These are the dog days of summer and as usual nothing much has changed this week. And while little has changed today, something big is about to happen that could do what many pundits think the Federal Reserve’s QE program hasn’t.
In a Wall Street Journal on-line article entitled: Small Business in IRS Sights, August 9, 2013, we learn that the IRS is launching a new program aimed at closing the “tax gap” (the amount in taxes between what small businesses owe and pay) which the IRS asserts is created by the under-reporting of cash sales. Twenty thousand small business owners were recently contacted to get the new program rolling. More will certainly follow.
Of course, self-righteous governors are sending the IRS to collect additional taxes under the guise of equity – “to eliminate an unfair advantage that non-compliant businesses have over compliant ones.” How transparent.
By small businesses they mean local markets, community mom and pop retailers – middle class market participants – who often pay tax rates twice those paid by the biggest corporations like General Electric, Google, and facebook.
Make no mistake: This IRS program is an attack on the middle class.
As we now know, the IRS is used as a political hit machine directed by the highest levels of the executive branch of government. The president, who espouses to be a middle class advocate, is now sending his revenue hit squad to audit them in the name of “fairness” and under the presumption of guilt until innocence can be proven.
So let’s skip ahead and say that an entire audit of 100% of these small businesses was performed and it produced additional taxes, penalties, and interest to the tune of $157 billion (approximately 35% of the reported tax gap in the aforementioned WSJ article.)
What economic benefit is truly had?
The government, already with a $600 billion deficit so far this year, would have a couple extra bucks to waste on stimulus spending that produced nothing but an irresponsible level of national debt, the worst job recovery in history, stagnant economic activity, and an over-inflated stock market.
The middle class, on the other hand, gets higher taxes, less earnings and dwindled savings. If their businesses are able to survive many will have no choice but to raise prices to cover the higher costs of operation. And then, low and behold, broader market inflation will become a real problem – something QE hasn’t yet delivered.
The government’s job is to manage the market economy. Currently on the monetary side the Fed will keep printing new money until their definition of inflation tells them to stop. This leeway provides fiscal governance an argument to raise taxes, to indict the middle class without probable cause under the guise of “fairness,” and to continue recklessly spending ungodly amounts of money on political pipedreams, payoffs, and kickbacks that add no value to the economic base.
Indeed, everyone ought to pay their fair share of taxes. But when mom and pop shops pay 35% and GE pays 15% under the same tax code “fair” is anything but equitable. GE got bail-out money during the ’08 financial crisis. Mom and Pop had no such luck – and if they had to skim a couple of bucks here and there to bail themselves out then who could blame them. They still paid a much higher percent of taxes on their net income than the biggest and most profitable companies did.
Fixing the tax code should be government’s second order of business before sending their henchmen out to harass the middle class. Their first priority should be to stop handing billions of dollars of free new money to highly profitable Wall Street banks. That would be a fine start towards fair and equitable.
To send the IRS out after small business owners at a time like this and under these Market conditions is not only stupid but a prelude to mutiny.
And that’s not good for markets, profit, and stocks.
Stay tuned…