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January 29, 2014 / 74

Taxes, Taxes, Taxes! An Idea for Radical (and fair) Tax Reform

Currently in the US, there are two general classes of taxation. There are the visible taxes, and the invisible taxes.

Visible taxes consist of those that we pay, and that we know we pay. The forms, amounts, and ostensible purposes are all known. And then there is invisible tax. Tax that we pay that is not clearly stated, that is in fact hidden from us through a web of lies, misrepresentations, and political posturing.

The visible taxes include things like “sales taxes” & “income taxes” – the amounts of which are assessed and sometimes paid by individuals, corporations, groups, & etc after filling out a raft of mostly meaningless forms that use arcane and inscrutable language and that generally require a great deal of study and intensive knowledge to decipher, interpret, and execute without having to hand over your first born child to the IRS.

The invisible taxes are things like costs that are imposed on us by government when government does things. For example, a government decides to increase how much they give to the poor (because they are poor) and they take the money out of another fund – such as roads maintenance. Then you hit a pothole the size of Manhattan Island and destroy a tire and parts of the car, but the government doesn’t pay for our car repairs or maintenance. So failing to maintain the roads – that’s a tax.

But the biggest tax is the result of improper fiscal management by the Federal government of the resources entrusted to it. When it collects ($X) amount in taxes, and then decides to fund all of the pet projects being demanded by constituents (aka “buying votes”), it thus ends up spending more than it gets in taxes ($X+). When this happens the Federal government has to “borrow” to pay for its profligate out-of-control spending. When the government “borrows” it prints up “IOUs” in the form of government bonds, (issued by the US Treasury).

Since the government hasn’t bothered to pay down this constantly accumulating debt in a long time, it just builds up. So eventually the people who “invest” in “Treasuries” (government bonds) decide that the government owes too much and will probably default at some time in the future, and they stop buying them, or don’t buy all of them.

When this happens, the “Federal Reserve” (the FED) aka the US Central Bank (supposedly not a part of the US Government) steps in and buys all the bonds that remain unsold. (ie the FED is thus the “lender of last resort” which means it’s the equivalent of Guido the loan shark down on the corner.)

But where does Guido, ummm, I mean the FED get the money to lend the US government? Why, it just creates it out of nothing. (This could be confusing for those who studied US history and government since they learned that the US Treasury creates US money. Since God was the original “creator of something out of nothing”, this kinda of makes the FED the god of money and believe me, it is a jealous god! Why and how the FED has become the god of money, and how they do this gets complicated so is not included as a part of this piece.)

So for now, we’ll just say that the FED creates all the money that the US Government spends that it doesn’t get from taxing it’s victims (aka citizens and businesses).

So now we come to a very important part of the whole issue of taxation, which I’ll pose as a question. If the government doesn’t get enough money to pay for what it spends through taxation, does it have to cut spending until it can pay for everything? (ie does it have to balance it’s budget)? Ha. That’s an easy one ’cause I already gave you the answer above. We now see that whether the government has to limit spending to receipts or not is not important. The government will spend what it wants to regardless of how much it does or doesn’t get in taxes/revenues.

So we can see that there is absolutely no real world connection between taxes/revenues and spending!!!

Now comes the fun part… where I give you more information.

When the FED creates more money to cover the government’s shortfalls, it adds the money thus created to the money already in existence. A simple principle of life is that when there is a lot of something that is desired or needed, it is usually worth less per unit than when there is a shortage. If there were only two apples in the whole world, I’m betting that I couldn’t afford to even look at them, much less actually buy them and eat them. And when there are enough apples to give everyone in the world a dump truck full of them, the apple growers would maybe have to pay people to take them, so there would be no desire on the part of most people for apples – ie the value of apples would be negative. Money is very much desired by an awful lot of people.

So… creation of excess money reduces the value of it.

This is called “inflation“. (Don’t ask me why a decrease in value is called “inflation” when it deflates (reduces) the value of money. It’s one of those finance things that apparently were designed to make sure common folks don’t understand finance.)

So the FED creates money to cover the Government’s excess spending, and by doing so causes inflation which reduces the value of the money in your pocket. ie INFLATION IS A TAX!!!

So… I took the long way to get here, but we have now arrived. I have a proposal to make. I propose that we completely re-do the system of taxation in the US. And unlike most tax law it’s fairly simple, and is completely self-enforcing.

Step 1. completely eliminate all “overt” (obvious) taxes. Eliminate the need for the IRS & etc.

Step 2. eliminate the FED and return the power to “create money” to the US Treasury (where, according to the US Constitution it’s supposed to be. This also eliminates the need for a “debt ceiling.”)

Step 3.  the government would then be able to spend as much as it wants without going through the whole “borrowing” thing. IE the only tax that would be levied would be via inflation!!! Since inflation reduces the value of every dollar, everyone would pay the exact same percentage of tax!!! From the poorest to the richest. The tax rate would be raised or lowered as need required, by simply increasing or reducing government spending.

Since the longer an individual held the money the more inflation tax they’d have to pay, it would also encourage people to spend their money on hard/real assets, like houses, cars, corporate stock/business investment, TVs, food, etc. which would return the concept of wealth to the ownership of real things – not made-up money as now. So an inflation tax would encourage growth in the economy, more jobs, and increasing standards of living!

Now all we have to do is convince the government that this would be a good thing to do.

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3 Comments

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  1. dshipp28760 / Jan 31 2014 21:50

    While this would actually work, it would also encourage congress to spend more money than they do now. This then would cause the government to increase inflation more and people would be having to take more and more money t0 buy a loaf of bread. The best solution so far is to eliminate any and all income and payroll taxes. some thing that discourages and punishes production and creation. Replace the income tax with a consumption tax. A tax that is in your face and that will have people seeing how much the Government is taking from them, unlike the current system. The bill to make this happen is HR 25 which you can call you congress man and ask him/her to support.

    • Michael E Picray / Feb 5 2014 09:05

      it would also encourage congress to spend more money than they do now.

      Of course it would. But unlike now, where we are currently experiencing about 30% +/- inflation that no one knows about (except the economists and accountants), EVERYONE would know about it. And the nice thing about such a system is that everyone would KNOW not only THAT we have 30% inflation, but also WHY we have 30% inflation – BECAUSE THEIR CONGRESS PEOPLE ARE SPENDING TOO MUCH! Solution? Throw the bums out. The people might also want the power to call an election between the scheduled elections so they could hold their “elected servants” more immediately accountable.

      The best solution so far is to eliminate any and all income and payroll taxes.

      This proposed system would do that and more. It would eliminate ALL overt taxes since the ONLY tax would be imposed via the inflation rate.

      As to the imposition of a consumption tax – you apparently misunderstand how those work. No – the people have NO idea how much tax they are paying through such a tax as it is imposed at EVERY stage of economic activity – so the amount of total tax is hidden in the end price of the good/service. In Europe the “consumption tax” is known as the VAT (value added tax) and it’s REALLY UGLY!!! No. I do NOT support a VAT!!! Now or EVER! VATs are legalized theft and fraud!

      • dshipp28760 / Feb 8 2014 23:26

        I also do not support any kind of VAT tax. The only thing people need to know about a Value added tax is the word added. Like you said, it is added and added etc. You are exactly correct in your statement that the tax is hidden with a VAT. However, Apparently you are not familiar with H.R. 25. It taxes one time only, at the point of sale. once, only. After a tax has been imposed on any item, be it a house or a mouse trap, that item is not taxed again. Hence the name consumption tax rather than sales tax which of course, taxes every time some thing is sold.
        If I am not mistaken, what you are proposing is, since we are heading for monetary collapse, and it is inevitable, lets just get to it in the most sensible way, and get it over with. Other wise, 30% inflation is unsustainable as is the approximatly 10% per year, we seem to now be experiencing. .

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