By Kip Kolson, Special for TTU
Democrat presidential candidates are pushing healthcare for all. Medicare for everyone, not just seniors, and a government salary for every citizen whether they work or not is also on the table. We are told these social programs will cost multi-trillions of dollars and will be financed by raising taxes on the rich and businesses.
Let us visit the imaginary kingdom of EVERYTHING’S FREE to get an idea of how this might work. I acknowledge some may argue with my numbers, but my attempt is to keep what can be complicated simple and understandable and focus on the concept rather than specific numbers.
The kingdom of EVERYTHING’S FREE has a king (the government), you (a successful business owner), five people who work for you, and five people who do not work. You could hire the latter group because your business is growing but they choose not to work.
Business Owner (you), we will call Upper Income, earns $1,000/year. Tax Rate of 40%, nets $600
Your workers, we will call Middle Income, earn $300/year. Tax Rate of 25%, nets $225
Unwilling to Work Group, we will call Peasants. Tax Rate = 15%
Medical coverage costs $50/person. You provide medical insurance for yourself and each employee.
The five unemployed have no income and no medical insurance. They organize a march on the castle protesting it is not fair for you and your employees to have so much while they have so little and the king needs to do something about it.
The king has no source of employment income but needs a castle, food, clothes, and a crown, so he taxes everyone’s income thus providing the king with $775/year of income
The king does not want a rebellion and must appease the peasants who do not have the resources to take care of themselves. The king is not going to take care of the five peasants out of his $775 annual income, so the kingdom (the government) will provide socialized healthcare and a government social program to feed, cloth, and house the peasants.
The king wants healthcare too, so we have twelve people to cover with only six earning an income. Assuming the insurance cost/person is still $50 that is a total of $600. The king decides peasants should receive at least 50% of what the middle income earns. Another social tax is levied for $150/person for a total of $750 ($150 x 5). When added to the $600 for medical insurance total social programs cost $1,350/year.
Kings and peasants always feel the kingdom’s high-income earners should pay their “fair share,” whatever that means, so you are levied a $472.50 social tax (35% of the $1,350) and your five employees the remaining 65% or 13% each, so their social tax is $175.50/person. Now everyone has healthcare and income. Here is the result of my simple example:
Peasants: Full medical coverage and income of $150/year less a 15% income tax. Total after tax benefit is $177.50/year/peasant after including the $50 healthcare benefit.
King: Annual after-tax income of $775 plus additional tax on peasants’ income of $112.50 plus $50 for healthcare = $937.50 (kings pay no tax) and a nice castle, plenty of food, servants, and fine clothes.
Middle Income (your employees): After-tax income $225 less $175.50 social taxes = $49.50. Adding back the medical coverage of $50 does raise it to $99.50/year.
Upper Income (you the business owner): After-tax income $600 less $472.50 social taxes = $127.50. Adding back the medical coverage raises you to $177.50/year.
Result: The producers now net equal (you) or less (your employees) income than the peasants, but the king adds rooms to the castle and purchases a fancier chariot with all the newest features. Your employees decide it is better to be in the peasant category and quit. Without employees you must close the business and determine you might as well move to the peasant category too since you can make the same income without all the risk of running a business. However, with no producers there is no income to fund all these social programs, so EVERYTHING’S FREE kingdom implodes.
My objective in sharing this fairytale is not so much political but practical as it relates to families. Families are micro societies. They still have a king (the government), the upper income (the parents), and a middle income and peasants (the children depending on who becomes self-reliant and productive and who becomes dependent and unproductive).
Whether or not there is an actual family business, the parents are the business owners. They are producers who build wealth through hard work, sacrifice, entrepreneurship, and risk taking. However, how they use their wealth determines if they will produce middle-income citizens or peasants.
The objective of wealth should always be to encourage and provide opportunities for all children to become business owners (I am using the term figuratively); that is, independent and responsible for their own successes and significance. Smart business owners invest their capital in their most valuable asset, their employees. Again, I’m using the term figuratively to explain that family wealth is most valuable when it teaches and encourages stewardship of what we call the four Ts of True Wealth; Time, Talent, Training, and Treasures. Children who successfully acquire and apply this wisdom will continue to increase the value of the family kingdom for everyone’s benefit.
If the family operates like an “EVERYTHING’S FREE” society, the children will become entitled and dependent on the family kingdom for their wants rather than providing for themselves. When their wants are not satisfied, the peasants will rise up, stage protests and march around the family castle until they get what they want. Since they are not producing for themselves, their wants must be met by taking wealth away from the producers. More devastating is the civil war that will develop over control of the kingdom. The producers will resist using family wealth for unproductive and unsuccessful purposes at their expense and the peasants cannot accept having their faucet of freebees turned off. A battle will ensue around an attorney’s conference room table with each child surrounded by their legal gladiators.
Like my conclusion on the fanciful EVERYTHING’S FREE kingdom, forty to seventy percent of the family wealth will go to the legal gladiators and unwise expenditures and ventures, the family will implode, and family relationships will be scattered and left dying on the battlefield. EVERYTHING’S FREE will always sicken a society and a family and result in metaphorical death! It can only be reversed through properly learned and applied stewardship of the entire family’s Time, Talent, Training, and Treasures.
Kip Kolson is the president of Family Wealth Leadership, a multi-family office and family coaching firm, and author of You Can Have It All; Wealth, Wisdom, and Purpose—Strategies for Creating a Lasting Legacy and Strong Family. You can order your copy at Amazon, the FWL website below, or email email@example.com