12A010 Another Wedge by Jim Davies, 2/15/2012    

Yesterday I received a well-meant email that said the following, in part:

(Part of HC Bill)

Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? That’s $3,800 on a $100,000 home etc. When did this happen? It’s in the healthcare bill. Just thought you should know. So, this is “change you can believe in?”

It went on to explain that this new and vicious tax had been slipped in to Obamacare by Democrats and that anyone who disliked it should vote Republican so as to get it repealed. If it were true, I'd predict a landslide for the latter this November.

The trouble is, it's not actually true. A quick Google of "tax on home sales" led me to this fact-checking page, which speaks for itself. It's true that they snuck in a new tax to the Obamacare bill, but the 3.8% applies only to profits (capital gains) on house sales and the first $250K of those are exempt. So the claim that the sale of a $100K home would be punished with a $3,800 tax is flat false. The tax will "only" be a small hit on the very wealthy - not, of course, that any hits of any size on anyone ever have any shred of moral justification.

However, that's not the end of the story, and it's a great shame that in hastening to broadcast the false rumor, whoever originated the email missed the real point.

The real point is that most taxes begin with small hits on the very wealthy. Then, when the small amount of dust has settled and public attention is diverted elsewhere, the rates are increased and the thresholds lowered, and pretty soon everyone is clobbered. Government (at every level) uses this "wedge" trick frequently. It's a variant on the well known recipe for boiling a frog: do it very gradually, or else the frog will jump out of the pot. Macchiavelli would love it.

Thus, the income tax began 99 years ago with a rate of 1% on "incomes" of up to $20,000 a year, with a $4,000 exemption whose effect was to exclude 99% of the population. (The term "income" was not defined, and still isn't.) The 1% who did pay something were frequently fat cats with government contracts, which they were not about to disrupt by complaining. Today, about 130 million Americans pay income tax at a rate averaging about 20% of earnings, and complaining is useless.

Item: the "Social Security" tax began in 1935 with a rate of 2% (disguised as 1% each, employer and worker) and a ceiling of $3,000. The scheme was sold on the basis that benefits would be paid from proceeds of an invested trust fund, like any honest insurance plan, and I'm not certain whether in its first few years there was a fund with such money sequestered from the compelled "contributions"; certainly, for many decades past there has not. All the "trust fund" now contains is a set of FedGov promises to tax future generations to pay benefits to oldsters like me. The rate currently is 15.3% and the ceiling, $110,100. This frog, too, is boiled.

So it will probably be with the new home-sale tax. Once the principle is accepted and the public is conditioned to see it as normal and inevitable, the rates will be raised progressively. There will come a day, no doubt, when the misleading and alarmist content of that ill-written email will be perfectly true. To the extent that the Feds print "money" faster to bail themselves out of their self-constructed debt trap, strident inflation will bring that day all the sooner.

The remedy? - there is no remedy, not while government continues to exist. The clear precedent of the income and SS taxes above shows that both the electable parties, R and D, will continue to increase taxes and the government they purchase for ever and ever, amen. Consequently any frogs wishing to avoid the fate of being boiled alive must jump out now, while it's still possible; that is, take action to hasten the end of its miserable existence. This ZGBlog shows how.

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