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Saturday, July 9, 2011

Tax Farming

This story was interesting. To balance the budget, Ohio is selling the Ohio Turnpike.

This is obviously foolish. Ohio's politicians get a short-term cashflow boost. For the next 75 years, people will pay higher tolls.

If you consider the implied interest rate, the transaction has an interest rate of 10% or more. It's much worse than a typical bond sale.

Many cities are doing this. Chicago sold the Skyway. Chicago sold its parking meters. Some states are selling buildings and leasing them back.

"Tax Farming" occurs when government authorizes private individuals to collect taxes. For another example, some states sell unpaid tax bills to private debt collection agencies. The debt collector collects the taxes owed, plus his fee. The debt collector can behave very abusively, because his stealing business is backed by the full violent power of the State.

A corporate monopoly is a type of tax farming arrangement. The executives eagerly withhold taxes from employee salaries, because they don't want to risk their gravy train. The corporation pays taxes. There is lobbying/bribery. There are under-the-table bribes. For example, a corporation hires a politician's buddy for a high-paying job.

Tax Farming is evil. In addition to paying taxes, people pay profits to private individuals. For example, after selling a toll road, the tolls usually are raised.

Also, banksters finance these transactions. For example, Goldman Sachs helps sell the bonds backed by tax farming.

Interestingly, foreign governments are frequently investing in these tax farming deals, via "sovereign wealth funds".

"Tax Farming" was one of the causes of the French Revolution. There were too many tax farming arrangements robbing the people, leading to a revolt. The tax farmer behaves like a jerk, because his stealing business is backed by the full violence of the State.

Many governments are entering "tax farming" arrangements. This leads to a short-term cashflow boost. In the long-term, the slaves pay higher taxes to support this corruption. These "tax farming" arrangements have high fees. The banksters are making a fortune, by financing these transactions.

These arrangements are popular. The politicians profit. The banksters profit. The investors profit. Taxpayers pay higher taxes in the future, to finance the theft. The taxpayers are getting slowly robbed via higher fees, so the theft isn't obvious.

There's a limit to how high taxes can be raised. These "tax farm" arrangements nickel and dime people with various small taxes on State- backed monopolies. Eventually, this will lead to collapse and revolt. On the other hand, since the system is collapsing soon anyway, why not milk it for as much revenue as possible in the meantime?

These "tax farming" arrangements are clear examples of politicians who can't plan past the next election cycle. They're willing to raise future taxes for a short-term cashflow boost.


Anonymous said...

I once knew a man that went round local councils and suggested he let them buy their offices and buildings in return for leasing them back, plus some shiny, new computer laptops!!!

I was rather skeptical about the idea when I first heard it. I don't knew whether it took off or not, but I doubt it.

I guess this idea of his was only one removed from what goes on in the rest of the country. I would have thought something better than shiny new laptops would have to be involved to clinch the deal, but maybe not.

gilliganscorner said...

Tax Farming:

It's a very appropriate analogy...

Anonymous said...

I guess the equivalent to Tax Farming in the UK is the Public Private Finance Initiatives.

They were started by a Conservative Government and then extended by a Labour government.

Proof once again that there is little difference between the two parties. The banksters really run the show and as PFIs use debt, the banksters win again.

Metronet (awarded public transport contracts) went bust and the taxpayer had to pick up the bill.

I've met some people involved in PFIs. They are the most destructive people you can meet.

They would tell lies for no reason to their own companies.

If they rip off clients and rip off third parties, only one step further to them is to rip off themselves.

Some of them also have the most foul, stinky breath. You will gag if you ever get near to them.

Scott said...

Another one is red light cameras. They have a foreign corporation come and install these, then shorten the timing of the yellow lights. They also market them to the public to stop people running red lights. But in practice, 90% of tickets involve people not coming to a complete dead stop before making a right turn, and most of the rest are people who barely missed the yellow light due to the timing change. Very few people actually run red lights in a dangerous way that an officer would bother to ticket for. At a typical intersection you might see that once a week, yet the red light cameras generate hundreds of tickets each day.

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