Income Tax

Income tax idea is to penalize worker income so they can never have enough savings to set up their own company and compete with the rich. It's basically a tax to keep workers in cheap labor trap of law salaries. As we'll see below, the more progressive, the better.

It's politically easy to sell this to workers and leftists as alleged rich tax, because uneducated workers confuse other workers with high salaries with truly rich people, that is owners of companies and real estate, who usually pay little or no income tax thanks to a couple of neat mechanisms described below.

First of all, company owners can grow their net worth simply by reinvesting profits, thereby paying little or no corporate tax. If you keep reinvesting your profits, your company keeps growing, and you may well pay ZERO corporate tax indefinitely, even though you keep getting richer and richer as a company owner. Even if you do end up paying some corporate tax by some accounting mishap, it's linear and usually at much lower rate than income tax. Not to mention the multitude of long term tax exemptions and subsidies various countries compete to grant your company just so you relocate your manufacturing there. Salaried individuals on the other hand, even if they occasionally use some meager tax breaks, always have to pay income tax on the majority of their income, and at higher progressive rates at that.

Next note the rich are very flexible in their tax residency. Company owners are not bound by 9-5 office job contracts so can relocate to wherever they please, including tax havens, which in turns protects them from income tax should they choose to consume some of the capital they have previously accumulated through reinvesting profits. On the contrary, tax residency of even high salaried individuals is usually determined by the company they work for.

Finally, rich, by definition, are already rich, so they don't really care about getting-rich tax that much, because they don't have to save every penny to set up a new company and they always have large cheap loans available, sponsored by the poor again (see my post on Fractional Reserve Banking). No wonder people like Bill Gates or Warren Buffet have voiced their support for higher progressive income tax rates. The tax simply does not do them any real harm, quite the contrary, it conveniently limits their employees' salaries and ability to save and set up competitive companies, which might in turn mean lower profits or even bankruptcy.

Note what happens when an employee quits and sets up their own company. The supply of workers immediately drops by one. On the other hand, if they hire even one employee, the demand for workers increases by one. Both factors bid up salaries of remaining workers. Income tax severely hinders and slows the process down. So not only income tax decreases net income of workers, it decreases their gross income too!

As you can see, high progressive income taxes may well be the most important tool to exploit the worker class by rich people like Bill Gates or Warren Buffet. Cheap labor also benefits owners of smaller companies, which is at least part of the middle class, so very cool.

Set up a company and exploit the poor! Income tax works for you!

Fractional Reserve Banking

This method of exploitation is virtually as old as money. In the past it was called coin debasement. Very simple, you just decreased amount of specie in coins while keeping the nominal value intact. Modern version is euphemistically called fractional reserve banking. When coupled with government money monopoly, then the sky is the limit.

FRB basically means that banks can create new money up to the limit of their deposits (minus small reserve requirement, usually a few percent, eg in Eurozone it's just 1%). When you deposit say, 100 euro, your bank can create 99 euro out of thin air and lend it to someone else. Total supply of money has just increased by 99% in that very simple operation, from 100 to 199 euro. Inflation tax is also precisely 99 euro. Cool, huh? It's very effective exploitation compared to traditional coin debasement, as you can't really debase coin by half that easy.

In the past the prime beneficiaries of coin debasement were ceasars and kings. Nowadays with FRB it's mostly private bankers and financial sector, but also debtors, including private corporations and ordinary mortgage borrowers. Financial sector benefits most as they are the first to get ahold of the new money. That's why historically average profits in financial sector are considerably higher than in all the other parts of economy. Next come various debtors. In corporate world it's called leverage, or debt-to-equity ratio. All other things being equal, the bigger the company, the higher leverage it can obtain on the financial market. Same for individuals, the higher net worth, the more cheap money can be obtained via various debt instruments.

On the other hand, the exploited are mostly the poorest whose losses in cash and current account holdings, where inflation tax basically hits as prices go up, are not being offset by gains in cheap money debts (large mortgages), real estate (whose values go up together with inflation) or savings deposits (whose interest are higher than inflation). These are all upper or middle class privileges, ie corporations and individuals with high solvency.

As you can see, the rich and the middle class exploit the poorest workers, very nice and easy. The main idea behind this deceit is cheap money that is supposed to "heat up the economy" as companies and individuals borrow and spend more, which in turn benefits all. That's just as retarded as magical Keynesian multiplier or broken window fallacy. If that were true, ordinary stealing would also "heat up the economy". But don't worry, while coin debasement is easy to understand, no one really understands FRB, euphemisms and obscurity do work. Also, even if the well educated rich and the middle class might in theory understand the insidious exploitation that FRB stands for, it benefits them most, so they'll keep their mouths shut.

After all, who is reading this blog if not middle class who want their nice mortgages cheap? We're safe ;)

Exploit the poor!