In our quasi-capitalist culture, many of us, including me, have grown up to be materialistic and hyper-consumers. We learned and quickly adapted to the “Bigger, Better, Faster, Prettier, Skinnier, Richer, Smarter, and every other…er.” Personal self-satisfaction, and introspection remained elusive! Gaining attention, approval, envy, glory, jealousy and power motivated excessive consuming. I have been particularly addicted to gas-guzzling V-8 engines… with high horsepower.
Over the decades, consumerism transformed into hyper-consumerism. So, how does this state of hyper-consumerism turn into an addiction, and then into debt serfdom?
What consumers rarely understand is that they pay federal, state, local, use, excise, and sales taxes on almost every dollar of purchases and/or consumption. In many cases, there are also redundant taxes piled on the product, good, or service. Six very good examples are: taxes relating to cars, gasoline, alcoholic beverages, airplane travel, hotels and cigarettes. If the consumer borrows funds to purchase things, they pay sales taxes on the original purchase. When they earn income (to pay off the debt), they will pay all the related taxes at their highest marginal rate. (A marginal tax rate is the highest percentage rate of tax expected, and is provided by a government schedule.)
The more consumers purchase, the more taxes the government receives to spend at will. No comment is needed as to whether government spending is efficient, fair or intelligent.
Our current system of taxation comes in multiple forms, and is in most cases redundant, and/or compounding. The primary identifiable taxes include: federal income tax, payroll tax, social security tax, unemployment tax, state income tax, property tax, consumption tax, tariffs (tax on international trade), per capita taxes, capital gains tax, recapture tax, use taxes, death tax, multiple add-on fees, “special assessments,” and tolls. 80% of government income is derived from the consumer.
The more we consume, the more we will be required pay in taxes and assessments, and the more indentured we will become—debt serfdom. The more houses, furniture, cars, body modifications, multiple pets, many vacations, and ornaments that you possess, the better. Dinners out, flowers for a wife or friend, and purchases of baubles and widgets, all incur taxes. I must admit, that I have been one addicted participant!
There is no public alarm, nor government-sponsored awareness drive. Instead, the government spends its time supporting the continuation of perpetuating the status quo with advertising, media blasting, fear mongering, spreading misinformation, social redistributive engineering, and appealing to the passions and prejudices of the masses. You are encouraged to keep your eye off the ball… about what is important in your life… and to keep spending.
C. Northcote Parkinson, in his classic book, Parkinson’s Law, states that “…expenses will rise to the level of income.” In other words, people will (in almost all cases) increase the level of their spending to consume 100% of their income. If they make more, they will just consume more.
Assume that a consumer is considering the purchase of a new automobile. The purchase requires a down payment of $5,000 and financing of $25,000. The auto loan demands principal and interest payments each month until the debt is paid. A consumer earning enough to be taxed at the highest marginal rate will have to earn $2.00 for every $1 of principal reduction on the $25,000 loan.
Let’s do the numbers:
• $25,000 at 5% for 60 months = $471.78 loan payment per month
• $471.78 times 60 months = $28,307, of which $3,306.85 goes to interest.
As the consumer pays down the loan, he/she will also pay taxes on the principal reductions. The real monthly payment, including taxes, is $888, almost twice the stated monthly payment. This does not include, gas, maintenance, and insurance.
Many debt serfs are not able to come up with the $5,000 down payment so they may opt to lease the automobile for 36 to 48 months for only $1,000 up front. The lease payment is about the same as a car payment, $476 per month. The debt serf must earn income and, be taxed on those earnings to make the monthly lease payment. At the end of the lease term, the debt serf will have done nothing but rented a car, with no equity build-up!
Once consumers reach a point of no return, where the only option is to obtain more credit cards and accrue more debt, credit card companies allow the debt serf to make minimum payments on the balance owing, even though the interest accrues at—say, 22%. $30,000 of credit card debt… at an average rate of 22%… trouble in paradise?
Minimum monthly payment = monthly annualized interest rate + 1% of balance
• $30,000 times 22% divided by 12 = $550 …1% of principal balance = $300
• $550 + $300 = $850 regular monthly payment
If the consumer were to cease using credit cards, and changed the payment schedule into a “60-month amortized loan” at 22% annualized interest, the monthly payments would be about the same. To become debt free, all credit card purchases would have to cease for the full 5 years. Can you hear the screaming and outrage?
Let’s say that this consumer makes $80,000 per year. After all federal and state tax deductions and possible pension deduction, he/she nets 60% or $48,000. This reflects a monthly spendable income, sometimes referred to take-home pay, of $4,000. Out of this, the consumer needs to pay housing costs, transportation costs, family living expenses, medical insurance and, of course, credit card payments.
In many cases the net spendable is eaten up before the credit card minimum payments can be made. It is common to hear of someone living on 105% of their monthly income. Some consumers may turn daily living expenses into long term credit card debt. The United States has about 153,000,000 workers, of which half could not come up with $500 for an emergency car repair or collision deductible. Hence, more credit card debt, or even worse, taking out a payday loan with a 40% interest charge.
In the example of the automobile leased car payment of $476—including gas, maintenance, and insurance—the total cost amounts to $.70 cents per mile. An average 10,000-miles per year would equal $583 per month. 15,000-miles per year would equal $875.00 per month.
✔ Lease Payment – $476.00
✔ Auto Related Expense – $583.00
✔ Credit Card Payment – $850.00
✔ Medical Care – $500.00 (for a bare-bones policy)
This leaves discretionary income of $1,591 from the $4,000 take-home pay, to cover living expenses.
The only way out of this debt serfdom is to reject the habit of spending, other than the expenses necessary to live. Frugality must become the norm. Easy to say, but extremely hard to do. No, there is not “Recovering Debt Serf Association” where you may go to for the support that you need to break the addiction? Why not? Because the system was created to keep consumers addicted.
Let’s consider some known pockets of debt that will contribute to serfdom. The debt binge encompasses every segment of our society, including government borrowing.
1) Government debt: $20 trillion, which is an obligation of the US tax payer.
2) Total consumer debt including real estate loans, revolving, credit cards, and student loans: $17.7 trillion.
3) Auto loans: $1.16 trillion.
4) Corporate debt: $10 trillion.
5) $200 trillion of unfunded obligations, such as: social security, Medicare, Medicaid, and government and private employee pension retirement plans
All participants will pay federal and state taxes on most of the principal reductions for all this accrued debt. In many cases, business enterprises pass their debt payments on to consumers, or tenants, through higher prices. Almost the entire American enterprise is based on debt, with the expectation that the consumer will ultimately be required to pay.
What would happen if a major portion of US consumers arrive at a satiation point where they simply cannot spend any more money—tapped out with debt up to their eyeballs? Millions of consumers will never be able to pay off their debt, and many will become completely insolvent. The concept of public service has been reversed. The tax payors are the pubic servers, with public employees and labor unions as the protected beneficiaries.
Welcome to the state of the collective consumerism in the USA. If consumers do not spend, then tax receipts diminish and the government cannot pay its obligations. The millions of government employee labor union members will scream: “You promised me a big fat pension retirement!”
You are probably aware that 10s of 1,000s of retail stores are currently closing. The common assumption is that web-based, online purchases have displaced brick and mortar retail locations. That is only partially true. Web-based purchases make up approximately only 8% of the total of all retail spending.
I possess the opinion that our society has reached a point where most consumers have just spent themselves to death. The fallout is now being felt in many industries, such as retail, automobile/transportation, and food services.
Additionally, residential rents and house payments have increased to gobble up a much larger portion of disposable income. Remember, the renter first earns the income, pays the required taxes and then makes the rent payment. The home owner gets a minor deduction.
Having and raising children is also a very significant expense center is that requires income that is taxable. The additional Expenses include medical, clothes, food, education, and of course child care. About one-third of families in the US spend 20% of their net household income on child care or day care. Some are even forced to use a credit card to pay for child care.
This abusive tax structure leads to the reality that most families, and even unmarried couples requires two or more wage earners. Another subject?
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