(Editor’s note: GregoryBresiger.com, in a serialization of a book, will present a series of articles over the next months. The book is about how effectively to save, invest and use credit. The series will detail the money problems of millions of average people but it will also explain how one can overcome them and achieve financial independence).
Wealth can take years to build, yet it can be destroyed so quickly. There are lots suspects who would destroy you.
They are money hungry governments, headed by career pols who say they only want to raise taxes on the rich (Always ask them: What do you mean by “rich and what will be the secondary effects, the effect on the economy, of increased taxation on the well-heeled? Sometimes what they mean by “rich” is actually upper middle class. But these kinds of things are rarely qualified on the hustings. That’s where vote hungry pols often say the most outrageous things and later, after election, will claim memory loss when questioned about promises). How does it happen?
They Make the Promises—You and Your Children Pay the Bill
Let me stipulate that democratic governments, almost all of them, are normally run by career pols. Texas is one of the exceptions. In Texas, state legislators are part-time officials who earn their primary income in the private sector. Ninety five percent of them work in the private sector, which is a smart way to run a state government.
Many Texas pols own businesses. That is very healthy; it can lead to a sharing of interests between the governors and the governed that we don’t see in most governments state and federal today. Texas has no state income tax. Is it an accident that Texas has some of lowest taxes and highest growth rates in the country? I think not.
But most pols outside of Texas and a few other places have a ravenous appetite for wealth. That’s because they almost always have big plans to expand the government. Very few of them ever think about how government wastes money or what it is like to work in the private sector.
Many career pols have no more worked on a regular basis in the private sector than they have ridden public transit on a regular basis or sent their kids to public schools. They rarely consider how their spending plans result in more debt, more taxes and a harder life for tens of millions of people, most of whom will never earn superstar salaries or enjoy the level of retirement benefits that our rulers award themselves.
Most career pols will never even consider the effect of high tax rates on the economy and average people. They think that raising marginal tax rates will just hurt the rich. Not true.
Indeed, as a great U.S. Treasury secretary of the 1920s warned in his book, “Taxation: The Peoples’ Business,” high rates hurt everyone, even people with modest incomes. That’s because some taxes are imbedded in the goods and services we use almost every day. Some of these taxes we can see. But many others are invisible; they are embedded in the price of the good or service.
All this means these pols and their successors almost always want more of your money and that of your children and their children. This book will discuss some ways of lowering some of those taxes.
Why are taxes so important today and will be tomorrow? Most popular welfare state governments, faced with money problems, will usually pretend they’re only after the wealth of the rich and that they’re the only ones who will pay more.
This is untrue. Most of them may not be lying, but the math of bigger government is indisputable.
It is the great middle class that is usually bloodied by the relentless expansion of government since we are in the majority. Why do these career politicians wreak havoc? Why do they hurt the people they say they want to help?
In a typical advanced welfare state democracy, the first order of business of the career pol is to get elected and the second order is to get re- elected. But how does one succeed at politics, regardless of whether one is on the left or the right? By promising responsible spend and tax policies? By promising to reduce the size of government?
I think not.
Winning elections usually means making huge, sometimes insane, promises about creating or expanding programs. Back in 1972, the president, Republican Richard Nixon, and a Congress controlled by the opposition Democratic party, were both running for re-election. They tried to outdo each other over which party could out-promise the other in raising Social Security benefits since the elderly were, and remain, a key voting block.
Many elderly people were delighted to receive higher Social Security benefit checks just before they went into the voting booths. They were so happy that they re-elected both the president and most Democrats in Congress. Before the election President Nixon and leaders in Congress argued over who deserved credit for the benefit hikes.
History Repeats
Does that remind you of anything?
Recently, in another presidential election year 48 years later, President Trump and the Democrats in the U.S. House of Representatives, where all money bills originate, argued over who deserves credit for your paltry $1,200 stimulus check that most Americans have received. That was money that was created out of thin air—the government didn’t have trillions of surplus dollars to give us—and which will help devalue our currency as deficits and debts continue to grow no matter who is in office.
The problem with stimulus payments today and the Social Security increase of 1972 was that later the bills came due. Payroll taxes to pay for Social Security programs started soaring. Most pols, both left and right, didn’t care. They won their elections—president Nixon carried 49 out of 50 states—and they moved on to other things.
Indeed, some pols when they retired moved on to Florida and started collecting government pensions that were better than the Social Security payments their constituents received. I wrote about this in “The Great Social Security Deal of 1972,” which is available at Mises.org.
By the way, when I wrote this, presidential and Congressional elections were taking place. And, of course, many of the candidates were promising incredible “free” things from free college tuition to the expansion of other federal programs. These include forgiving trillions of dollars in student loans and various expansions of the American welfare/warfare state.
Remember, you may like some or all of these programs, but they’re not “free.” Nothing is free. You and generations to come will pay for them. If you want something, buy it. But understand beforehand what it will cost you as a citizen who pays taxes, taxes and more taxes.
You and your relatives will be paying them for generations to come through direct taxes as well as inflation. The latter is a stealth tax that increases more and more as the government expands the money supply at dangerous rates and the government runs up red ink.
What GAAP?
The nation, as I write, is “officially” somewhere north of some $28 trillion or so in debt. The number keeps going up as both major parties compete to see which one can “give” us the most. However, I believe this is also untrue. I believe the true number is much larger. Why am I suspicious? That’s because the government is doing the counting and the government isn’t going by generally accepted accounting principles (GAAP).
These are standards the government imposes on others, but not on itself. Indeed, I once wrote a story for the New York Post Sunday business section in which numerous economists, both left and right, agreed the official government debt number was a fraud. It was a lot more than the officially published figure. One even said the nation was “functionally bankrupt.”
By that he meant that, if a large percentage of people suddenly wanted their money, the government couldn’t pay them. (Our highly regulated banks operate on a similar system. It is called fractional reserve banking. At the end of the book, I have an appendix that discusses the depth of the government’s red ink. It is a mortgage on every taxpayer’s future earnings and how the nation has faced economic hard times. It is also a mortgage on taxpayers yet to be born, whose interests are being ignored. One of the dangers of the modern welfare state is the economic interests of fetuses are not represented).
I wish I could say just ignore the political circuses and get on with your life, but it is important to understand why you can’t. Everyone will need a lot more money to do anything from retire to putting a young person through college as the value of money declines. It is inevitable that future governments, both left and right, are going to take much more from the American taxpayer.
There are very few politicians left or right who have made it their life’s work to cut down on spending and programs. So don’t expect to hear that too often at the hustings. Elections are events in which pols, seeking to buy another term or get elected for the first time, rarely mention the costs of their promises, or grossly underestimate them. Often they tell you that only billionaires will pay taxes and the rest of us will pass less, which is risible.
Pols inevitably promise big to win elections. For example, in a glowing endorsement of Hilary Clinton for president in 2016, even the New York Times wrote this of her and her many promises of new or expanded government programs: “Mrs. Clinton and her team have produced detailed proposals on crime, policing and race relations, debt-free college and small-business incentives, climate change and affordable broadband. Most of these proposals would benefit from further elaboration on how to pay for them, beyond taxing the wealthiest Americans.”
No kidding.
Promises, Promises
There was no way Ms. Clinton could have ever kept all her promises by just taxing the richest of the rich. In almost any modern welfare democracy there are never enough rich people to go around; to pay all the bills of an ever-expanding state.
Mind you, “The Times” said these things in strongly endorsing Hillary Clinton! She went on to a stunning defeat in part because so many Americans didn’t trust her promises of bigger government with only a select group of the well-heeled footing the entire bill for her incredible promises. In one of her books, Hillary Clinton said she “likes to think big.”
Candidate Donald Trump, in 2016, bitterly complained about the deficits of the previous years, especially the trillion-dollar deficits of the first Obama years, when the nation was in recession. But the Trump presidency basically was the same, only with more red ink.
Just before the Corona virus disaster and in the middle of a booming economy, one in which there was little unemployment and about two percent and a half percent annual growth—somewhat better numbers than under Obama—but guess what? The United States was still running huge yearly deficits. In fact, the red ink was bigger in good times than it was in a recession.
What does that tell you?
Governments, left and right in the modern welfare state democracy, share one characteristic—overspend. They spend with a reckless disregard and pass on the bills to generations unborn. Your taxes were and will continue to rise no matter who is in office.
So remember the reason why you will need more in assets, probably much more than you think, to be comfortable: Political promises are usually paid for in one way or another either directly through taxes or through money printing and inflation. Those things will squeeze you in retirement. They will squeeze you in middle age. They will squeeze your children as they start out in the workplace. So whether young or old, you should overprepare because pols promises eventually come due.
For example, the promises of 1972 led to red ink in the Social Security system. Of course, years later Social Security taxes had to be raised. I remember, as a young man in my 20s and 30s, not making a lot of money but looking at the Social Security tax part of my pay stub—the FICA part—and thinking, “This FICA must be a huge pig.” Yet, despite all this extra tax money, over the years, Social Security benefits have been cut, sometimes in subtle ways.
Here’s an example: At one time, you never paid taxes on your Social Security payments. Why should you? By the time you receive Social Security, you will have typically paid into the system for generations. For example, I started working at age 16 and won’t collect Social Security until I am age 70. That’s 54 years of paying these payroll taxes, which were a hardship in my early years of work when I made very little.
Paying taxes on your Social Security payments constitutes double taxation but that never stops our hired help on the Potomac, whether left or right, from inventing new forms of double and triple taxation. They depend on the average voter forgetting their promises.
Inflation is a more subtle, but no less destructive tax that affects almost everyone. But luckily for governments most people don’t understand how it happens so they rarely become angry with our spendthrift political ruling classes of both parties and the mainstream media that often enables them.
Too much spending inevitably leads to persistent cycles of more and more taxes until they can become almost unbearable. Then, too late, almost everyone starts to understand what inflation does to us as the value of the currency deteriorates at a shocking pace.
But fortunately for governments looking to raise taxes and con people with the promise of more “free” services, not a lot of Americans study history. So citizens typically forget that our nation was started by angry merchants, landowners and individuals who didn’t like paying unjustified and excessive taxes.
This book offers various strategies to cope with numerous forms of taxation. Why do you need these strategies?
The never-ending government spending combined with taxation, along with a rampant culture of “I’ve got to have it now consumerism,” have ruined many a life. A lot of these people, who once seemed prosperous, even wealthy, now have broken financial lives.
The Magnificent Bankrupts
Yet, at some point, most of these people made good money—sometimes very good money—and often for decades. They were people we once envied.
Still, they ended up with nothing or just eking out an existence in the last years of their lives. “The Magnificent Ambersons” ended up in the same place as famous talk show second banana Ed McMahon—a man who likely made $100 million or more in his career. They ended up broke. If when I was a young man in the 1970s and 1980s someone had told me that the perpetually successful McMahon would end up hard up for money, I would have been amazed.
Money woes would have been something that would have been inconceivable to the McMahons and the Ambersons throughout their seemingly blessed lives. Yet tens of millions of people in advanced welfare states in America and Europe are following this same sorry path. This book can help you avoid these financial disasters.
That’s the point of “The Wisdom of MoneySense.”
I don’t want you to suffer money ulcers. I want you to achieve many or most of your dreams.
I want your years—young, middle and last—to be years in which you may not have everything—it would be boring to have everything. What would there be to shoot for? I want your years to be ones in which you and your family can live comfortably, looking confidently to your financial future.
We’re not Mashuggah
Yet this book will offer you no crazy overnight dreams of wealth. These are the kind of dreams pursued by poor souls whose primary wealth creation strategy is throwing away ten or twenty dollars or more a week playing the lottery. By the way, the latter is a rigged game in which the odds of winning a substantial prize are never advertised for obvious reasons. It is, in essence, no different than the numbers rackets that were run by organized crime until governments elbowed them out of the way.
But how can MoneySense make your life better?
First, before a person can come up with a wealth generating strategy, one must recognize the numerous ways that wealth can be stillborn. To get from point A—a young person with little or nothing or a middle-aged person with a small amount of assets who wants more or an elderly person who has accumulated a nice stake, but who could easily lose it—to Point B, financial stability, or perhaps independence, requires a plan. And a good plan in anything always assumes that something could go wrong with even the best of plans. In any human endeavor, there always seems to be at least a fair possibility that something could blow up and often does. Then what?
In this book, we will discuss effective financial strategies for accumulating wealth and holding on to it over the long term. We will assume that many bad things can happen to you in your efforts to reach financial independence. Our topics will include saving, investing, spending, how to use cash and credit cards, among others. We will also review the most common traps that can destroy your portfolio, bank account or retirement account.
Look Out for Those Traps
These traps will stop you from sending your child to a first-rate university. They will end your dream of owning a home. They will prevent you from ever starting a business. And a small business is one of the most common ways that people improve themselves; making a better life for their families and, possibly, leaving something of great value to the next generation. You must be proactive in avoiding these traps that would destroy your efforts to achieve financial independence.
Again, step one is to recognize that there are many ways your dream can become a nightmare. Remember, the wealth destroyers are out there. They are just waiting to take hard earned money from you and a lot of them are public officials who claim to be serving you.
Yet many people wonder just exactly what the average career pol does. That is besides issuing useless press releases, holding press conferences on Sunday because they think they are more likely to generate publicity since Mondays are generally slow news days, and constantly talking on his or her cell phone. The political ruling class, both left and right, seems to exist to perpetuate themselves. They grow bigger and more powerful by gathering more and more money. Most governments don’t care if you succeed or not. They care that you have wealth that they can tax and tax and tax some more, which is an anomaly.
The anomaly is governments want more and more money for their expanding welfare states, but often seem not to care how they hurt the men and women who create wealth. They are often small business people who devote their lives to building an economic entity that serves the community or simply persons who save and invest regularly, the same as most of our grandparents, whose shoulders we are standing on today. These people are the economy, yet government policies often destroy them. This makes about as much sense as working a golden goose to death because it isn’t laying as many eggs to satisfy your endless appetite.
But the wealth destroyers often are aided and abetted by incendiary work of someone you would never guess. Many times that person is you. Many people, like the Ambersons and the Ed McMahons, spend themselves into a lower standard of living, poverty or, in increasing numbers in America, bankruptcy.
In our next chapter, as we begin this journey, we will look at how you spend by looking at your consumerism. and some of the most important factors in determining if you can create and sustain the wealth that will make life better for you and your family.
