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Disposable Income...Yesterday we published our famous-to-be TCCO index. This index attempts to quantify (within our limited, limited means) what does it actually mean to so-call "own" a country. In other words, we, the people, are supposedly the owners of the country we live in. We have so-called "rights", we have a so-called "government" and we have so-called "benefits". Fine. But however appealing and interesting this may seem, one question lingers in the air: how much are we paying for all of this?

Because you know, as the principles behind the concept of TCO declare, it is not just the price tag that costs wealth, but everything else that comes after the purchase. And so it is only fair to ask this question, if having a government is soooooo good for us, then demonstrate it!

FLAWS

And yes, there are many flaws in our TCCO. Some of them have been addressed in the TCCO page itself, so don't bug us with those.

There is however, one issue that we have not yet addressed. This is a big issue and we wanted to have your attention, full attention, when we confront it, because it is kind of important. And it is the following.

The TCCO is a linear index, this is, it takes average numbers. However, we know that in reality and when it comes to tax paying and benefit receiving, these processes are far from linear. Typically people who earn more pay more and receive less and people who need more receive more and pay less. This is the whole justification for the so-called "progressive" taxation.

From this perspective, it would seem that the TCCO is meaningless because a great deal of payment (or the cost of governments) rests on the shoulders of "rich" people who can afford it. Alas, this is not the case. There are two reasons for it.

The first is as follows:

As we explained in Taxes And Myths, How Taxes Destroy Capital And Why This Is Bad and Taxes - The Force Multipliers (to mention just a few articles), by taxing "rich" people governments are actually destroying the mechanism that produces wealth. As a consequence of that, the overall amount of wealth that we could benefit from, shrinks. We have explained this in Piketty Fences. As a consequence of this destruction, our taxes grow and grow and grow, perpetually increasing our burden, even when we pay less than rich people in absolute terms. However, as a percentage of the wealth that we produce, we pay a great deal more than rich people simply because our effort produce less and less wealth because our investment capital is stolen from us, thus making us less efficient entrepreneurs.

Look at it this way. Let's say that a rich person pays 1% in taxes, and this represent a million euros. We, on the other hand, pay 25% in taxes but this only represent 10,000 euros. It is obvious that in absolute terms, they contribute far more to pay for the TCCO than we do. However, those 10,000 euros that we paid are far more important to us than the million to them. As the TCCO increases, they may pay 1.5% in taxes, but we will pay 30%. That extra 5% is far more destructive to us than the increase in 0.5% is to them. As such, the TCCO indicates how much effort are we being stolen, even when our absolute contribution is not that great.

The second is as follows:

Precisely because of this absolute imbalance, the argument has been made that so-called rich people pay far more of the goods and services that governments provide, thus shouldering a great deal of the TCCO. To a degree this is true. However, we need to factor in all the associated costs that governments introduce. For example, we also pay for the military and wars. We also pay for lower wealth levels. We also pay for failing projects. We also pay for gigantic bureaucracies. We also pay for needless projects. We also pay for rising prices and slow increases in innovation. We pay for all of that. And therein lays the problem. If we calculate how much we actually pay by subtracting what "rich" people pay for the TCCO, we still end up paying far more than if we would pay only for the goods and services we need at market values!

In other words, it does not actually matter if rich people pay more, because even the smaller percentage that we actually pay is far, far more expensive than the price we would have paid should governments would not exist.

It is for those two reasons that the TCCO may be a flawed index, but it provides an accurate trend. It shows that the burden imposed on us, the people, by governments who are supposed to do our bidding, is ridiculous!

OUR POINT

The point that the TCCO is -arguably- making is that governments are too expensive. However, it goes beyond that. The TCCO shows that most people on earth pay more than 20% of their useful (i.e. working) life only to sustain governments. This is important because even the royalty and religious "authorities" of the middle ages recognized that extracting more than 20% of useful work from people is disastrous leading to bankruptcy. This is the insanity threshold. How bad is the situation?

  • 10% of all countries are below the 20% threshold
  • 12.5% of all countries have a burden two times larger than the threshold
  • 10% of all countries have a burden three times larger than the threshold
  • 67.5 % off all countries have a burden at least three times larger than the threshold
  • And a staggering 40% are over 5 times the threshold, meaning that people work all the time for the government!

As you can imagine, these numbers are downright ridiculous and they do not represent accurate reality. We know that we can save and prosper a little. How is this then possible? Simple, through the accumulation of debt. Governments are going into debt and not demanding payment through taxation. They are simply accumulating debt. It is for this reason that our taxes are not that high. However, debt accumulation cannot go on forever. Sooner or later comes due. When it happens we only have two options; either we pay or our country goes bankrupt.

And some people are of the opinion that "what's the problem"? We go bankrupt, our debts are wiped out and we start again. We never actually pay the debt, right? The lenders who lent us money lose, and they have too much of it anyways! Right?

Well, no.

As we said before, capital which is lent to the government so that it can spend it on consumer goods is capital that it is unavailable for economic growth. This destruction of capital means two things:

  1. Governments will continue to do the same. Borrow and tax us to the hilt, making our lives miserable.
  2. Destroying capital that could be put to good use to make our lives better.

Anybody believing that conning rich people is a good idea has no clue as to how the real economy works. It is shooting ourselves in the foot. Twice. At close range. With a shotgun. Loaded with depleted uranium and phosphor. Right before the marathon. Does this make any sense to you? At all, we mean? Certainly not!

OUR SECOND POINT

The secondary point that the TCCO makes is to point out why certain so-called "successful socialist democracies" are actually "successful". Because they have borrowed up to their eyebrows. Look, this is not difficult. For as long as you have money to burn, you can impose any rule and enforce any law, no matter how stupid it may be. It's just like throwing a stone into the sky. For as long as the stone has sufficient kinetic energy to beat gravity, it will go up. However, eventually, it will run out and it will then fall on us. It is just like this, but not quite.

Because there is a difference.

In physical terms, the stone gains the same energy it lost (give or take). In economic terms, the situation is vastly different because we lost time. The time we lost playing socialism cannot be recovered. The wealth that was not produced and which would have generated exponential growth did not happen. As a consequence of this, the fall is far, far more painful than the lift. It is for this very reason that going into debt is easy, paying if off or getting out of it is so, so painful.

The TCCO makes this point very clearly by showing that 90% of the countries on earth expect people to "give" to the state more than 20% of all their life efforts. In 40 % of the countries, governments expect that people will work for free throughout their entire life! This is how dare and incredibly ridiculous the situation is. This is the basis for "successful socialist democracies", if there ever was one. Would you qualify this as a "success"? Of course not! Yet, this is exactly what politicians do. All the time. This is exactly what voters believe. All the time. Which leads us to a simple question: do you?

CONCLUSION

The TCCO is just another -imperfect- measure that demonstrates the drastic damage that governments are imposing on our wealth and future. It demonstrates how despicable and horrid politicians are, for imposing this on us. It is not a matter of balancing budgets and cutting a little bit here and there. It is a matter of the democratic system inexorably leading to this situation. This state in which we find ourselves today is not a fluke, a coincidence, an exception; it is the rule itself! The TCCO represents the final outcome of democracies, their last breath as it drowns in debt and attempts to take us with it. You have a choice to make. You can take a lifesaver and jump of the boat today, now, or… you can go down with the Titanic as it hits the iceberg of perpetual insolvency. Your choice. Not a great one but hey! We never said that reality was easy, only that we won't lie to you.

But then again, if you prefer to live in delusion, it's your choice. Just one thing, our lifesaver is ours and we won't share it. So you better learn to swim!

Note: please see the Glossary if you are unfamiliar with certain words.

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