Thursday, October 27, 2005
Is The Fed A Private Corporation?
by Nelson HultbergJune 10, 2003
No one in the hard money community today disputes that the Federal Reserve is the source of many of our economic woes. Where disagreement arises is in defining the precise nature of the Fed and the source of its capacity to create the harm it does. Many who support gold money and free enterprise claim that the Federal Reserve is a "private entity" run by capitalist mega-financiers. This I believe to be mistaken.
I wrote in my recent article, "The Ark of Freedom", that the Federal Reserve is NOT a private banking system. It is a government-run fascist cartel. This is because all nationally chartered banks are forced by the government to join the cartel. Therefore they are not free. Greenspan and his board of governors are appointed by the President and approved by the Senate. The Federal Reserve Act of 1913 was passed by Congress, and it can be rescinded or altered at anytime by Congress. This is clearly government involvement in a massive way, which means the Fed is hardly a private corporation. Without Congress and the federal laws and special privileges that sustain the Fed, it disappears.
Moreover, as Harry Browne points out, the great bulk of the profits of the Reserve Banks are TURNED OVER TO THE FEDERAL TREASURY. Government is thus a full partner in the Federal Reserve System. And a business entity with the government as a partner is not private!
Courts Create a Fallacy
Much of the reasoning behind the mistaken notion that the Federal Reserve is a private corporation lies in court cases such as LEWIS vs. United States on June 24, 1982. In that case, the 9th Circuit Court ruled: "We conclude that the [Federal] Reserve Banks are not federal...but are independent, privately owned...corporations...without day to day direction from the federal government."
There are numerous cases like this where the courts have ruled that the Reserve Banks of the System are privately owned and controlled corporations. The mistake made here by those who support the notion of a "private Fed" is that because the courts declare something to be so, it somehow makes it so. This, of course, is a fallacy. Judges only interpret the law; they do not make the truth. Truth is something we discover through identification of the facts of reality and coherence with the laws of logic. Men do not form the truth; they find it through a process of synthesizing reason, experience and intuition.
What then are the facts of reality and the laws of logic in this case? They are what I outlined in my previous article, "Economic Fascism and Tax Slavery." A private entity in the marketplace is the opposite of a public entity. It is a free entity without involvement of any kind from government bureaucracy. It is an entity that is operating in a LAISSEZ-FAIRE environment. To the extent that government intervenes into and controls, regulates, or manipulates an entity's market policies, then that entity is no longer private or free. It becomes fascist to some degree or another. How much government involvement there is will determine how fascist the entity becomes.
I consider Exxon Corporation to be a quasi-fascist entity because of its integrated relationship with the government through regulations, controls, policy planning, and profit confiscation. Does Exxon, however, have its CEO and board of directors appointed and confirmed by the government? No, but the Fed does. Are the great bulk of Exxon's profits turned over to the federal Treasury? No, but the Fed's profits are. Can Exxon be voted out of existence tomorrow by Congress? No, but the Fed can. Private corporations do not have their operating officers appointed by government. They do not relinquish the great bulk of their profits to the U.S. Treasury. And they cannot be voted out of existence by Congress. Therefore despite what our courts maintain, the Fed is not a PRIVATE corporation; it is a government run cartel.
The fact that the courts DEFINE the Fed as "private" is the way that tyrannical ideologues pull the wool over the people's eyes. This is done to make the people think we are still a free, "private" enterprise country. This is how they smuggle us into authoritarianism -- by getting the intelligentsia of the country to buy into their REDEFINITION of words. The courts are run by fascist judges, and the schools are run by fascist professors -- all pretending that we are still a "free" enterprise system. In fact, many of them actually believe their own warped logic. It's the way they were taught, and they lack the intellectual rigor to investigate the fallacies of their assumptions. They ritualistically use the term "private" because it conveys the image of "free." But private in this instance is in name only. If a private entity does not have control over its operations, its profits, and its policies, then it is no longer private; it is public.
Who Controls Who?
So do the bankers control the government as some on the political right believe, or does the Federal Government control the bankers as others believe? One way to answer this question is to ask who can abolish who? Can the Federal Government abolish the Fed? Certainly. Anytime it wants to, Congress could eliminate the Fed by a majority vote of its members. But can the mega-bankers, with all their power to influence politicians, abolish the Federal Government? Hardly. In this respect of creation and abolition, the Federal Government is the power behind the evil of our financial system. At least it is theoretically. But in actual practice, I think it is more accurate to say that the evil comes from the combine of the two forces. Separately, neither the mega-bankers, nor the Federal Government would be able to wield the dangerous control over our lives that they gain in concert. It is only when they join forces to become "partners" that they gain the power to do the evil they do.
When the mega-banks of America were still largely free-market institutions operating under the gold standard during the 19th century, their capacity for dangerous power over our economy and individual lives was limited. Likewise with the Federal Government; when it was still a defined Constitutional body without the ability to print paper money, its capacity for dangerous power over our economy and individual lives was limited. But in 1913, these limitations were destroyed because the mega-banks and the Federal Government went into partnership. They formed the massive cartel of the Federal Reserve System. And in doing so, the Federal Government granted monopolistic powers to the mega-banks, which gave them the power to egregiously expand the money supply via credit creation. After elimination of the dollar's gold convertibility in 1933 and 1971, this became the power to create money indiscriminately.
What is important to understand, however, is that the mega-banks could never have achieved such a dangerous power grab without the complicity of the Federal Government. Once again, it was the Federal Reserve Act of 1913 that brought the Creature into being. It was Congress that voted to grant monopoly status to the mega-bankers, which gave them their dangerous credit creation power. Without their monopoly backed by the force of government legal tender laws, the mega-bankers do not have the capacity to expand the money supply inordinately and rob us of our wealth. Thus for all their reputed control over world events, the mega-bankers do not become dangerous until they JOIN FORCES WITH THE GOVERNMENT, which gives them the dangerous powers of monopoly and egregious credit creation. In their singularity, neither of these institutions (government or the banks) is capable of the corruption and the wholesale destruction of our wealth that they are capable of when they join together.
Reinforcing the Collectivist Mantra
Why it is so important to clarify this misconception of a "private Fed" is because the Fed is an evil institution. When we mistakenly define it as a private corporation, we then reinforce the collectivists' ideological mantra about free enterprise being evil. If the Fed is both a private corporation and evil, then the collectivists' claim that private corporations need to be pervasively controlled by centralized government gains merit in the people's eyes.
The answer to the corruption of our banking system is to PRIVATIZE the banks, i.e. abolish the Fed entirely and restore the independence of all its member banks. But how can we privatize the Fed if it is already a private corporation? How can we privatize the ownership of gold if it is already privately owned?
But if we portray the Fed as it actually is (a government run cartel) then the solution to its evil becomes clear -- end its connection to the government, which would eliminate its monopoly status and its power to dangerously expand the money supply. Simply abolish the Reserve Banks and make the member banks independent institutions again. In other words, establish a free-market for banking and require banks to operate within it. Repeal the government's legal tender laws and let the marketplace decide what should be used for money. The banks would then have to offer quality gold money that the people desired, rather than corruptible paper money that a government cartel mandates. This would decentralize the financial power of our economy out among the thousands of individual banks throughout the country and strip the Federal Government of its dangerous control over our wealth and productivity. For an excellent analysis on abolishing the Fed, see Murray N. Rothbard's two monographs, "The Case Against the Fed" and "The Case for a 100 Percent Gold Dollar," along with his essay, "Taking Money Back." [www.mises.org]
Separate the State and the Banks
By portraying the Fed in its true light, as a fascist cartel rather than a private corporation, we can then arrive at the right solution to the financial corruption taking place in our society today -- which is to separate the financial power of society from the state power.
Separate the state and the banks just as we long ago separ-ated the state and the churches. Independently, these three institutions will function properly; but let the coercive power of the state fuse with either the moral power of religion or the financial power of the banks -- and you are begging for a dictatorship.
If the reader will stop and think about why it was so necessary for men to separate the moral power of the church from the state centuries ago, then he will understand also why it is so vital to separate the financial power of banking from the state today.
When the church and the state formed alliances during the Middle Ages, the clergy gained the power to impose their dictates upon the populace by the physical force of the law. With separation of the state and the church, however, it then became necessary for the clergy to win their converts over voluntarily. If a church member didn't like a certain policy of his religion, he was free to walk away without any fear of reprisals from the coercive machinery of the clergy-state combine.
This same principle applies also to the banking world. When banks form alliances with the government, they then become capable of imposing their will (or paper money) upon the populace by the physical force of the law. With the separation of the state and the banks in a laissez-faire economy, however, all bankers must then win their customers over voluntarily with quality money and service, just as the clergy have had to win their converts over voluntarily with bet-ter ideas and service. Thus, it is not mega-banks that are evil. It is mega-banks forming alliances with the state that is evil.
No privatization solution to our present crisis can be brought about, though, as long as we persist in mistakenly terming the Fed as a "private corporation." The collectivists will always use such a fallacy to con the people into believing that private corporations are evil, therefore free businesses are evil, therefore free enterprise is evil, therefore FREEDOM IS EVIL. This is the message that the collectivists have been preaching for over 100 years -- that free enterprise leads to chaos, monopolies, exploitation, poverty, alienation, and war. Only by centralizing our government in Washington, they maintain, and eventually merging it with all other centralized governments of the world into a One World Government, can we develop a force effective enough to rid the world of such "capitalist spawned dangers."
Those on the political right, who preach that the Fed is a private corporation, play directly into the hands of those who hate capitalism and freedom. What else can one conclude about capitalism if the evil of the Fed is due to the fact that it is a "private corporation?" If capitalism has created such an evil power, then we need (as the collectivists are always eager to tell us) more government power in Washington to counteract it. We need more centralization, more regulation, more bureaucracy, more taxes. This is the sucker's game that the collectivists have been playing for decades. Demand more power for the central government to counteract evils that the power of the central government has brought into being in the first place. The Fed is a perfect example of this. Its egregious monopoly power that supposedly the government is going to "solve" for us is a result of government and its legislation. We don't need a government solution to this problem; we need a government withdrawal from causing it.
Confusion of the Reformers
There are several banking reform measures being proposed today that fall victim to this idea that government is the solution to the evils of our fascist Federal Reserve System. One such example is the National Economic Stabilization and Recovery Act (NESARA). It proposes quite a radical overhaul of the monetary system; but because the NESARA people mistakenly conceive of the Fed as being private, they assume that the answer to its abuse of money is to give the money creation power to Congress. This is jumping from the frying pan into the fire. Does anyone really believe that Congress will responsibly use such a power? They will do the same thing that the Fed has done for 90 years; they will corrupt the currency in order to create the illusion of prosperity, so as to get elected to office again and again. NESARA's proposal actually states that by giving Congress the power to create money, "the people" will be able to "create as much or as little currency as they need." You can bet your fanny that once Congress has the power to create money, the people and their representatives will make liberal use of it. They will "create as much as they need" all right. And since humans have a tendency toward endless "need" of money, they will ultimately succumb to the same pitfalls as Greenspan & Co. To read the NESARA proposal, see summary.
Giving Congress the power to create money solves nothing because it doesn't get at the root of our banking problem, which is the banks' monopoly power over money creation brought about by the U.S. Treasury's power to print fiat currency. Giving that monopoly power to Congress will only transfer the corruption to another sector of the government. Again the error here is that too many reformers mistakenly assume that the Fed's power is private, thus it must be counterbalanced by public power, i.e., government, in order to preserve the monetary system's integrity. But the Fed's power is not private; it stems from its special fascistic relationship with the government. It is the combine of bankers and government that has destroyed money's integrity throughout history. Hoping that the voters in combine with government will somehow restore its integrity is just one more illusion.
Year after year, very astute intellectuals fall victim to this fallacy that government is our solution to the problems that government has caused. They never make the connection between monopoly and government, between inflation and government, between depressions and government, between the general ills of our society and government. They have been taught by their collectivist professors that chaos, poverty, monopolies, exploitation, and war stem from the private marketplace, that therefore private corporations are their enemy and public government their friend.
Sadly in their confusion on this issue, many advocates of freedom and Constitutional government on the political right, are adding fuel to this Marxist fire with their mistaken characterizations of the Federal Reserve as a monstrously evil PRIVATE corporation.
The mega-banks that make up the Federal Reserve System are dangerously evil, there is no doubt about that. But their evil does not spring from their "privateness," nor their "corporateness." Their evil springs from the mixture of their corporate goals with government coercion, from the fact that they are in bed with the biggest evil of all -- the federal Leviathan in Washington. Kick them out of that bed into the free-market and we solve the problem of mega-bank exploitation.
The Marxists are hard at work here muddying up the ideological waters by smearing the system of capitalism. We do not need to give them added ammunition, which is what we do when we claim that the Federal Reserve is a private corporation. When we lament that private mega-bankers control our government, that in fact they operate behind the curtain to pull all the strings, we are reinforcing the Marxist smear that free enterprise is a system of favoritism for business class interests, that it is exploitation of the people by private financiers. Class interest favoritism and exploitation are certainly rife throughout our system. But such corruptions are not the result of private corporations and capitalism; they are the result of government cartels and fascism.
No private bank in a free-market would possess the power that the government's mega-bank cartel possesses. So it is not correct to say that the mega-bankers are controlling government. We should be saying that they have joined forces with the government to help the government control us.
Likewise the churches of the Middle Ages did not control the governments of that era; they joined forces with the royal monarchies to help the kings control the people, which in return allowed the churches to gain in wealth and power themselves. The COMBINE of the two was what created the power of exploitation. The same holds true with modern government / banking combines.
Immense confusion reigns throughout our nation today as to what free enterprise is, what legitimate government entails, how monopolies form, what our rights are, etc. This confusion has been brought about because of grievous fallacies taught in the universities, which has given us legions of Mad Hatters who twist and corrupt the meaning of words to make them mean what they want them to mean. These Orwellians are misusing words to manipulate the masses into voting America into servitude. Their semantic manipulation is quite apparent in today's analysis of the Federal Reserve System. Our authorities in the courts and in the schools PRETEND that Federal Reserve banks are private corporations operating in a capitalist free-market, and most of the intelligentsia buy into it. This enables the authoritarians to bamboozle the people into thinking they are still free.
If we are to succeed in checking their dictatorial aggrandizement that is insidiously moving us toward a One World Government, then we must refuse to play the game by their perverted rules. We must quit lending credence to their pretense. This means we must quit portraying the dangers to our freedom as coming from "private" corporations and banks. The despotism growing amidst us stems from our government and our banks combining into a grotesque mutation that is neither private nor free. To win the battle against this despotism, we have to portray its reality properly to the people. We have to portray the truth. We have to be clear and rational. Freedom can prevail in no other way.
© 2003 Email Nelson Hultberg .... Author's Bio .... More articles by Nelson Hultberg
by Nelson HultbergJune 10, 2003
No one in the hard money community today disputes that the Federal Reserve is the source of many of our economic woes. Where disagreement arises is in defining the precise nature of the Fed and the source of its capacity to create the harm it does. Many who support gold money and free enterprise claim that the Federal Reserve is a "private entity" run by capitalist mega-financiers. This I believe to be mistaken.
I wrote in my recent article, "The Ark of Freedom", that the Federal Reserve is NOT a private banking system. It is a government-run fascist cartel. This is because all nationally chartered banks are forced by the government to join the cartel. Therefore they are not free. Greenspan and his board of governors are appointed by the President and approved by the Senate. The Federal Reserve Act of 1913 was passed by Congress, and it can be rescinded or altered at anytime by Congress. This is clearly government involvement in a massive way, which means the Fed is hardly a private corporation. Without Congress and the federal laws and special privileges that sustain the Fed, it disappears.
Moreover, as Harry Browne points out, the great bulk of the profits of the Reserve Banks are TURNED OVER TO THE FEDERAL TREASURY. Government is thus a full partner in the Federal Reserve System. And a business entity with the government as a partner is not private!
Courts Create a Fallacy
Much of the reasoning behind the mistaken notion that the Federal Reserve is a private corporation lies in court cases such as LEWIS vs. United States on June 24, 1982. In that case, the 9th Circuit Court ruled: "We conclude that the [Federal] Reserve Banks are not federal...but are independent, privately owned...corporations...without day to day direction from the federal government."
There are numerous cases like this where the courts have ruled that the Reserve Banks of the System are privately owned and controlled corporations. The mistake made here by those who support the notion of a "private Fed" is that because the courts declare something to be so, it somehow makes it so. This, of course, is a fallacy. Judges only interpret the law; they do not make the truth. Truth is something we discover through identification of the facts of reality and coherence with the laws of logic. Men do not form the truth; they find it through a process of synthesizing reason, experience and intuition.
What then are the facts of reality and the laws of logic in this case? They are what I outlined in my previous article, "Economic Fascism and Tax Slavery." A private entity in the marketplace is the opposite of a public entity. It is a free entity without involvement of any kind from government bureaucracy. It is an entity that is operating in a LAISSEZ-FAIRE environment. To the extent that government intervenes into and controls, regulates, or manipulates an entity's market policies, then that entity is no longer private or free. It becomes fascist to some degree or another. How much government involvement there is will determine how fascist the entity becomes.
I consider Exxon Corporation to be a quasi-fascist entity because of its integrated relationship with the government through regulations, controls, policy planning, and profit confiscation. Does Exxon, however, have its CEO and board of directors appointed and confirmed by the government? No, but the Fed does. Are the great bulk of Exxon's profits turned over to the federal Treasury? No, but the Fed's profits are. Can Exxon be voted out of existence tomorrow by Congress? No, but the Fed can. Private corporations do not have their operating officers appointed by government. They do not relinquish the great bulk of their profits to the U.S. Treasury. And they cannot be voted out of existence by Congress. Therefore despite what our courts maintain, the Fed is not a PRIVATE corporation; it is a government run cartel.
The fact that the courts DEFINE the Fed as "private" is the way that tyrannical ideologues pull the wool over the people's eyes. This is done to make the people think we are still a free, "private" enterprise country. This is how they smuggle us into authoritarianism -- by getting the intelligentsia of the country to buy into their REDEFINITION of words. The courts are run by fascist judges, and the schools are run by fascist professors -- all pretending that we are still a "free" enterprise system. In fact, many of them actually believe their own warped logic. It's the way they were taught, and they lack the intellectual rigor to investigate the fallacies of their assumptions. They ritualistically use the term "private" because it conveys the image of "free." But private in this instance is in name only. If a private entity does not have control over its operations, its profits, and its policies, then it is no longer private; it is public.
Who Controls Who?
So do the bankers control the government as some on the political right believe, or does the Federal Government control the bankers as others believe? One way to answer this question is to ask who can abolish who? Can the Federal Government abolish the Fed? Certainly. Anytime it wants to, Congress could eliminate the Fed by a majority vote of its members. But can the mega-bankers, with all their power to influence politicians, abolish the Federal Government? Hardly. In this respect of creation and abolition, the Federal Government is the power behind the evil of our financial system. At least it is theoretically. But in actual practice, I think it is more accurate to say that the evil comes from the combine of the two forces. Separately, neither the mega-bankers, nor the Federal Government would be able to wield the dangerous control over our lives that they gain in concert. It is only when they join forces to become "partners" that they gain the power to do the evil they do.
When the mega-banks of America were still largely free-market institutions operating under the gold standard during the 19th century, their capacity for dangerous power over our economy and individual lives was limited. Likewise with the Federal Government; when it was still a defined Constitutional body without the ability to print paper money, its capacity for dangerous power over our economy and individual lives was limited. But in 1913, these limitations were destroyed because the mega-banks and the Federal Government went into partnership. They formed the massive cartel of the Federal Reserve System. And in doing so, the Federal Government granted monopolistic powers to the mega-banks, which gave them the power to egregiously expand the money supply via credit creation. After elimination of the dollar's gold convertibility in 1933 and 1971, this became the power to create money indiscriminately.
What is important to understand, however, is that the mega-banks could never have achieved such a dangerous power grab without the complicity of the Federal Government. Once again, it was the Federal Reserve Act of 1913 that brought the Creature into being. It was Congress that voted to grant monopoly status to the mega-bankers, which gave them their dangerous credit creation power. Without their monopoly backed by the force of government legal tender laws, the mega-bankers do not have the capacity to expand the money supply inordinately and rob us of our wealth. Thus for all their reputed control over world events, the mega-bankers do not become dangerous until they JOIN FORCES WITH THE GOVERNMENT, which gives them the dangerous powers of monopoly and egregious credit creation. In their singularity, neither of these institutions (government or the banks) is capable of the corruption and the wholesale destruction of our wealth that they are capable of when they join together.
Reinforcing the Collectivist Mantra
Why it is so important to clarify this misconception of a "private Fed" is because the Fed is an evil institution. When we mistakenly define it as a private corporation, we then reinforce the collectivists' ideological mantra about free enterprise being evil. If the Fed is both a private corporation and evil, then the collectivists' claim that private corporations need to be pervasively controlled by centralized government gains merit in the people's eyes.
The answer to the corruption of our banking system is to PRIVATIZE the banks, i.e. abolish the Fed entirely and restore the independence of all its member banks. But how can we privatize the Fed if it is already a private corporation? How can we privatize the ownership of gold if it is already privately owned?
But if we portray the Fed as it actually is (a government run cartel) then the solution to its evil becomes clear -- end its connection to the government, which would eliminate its monopoly status and its power to dangerously expand the money supply. Simply abolish the Reserve Banks and make the member banks independent institutions again. In other words, establish a free-market for banking and require banks to operate within it. Repeal the government's legal tender laws and let the marketplace decide what should be used for money. The banks would then have to offer quality gold money that the people desired, rather than corruptible paper money that a government cartel mandates. This would decentralize the financial power of our economy out among the thousands of individual banks throughout the country and strip the Federal Government of its dangerous control over our wealth and productivity. For an excellent analysis on abolishing the Fed, see Murray N. Rothbard's two monographs, "The Case Against the Fed" and "The Case for a 100 Percent Gold Dollar," along with his essay, "Taking Money Back." [www.mises.org]
Separate the State and the Banks
By portraying the Fed in its true light, as a fascist cartel rather than a private corporation, we can then arrive at the right solution to the financial corruption taking place in our society today -- which is to separate the financial power of society from the state power.
Separate the state and the banks just as we long ago separ-ated the state and the churches. Independently, these three institutions will function properly; but let the coercive power of the state fuse with either the moral power of religion or the financial power of the banks -- and you are begging for a dictatorship.
If the reader will stop and think about why it was so necessary for men to separate the moral power of the church from the state centuries ago, then he will understand also why it is so vital to separate the financial power of banking from the state today.
When the church and the state formed alliances during the Middle Ages, the clergy gained the power to impose their dictates upon the populace by the physical force of the law. With separation of the state and the church, however, it then became necessary for the clergy to win their converts over voluntarily. If a church member didn't like a certain policy of his religion, he was free to walk away without any fear of reprisals from the coercive machinery of the clergy-state combine.
This same principle applies also to the banking world. When banks form alliances with the government, they then become capable of imposing their will (or paper money) upon the populace by the physical force of the law. With the separation of the state and the banks in a laissez-faire economy, however, all bankers must then win their customers over voluntarily with quality money and service, just as the clergy have had to win their converts over voluntarily with bet-ter ideas and service. Thus, it is not mega-banks that are evil. It is mega-banks forming alliances with the state that is evil.
No privatization solution to our present crisis can be brought about, though, as long as we persist in mistakenly terming the Fed as a "private corporation." The collectivists will always use such a fallacy to con the people into believing that private corporations are evil, therefore free businesses are evil, therefore free enterprise is evil, therefore FREEDOM IS EVIL. This is the message that the collectivists have been preaching for over 100 years -- that free enterprise leads to chaos, monopolies, exploitation, poverty, alienation, and war. Only by centralizing our government in Washington, they maintain, and eventually merging it with all other centralized governments of the world into a One World Government, can we develop a force effective enough to rid the world of such "capitalist spawned dangers."
Those on the political right, who preach that the Fed is a private corporation, play directly into the hands of those who hate capitalism and freedom. What else can one conclude about capitalism if the evil of the Fed is due to the fact that it is a "private corporation?" If capitalism has created such an evil power, then we need (as the collectivists are always eager to tell us) more government power in Washington to counteract it. We need more centralization, more regulation, more bureaucracy, more taxes. This is the sucker's game that the collectivists have been playing for decades. Demand more power for the central government to counteract evils that the power of the central government has brought into being in the first place. The Fed is a perfect example of this. Its egregious monopoly power that supposedly the government is going to "solve" for us is a result of government and its legislation. We don't need a government solution to this problem; we need a government withdrawal from causing it.
Confusion of the Reformers
There are several banking reform measures being proposed today that fall victim to this idea that government is the solution to the evils of our fascist Federal Reserve System. One such example is the National Economic Stabilization and Recovery Act (NESARA). It proposes quite a radical overhaul of the monetary system; but because the NESARA people mistakenly conceive of the Fed as being private, they assume that the answer to its abuse of money is to give the money creation power to Congress. This is jumping from the frying pan into the fire. Does anyone really believe that Congress will responsibly use such a power? They will do the same thing that the Fed has done for 90 years; they will corrupt the currency in order to create the illusion of prosperity, so as to get elected to office again and again. NESARA's proposal actually states that by giving Congress the power to create money, "the people" will be able to "create as much or as little currency as they need." You can bet your fanny that once Congress has the power to create money, the people and their representatives will make liberal use of it. They will "create as much as they need" all right. And since humans have a tendency toward endless "need" of money, they will ultimately succumb to the same pitfalls as Greenspan & Co. To read the NESARA proposal, see summary.
Giving Congress the power to create money solves nothing because it doesn't get at the root of our banking problem, which is the banks' monopoly power over money creation brought about by the U.S. Treasury's power to print fiat currency. Giving that monopoly power to Congress will only transfer the corruption to another sector of the government. Again the error here is that too many reformers mistakenly assume that the Fed's power is private, thus it must be counterbalanced by public power, i.e., government, in order to preserve the monetary system's integrity. But the Fed's power is not private; it stems from its special fascistic relationship with the government. It is the combine of bankers and government that has destroyed money's integrity throughout history. Hoping that the voters in combine with government will somehow restore its integrity is just one more illusion.
Year after year, very astute intellectuals fall victim to this fallacy that government is our solution to the problems that government has caused. They never make the connection between monopoly and government, between inflation and government, between depressions and government, between the general ills of our society and government. They have been taught by their collectivist professors that chaos, poverty, monopolies, exploitation, and war stem from the private marketplace, that therefore private corporations are their enemy and public government their friend.
Sadly in their confusion on this issue, many advocates of freedom and Constitutional government on the political right, are adding fuel to this Marxist fire with their mistaken characterizations of the Federal Reserve as a monstrously evil PRIVATE corporation.
The mega-banks that make up the Federal Reserve System are dangerously evil, there is no doubt about that. But their evil does not spring from their "privateness," nor their "corporateness." Their evil springs from the mixture of their corporate goals with government coercion, from the fact that they are in bed with the biggest evil of all -- the federal Leviathan in Washington. Kick them out of that bed into the free-market and we solve the problem of mega-bank exploitation.
The Marxists are hard at work here muddying up the ideological waters by smearing the system of capitalism. We do not need to give them added ammunition, which is what we do when we claim that the Federal Reserve is a private corporation. When we lament that private mega-bankers control our government, that in fact they operate behind the curtain to pull all the strings, we are reinforcing the Marxist smear that free enterprise is a system of favoritism for business class interests, that it is exploitation of the people by private financiers. Class interest favoritism and exploitation are certainly rife throughout our system. But such corruptions are not the result of private corporations and capitalism; they are the result of government cartels and fascism.
No private bank in a free-market would possess the power that the government's mega-bank cartel possesses. So it is not correct to say that the mega-bankers are controlling government. We should be saying that they have joined forces with the government to help the government control us.
Likewise the churches of the Middle Ages did not control the governments of that era; they joined forces with the royal monarchies to help the kings control the people, which in return allowed the churches to gain in wealth and power themselves. The COMBINE of the two was what created the power of exploitation. The same holds true with modern government / banking combines.
Immense confusion reigns throughout our nation today as to what free enterprise is, what legitimate government entails, how monopolies form, what our rights are, etc. This confusion has been brought about because of grievous fallacies taught in the universities, which has given us legions of Mad Hatters who twist and corrupt the meaning of words to make them mean what they want them to mean. These Orwellians are misusing words to manipulate the masses into voting America into servitude. Their semantic manipulation is quite apparent in today's analysis of the Federal Reserve System. Our authorities in the courts and in the schools PRETEND that Federal Reserve banks are private corporations operating in a capitalist free-market, and most of the intelligentsia buy into it. This enables the authoritarians to bamboozle the people into thinking they are still free.
If we are to succeed in checking their dictatorial aggrandizement that is insidiously moving us toward a One World Government, then we must refuse to play the game by their perverted rules. We must quit lending credence to their pretense. This means we must quit portraying the dangers to our freedom as coming from "private" corporations and banks. The despotism growing amidst us stems from our government and our banks combining into a grotesque mutation that is neither private nor free. To win the battle against this despotism, we have to portray its reality properly to the people. We have to portray the truth. We have to be clear and rational. Freedom can prevail in no other way.
© 2003 Email Nelson Hultberg .... Author's Bio .... More articles by Nelson Hultberg
Wednesday, October 26, 2005
Solution to Tax Problem
Wish I had thought of this. It is a great idea that uses human nature to solve the current tax problem rather than pious, great sounding platitudes that emanate from our "elected representatives" in Washington.
HOW TO END THE INCOME TAX AND THE IRS
by Nelson Hultberg Americans for a Free Republic
http://www.afr.org/
April 15, 2005
Imagine for a moment America without an income tax. No more tedious record keeping of all our expenses. No more April 15th deadlines. No more insufferable complexity and exasperating forms. No more nasty audits, legal loopholes, and intrusive IRS agents. It would no longer be government's business how much money we earn and what we do with it. Such a reform would dramatically change the lives of every one of us for the better.
Could such a spectacular reform really be brought about? Yes, it certainly could. But before I explain how, first a brief analysis of some of the philosophical and psychological roadblocks that need to be confronted in laying the groundwork for totally abolishing the income tax and the IRS from our lives in America.
Feeding the Factions
The nature of 21st century American politics is that our office seekers win continual re-election, not by preserving the peace and protecting people's basic rights as the Founders advocated, but by granting privileges, subsidies and pork barrel programs to favored segments of the people.
This is known as the "big tent" philosophy of governing. It means that political parties win elections by gathering numerous disparate factions of voters in under one large tent. They do this by promising to grant all of the factions something that they want: welfare payments for lower income groups, loans and price supports for corporations, subsidies for farmers and artists, revenue sharing for obedient governors, pork barrel bills for local communities, ever-increasing funds for educational, energy, housing, and commerce bureaucracies, etc. Since government has no money of its own, it taxes the necessary money from society's productive citizens in order to become the grand benefactor of all its favored factions.
This is the modern game of social welfare politics. Our politicians basically buy their office and power. Both Democrats and Republicans play this game in order to be elected and re-elected. And no one ever challenges the game's fundamental premise -- that government has the right to confiscate some people's earnings to gratify other people's needs and desires.
This is why Republicans talk about reducing government on the campaign trail but never do any reducing in office. They are afraid to challenge this fundamental premise of social welfarism. Thus, they end up contesting the Democrats only as to where all the confiscated wealth is to be spent, never on the premise of "wealth redistribution" itself.
Noted scholar Thomas Sowell once pointed out a very useful analogy that clarifies this dilemma: If a man enters your yard and begins digging up all your daffodils and replacing them with geraniums, you don’t rush out and argue with him over which of the two flowers you prefer. You argue with him over whose yard this is.
Our problem today is that Republicans refuse to challenge the Democrats about whose yard is being dug up, i.e., about whose money is being confiscated unjustly. Republicans muster only a challenge over what kind of programs the confiscated earnings should be spent on (in other words, over which flowers are more preferable), while the Federal Government grows more and more intrusive and tyrannical with its confiscation policies.
First Step in the Process
If we are ever to rid ourselves of the income tax and the IRS, then there must be a genuine reform of this corrupt and grandiose game of buying votes with wealth transfers. A viable political party must come forth to publicly ask, "Whose yard is this?" The operating premise of liberal welfarism has to be challenged -- that government has the right to utilize progressive tax rates to redistribute people’s earnings. A uniform tax rate system must be proposed, fought for, and enacted into law. Until this is done, the social welfare game of "tax and spend, elect and re-elect" cannot be reformed. Ever-expanding, centralized government cannot be stopped.
As I have pointed out in previous articles, the reason why abolishing progressive income tax rates is so important is because there would then be no incentive for voters to try and gain their life’s status by relentlessly increasing government spending, i.e., by redistributing wealth from the pockets of their neighbors.
Progressive tax rates are the major cause of explosive government spending because they create large constituencies of voters that pay zero taxes and equally large constituencies that pay next to zero taxes. Thus, they spawn a "something for nothing" voter mindset. An irresponsible electorate then evolves to demand a steady expansion of government services. This is one of the cardinal laws of economics. If government benefits are free (or nearly free), demand for them will be infinite.
In order to overcome this infinite demand for government spending, we must eliminate the "something for nothing" aspect of our tax system. In other words, we must end all deductions, special breaks, loopholes, and rate progressivity. This will necessitate the adoption of a uniform tax system that does not convey favors to anybody.
Since voters would then have to pay for all government subsidies and pork barrel programs proportionately out of their own pockets, they would lose their overwhelming desire for such subsidies and programs. Voters would then begin to favor politicians who advocate "reduction" of government instead of its "constant expansion" because this is the only way they could get their own taxes reduced and more freedom into their lives. All kinds of Ron Pauls would begin to appear in congressional elections every two years because the electorate would demand it.
A uniform tax rate is thus the only way to restore a responsible electorate and legislature. And as we will soon see, it is the first crucial step to total eradication of the income tax and the IRS.
Forbes-Armey Tax Ignorance
So far, Republicans have shown little indication that they grasp the importance of such thinking. Their love affair with the Forbes-Armey flat tax plans shows either that their true motive is merely more centralized government, or that they are frightfully ignorant about the requisites of genuine reform. This is because the Forbes-Armey flat tax plans actually increase the rate progressivity of our income tax system. This they do by dramatically increasing personal exemptions for the taxpayer. A family of four’s total exemptions leaps from $16,700 under our present system to $34,000 under Armey’s version of the plan and $36,000 under Forbes' version.
According to the Dallas based Institute for Policy Innovation’s calculations (UPI Impact, November 1997), the bottom 25% of the population in America presently pays zero taxes. This means they get their government services free, which means their demand for those services is infinite. According to the IRS Statistics of Income Division, the next 25% tier pays only 3.97% of total income tax revenues. This means that they get their government services almost free, i.e., for pennies on the dollar. Thus 50% of the American electorate pays zero or next to zero taxes, which creates infinite demand for government services among these voters. This guarantees that, except for rare contrarians like Ron Paul, all politicians that come before the voters every election year are going to be pushing more and more programs and handouts. That 50% block of voters, hungry for free services, is a beast that cannot be ignored.
The Forbes-Armey flat tax plans will greatly exacerbate this problem because, by dramatically increasing personal exemptions for the taxpayer, they will greatly increase the 25% segment of voters who receive government services free. This, of course, must increase the segment of voters who possess infinite demand well above its present 50%. Surely any reasonably intelligent human can see that this will make an already rapacious government grow even faster and produce even more intrusive bureaucracies. It will firmly entrench the centralized mega-state in Washington for decades to come!
If we truly wish to reduce government, then we must truly abolish progressive rates and move toward a genuine uniform rate system for everyone rather than away from it as the Forbes-Armey plans do. This is an unalterable law of political and economic reality that must be faced instead of evaded or circumvented.
Challenging the Establishment Tyranny
Naturally the liberal establishment raises quite a squawk over any mention of tax uniformity. "Would it be wise," they ask, "to radically change our tax system so as to tax all Americans the same percentage of what they earn or what they spend? We believe that the present tax code is fundamentally more fair than a one-size fits all system."
Liberals imagine themselves as being idealistic and just on this issue, but in reality their defense of our present arbitrary tax system is motivated by that natural human desire to protect the power base that feeds one politically, ideologically, and financially. The liberal establishment's massive power base in this country is fed by the progressive income tax code. God forbid upsetting such an elastic, arbitrary system of privileges and favors that can buy so many votes so easily.
In answer to the liberal defense of today’s tax system, it is very instructive to examine the fundamental principles for which our nation stands. What wisdom on this issue can we glean from the Founding Fathers and other salient intellects throughout our history? Did they approve of a tax code that was arbitrary, progressive and privilege based? Or did they support UNIFORM rates because uniformity was the only way to avoid the evolution of class war, factions, and the tyranny of centralized government?
Thomas Jefferson astutely summed up the essence of the tax issue when he wrote, "The true foundation of republican government is the equal right of every citizen, in his person and property, and in their management." 1
Alexander Hamilton firmly denounced the use of arbitrary (i.e., unequal) rates: "Whatever liberty we may boast of in theory, it cannot exist in fact while [arbitrary] assessments continue." 2
Philosopher David Hume declared, "The most pernicious of all taxes are the arbitrary. They are commonly converted, by their management, into punishments on industry.... It is surprising, therefore, to see them have place among any civilized people." 3
In the early 19th century, renowned Scottish economist John Ramsey McCulloch wrote, "The moment you abandon the cardinal principle of extracting from all individuals the same proportion of their income or of their property, you are at sea without a rudder or compass, and there is no amount of injustice or folly you may not commit." 4
Later in the 19th century, Supreme Court Justice Stephen J. Field wrote, "If the Court sanctions the power of discriminating taxation and nullifies the uniformity mandate of the Constitution...it will mark the hour when the sure decadence of our government will commence." 5
The reason why the Founders and all the prominent intellects of our history opposed a progressive income tax is because it violates the principle of "equality of rights under the law," which is dramatically enshrined in the Declaration of Independence as the fundamental axiom of our nation’s existence. Because different classes of society are assessed different rates under a progressive tax system, American citizens are denied an equal right to the disposal of their property (i.e., their income) and thus denied equal protection under the laws of the land.
In light of the above, it should be obvious that a progressive income tax is incompatible with "equality under the law." It is therefore unconstitutional and unjust. It goes contrary to everything our country stands for. It has no moral justification, and it has no practical ground upon which to stand.
The Naivety of IRS "Reform"
This then is the first requisite for our leaders in Congress -- to face up to the unconstitutionality of progressive rates. But equally as important, our legislators must also stiffen their spines against the bete noir of all taxpayers -- the IRS. Republicans have always been sensitive to the people's growing unrest over the IRS, but as in the past, they approach the issue in a typically naive and superficial manner.
"Yes, the IRS is known to get out of control," GOP legislators exclaim in tones of appropriate urgency. "But we intend to rein in IRS abuse." Sure. Like a coterie of schoolgirls will rein in mafia lords stomping through its neighborhood. Like massage therapy will rein in cancer.
Republicans are living in a dream world if they think they are going to "reform" the IRS in any meaningful way. The nature of the IRS and its role dictate that it will always be what it is. It must be intrusive, tyrannical, and ruthless in order to perform its job of feeding the tax devouring Gargantua that the Federal Government has become.
Consider this law of life: The nature of an entity and the nature of its role in existence dictate its personality and its methodology. Therefore, one does not sit children down with cobras as if they were Teddy Bears to be hugged. One does not try to experience a hurricane like one contemplates a sunset. Rocks cannot be transformed into orchids. And the IRS is not going to be made into a group of smiling federal receiving clerks to help us solve life's vicissitudes.
Congressional Republicans now imagine that they can somehow tame this Frankenstein they have so cavalierly built over the past 40 years. They are deluding themselves.
Trying to "rein in" the IRS with tax reforms such as the Forbes-Armey approach will be about as effective as trying to rein in a snorting rhinoceros with kite string. The IRS is out of control because the Federal Government is out of control. It operates above the law, and in an intimidatory manner, because that is the only way it can perform its job of collecting enough money to pour down Gargantua’s gullet in Washington.
The answer to this tyrannical mess is clear: Forget about "reining in" the IRS and eliminate this Orwellian agency! But to do so, we must eliminate the income tax itself. And the only way to eliminate the income tax is to reduce government spending to a low enough level so that it can be funded by flat income tax rates in the neighborhood of 7%. At this level, a national sales tax could then be substituted for the income tax and collected by the state sales tax agencies. The IRS could then be disbanded because under a national sales tax, the state sales tax agencies (already in place) can collect all tax payments and forward them to Washington.
A national sales tax is not salable at this time because it requires a 15%-23% rate at today's government spending level. So spending needs to be reduced dramatically first. The American people would readily vote for a 7% national sales tax, but they will continue to balk at a 15%-23% national sales tax. It's just psychologically too much to overcome.
The first step in gaining this goal is to eliminate "infinite demand" for government services. And as we have seen, the only means to accomplish this is to enact a true equal-rate income tax, which means no exemptions for anyone. This will effectively reverse the culture of spending in Washington and begin a steady reduction of government.
How to Handle the Establishment Backlash
As I have pointed out in previous articles, liberals and me-too conservatives will naturally attack any genuine equal-rate tax as unfair to the poor people. So if a floor is to be established under which no one will have to pay the tax, i.e., an exemption for those under the poverty level, then a provision should be included in any equal-rate tax bill stating that those who are exempted from paying are also to be excluded from voting. After all, we deny children the right to vote. Why do we do this? Because they are not mature enough to vote responsibly. The same principle applies to men and women who are exempt from taxes; they will never vote responsibly. They will possess "infinite demand" for government services.
Liberals will, of course, protest vehemently upon hearing such a proposal; but if one thinks the issue through, he will see that it is really the only solution if a large segment of voters is going to be exempt from paying taxes. There is no other way to stop infinite demand for government services unless everyone who casts a vote has a stake in doing it responsibly.
Both logic and history provide ample justification for societies to decide who among their members are to receive the franchise. All nations throughout the history of democratic governments have always determined according to certain criteria who should, and who should not, be allowed to vote. Never does any nation allow EVERYONE to vote.
For example, we stipulate that all those who are under 18 years of age cannot vote. We also say that all those who are mentally unbalanced cannot vote. So we the citizenry decide who can and cannot vote. And our decision is based upon who we feel will be responsible. Reason and experience, if used judiciously, are very good guides as to who this should be. Why then cannot we the citizenry redefine from time to time our conception of what constitutes "responsible?"
Societies have always done such defining and redefining. In 1787, the Founders required voters to be male and to own property. That, of course, is too extreme according to our way of thinking today. Women are obviously capable of voting responsibly, and so are non-property owners. The requirement of property ownership was gradually rooted out of the system over the decades by the state governments; and the states of Wyoming, Colorado, and Utah led the way for women's suffrage by granting voting rights to women in the 1890's. This culminated in 1920 with the 19th Amendment to the Constitution to allow all adult women to vote throughout America. Again in 1971 we re-evaluated our conception of responsibility when we lowered the voting age from 21 to 18. (Unfortunately this latter reform was a mistake. We should have raised the age to 25 years old; but that's another argument for another day.) The point is that we, as a society, have the right and the duty to define just who can and who cannot "vote responsibly." Our modern intellectuals and politicians have egregiously defaulted on this by allowing everyone to vote even though they don't pay anything to support the system. This must be corrected.
The major roadblock to overcome here is that we have all been taught that unlimited democracy is some sort of nirvana, and that everyone must vote in order for us to have a just, civilized society. Thus any policy to the contrary will be a tough idea to embrace. But embrace it we must, or we will collapse into dictatorship over the next two decades. Think of it this way. Is it rational to continue creating "infinite demand" for government services among 50% of the people, while attempting to reduce government? No, it's not. Just like it's not rational to try and put out a bonfire with buckets of water while tolerating a massive fire hose pouring kerosene into the fire.
The dictatorial powers that are developing in Washington today have come about because 50% of the citizenry possess "infinite demand" for government services. This demand is the kerosene hose that is allowing the fire of government to relentlessly expand. We the producers of America are becoming slaves to these tyrants and their ever-expanding fire. Continuing to go up against such an inferno with little water buckets of pseudo tax reform (such as the Forbes-Armey "flat" tax plans) is senseless and embarrassing to anyone who can think clearly.
In this writer's opinion, the ideal solution to this problem of infinite demand among the voters is to provide no tax exemptions at all, and simply require everyone to pay a 10% flat tax no matter what their income is. This would comport best with the principle of "equality under the law." Everyone pays proportionally, i.e., the same rate. Thus, the law treats everyone the same, and no one's vote would have to be denied. Such a policy would quite quickly bring about a dramatic reduction of government, and as a result, a substantial reduction of taxes. We could probably have a flat tax of 5% within a decade or two. Is it too much to ask a man who makes $5,000 in a year to pay $250 to support the government that protects his rights and preserves domestic order for he and his family? I don't think so.
If this is too horrifying to contemplate for the advocates of "compassionate conservatism," then such conservatives need to seriously rethink what has to be done to save our country. Is not the underlying source of all government growth today the fact that we have become a nation of voters and legislators who are living irresponsibly and totally out of control? Thus our paramount concern must be to RESTORE A RESPONSIBLE ELECTORATE AND LEGISLATURE. But this cannot be done if voters get their services free. The only way voters will act responsibly is if they are contributing proportionately to the cost of government. This is not rocket science; it is simple, basic, observable human nature. To blind ourselves to this truth (as liberals have done for 90 years) is inexcusable.
To all pundits throughout America who profess to favor a free society, if you are too squeamish to demand eradication of the primary source of exploding government, then our society is doomed. You might as well fold up your tents and head to the local pub to wallow in inebriation every day, rather than to your computers and printing presses to try and influence your fellow man as to the true meaning of our country. If you can't bring yourselves to tell the truth to the people, then you have no business presenting yourselves as educators, writers, galvanizers. You have fashioned a make-believe world and are merely playacting as patriot intellectuals.
Four Steps to Ending the Income Tax and the IRS
Radical tax reform is the great unifying cause that can break the stranglehold collectivism has over our country's politics. Americans are ready to scrap the income tax. Yet this monumental policy reform will not happen unless conservatives, libertarians and independents unify behind the only viable path to that goal. The path is constructed of four steps:
1) We must truly end progressive rates by enacting an equal-rate tax for everyone. It would start at a revenue-neutral rate somewhere between 10%-15%. 2) This reform will allow us to then dramatically reduce government spending to a level that can be funded with 7% rates and lower. 3) This will allow us to then substitute a national sales tax for the income tax. 4) This will allow us to then abolish the IRS because the state sales tax agencies can collect all payments and forward the money to Washington. Voila! No more income tax, and no more IRS. The federal Leviathan would be stopped. A constitutional amendment could then be passed prohibiting the Federal Government from taxing the incomes of the American people in any way whatsoever.
History is strewn with the wreckage of societies whose leading pundits and politicians locked themselves into an erroneous mindset and refused to budge from their flawed perspective in moments of great crisis. Let us hope that will not be the case with America on this issue. The times we live in call for bold, innovative leadership, not misinformation and business as usual. Our present tax reformers on both the left and right are putting forth nothing but dreadful plans; and the Leviathan is chortling with glee at their imbecility. America needs a Patrick Henry and a Samuel Adams to come forth. She needs clarity and a principled stand, not the pusillanimous ambiguity that oozes today from our wishy-washy solons on the Potomac.
Notes
1. Letter to S. Kercheval, 1816. Saul K. Padover, ed, Thomas Jefferson On Democracy (New American Library, no date), pp. 34-35. Emphasis added.
2. Harold Syvelt, ed., The Papers of Alexander Hamilton, vol. III (New York, 1962) p. 104. Cited in Charles Adams, "Our Income Taxation: The Darker Side," Manassas, VA: Citizens for an Alternative Tax System [no date], p. 6.
3. David Hume, The Philosophical Works, vol. 3 (London, 1882) pp. 356-360. Cited in Adams, Ibid, p. 6.
4. J.R. McCulloch, Taxation and the Funding System (London, 1845), pp. 141-143. Cited in Charles Adams, For Good and Evil: The Impact of Taxes On the Course of Civilization (Lanham, MD: Madison Books, 1993), p. 365. Emphasis added.
5. Justice Stephen J. Field, Pollock v. Farmers Loan and Trust Co., 157 U.S. 607 (1894). Cited in Adams, Ibid., p. 370.
© 2005 Nelson Hultberg Americans for a Free Republic
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HOW TO END THE INCOME TAX AND THE IRS
by Nelson Hultberg Americans for a Free Republic
http://www.afr.org/
April 15, 2005
Imagine for a moment America without an income tax. No more tedious record keeping of all our expenses. No more April 15th deadlines. No more insufferable complexity and exasperating forms. No more nasty audits, legal loopholes, and intrusive IRS agents. It would no longer be government's business how much money we earn and what we do with it. Such a reform would dramatically change the lives of every one of us for the better.
Could such a spectacular reform really be brought about? Yes, it certainly could. But before I explain how, first a brief analysis of some of the philosophical and psychological roadblocks that need to be confronted in laying the groundwork for totally abolishing the income tax and the IRS from our lives in America.
Feeding the Factions
The nature of 21st century American politics is that our office seekers win continual re-election, not by preserving the peace and protecting people's basic rights as the Founders advocated, but by granting privileges, subsidies and pork barrel programs to favored segments of the people.
This is known as the "big tent" philosophy of governing. It means that political parties win elections by gathering numerous disparate factions of voters in under one large tent. They do this by promising to grant all of the factions something that they want: welfare payments for lower income groups, loans and price supports for corporations, subsidies for farmers and artists, revenue sharing for obedient governors, pork barrel bills for local communities, ever-increasing funds for educational, energy, housing, and commerce bureaucracies, etc. Since government has no money of its own, it taxes the necessary money from society's productive citizens in order to become the grand benefactor of all its favored factions.
This is the modern game of social welfare politics. Our politicians basically buy their office and power. Both Democrats and Republicans play this game in order to be elected and re-elected. And no one ever challenges the game's fundamental premise -- that government has the right to confiscate some people's earnings to gratify other people's needs and desires.
This is why Republicans talk about reducing government on the campaign trail but never do any reducing in office. They are afraid to challenge this fundamental premise of social welfarism. Thus, they end up contesting the Democrats only as to where all the confiscated wealth is to be spent, never on the premise of "wealth redistribution" itself.
Noted scholar Thomas Sowell once pointed out a very useful analogy that clarifies this dilemma: If a man enters your yard and begins digging up all your daffodils and replacing them with geraniums, you don’t rush out and argue with him over which of the two flowers you prefer. You argue with him over whose yard this is.
Our problem today is that Republicans refuse to challenge the Democrats about whose yard is being dug up, i.e., about whose money is being confiscated unjustly. Republicans muster only a challenge over what kind of programs the confiscated earnings should be spent on (in other words, over which flowers are more preferable), while the Federal Government grows more and more intrusive and tyrannical with its confiscation policies.
First Step in the Process
If we are ever to rid ourselves of the income tax and the IRS, then there must be a genuine reform of this corrupt and grandiose game of buying votes with wealth transfers. A viable political party must come forth to publicly ask, "Whose yard is this?" The operating premise of liberal welfarism has to be challenged -- that government has the right to utilize progressive tax rates to redistribute people’s earnings. A uniform tax rate system must be proposed, fought for, and enacted into law. Until this is done, the social welfare game of "tax and spend, elect and re-elect" cannot be reformed. Ever-expanding, centralized government cannot be stopped.
As I have pointed out in previous articles, the reason why abolishing progressive income tax rates is so important is because there would then be no incentive for voters to try and gain their life’s status by relentlessly increasing government spending, i.e., by redistributing wealth from the pockets of their neighbors.
Progressive tax rates are the major cause of explosive government spending because they create large constituencies of voters that pay zero taxes and equally large constituencies that pay next to zero taxes. Thus, they spawn a "something for nothing" voter mindset. An irresponsible electorate then evolves to demand a steady expansion of government services. This is one of the cardinal laws of economics. If government benefits are free (or nearly free), demand for them will be infinite.
In order to overcome this infinite demand for government spending, we must eliminate the "something for nothing" aspect of our tax system. In other words, we must end all deductions, special breaks, loopholes, and rate progressivity. This will necessitate the adoption of a uniform tax system that does not convey favors to anybody.
Since voters would then have to pay for all government subsidies and pork barrel programs proportionately out of their own pockets, they would lose their overwhelming desire for such subsidies and programs. Voters would then begin to favor politicians who advocate "reduction" of government instead of its "constant expansion" because this is the only way they could get their own taxes reduced and more freedom into their lives. All kinds of Ron Pauls would begin to appear in congressional elections every two years because the electorate would demand it.
A uniform tax rate is thus the only way to restore a responsible electorate and legislature. And as we will soon see, it is the first crucial step to total eradication of the income tax and the IRS.
Forbes-Armey Tax Ignorance
So far, Republicans have shown little indication that they grasp the importance of such thinking. Their love affair with the Forbes-Armey flat tax plans shows either that their true motive is merely more centralized government, or that they are frightfully ignorant about the requisites of genuine reform. This is because the Forbes-Armey flat tax plans actually increase the rate progressivity of our income tax system. This they do by dramatically increasing personal exemptions for the taxpayer. A family of four’s total exemptions leaps from $16,700 under our present system to $34,000 under Armey’s version of the plan and $36,000 under Forbes' version.
According to the Dallas based Institute for Policy Innovation’s calculations (UPI Impact, November 1997), the bottom 25% of the population in America presently pays zero taxes. This means they get their government services free, which means their demand for those services is infinite. According to the IRS Statistics of Income Division, the next 25% tier pays only 3.97% of total income tax revenues. This means that they get their government services almost free, i.e., for pennies on the dollar. Thus 50% of the American electorate pays zero or next to zero taxes, which creates infinite demand for government services among these voters. This guarantees that, except for rare contrarians like Ron Paul, all politicians that come before the voters every election year are going to be pushing more and more programs and handouts. That 50% block of voters, hungry for free services, is a beast that cannot be ignored.
The Forbes-Armey flat tax plans will greatly exacerbate this problem because, by dramatically increasing personal exemptions for the taxpayer, they will greatly increase the 25% segment of voters who receive government services free. This, of course, must increase the segment of voters who possess infinite demand well above its present 50%. Surely any reasonably intelligent human can see that this will make an already rapacious government grow even faster and produce even more intrusive bureaucracies. It will firmly entrench the centralized mega-state in Washington for decades to come!
If we truly wish to reduce government, then we must truly abolish progressive rates and move toward a genuine uniform rate system for everyone rather than away from it as the Forbes-Armey plans do. This is an unalterable law of political and economic reality that must be faced instead of evaded or circumvented.
Challenging the Establishment Tyranny
Naturally the liberal establishment raises quite a squawk over any mention of tax uniformity. "Would it be wise," they ask, "to radically change our tax system so as to tax all Americans the same percentage of what they earn or what they spend? We believe that the present tax code is fundamentally more fair than a one-size fits all system."
Liberals imagine themselves as being idealistic and just on this issue, but in reality their defense of our present arbitrary tax system is motivated by that natural human desire to protect the power base that feeds one politically, ideologically, and financially. The liberal establishment's massive power base in this country is fed by the progressive income tax code. God forbid upsetting such an elastic, arbitrary system of privileges and favors that can buy so many votes so easily.
In answer to the liberal defense of today’s tax system, it is very instructive to examine the fundamental principles for which our nation stands. What wisdom on this issue can we glean from the Founding Fathers and other salient intellects throughout our history? Did they approve of a tax code that was arbitrary, progressive and privilege based? Or did they support UNIFORM rates because uniformity was the only way to avoid the evolution of class war, factions, and the tyranny of centralized government?
Thomas Jefferson astutely summed up the essence of the tax issue when he wrote, "The true foundation of republican government is the equal right of every citizen, in his person and property, and in their management." 1
Alexander Hamilton firmly denounced the use of arbitrary (i.e., unequal) rates: "Whatever liberty we may boast of in theory, it cannot exist in fact while [arbitrary] assessments continue." 2
Philosopher David Hume declared, "The most pernicious of all taxes are the arbitrary. They are commonly converted, by their management, into punishments on industry.... It is surprising, therefore, to see them have place among any civilized people." 3
In the early 19th century, renowned Scottish economist John Ramsey McCulloch wrote, "The moment you abandon the cardinal principle of extracting from all individuals the same proportion of their income or of their property, you are at sea without a rudder or compass, and there is no amount of injustice or folly you may not commit." 4
Later in the 19th century, Supreme Court Justice Stephen J. Field wrote, "If the Court sanctions the power of discriminating taxation and nullifies the uniformity mandate of the Constitution...it will mark the hour when the sure decadence of our government will commence." 5
The reason why the Founders and all the prominent intellects of our history opposed a progressive income tax is because it violates the principle of "equality of rights under the law," which is dramatically enshrined in the Declaration of Independence as the fundamental axiom of our nation’s existence. Because different classes of society are assessed different rates under a progressive tax system, American citizens are denied an equal right to the disposal of their property (i.e., their income) and thus denied equal protection under the laws of the land.
In light of the above, it should be obvious that a progressive income tax is incompatible with "equality under the law." It is therefore unconstitutional and unjust. It goes contrary to everything our country stands for. It has no moral justification, and it has no practical ground upon which to stand.
The Naivety of IRS "Reform"
This then is the first requisite for our leaders in Congress -- to face up to the unconstitutionality of progressive rates. But equally as important, our legislators must also stiffen their spines against the bete noir of all taxpayers -- the IRS. Republicans have always been sensitive to the people's growing unrest over the IRS, but as in the past, they approach the issue in a typically naive and superficial manner.
"Yes, the IRS is known to get out of control," GOP legislators exclaim in tones of appropriate urgency. "But we intend to rein in IRS abuse." Sure. Like a coterie of schoolgirls will rein in mafia lords stomping through its neighborhood. Like massage therapy will rein in cancer.
Republicans are living in a dream world if they think they are going to "reform" the IRS in any meaningful way. The nature of the IRS and its role dictate that it will always be what it is. It must be intrusive, tyrannical, and ruthless in order to perform its job of feeding the tax devouring Gargantua that the Federal Government has become.
Consider this law of life: The nature of an entity and the nature of its role in existence dictate its personality and its methodology. Therefore, one does not sit children down with cobras as if they were Teddy Bears to be hugged. One does not try to experience a hurricane like one contemplates a sunset. Rocks cannot be transformed into orchids. And the IRS is not going to be made into a group of smiling federal receiving clerks to help us solve life's vicissitudes.
Congressional Republicans now imagine that they can somehow tame this Frankenstein they have so cavalierly built over the past 40 years. They are deluding themselves.
Trying to "rein in" the IRS with tax reforms such as the Forbes-Armey approach will be about as effective as trying to rein in a snorting rhinoceros with kite string. The IRS is out of control because the Federal Government is out of control. It operates above the law, and in an intimidatory manner, because that is the only way it can perform its job of collecting enough money to pour down Gargantua’s gullet in Washington.
The answer to this tyrannical mess is clear: Forget about "reining in" the IRS and eliminate this Orwellian agency! But to do so, we must eliminate the income tax itself. And the only way to eliminate the income tax is to reduce government spending to a low enough level so that it can be funded by flat income tax rates in the neighborhood of 7%. At this level, a national sales tax could then be substituted for the income tax and collected by the state sales tax agencies. The IRS could then be disbanded because under a national sales tax, the state sales tax agencies (already in place) can collect all tax payments and forward them to Washington.
A national sales tax is not salable at this time because it requires a 15%-23% rate at today's government spending level. So spending needs to be reduced dramatically first. The American people would readily vote for a 7% national sales tax, but they will continue to balk at a 15%-23% national sales tax. It's just psychologically too much to overcome.
The first step in gaining this goal is to eliminate "infinite demand" for government services. And as we have seen, the only means to accomplish this is to enact a true equal-rate income tax, which means no exemptions for anyone. This will effectively reverse the culture of spending in Washington and begin a steady reduction of government.
How to Handle the Establishment Backlash
As I have pointed out in previous articles, liberals and me-too conservatives will naturally attack any genuine equal-rate tax as unfair to the poor people. So if a floor is to be established under which no one will have to pay the tax, i.e., an exemption for those under the poverty level, then a provision should be included in any equal-rate tax bill stating that those who are exempted from paying are also to be excluded from voting. After all, we deny children the right to vote. Why do we do this? Because they are not mature enough to vote responsibly. The same principle applies to men and women who are exempt from taxes; they will never vote responsibly. They will possess "infinite demand" for government services.
Liberals will, of course, protest vehemently upon hearing such a proposal; but if one thinks the issue through, he will see that it is really the only solution if a large segment of voters is going to be exempt from paying taxes. There is no other way to stop infinite demand for government services unless everyone who casts a vote has a stake in doing it responsibly.
Both logic and history provide ample justification for societies to decide who among their members are to receive the franchise. All nations throughout the history of democratic governments have always determined according to certain criteria who should, and who should not, be allowed to vote. Never does any nation allow EVERYONE to vote.
For example, we stipulate that all those who are under 18 years of age cannot vote. We also say that all those who are mentally unbalanced cannot vote. So we the citizenry decide who can and cannot vote. And our decision is based upon who we feel will be responsible. Reason and experience, if used judiciously, are very good guides as to who this should be. Why then cannot we the citizenry redefine from time to time our conception of what constitutes "responsible?"
Societies have always done such defining and redefining. In 1787, the Founders required voters to be male and to own property. That, of course, is too extreme according to our way of thinking today. Women are obviously capable of voting responsibly, and so are non-property owners. The requirement of property ownership was gradually rooted out of the system over the decades by the state governments; and the states of Wyoming, Colorado, and Utah led the way for women's suffrage by granting voting rights to women in the 1890's. This culminated in 1920 with the 19th Amendment to the Constitution to allow all adult women to vote throughout America. Again in 1971 we re-evaluated our conception of responsibility when we lowered the voting age from 21 to 18. (Unfortunately this latter reform was a mistake. We should have raised the age to 25 years old; but that's another argument for another day.) The point is that we, as a society, have the right and the duty to define just who can and who cannot "vote responsibly." Our modern intellectuals and politicians have egregiously defaulted on this by allowing everyone to vote even though they don't pay anything to support the system. This must be corrected.
The major roadblock to overcome here is that we have all been taught that unlimited democracy is some sort of nirvana, and that everyone must vote in order for us to have a just, civilized society. Thus any policy to the contrary will be a tough idea to embrace. But embrace it we must, or we will collapse into dictatorship over the next two decades. Think of it this way. Is it rational to continue creating "infinite demand" for government services among 50% of the people, while attempting to reduce government? No, it's not. Just like it's not rational to try and put out a bonfire with buckets of water while tolerating a massive fire hose pouring kerosene into the fire.
The dictatorial powers that are developing in Washington today have come about because 50% of the citizenry possess "infinite demand" for government services. This demand is the kerosene hose that is allowing the fire of government to relentlessly expand. We the producers of America are becoming slaves to these tyrants and their ever-expanding fire. Continuing to go up against such an inferno with little water buckets of pseudo tax reform (such as the Forbes-Armey "flat" tax plans) is senseless and embarrassing to anyone who can think clearly.
In this writer's opinion, the ideal solution to this problem of infinite demand among the voters is to provide no tax exemptions at all, and simply require everyone to pay a 10% flat tax no matter what their income is. This would comport best with the principle of "equality under the law." Everyone pays proportionally, i.e., the same rate. Thus, the law treats everyone the same, and no one's vote would have to be denied. Such a policy would quite quickly bring about a dramatic reduction of government, and as a result, a substantial reduction of taxes. We could probably have a flat tax of 5% within a decade or two. Is it too much to ask a man who makes $5,000 in a year to pay $250 to support the government that protects his rights and preserves domestic order for he and his family? I don't think so.
If this is too horrifying to contemplate for the advocates of "compassionate conservatism," then such conservatives need to seriously rethink what has to be done to save our country. Is not the underlying source of all government growth today the fact that we have become a nation of voters and legislators who are living irresponsibly and totally out of control? Thus our paramount concern must be to RESTORE A RESPONSIBLE ELECTORATE AND LEGISLATURE. But this cannot be done if voters get their services free. The only way voters will act responsibly is if they are contributing proportionately to the cost of government. This is not rocket science; it is simple, basic, observable human nature. To blind ourselves to this truth (as liberals have done for 90 years) is inexcusable.
To all pundits throughout America who profess to favor a free society, if you are too squeamish to demand eradication of the primary source of exploding government, then our society is doomed. You might as well fold up your tents and head to the local pub to wallow in inebriation every day, rather than to your computers and printing presses to try and influence your fellow man as to the true meaning of our country. If you can't bring yourselves to tell the truth to the people, then you have no business presenting yourselves as educators, writers, galvanizers. You have fashioned a make-believe world and are merely playacting as patriot intellectuals.
Four Steps to Ending the Income Tax and the IRS
Radical tax reform is the great unifying cause that can break the stranglehold collectivism has over our country's politics. Americans are ready to scrap the income tax. Yet this monumental policy reform will not happen unless conservatives, libertarians and independents unify behind the only viable path to that goal. The path is constructed of four steps:
1) We must truly end progressive rates by enacting an equal-rate tax for everyone. It would start at a revenue-neutral rate somewhere between 10%-15%. 2) This reform will allow us to then dramatically reduce government spending to a level that can be funded with 7% rates and lower. 3) This will allow us to then substitute a national sales tax for the income tax. 4) This will allow us to then abolish the IRS because the state sales tax agencies can collect all payments and forward the money to Washington. Voila! No more income tax, and no more IRS. The federal Leviathan would be stopped. A constitutional amendment could then be passed prohibiting the Federal Government from taxing the incomes of the American people in any way whatsoever.
History is strewn with the wreckage of societies whose leading pundits and politicians locked themselves into an erroneous mindset and refused to budge from their flawed perspective in moments of great crisis. Let us hope that will not be the case with America on this issue. The times we live in call for bold, innovative leadership, not misinformation and business as usual. Our present tax reformers on both the left and right are putting forth nothing but dreadful plans; and the Leviathan is chortling with glee at their imbecility. America needs a Patrick Henry and a Samuel Adams to come forth. She needs clarity and a principled stand, not the pusillanimous ambiguity that oozes today from our wishy-washy solons on the Potomac.
Notes
1. Letter to S. Kercheval, 1816. Saul K. Padover, ed, Thomas Jefferson On Democracy (New American Library, no date), pp. 34-35. Emphasis added.
2. Harold Syvelt, ed., The Papers of Alexander Hamilton, vol. III (New York, 1962) p. 104. Cited in Charles Adams, "Our Income Taxation: The Darker Side," Manassas, VA: Citizens for an Alternative Tax System [no date], p. 6.
3. David Hume, The Philosophical Works, vol. 3 (London, 1882) pp. 356-360. Cited in Adams, Ibid, p. 6.
4. J.R. McCulloch, Taxation and the Funding System (London, 1845), pp. 141-143. Cited in Charles Adams, For Good and Evil: The Impact of Taxes On the Course of Civilization (Lanham, MD: Madison Books, 1993), p. 365. Emphasis added.
5. Justice Stephen J. Field, Pollock v. Farmers Loan and Trust Co., 157 U.S. 607 (1894). Cited in Adams, Ibid., p. 370.
© 2005 Nelson Hultberg Americans for a Free Republic
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Tuesday, October 25, 2005
Further Work with Netscape
Netscape v7.2 actually works better than iev6 for this. iev6 gives an error message and keeps some html code when you try to edit. Netscape v7.2 does not do this. The time stamps on the blog are not accurate for my time zone. Will have to find the setting for that. Looks like Netscape v7.2 will be my prefered way of getting to this blog and writing my musings. Will not try for a good time stamp.
Netscape, Internet Explorer, Netscape
Just tried Netscape. It works better than Flock for blogging.
Boy Flock has got a lot of work to do to even get into the
ball game.
The should have a transparent editor; and very simple way
to get photos into your blog; when they use other blog sites
the starting and end should be intuitive and simple; not the
case with Flock; they have their own precious way of doing
things which is as geekie and obtuse as anything Microsoft
ever came up with.
Boy Flock has got a lot of work to do to even get into the
ball game.
The should have a transparent editor; and very simple way
to get photos into your blog; when they use other blog sites
the starting and end should be intuitive and simple; not the
case with Flock; they have their own precious way of doing
things which is as geekie and obtuse as anything Microsoft
ever came up with.
Flock vrs Internet Explorer
Read an article about Flock. Tried it. Internet Explorer works better! Flock was supposed to make blogging easy! Not so! Internet Explorer is easier to use for blogging than Flock. There should be an easy was to go from Flock into this editor for a blog. It is easier to get here using Internet Explorer. Flock -100 Internet Explorer +100!!! Plus the setup for Flock results in an error message as the editor comes up. Probably because Flock is a beta release but still something sold as software to make blogging easy is now unnecssarily hard and difficult to use!!! Just used Flock and iev6 to get to this blog. Much, much, much easier to use iev6 than to use Flock. If Flock does not get the UI into better shap they will not even be an also ran in the browser wars. Right now their UI is not even third world class!!!!
Monday, October 24, 2005
October 24, 2005
Trying to get this software to work MY way! Has a mind of its own.
