencies have begun bracing themselves for the impact to be felt from falling revenue. Some states, New York among them, have been forced to delay tax refunds owed to taxpayers, all in an effort to hoard cash wherever possible.

To fix their budget problems, the federal government, along with many cities and states, has been weighing their options of raising taxes versus making budgetary cutbacks. Many bodies have been combing through their budgets looking for fat to trim. Unfortunately, this equates roughly to the careful application of lipstick to a pig.

The bottom line is that nickel-and-diming simply will not fix the problem. Not long from now we’ll be right back in the same spot we are now. Just look at California, where they’ve been taking small steps to balance their budget for years now. Yet, at one point last year they were paying state employees with IOUs because the state ran out of money.

The problems are now expanding beyond the government itself, to those it employs (often unnecessarily). In an article published on April 6th by the New York Times, it was revealed that a study conducted by Governator Arnold Schwarzenegger’s office that California’s three big public employee pensions were underfunded by an astounding total of more than half a TRILLION dollars.

Unfortunately, the United States is in dire straits. Not because tax revenue fell sharply in the financial crisis of 2008, but because the government of today has strayed away from its original purpose, as defined by our founding fathers.

America has a problem; one that is often shuffled under the rug and no one wants to discuss openly. It can sometimes be heard in hushed whispers, in backrooms frequented by this country’s more astute citizens. It was haply predicted, even described, in a quote attributed to Alexander Tytler, who said the following, back in 1787:

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”

Put simply, the problem with America is thus: We extend voting rights, our most basic mode of representation, to people who, quite frankly, have no stake in America. These include those who do not own property, as outlined in the original US Constitution as a prerequisite for voting (along with several other admittedly arcane and bigoted criteria).

More importantly, voting rights are currently extended to the more than 43% of Americans who, according to an article from CBS, currently do not pay federal income taxes. These people, who contribute nothing to our nation’s treasury, still have the right, under our laws, to vote and ‘help’ shape the policies that affect those who give them a free ride.

The world over, only the government would be dumb enough to allow such a concept as this. A person cannot walk into the offices of a charity or foundation, or better yet any home across this great country, where they do not contribute, and try to have a say in the finances of that body. Why then, do we allow the policies of our nation to be impacted by those who do not bear the burden?

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