economics

Balance Sheet

To understand how banks work, you need a bit of accounting knowledge. It all starts with the balance sheet. A balance sheet is simply a snapshot of a company’s financial position at a particular point in time. A balance sheet is separated into two parts:

The left side, which is everything that the company owns, called assets, and

The right side, which is the company’s obligations, plus the owner’s stake. The company’s obligations are called liabilities, and the owner’s stake is called equity.

The two sides MUST be equal to each other, that is the right and left side are in balance. There is a simple formula for this:

Assets= liabilities + equity.

To illustrate how this works, suppose you were walking down the street and had $40 in cash in your pocket. Your balance sheet would be:

Cash assets: $40 = No liability + $40 in equity. All in balance.

Now suppose that you enter a diner and order a $20 breakfast. Now your balance sheet looks like this:

Cash asset: $40 + $20 in breakfast= $20 liability that you owe to the diner for the breakfast + $40 in cash equity. Still balanced, because you added the meal to your assets, but that meal came with a liability that you now owe to the diner, so Assets still equal liabilities plus equity.

Your meal is done, so you pay your tab. Now your balance sheet looks like this:

Assets $20 in cash= $0 in liabilities + $20 in cash equity. Still balanced. This is all governed by standard rules called GAAP (Generally Accepted Accounting Principles).

Now let’s apply this to lending. I get some investors, and we start a lending institution. They start off by investing $10 million in my company. My balance sheet looks like this:

Assets $10 million in my checking account = $0 liabilities, $10 million in equity.

Now here is where things get interesting. I loan someone $1 million to open a business. Let’s not get into interest rates just yet, because I want to explain how this accounting entry works. Instead, we will do a flat fee. The loan paper says that the borrower has to repay me the $1 million principle, plus a flat fee of $50,000 for the privilege of borrowing this money. This means that my balance sheet will look like this:

Assets are $9,000,000 in my account, plus a promissory note for $1,050,000. My liabilities are $1,000,000 that I owe to the borrower, plus owner’s equity of $9,050,000. Still balanced.

I do this a bunch of times, and now I have assets of $2,000,000 in my account, and notes totaling $8,400,000. For the right side of the sheet, I now have liabilities of $8,000,000 that are in the accounts of my borrowers waiting to be withdrawn, and $2,400,000 in equity.

The borrowers finally all take the money out to fund their businesses, so now my balance sheet looks like:

Assets are $8,400,000 in notes, plus $2,000,000 in cash. The right side is now $0 in liabilities and $10,400,000 in equity. All balanced.

What if, instead of investors, I open my bank ay accepting depositors? OK, let’s see.

Assets= $8,000,000 in deposited money, plus $2,000,000 in owners’ cash = $8,000,000 of liabilities (That deposited money isn’t mine- I still owe it to them), plus $2,000,000 in equity. Balanced. I have lots of funds that I can lend out, so I am said to be liquid.

I make the same loans under the same terms, but this time, it looks different:

Assets are $8,400,000 in notes, plus $8,000,000 in depositor cash, plus $2,000,000 in owners’ cash. We now owe $16,000,000 in liabilities, plus $2,400,000 in equity. So how did we do this? Did we create money out of thin air? How can we have $16 million when all we did was lend out the $8 million that was deposited in our bank? That $16 million is just us counting the same money twice. It doesn’t make sense if you are a concrete numbers person. That’s what is meant by the money multiplier of banks. If you want to look at it as a concrete number, it certainly seems that we have created that money out of thin air. After all, we were given $8 million, but now there is $16 million out there circulating in the economy.

This, to me, was the most difficult part in understanding finance. So how did I get to the point where this made sense?

At the end of the day, we didn’t really create any money. For every dollar we lent out, we still owe a dollar to our depositors. If those people all came to us and wanted their money back, I would be in deep shit. After all, I loaned out their money and I no longer have it. Their money is nothing but a bunch of ledger entries and withdrawal strips. One way to make all of my depositors come to me demanding all of their money at the same time is to have them think that I don’t have enough funds to pay them. That’s called a “bank run” and is a near guarantee of my bank going out of business.

To prevent the scenario where we don’t have enough money to pay depositors’ demands, we keep a percentage of that money still in our hand, and we call that our reserve fund. That way, if one of our depositors came to us and wanted to withdraw his deposit, we have enough on hand to make that happen. The amount that our bank holds back is the reciprocal of the loan to debt ratio (LDR). It’s simple to calculate.

LDR= total loans/total deposits

A healthy bank maintains an LDR of between 70 and 90 percent. If a bank goes below that, they are underutilizing their assets and leaving potential profits on the table, and if they go over that, they risk not having enough funds on hand to pay depositors who want to withdraw money, and thus are risking a bank run and the bankruptcy that comes with it. Banks that go over 100% are lending out more money than they have, and aren’t liquid enough. They are facing a potential crisis.

That LDR is our bank’s reserve. That reserve, being a fraction of my assets, is called fractional reserve.

To be able to lend out more money, we can do some things, and some of them are fraudulent. That’s where the 2009 lending crisis enters the chat. In that case, banks and other lenders were downright committing fraud. This is how the scheme worked:

Let’s say that we want to be more liquid so we can loan out more money. My balance sheet looks like this:

Assets are $10,500,000 in promissory notes and nothing else. I have no more funds. On the right side, I have $10,000,000 in liabilities to my depositors, plus liabilities of $100,000 to my employees, the landlord of my rented business location, the electric company, and others. I have only $400,000 in equity. I need money so I can keep lending because my LDR is 105% and I am in trouble.

So this is what I do- I sell my promissory notes to an investor. I sell them at a discount, and the person buying them makes money on the margin. So let’s say that I sell those notes for $10,250,000. Now my balance sheet looks like:

Assets: $10,250,000 in cash. Liabilities of $10,000,000 to my depositors, and $100,000 liabilities to my other creditors. I now have $150,000 in equity, but now I can loan out more money because my LDR is is back down to 0%. Now I am back in the lending business because someone else owns those loans.

Wash. Rinse. Repeat.

They did this, even though they knew those promissory notes were unlikely to be profitable because they were made to people unlikely to repay them. The people who bought those promissory notes just got screwed. Who bought those notes? Investors- people like you and I when our pension funds and 401k’s were investing in various securities.

That’s where the fraud is, and there were a lot of lenders who took advantage of that. I still can’t believe that no one went to jail over that.

By Divemedic, ago

Discussions With Communists

Some commie online was upset that lenders charge interest, claiming that it is usury. He feels that loans should be interest free. Being that I have completed the finance and economics courses for my MBA, this is where I decided to help educate him. I shouldn’t have bothered.

Lenders have expenses.

They have fixed administrative costs like accounting, clerks, and other things that they must pay for. Those costs are the same for every loan.

Then there are the variable costs, the cost of defaults. About 1 percent of those who have a 750 or higher credit score default, but this rises to more than 15% of those with a score of less than 600. This default rate means that interest rates must be higher for those who have a higher chance of default. If interest rates are capped, then lenders will simply refuse to lend to those whose likelihood of default makes it uneconomically feasible. That tends to mean minorities, who historically have much higher default rates.

The commie went on to handwave that point away, saying it is a bad approach to paying for things.

In response to this, I posed a question:

So what’s the alternative? It takes about 14,000 hours of labor to build a house, plus materials. Where does the money come from?

Here are the alternatives that he proposed. I answer each in turn.

1) We could eliminate the usury/interest rates system altogether. If it’s too expensive, we have no business buying it yet. If a low cost bought huge portions of America, we can restore that same value.

Much of that was when each person was building their own house, growing their own food, etc. Have you built your own car? House? Can you? Most people cannot. Money is what makes specialization possible. Sometimes, a transaction takes more money than you have on hand. The cost of waiting to save and pay cash isn’t practical. Try living in a carboard box while you save to buy a house.

2) We could have a fixed flat member fee. Nothing too small, nothing too big. Something that keeps a company in business, especially when factoring in multiple customers. We could cap the compounded debt.

How large would the membership fee go to buy a house or a car? What would be the terms? Imagine walking to work for 5 years while you make payments on a car that you don’t yet have.

3) We could simply cap the profit of compounded debt.

What would happen then would be that no one with bad credit would get a loan.

4) We can focus on reducing the root costs of resources (wood, etc.) after eliminating interest rates.

The largest expense in almost any business is the cost of labor. To build that house, you still need to fund those thousands of hours of labor. Who pays for that, and how?

5) The sellers could get monthly payments directly while cutting out the middleman. Extra cost could be minimal.

So you want the sellers to also be the lenders. That’s inefficient and actually increases costs. Now the seller’s funds are tied up in the products that haven’t yet been paid for. The time between selling the inventory and receiving payment is called the cash conversion cycle. Without financing, this could mean years of a company waiting to be paid for things like appliances, homes, and cars. There will still be defaults, meaning that those costs will be passed on to consumers. Also, only wealthy people and those with good credit will receive goods. Minorities need not even apply.

6) Sellers can start by asking for a lump sum in the beginning to give them a buffer before monthly payments.

Again, with sellers asked to also be lenders. This disrupts the seller’s cash conversion cycle. Funds that are tied up in inventory that has already been sold are not available for the company to continue operations, causing losses and delays. This is expensive. The term here is called “The Time Value of Money.”

7) The seller of resource materials can drop their prices for the seller of products.

So now you want the suppliers to bear the costs? The electrician drops prices for the home builder. Now how does that work?

8) Financial aid (if spending isn’t going to the people, why is it so much better for government money to go to the usury sin of lenders?) To eventually pay off the government in a fixed fee of profit. No fee. Failure to cover is taxed — last resort.

So the government will pay interest instead of consumers? This results in unsustainable debt, or in runaway inflation.

9) A non-profit source of assistance to fill in a time of struggle.

Where does this non-profit get their funding? Money is a material, just like steel, wood, or labor. It has to be paid for. Someone, somehow, someway will bear the costs of money. It will be the consumer who has to wait until he can get a house or car on layaway, the business that has paid for labor and materials and now can’t use those funds for the next project because they are awaiting payment, or the taxpayers who have to fund the government. It’s a cost, and someone will pay for it. You are expecting the government, who has famously paid $600 for a hammer, to control costs.

10) Pay as we go. A product might need to be covered completely, but duration of services could be ongoing payment. Instead of a government paying a lump sum of a project, they only shell out service cost totals as the project goes on, that way if there’s a cancelation, it basically freezes the pay where it is at, instead of being trapped a lump sum covered by loans and then owing the initial cost and a potentially unending debt with immeasurable interest rates, the costs of services are already covered.

So you pay for the land to be cleared. Then save for a few months before you have the money to pay for the underslab work like plumbing to be done. Three more months for the outside walls, ad nauseum, ad infinitum. Twenty years of being homeless later, you finally are ready to move into your house. This is just a repeat of your first point- and still won’t work.

11) Lay Away. Pay First. Receive after. No middleman.

Again with the point of paying for it before you get it.

12) A combination of these things..

None of which will work, for the reasons above.

His answer to all of this? He focused on the “Time Value of Money” and the cost of money.

“That’s the cost of money” ignores everything I just said. I know that my wages don’t satisfy my time. Time is not an objective value. Too bad. Your explanation is some weak sauce.

The base issue here is that young people (who make up the majority of useful idiots) have no concept of money, value, or economics. My son once asked me (when he was 4 years old) for some expensive toy. I told him that we don’t have money for that, and his reply was to tell me to go get more from the ATM. Communists display all of the economic knowledge of a 4 year old who wants a new toy.

By Divemedic, ago

No One Knows the Cost

We talked about the high cost of healthcare. When people talk about how the US healthcare system is “broken” they are mostly complaining about cost. Getting costs down is tricky, and it’s a problem that was caused by government interference.

The Medicare Physician Fee Schedule is a 1,348-page document, and the final rule for hospital inpatient payment systems is 773 pages long. For some services, it’s impossible to know how many pages of regulations and price controls there are. For example, The Centers for Medicare & Medicaid Services (CMS) does not condense the Medicare payment rules for ambulances into a single, definitive document. The regulations for ambulance charges are spread across multiple manuals and chapters, all of which are constantly being updated and revised. A definitive page count for the rules does not exist, because no one knows for sure what all of the rules are.

All of this adds to the cost, as medical providers have to hire entire departments just to take a guess at what they can and should charge you, and even then, they often get it wrong, because the rules are contradictory.

Every time the government steps in to fix it, they add pages and chapters to the manual, but instead of fixing things, they make it more complex with carve-outs, backdoor deals that kickback money to big donors, and the need for an even larger hospital billing department.

I do want to respond to one comment, where someone said that reading a CT scan shouldn’t cost $1500 because it only takes an experienced radiologist 30 minutes or so to do it. Remember that you aren’t just paying for the radiologist. You are also paying for his malpractice insurance, the costs of compliance with government electronic charting and recordkeeping, the costs of his staff to include the billing department, and other associated administrative overhead. That radiologist is only getting a small fraction of that money, in many cases, less than a fifth of it.

  • Malpractice insurance for a radiologist is around $25,000 per year
  • Costs for electronic health records: for a smaller practice, you are looking at around $400,000 for initial costs, plus another $50,000 per year. In the case of radiologists, it will be even more to integrate with the output of proprietary CT machines.
  • Plus staff and administrative costs
  • So a radiologist is paying $200k or so a year just to read those CT scans. If he isn’t charging that kind of money, he might as well go be a plumber.

Keep in mind that an hour’s work from a plumber costs about the same as that radiologist is going to cost you.

By Divemedic, ago

Costs of Care

I had a tough week recently. You wouldn’t believe how tiring it is to use your brain at a high level, with lives in the balance, for 12 hours straight. It’s a high stakes, high stress endeavor. When I work and the day is especially stressful, I am in bed asleep within an hour of getting home, and I sleep until it’s time to go back to work. Let’s look at one of the patients I had on one of those days:

A woman decided that she was going to kill herself by taking every pill she could find in her house. Three hours later, she changed her mind and called 911. She was a frequent visitor to the emergency room and had been placed on involuntary psych holds (called a Baker Act) a few times before, due to suicide threats that turned out to be cries for attention.

She was my patient.

EMS handed me a bag of empty pill bottles, all of which the woman claimed to have taken. A final count of the pills revealed that she had taken most of a 90 day supply of Digoxin, Wellbutrin, Sotalol, Xarelto, and a few other drugs. I think we finally estimated 50-60 pills of each were unaccounted for.

I asked the doctor if he wanted to do a gastric lavage. He said he didn’t want to, because it had already been 3 hours and any pills she had taken were likely digested by now. He also pointed out that her vital signs were unchanged, and this was a good sign that she was again acting out, but hadn’t actually taken anything.

I told him that, since the drugs she had claimed to have taken were mostly extended release, we would be looking at some real trouble in about another hour. He told me to watch her and call him if anything changed.

I had three other patients, including another Baker Act. Those involuntary admissions require a lot of paperwork, so I was busy.

About an hour later, I got a call from the telemetry operator that the woman’s heart rate had suddenly dropped from 62 to less than 35. I ran into the room and found her in a junctional escape rhythm at 32 beats per minute. I called the ED doc, who was on the other side of the department, and told him what I had. I recommended Atropine and Glucagon and asked for the order. He concurred and said he was on his way.

By the time he got to me, I had called a Resuscitative Medical Alert. That gets me the ED rapid response team, including a charge nurse, three other nurses, two techs, a respiratory therapist, and Xray tech with a portable Xray machine, and the ED doctor. I gave her two doses of Atropine and two of Glucagon. It didn’t do a bit of good.

I suggested that we start pacing immediately. He agreed, and we started external pacing. Her blood pressure was shit, so as the Dr prepared to intubate, we got orders for and hung an Epinephrine drip. Then it was Ketamine, Rocuronium, intubation, and a Ketamine infusion. By then the ICU doctor and a dose of Digifab had arrived. We got the Digifab running and took her to ICU.

She lived for 5 days in the ICU. That was 1 of the 22 patients that I had that day. She was also 1 of the 7 suicide patients I had that week, and the only one that didn’t survive. In fact, I had 81 patients that week and only 3 of them didn’t survive.

While she was there, she received over $300,000 in medication. The Digifab alone was almost $100,000 of it. They tried dialysis, it didn’t work because the Digitalis molecules were too large to dialyze out. Her total bill was well over a million bucks.

Some of the drugs she got were specialized and aren’t given to many people, so they are costly.

She isn’t going to pay that bill, because she is dead. So who pays it? We all do. The hospital spreads those costs out across every patient. It’s like going to a restaurant where everyone gets to eat whatever they want, they can order one of everything on the menu, and about a quarter of them don’t pay, so everyone else has to pony up the difference.

It’s an ethical conundrum. Who decides what treatments will be offered? If we leave it up to the hospital, does the patient get a choice? Does the insurance company? There are pitfalls to each answer, and trust me, it’s one that healthcare workers debate frequently.

Someone has to pay for all of the education and experience of the providers. Not only while they are actually providing care, but also for UHU reasons. Now UHU is a concept that originated with EMS, but applies to the ED as well. UHU stands for “Unit Hour Utilization” and symbolizes the amount of time in each hour, on average, that an asset is busy treating a patient.

If the UHU is too low, you are spending money to have expensive assets sitting around. If your UHU is too high, there is a chance that someone will need their help and it won’t be available because it’s being used elsewhere.

All of that must be paid for, and that’s the issue.

Americans demand the best of everything. They want to have top notch care, they want it available at a whim, they won’t tolerate errors, and that is expensive. Every one of the actions taken in that woman’s case were areas where mistakes could have been made. They have to be done every time, without error, and it must be the right thing at the right time, no exceptions.

Now multiply that by the 200-500 patients a day in that ED. That isn’t cheap.

That’s the issue- Americans want it perfect and they want it on demand. The best of everything. Cost is no object. Sure, Americans complain that healthcare is expensive, but mention a system where an official controls cost by denying your claim, or as in the case of Canada, recommending euthanasia, and see people howl.

So you could control costs by making it easier to be a medical professional, but that would mean lowering standards, more medical errors, worsened medication quality controls, and more frequent things like hospital acquired infections.

Or make it cheaper through rationing. You could wait 2 years for an MRI.

I’m not saying that there aren’t examples of waste and fraud. I know there are. I also have a problem with hospitals not disclosing their rates up front. You should know that it’s going to cost $20,000 for a CT scan, another $1500 for the radiologist to read it, etc. Trump tried to do that, and the hospital lobby shut it down through Congress.

However, how do you control that in a nation as large as ours? Anyone who says there is an easy answer is being childishly naive or doesn’t really understand what’s going on.

If you passed a law mandating that anyone could have dinner at any restaurant they wish, could order whatever they want, and the restaurant couldn’t demand payment up front, and people could buy “dinner insurance” to pay for it, what would people eat, where would they eat, and how much would dinner cost?

By Divemedic, ago

Healthcare

As I have said before, since there are only so many doctors and other medical professionals, there are only a couple of ways to manage a healthcare system:

  • You can tinker with supply. That is, you can increase supply by making it easier to be a doctor, which carries its own liabilities, like lowering the skill level of the professionals performing brain surgery and the like; or
  • You can tinker with demand. There are two ways to do this, as far as I can see. You can either allow price to control demand, or you can let a government official set quotas and a waiting list.

The US has chosen to (mostly) control demand by allowing prices to dictate what people can afford. Canada has gone the route of price controls and government setting quotas with waiting lists. Let’s check to see how that is going:

Meanwhile, patients who need an ultrasound get one at my hospital within 30 minutes of it being ordered. An MRI takes a bit longer- we usually can get someone in within a day or two.

By Divemedic, ago

Making It

My post from the other day surprisingly hit a nerve with some people. Even among the readers of this blog, there appear to be many people who are their own worst financial enemy. They still would rather believe that the deck is stacked against them and scapegoat someone else for their own lack of making it.

The gist of all of this is some sort of excuse about how it is someone else’s fault that they aren’t successful. That person could be faceless judges, the rich who have pulled up the ladder behind them, boomers, your ex-wife, whoever.

It’s all bullshit. There is no evidence that it’s any harder now than it was 50 years ago. For starters, home ownership isn’t as difficult as it seems. In the US, less that half of all US citizens owned their own homes before WW2. After that war, there was a homebuilding boom that saw homeownership rates increase to 55% in 1950, 62% in 1960, then 63% in 1970, when Baby Boomers began buying homes. The 80’s and 90’s had homeownership rates around 64%, and increasing to 66% by the turn of the millennium.

Homeownership rates peaked in 2004 with a 69% rate. It fell with the collapse of the mortgage lenders, bottoming out at 63% in 2016. Even now, homeownership rates are hovering around 65%, which is still higher than it was through most US history.

The only person holding you back is- you. Well, you and the choices that you make. Yes, I am telling you that if I made it, you can, too. Remember that I was bankrupt in 2009. When I left that bankruptcy, I had less than $3,000 in assets, and that included a car I was still making payments on. I lost my house in that bankruptcy and had to move back into an apartment. That was when I took a very real look at what I was doing. I made changes.

I am telling you to take a real look at where your money is going. Don’t buy useless shit. Buy and payoff a house. Save, invest. Get your spouse on board with your effort- it won’t work unless you are both doing it together. You won’t be able to make it if one of you is saving while the other is spending.

This is intended to be motivational. You can do this, but it won’t be easy. It will take spending discipline. It will take some effort. Not everyone is going to be wealthy- but anyone CAN be wealthy.

You can do it. Or you can keep blaming a scapegoat for the fact that you aren’t.

By Divemedic, ago

Socialists Clueless About Economics

I keep seeing things like this, and it really bugs me:

Since 2013, I have been warning those pushing for an increase in minimum wage that it will simply cause higher prices. I, along with others, have been shouted down and told how stupid and wrong I am.

Seattle and California have a $20 per hour minimum wage. The answer is “real communism hasn’t been tried.” People in the Seattle area now have to contend with $26 coffees and $32 sandwiches, with taxes and delivery fees comprising nearly 30 percent of the total bill. Instead of listening, the left is now demanding $33 an hour as a new minimum wage.

If $20 is good, and $33 is better, why stop there? Why not make the minimum wage $250 an hour? Then we can all be rich!

Next month, Florida’s minimum wage will increase to $14 per hour, a 61% increase from the $8.56 minimum wage in the state back in 2020. Not coincidentally, the median home price in Florida went from $306,000 in 2020 to $436,600 in 2025, which represents a 43% increase in house prices.

Rents saw similar increases. Rentals were costing a median of $1187 in 2020, and now are running about $1752 in 2025, a 67% increase.

Increase the minimum wage, and prices will increase to match. Economics, it’s a thing. The socialist blames a free market, but it’s market manipulation that is causing a huge chunk of this.

It isn’t just housing. As long time readers are aware, my Denny’s Grand Slam scale is a great example of this. That breakfast has 2 strips of bacon, two link sausages, two eggs, and two pancakes. A good cross section of food products. I have been using the price of this breakfast in the same Denny’s location since 1997 as an indication of costs.

  • Here we are in 2025, and the cost of that breakfast is now $14.19.
  • In 1997, that breakfast cost $1.99
  • In 2009, it cost $4.99
  • In 2021, it cost $9.29
  • Just a year later in 2022, it was $11.59
  • In 2023, the rate slowed a bit. The breakfast was $11.99 in April
  • By November of 2023, the price was up again, to $12.99

So the breakfast in 2021 was $9.29, and it is now $14.19, a 65% increase. It’s almost like prices across the board are increasing to match wages. It’s a simple rule- more money (demand) chasing the same goods (supply) equals higher prices. Now there is a bit of a mismatch, because population (which is also part of demand) has increased a bit, but it still illustrates the point.

Before any of my readers respond with “well, technically…” please understand that my relatively short posts are not an exhaustive treatise on the issue. Books have been written about this, and I am not writing a book here. I had one reader respond to a recent post that mentioned income taxes with a comment that stretched into more than 600 words, explaining that I had calculated the taxes incorrectly. This post went into details about exemptions, credits, and other factors that made my numbers incorrect. My posts aren’t meant to withstand an IRS audit. I use public sources and usually post links to them, but they are still meant to be quick examples to illustrate the point. Responding with an over 600 word comment to explain one insignificant sentence in a 450 word post is just silly.

By Divemedic, ago

Florida Taxes Rising 10x Faster than Population

Property taxes in Florida are skyrocketing.

The population of the state of Florida has increased the most of any US state, but the increase in population was still only 8.2% since 2020. Where is all of the money going?

Taxpayers are being fleeced. Ripped off to pay for DEI, illegal immigrants, and for government employees to groom your children to turn them into twinks and trannies. Enough is enough.

By Divemedic, ago

It Must Be Deliberate

This article has hit my feed several times recently, and the author is either deliberately being deceptive, or she is just a moron. The headline reads: “I Asked ChatGPT What Would Happen If Elon Musk Paid Taxes at the Same Rate as the Middle Class” The claim is made in the article that Musk only pays a tax rate of about 3 percent, because his net worth increased so much.

The article claims that Musk can dodge taxes by using the value of his assets as collateral to take out a loan, which isn’t taxed. They are demanding that we tax people on the unrealized gains of their assets, because rich people something something.

The author is comparing apples to Volkswagens. The middle class, for the most part, pays taxes on income. It’s right there in the name: Income Tax. In the article, you are talking about taxing the rich on their wealth. It’s two entirely different concepts. If the two were equal, the middle class would be paying taxes on the value of their house, not on what they make.

As an example, let’s say that an average guy and his wife are making the US median income of $80k. They have two kids, take the standard deduction, and are thus paying $9400 in income tax, plus Social Security, Medicare and other payroll taxes totaling $11,752. That makes this family’s effective tax rate 14.69%. However, his house is worth $40,000 more than it was last year. That $40k is an unrealized gain, and this lowers his effective tax rate to 9.7%.

Now look at Elon’s taxes. They are screaming that his wealth increased by $86 billion in 2021, but he “only” paid $8.6 billion in taxes. They don’t say what he actually made, just what he is worth. It just isn’t a proper comparison.

My opinion here is that the powers that be desperately want the ability to tax wealth. Currently, this isn’t permitted because the 16th Amendment only permits the taxing of income, not wealth. Once they get the power to tax what you own, and not just what you make, there is no limit to what all of us can be taxed on.

  • Your retirement account? 2% annual tax
  • Your house? 4% annual tax
  • You have a collectable car? taxed at 5% of its gain

The beauty of this, is that even if your unrealized gains are adjusted for inflation, the official rate of inflation is lower than the actual rate. So if they let you deduct 2% of your unrealized gains as being inflation, but the actual rate of inflation is 5%, you will pay taxes on that extra 3%.

This will make all of us poor in no time.

By Divemedic, ago