A basic overview of what happens to our taxes

[mmm....shiney!]

This topic popped up in another thread and I thought it would be of interest to some to repost it as a stand-alone topic.

The basic premise is that taxes do not fund Federal government spending.

So what happens to our taxes if they are not used to pay for the goods and services that the Federal government supply?

To answer that question we need to firstly understand how taxes are collected and I’ll just concentrate on income tax here, but the various other taxes operate in a similar manner.

Income tax is collected by employers who retain a portion of an employee’s salary/wages. When a business submits its Business Activity Statement (BAS) to the ATO it not only has to provide earnings to calculate GST etc but it must also provide details of how much PAYG tax has been withheld in total from any employees.

Once the BAS is submitted a liability is created, in other words the business has a tax debt it must meet at some date in the future.

We can show this in the balance sheet below.

 

[mmm....shiney!]

 

[mmm....shiney!]

So further to my conversation with myself once the tax liability has been paid by the employer the balance sheet would look like this:



You'll note that the balance is $0. The employer has fulfilled their financial obligation to the ATO as the liability has been paid for. That's it. Over. There are no funds to be used by the government to spend on providing goods and services.

 

[mmm....shiney!]

Taxation is all about removing a portion of the $ that the government has injected into the system. And it does that to control the amount of money circulating in the real economy ie the private sector.

Remove more $$ than are spent = a government surplus.

Remove less $$ than are spent = a government deficit.

This is why we say that a government surplus is in fact a private sector deficit and vice versa. So when a government operates a surplus the private sector is actually burning up its savings in order to keep meeting consumer demand. Housing and more specifically rental housing is the classic example here. And it's why financial restrictions on rental investment will not solve the housing crisis when it comes to the rental market ie the portion of the Australian population that do not/cannot own the place in which they live.

 

[Real $ Return]

Self talk is good for reinforcement and focus taxes seem quite selective big companies/corporations finding loopholes or exemptions while citizens working harder/longer or two jobs taxed to shit. GST,tobacco tax,alcohol tax,fuel whatever and more the merrier cant have the peasants rise to high

 

[mmm....shiney!]

Businesses can find "loopholes" because the tax legislation allows sole traders and companies to offset certain expenses against their taxable income. Mind you they can exploit it. Similar opportunities exist for salary earners depending upon the industry they're in when it comes to salary sacrificing for example. I'm not sure if wage earners can access the same tax minimisation strategies and the busted arse poor of course are just cannon fodder. Negative gearing is one example though that allows wage and salary earners to offset their expenses against their taxable income, this is currently a topic for scrutiny as you'd know.

The thing is to remember that when a multinational for example pays next to zero tax it doesn't create a burden on those who do pay tax because taxes don't fund government spending.

What they really should do is lift the tax free threshold substantially and smash the uber wealthy cnuts as asset prices have skyrocketed over the decades as a direct result of the government's largesse when it comes to monetary policy at the expense of average wage and salary earners.

 

[Ag bullet]

 

[SKULL]

View attachment 96087

Double-entry bookkeeping, also known as double-entry accounting, is a method of bookkeeping that relies on a two-sided accounting entry to maintain financial information. Every entry into an account requires a corresponding and opposite entry into a different account. The double-entry system has two equal and corresponding sides, known as debit and credit; this is based on the fundamental accounting principle that for every debit, there must be an equal and opposite credit. A transaction in double-entry bookkeeping always affects at least two accounts, always includes at least one debit and one credit, and always has total debits and total credits that are equal. The purpose of double-entry bookkeeping is to allow the detection of financial errors and fraud.

For example, if a business takes out a bank loan for $10,000, recording the transaction in the bank's books would require a DEBIT of $10,000 to an asset account called "Loan Receivable", as well as a CREDIT of $10,000 to an asset account called "Cash". For the borrowing business, the entries would be a $10,000 debit to "Cash" and a credit of $10,000 in a liability account "Loan Payable". For both entities, total equity, defined as assets minus liabilities, has not changed.

The basic entry to record this transaction in the example bank's general ledger will look like this:

Debit Credit
Loan Receivable $10,000
Cash $10,000

Double-entry bookkeeping is based on "balancing" the books, that is to say, satisfying the accounting equation. The accounting equation serves as an error detection tool; if at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. However, satisfying the equation does not necessarily guarantee a lack of errors; for example, the wrong accounts could have been debited or credited.


Ur example shows only a single entry:- That IS NOT standard double entry accounting.

 

[SKULL]

So further to my conversation with myself once the tax liability has been paid by the employer the balance sheet would look like this:

View attachment 96086

You'll note that the balance is $0. The employer has fulfilled their financial obligation to the ATO as the liability has been paid for. That's it. Over. There are no funds to be used by the government to spend on providing goods and services.

Yes the balance is $0

The credit of $1000 that is paid to the ATO didn't disappear. The ATO has $1000 Credit on it's Ledger.

liability has been paid for. That's it. Over. There are no funds to be used by the government to spend on providing goods and services.

The " liability paid for " is not the end. The payment of the liability credits $1000 to the ATO's account. The ATO's ledger will show a Credit Balance of $1000

U are only showing the Transaction:- which balances out to $0 - as it should. That's double entry accounting.

If u looked at the Ledger of the ATO it would show a CREDIT of $1000

That CREDIT of $1000 is money for the Gov to spend.

I ran my own business for 10 yrs. I know how this works.

 

[mmm....shiney!]

Ur example shows only a single entry:- That IS NOT standard double entry accounting.

Once the liability has been paid off the books will balance. If that doesn't please you can you fix it?

If u looked at the Ledger of the ATO it would show a CREDIT of $1000

Hang on, you just said that it's got to balance. If they can carry a credit on their books they can also carry a debit before the tax is paid

That CREDIT of $1000 is money for the Gov to spend.

I ran my own business for 10 yrs. I know how this works.

You may know how a business operates, but the government doesn't spend that $1000 in paid taxes.

 

[mmm....shiney!]

The function of taxation (apart from forcing us to use government issued fiat) is to destroy money. And yes, it's a concept that can do some people's heads in.

 

[SKULL]

Hang on, you just said that it's got to balance. If they can carry a credit on their books they can also carry a debit before the tax is paid

This is Accounting 101

U are just looking at the accounting Balance Sheet. There is also an accounting Ledger. They are 2 separate sets of " Books " but today all of that is " Digital " accounting.

Look at ur own Accounting Ledger:- It's called ur Bank Account.

When there is a Credit into ur Bank Account, u don't see the Debit because the Debit is on the account Ledger of whomever Credited ur Account. U don't see the Debit because that is on the Account Ledger of whomever made the payment.

So the money Credited to ur Account Ledger didn't magically appear. It's a payment ( Credit ) from whomever & shows up on their Accounting Ledger as a DEBIT.

That means there is a correct Balance on each LEDGER but u see only 1 side of those Ledgers.

It's not just the Accounting Balance, it's also the Accounting Ledger.

 

[SKULL]

The function of taxation (apart from forcing us to use government issued fiat) is to destroy money. And yes, it's a concept that can do some people's heads in.

u told me u wouldn't waste ur time on anything ( YT/Articles ) that I posted in my reply.

So why the F would I watch/read anything u post

 

[SKULL]

Once the liability has been paid off the books will balance.

U can't " wait " for:- Once the liability has been paid off the books will balance.

The books have to " Balance " at the time that the " Liability " is entered onto the books. That's why it's called " Double Entry " accounting. Because the must be 2 balancing entries made at the same time.

U can't just wait for the " Liability " to be paid to balance ur books. What if u are audited ?

Ur books wouldn't balance:-

View attachment 96087

An auditor would see this unbalanced entry onto ur books & ask u where is the other side ( balancing ) of this entry.

The entries have to balance at the time of entry onto the books.

Again u are looking just at the transactional balance ( book ) ur not also looking at the Ledger ( book ) after the transaction has taken place.

 

[SKULL]

I have only 1 core belief. That belief is that " NO FIAT " money system has every succeeded. Every fiat money system in history has failed & gone to " ZERO "

Eg, u borrow $1 into existence. U pay back the $1 but there is also $0.10 interest to be paid. Where does the $0.10 come from ? It has to be borrowed into existence. The interest eventually becomes unpayable

Eg, USA $37 Trillion in Debt. Where do they get the $1 Trillion in interest payment ? They borrow that into existence - with more added interest.

Borrowed money ( that's non productive - consumption ) will eventually lead to failure of the fiat money system.

When that is the basis of ur entire FIAT monetary system, exponential growth is built in. It's just the math's of it

 

[Ag bullet]

Fiat going to zero is certain. I fear being locked into a CBDC before it happens

 

[mmm....shiney!]

So why the F would I watch/read anything u post

Please yourself. If you don't want to learn anything then don't watch it.

If you want to see balance sheets then here's the government's and here's the business's.

The government borrows from itself to spend, it then creates a tax liability which when paid cancels out the loan to itself.

The business collects taxes from employees to meet the liability that the government has created, holds it as deposits in its bank account until it pays the debt.

 

[mmm....shiney!]

Fiat going to zero is certain.

There's only two ways that that can happen:

1. the government collapses, or
2. the government changes what taxes can be paid in

If we're looking at the probability of each event occuring, the first is unlikely, the second is nearly impossible.

I fear being locked into a CBDC before it happens

And that's unlikely I'd say as well.

 

[SKULL]

Fiat going to zero is certain. I fear being locked into a CBDC before it happens

That is a very realistic fear that I also share.

CBDC will be the terror tool that Gov/Biz ( Fascism ) use. A partnership they hope will benefit them both.

Gov:- for control.

Biz:- to extract wealth

I just hope some Gold/Silver will keep the Wolves from my door.

 

[mmm....shiney!]

For others out there struggling with the idea that taxes don't fund government spending, just ask yourself where the money comes from in order to pay taxes?