MCViewPoint

Opinion from a Libertarian ViewPoint

Posts Tagged ‘direct taxation’

The Future of Direct Taxation – Doug Casey’s International Man

Posted by M. C. on October 12, 2021

“The Free World,” notably the EU, U.S., and Canada, have passed “bail-in” legislation; that is, legislation that allows banks to confiscate deposits, should the banks decide that an “emergency” exists. The depositor would have no rights, no recourse. The bank right now can simply rob you of your deposits, with the full approval of the government.

To this is added a bank policy that’s been popping up all over the world – restrictions on the size of transactions that you’re allowed to make with your own money. The higher the transaction amount, the more “suspect” you are of being involved in criminal and/or terrorist acts, which is to be reported to the authorities.

https://internationalman.com/articles/the-future-of-direct-taxation/

by Jeff Thomas

The image above may be considered by some as unfair, as it suggests that taxation is a form of robbery. Well, let’s check the dictionary for a definition:

“Robbery is defined as taking away of goods or property by force or intimidation.”

Well, that certainly fits the bill. Of course, Inland Revenue (or the IRS, CRA, etc., depending upon where you’re from) would say that it’s not robbery if it’s lawful. As I see it, the fact that a law has been passed to allow robbery does not change it from being robbery. It’s merely institutionalised robbery.

Academics might say that we elect representatives to run the central government and those representatives are then entrusted to pass the laws, which we must then meekly follow. Again, this argument doesn’t hold water for me, as these individuals may have been elected, but they most certainly do not “represent” me if they pass a law that says it’s okay to rob me. No government has ever asked me for permission to take my money simply because they want it, and I have never given it.

If there’s any question as to whether the above definition is correct, I’d be happy to see it put to the test: The internet makes possible individualised referendum. If we were to all be questioned as to whether we wish to be taxed, we could easily decide on an individual basis. I’m guessing that I wouldn’t be alone if I were to say, “No, thank you.”

But, to be fair, I do approve of taxation, but only indirect taxation – taxation based on consumption. (This is lawful in my own country, the Cayman Islands, and I receive good value for money.)

Many would say that it would be impossible to operate any government without direct taxation, yet this is not so. In the U.K., income tax was initiated in 1799 to pay for the Napoleonic Wars, and the tax never went away. In Canada, income tax was initiated in 1917 to pay for World War One, and the tax never went away. In the U.S., income tax was initiated in 1913 as a means to compensate for lost revenue due to recently decreased tariffs (clever), and the tax never went away.

In most of the world, taxation is regarded as an imposition and it’s considered understandable that no one really wants to pay tax. The U.S. government promotes a rather different view – that the payment of tax is a patriotic duty. In the U.S., a tax amount can be demanded and the onus of proof is on the citizen as to whether the IRS demand is correct. (In other words, guilty until proven innocent.)

But in almost all countries, payment of tax is described by governments as voluntary, as citizens file their tax forms, pay their income tax, and then hope for the best. The governments don’t actually break down your door and take what they have decided is the “right amount.” (In the U.S. today, through civil forfeiture, billions of dollars in money and goods have been taken from citizens without even necessarily charging the citizen with a crime, but, still, at present, tax collection is handled, “voluntarily”).

But is income tax essential to keep a government alive? Or is it possibly only essential for those countries that conduct wars? Well, a part of the answer comes in the fact that income tax is so commonly justified as repayment of war debt. Presumably, if the political leaders had not engaged in war, they never would have had to introduce income tax to pay for the war. Certainly, Canada and the U.S. went through their greatest historical expansion periods (the last half of the 19th century) and the industrial revolution, without direct taxation.

By contrast, my own country, in its 500-year history, has never declared war on another country. And it has never had direct taxation of any kind.

Let’s repeat that. It has never had income tax, corporate tax, capital gains tax, inheritance tax, or even VAT, property tax, or sales tax in all of its history. Most of our tax revenue comes from company fees and consumption tax. Of course, this means that our government is limited in how big and powerful it can become, but this is something we look upon as a highly positive by-product. Indeed, the lack of direct taxation is regarded as an insurance policy against the creation of an overly powerful government.

So, it’s entirely possible for a country to have no direct taxation. In fact, few of the world’s existing countries began their life with direct taxation (although in recent times, new countries have often regarded direct taxation as a given.)

See the rest here

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The High Price of a “Free Lunch” | Mises Wire

Posted by M. C. on September 7, 2019

Two of the greatest periods of GDP growth in the US, 1820 to 1850 and 1865 to 1900, had deflations of 50%. Deflation should be hailed instead of being scorned as it is currently by most professional economists and central bankers.

https://mises.org/wire/high-price-free-lunch

One of the Ten Commandments is “thou shalt not steal,” and theft is generally condemned in most religions, yet our religious leaders and followers have essentially turned a blind eye to government theft.

Based on a policy of envy, Bernie Sanders, for example, has bluntly stated he intends to tax the rich to fund his programs, as though the word rich itself justifies theft. The current crop of other democratic candidates is offering a beehive of free programs without any real discussion on how to pay for them.

Three Ways to Pay for the State

Governments can finance these programs in only three ways: (1) direct taxation of its citizens, (2) borrowing money, and/or (3) printing money. Few citizens understand the nefarious effects these methods can have on their own well-being. None of them provide “free” money.

The first and most obvious way to raise money is by direct taxation. When you pay your income tax or sales tax, you are brutally aware of how much money is being taken out of your own pocket. If the government only uses these taxes to fund itself, it would quickly run into serious taxpayer opposition; would we still be in Afghanistan today if the government took your flat-screen TV or cell phone to pay for soldiers half a world away?

The second way to raise money is by government borrowing. When the government borrows, it takes money from people who are trying to save, promising a seemingly riskless asset: a government bond. The government has displaced money that would normally have been used to invest in a new computer or machines or buildings, or even a consumption good as a new car. When the government borrows, there are real sacrifices today, not in some distant never existing future when the debt is repaid. There are real resources that are extracted from the economy in the now and present. This is a good example of what is seen, what is not seen and what should be foreseen. Government borrowing finances government consumption which crowds out investment spending that would normally have created a more prosperous economy.

Government Crowds Out Other Borrowers

Now, government borrowing is normally also constrained. The more the government borrows, the greater the demand for loanable funds and the higher the rate of interest. Here again, taxpayers who are also trying to borrow to buy a car or a house would soon realize that it’s the government borrowing that is crowding them out of the loan market. Of course, there is a point of no return for government debt, when the markets doubt a country’s ability to repay this debt — as Greece discovered in 2010.

Now, the obvious question is, how can the US or any other country run record budget deficits and have rock-bottom interest rates at the same time? The answer is the third way by printing money, or often called “quantitative easing.” This way also impacts the government’s ability to borrow.

A simple example will make this path of funding clearer. Suppose an economy has $10 to purchase 10 pencils. The price of the pencils will be $1 each. If the price increases (inflates) to $2 each while the supply remains constant, there would be 5 pencils that can’t be purchased, but if the cost of the pencils were reduced (deflated) to only 50¢ each, there would be people holding $5 looking to purchase nonexistent pencils. Supply and demand in the marketplace give us a price of $1 per pencil. Now suppose the economy is growing and is now producing 20 pencils. Because there are now more pencils in the supply pipeline, the price of pencils will drop to 50¢, a deflation rate of 50%. Deflation here reflects society pushing back the constraint of scarcity. It cannot eliminate scarcity or all prices would be zero, but this deflation shows an increase in the standard of living for everyone.

Two of the greatest periods of GDP growth in the US, 1820 to 1850 and 1865 to 1900, had deflations of 50%. Deflation should be hailed instead of being scorned as it is currently by most professional economists and central bankers.

Now, returning to our initial example of $10 and 10 pencils. Suppose the government prints another $10 to buy pencils but our supply of pencils has not changed. The money supply has doubled so we now have $20 chasing 10 pencils. The price for each pencil will inflate to $2, and the government will be able to buy 5 pencils by cutting the purchasing power of money in half. In other words, you have been robbed or taxed 5 pencils because your cash can now purchase less than before.

If at the same time the economy is growing, then we would have $20 chasing 20 pencils and the price of pencils would have remained at $1. There is no inflation but the rise in real income, exemplified by the 10 pencils that would normally have gone to the citizenry, has been siphoned off or stolen by the government. To a large degree, this is what has been happening since we moved to a fiat currency system in 1933. The central bank has been keeping the CPI in check but has created massive asset inflation, a massive redistribution of income from the poor to the rich and has been a major contributor to financing ever-growing government expenditures.

As Lord Keynes said,

By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but at confidence in the equity of the existing distribution of wealth.

Many in the lower rungs of the economic ladder blame their declining real incomes, and other inequities, on capitalism. They should, instead, be blaming the central bank.

When the government borrows, it increases the demand for loanable funds, and with a fixed supply, interest rates should normally rise. If at the same time the central bank is increasing the supply of loanable funds by printing money to buy government bonds, then interest rates will decline if the increase in supply is greater than the increase in demand. Here, we are basically monetizing the debt. Worldwide, this printing has currently driven interest rates to zero or into negative territory. Using the economy as an excuse, central banks have been monetizing government debt, alleviating any pressure on governments to control their spending.

Continuing from Keynes,

As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Many economists are currently predicting we will experience another devastating recession in the US. Will we repeat the errors of the past by trying to fix a credit crisis with more debt? Or will we find a permanent solution by ending central banking, fractional reserve banking, and the government’s ability to borrow and print money? If we do, any future government spending would require an immediate and clear sacrifice on the part of the citizenry: unlike what politicians would have you believe; there is no free lunch.

 

 

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