Economics

Death and Taxes…and Economic Growth

Ben Franklin said: "Certainty? In this world nothing is certain but death and taxes.

Ben Franklin said: "Certainty? In this world nothing is certain but death and taxes."

We've said many times the economy is thriving—bigger and better and brighter than the financial press would have you believe. But it's actually more difficult to prove than many think.

We can quibble over statistics forever. Just about any issue of The Wall Street Journal will feature all sorts of different extrapolations of data and opinions. Numbers can do just about anything depending on how you calculate them.

Corporate earnings? Give us a break. Everyone's got their own way to think about earnings. Operating; pre-tax; earnings before taxes and interest; earnings before taxes, interest, amortization and depreciation; gross margin; net margin; one time items; recurring items…it's insane!

At your own peril, read about the strange and horrifying politics of public accounting policy. A lot of public accounting these days is more muck meaning.

Standards Deviation
By Arthur Levitt Jr., The Wall Street Journal (*Site requires registration)
http://online.wsj.com/article/SB117341014938031922.html?mod=opinion_main_commentaries

And what about GDP? How exactly can you quantify the "product" of a nation? How can you even hope to value properly all the services, government activity, and other intangibles that go on every day? Even if you could, how could you ever hope to get a truly accurate statistical sample from this giant, diverse country…let alone the world!? There are so many weird statistical quirks, from inventory assumptions to wildly calculated data about asset valuations, it'll make your head spin.

Take just about any macroeconomic metric and we can find you a thousand (including ourselves very often) critics of it. Quantifying an economy is an obscure, opaque, and shady business.

Certainly, none of this is to say economic data isn't useful, it's just to point out how many assumptions and strange calculations go into them. But there is one metric, rising above all the rest, that's pretty darn solid.

Taxes, dear friends, are gravely certain. They're tangible—completely accounted for (down to that last, precious ounce of flesh the IRS demands from us), and if anything, they're maybe a little lower than reality because people and corporations alike do what they can not to pay them. Tax receipts are among the most reliable indicators of economic growth and prosperity—after all, you can't pay taxes if you aren't making money and engaging the economy, right? The only real way it can be distorted is if there are major changes to the tax code, of which there haven't been any in the last several years.

Without further ado, the US Individual Federal tax receipts for 2006 (and see the chart below):

  • Total tax revenue was up 11.5%
  • Individual tax revenue was up 12.8%
  • Corporate tax revenue was up 26.3%

US individuals (not even including corporations!) paid record taxes in 2006, to the tune of over $1,000,000,000,000. (You read that right, that's over a trillion dollars paid by individuals in this country.) This simply cannot happen unless the economy is very strong. It's not a perfect metric by any means; there is none. But it's an awfully good one.

However, it would be impossible for us to write on this topic and not make a few derogatory comments about government and the lawlessness of most taxes. (We can't help it, it's in our DNA.) Think of it this way: tax receipts are essentially the dollar value the government strips out of our hands each year—money that could have been used to grow the economy further, expand, raise wages, pay for healthcare, raise savings, you name it. Trillions of dollars—seems like a lot of people really could have used that cash for better things than what the government manages to accomplish (read: screw up) each year.

In closing this week, our all-time top 10 favorite quotes about taxes. Have a great weekend.

10. "The difference between death and taxes is death doesn't get worse every time Congress meets."
- Will Rogers

9. "Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
- Frederic Bastiat

8. "I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents...."
- James Madison

7. "The taxpayer; that's someone who works for the federal government, but doesn't have to take a civil service examination."
- Ronald Reagan

6. "We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."
- Winston Churchill

5. "The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin."
- Mark Twain

4. "There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him."
- Robert A. Heinlein

3. "A fine is a tax for doing wrong. A tax is a fine for doing something right."
- Anonymous

2. "Politicians never accuse you of 'greed' for wanting other people's money --- only for wanting to keep your own money."
- Joseph Sobran

1. "People who relieve others of their money with guns are called robbers. It does not alter the immorality of the act when the income transfer is carried out by government."
- Cal Thomas


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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.