Chapter: 18

Kleptocracy

“A government with the policy to rob Peter to pay Paul
can be assured of the support of Paul.”—George Bernard Shaw

SYNOPSIS

The United States of America and the individual states finance their operations by stealing. The theft is called taxation.

A taxpayer’s acquiescence in having his property taken by taxation can no more be attributed to voluntary and willing consent than a man’s submission to induction into an army that occurs under threat of imprisonment or death for refusal to submit to conscription.

Taxation causes involuntary servitude. Not only must the taxpayer work to earn the wherewithal to pay the tax, he or she must also work to prepare a report to the state, by means of a tax return, to inform the state how much tax is required.

No business corporation or private organization of any kind can legally send people with guns to the home of an individual or to a business establishment to compel payment for its services or obedience to its rules. Only the state claims such a right.

Tax collection is such a big business, that compliance with U.S. tax laws consumes over 2% of the gross domestic product. Employers are involuntary, unpaid tax collectors of the taxes on their employees. Tax advisors are paid by taxpayers to calculate the amount of tax due and prepare reports of tax due to the federal and local states.

Americans pay taxes directly and indirectly. The indirect taxes are probably greater in amount than the direct taxes. It is a reasonable estimate that the taxes on consumption are higher than the taxes on income, in that the totality of taxes at every step of production probably at least doubles, if not quadruples the cost of all goods and services.

Many Americans pay no income tax, but they pay many other taxes, and they are taxed indirectly by the costs of taxation added to everything they buy. For example, it has been calculated that there are 151 taxes on a loaf of bread.

There are taxes that most people do not realize are taxes, for example citations for parking violations and for moving violations while driving a motor vehicle. The police officers who issue such citations and the courts that enforce them are engaged in the process of levying and collecting taxes.

The perpetual loss of purchasing power of the U.S. dollar by inflation is another form of indirect tax, that bears most heavily on people who can least protect themselves from inflation: the working poor, people whose financial assets are primarily in bank accounts, and retired people on fixed incomes.

The spending of the federal and local states in America is out of control. All levels of what is called “government,” and in CTLR is called “the state,” are spending more than they take in from taxes.

The federal state has run up total debt and unfunded liabilities that amounted to $211 trillion as of the year 2010. This is more than Americans can ever pay even if they sold all their assets, including housing and financial assets, to pay these liabilities.

Taxing “the rich” more heavily would do next to nothing to alleviate the deficits and debts of the federal and local states, as taking all of the income and all of the assets of “the rich” would not make even a little reduction in debts and deficits, no matter how one expands the definition of who is rich. And such taxes could be collected one time, and one time only, because  they would wipe out the fortunes of the rich.

The tax collection branch of the state has overwhelming power over the lives of Americans, taxing their income, their investments, virtually their  every daily transaction, and the assets they own at time of death, or give away during lifetime.

Even citizens who live and work abroad must pay tax on their foreign-earned income. The U.S. has enacted laws to require foreign banks to provide such detailed reports about American depositors that foreign banks are refusing to do business with Americans, including Americans who have lived in a foreign country for such a long time that their financial activities are far more related to their country of residence than to the Unites States.

Thankfully, it is still true that Americans and permanent non-citizen residents enjoy more freedom than people in any other country.

Nevertheless, it is a poor sort of freedom in which the American people have conceded to the state the power to steal their property to provide services they may not need and may not want, including the power to drag the country into foreign wars that many Americans despise and abhor.

MAIN TEXT

The United States of America is a kleptocracy, a country ruled by thieves. The federal and local states finance their operations by stealing. The theft is called taxation.

Theft consists in taking the property of another without the owner’s consent. Therefore, taxation is theft. Although some people may believe that they consent to be taxed, their consent is irrelevant. The state demands payment of the tax and backs up its demand with penalties for non-payment, forcible seizure of property and even imprisonment if the taxes cannot be collected by any other means.

The conventional ideological justification for taxes in a political democracy, such as the United States of America, is that taxation is authorized by law and that the laws represent the will of the people. However, few Americans have ever consented to be taxed.

The U.S. Constitution, in Article I, section 8, authorizes Congress to lay and collect taxes. The U.S. Constitution was the product of no more than fifty-five people. 1 The Constitution was ratified by state legislators chosen by the small minority of people then allowed to vote, namely white males who owned land. At the time, the right to vote was denied to women, slaves, children below the age of majority, and white males who did not own land. The makers of the Constitution have long since died. Neither their descendants nor the descendants of any of their contemporaries were ever asked to consent to taxation. 2

Famed author Mark Twain had the following relevant and cogent comments about the  U.S. Constitution, in the context of his testimony to Congress advocating a perpetual right of ownership of copyright and other intellectual property when Congress was  considering a copyright law. “I am aware that copyright must have a limit, because that is required by the Constitution of the United States, which sets aside the earlier Constitution, which we call the decalogue. The decalogue says you shall not take away from any man his profit. I don’t like to be obliged to use the harsh term. What the decalogue really says is, ‘Thou shalt not steal,’ but I am trying to use more polite language.” 3

Jay Snelson, in his V-50 lectures, 4 illustrates the thieving nature of taxes with the following example. Three individuals, A, B, and C are neighbors. A covets B’s high quality stereo system.  If A enters B’s residence and takes the stereo system without B’s consent, A has committed theft.

Suppose A asks and receives the consent of C before taking B’s stereo. C gives his consent, and then A takes B’s stereo. Is this no longer theft? What if A requests and receives the consent of a large number of people, such as a majority of the people living in the neighborhood where A and B live, or a majority of residents of the state, or of the country in which A and B live – is this no longer theft?

It is indeed theft. This is because in each instance, B’s consent is lacking.

Andrew Galambos 5 defines coercion as the successful and intentional interference with the property of another. Under this definition,  A’s taking of B’s stereo system is coercion, in the form of theft, no matter how many people agree to it, so long as B does not agree.

A taxpayer’s acquiescence in having his property taken by taxation can no more be attributed to voluntary and willing consent than a man’s submission to induction into an army that occurs under threat of imprisonment or death for refusal to submit to conscription.

Taxes are paid because they must be paid, not because the taxpayer wants to pay. Those who have accepted the idea that in the United States of America, or anywhere else, taxpayer compliance is voluntary should consider how many people would pay taxes if payment were truly voluntary. Where taxes are collected there is always in place an elaborate mechanism of coercion to extract the taxes from the public.

Many people may support taxation as long they think they benefit from someone else’s tax payments. Probably such people are not aware of the enormous amount of tax collected from everybody indirectly – including themselves – through the imposition of taxes on every level of production, and therefore on consumption, a topic to be examined further below.

Galambos explained that when a thief is successful in taking property of another, the thief has enslaved the victim of his theft because the victim had to work to acquire the property in the first place, and must work to acquire the replacement for the stolen property. In effect, the victim of the theft has worked for the thief. This is involuntary servitude, and involuntary servitude is slavery.

Taxation causes involuntary servitude. Not only must the taxpayer work to earn the wherewithal to pay the tax, he or she must also work to prepare a report to the state, by means of a tax return, to inform the state how much tax is required.

The origins of kleptocracy are summarized by Jared Diamond in his book Guns, Germs, and Steel (1997), as follows.

“Once food can be stockpiled [in an agricultural society] a political elite can gain control of food produced by others, assert the right of taxation, escape the need to feed itself, and engage in full-time political activities. Hence . . . agricultural societies . . . organized in chiefdoms . . . and kingdoms are . . . able to mount a sustained war of conquest. . . A stored food surplus built up by taxation can . . . be used to feed professional soldiers. . . Stored food can also feed priests, who provide religious justification for wars of conquest. . . [C]hiefdoms introduced the dilemma fundamental to all centrally governed, non-egalitarian societies. [They can] function . . . as kleptocracies, transferring . . . wealth from commoners to upper classes. . . [Then it becomes] a matter of just how large a percentage of the tribute extracted from producers is retained by the elite . . .” 6

Through its political power the state collects its revenues through brute force. 7 This claim of a legally sanctioned right to use force sets the state apart from all other institutions. In contemporary life no other institutions claim such a right—no business corporation or private organization of any kind can legally send people with guns to the home of an individual or to a business establishment to compel payment for its services or obedience to its rules. Only the state claims such a legal right.

The justification for state taxation is the supposed security and services provided by the state. However, if you have read the chapter entitled “Wars of the United States of America,” you will see that the state has done a very poor job in protecting its citizens. In the introductory chapter entitled “Replacements for the Political State,” we explain how, without the state, there could be fire protection, police protection, national defense, health care for all, mail service, streets, roads and highways, mass urban transit, schools and education, money, dispute resolution services far better than the state’s courts to resolve private disputes, etc. All of those services and functions are either being provided already by free, private enterprise, or could be provided by means of social arrangements already in existence.

Taxes on Americans’ income

An individual residing in California who earned $60,000 in taxable income in the year 2012 would have had 37.5% of his income taken for federal and state taxes on earned income. A married couple with $60,000 of taxable income from one income earner would have had 29% of their earned income taken for federal and state taxes. The details are set forth in the following note. 8

Starting in 2014 federal law requires employers to provide medical insurance or pay a tax, and requires individuals to buy medical insurance, or pay a tax, if medical insurance is not provided through employment. The likely cost of medical insurance for a healthy 40-year old non-smoker in California would be at least $3,000 a year. 9

The total of taxes plus medical insurance would come to 42% of income for individuals at the $60,000.00 income level and 37% for a married couple with $60,000.00 of taxable earned income from one of the spouses. 10

Assuming these taxpayers are renters, not homeowners, and spend $1,500 per month on rent (not a great deal in much of Los Angeles), after taxes, medical insurance and rent, only about $17,000 per year (28% of earned income) would be left for everything else (food, transportation expense other than gasoline, etc.)

NOTE: Although many lower income people pay little or no income tax, they still bear a heavy burden of taxation, as described below. 11

Taxes on consumption by Americans

Even those Americans who pay little to no income tax are, nonetheless, heavily taxed. They are subject to payroll taxes for Social Security, Medicare, etc. They pay retail sales tax on much that they buy. In addition to retail sales tax, there are heavy taxes built into the prices of all the goods and services they consume. A relatively complete list of all the taxes on consumption would be lengthy, because there are so many of them. A few examples follow.

151 taxes on a loaf of bread. A study done during the 1960s concluded that there are at least 151 taxes on a loaf of bread. 12

Gasoline The CEO of a large petroleum company estimated that when the retail price of gasoline was about $1.00 a gallon (in 1998), absent all the taxes at every level of exploration, production, and distribution, an oil company could operate very profitably at a price of ten cents a gallon. If the foregoing is true, it means that in 1998 taxes accounted for 90% of the retail price of gasoline to consumers in the United States. Taxes on gasoline are even higher in Europe. 13

Airfare  A typical airline ticket is subject to 17 different aviation taxes and fees. They add up to about 20% of a person’s airfare. 14

Wireless telephone bills  Wireless telephone bills in California include $20 per month in federal and state taxes and fees as of the year 2013.

Hidden taxes in utility bills  According to a Los Angeles Times report of October 14, 2013, utility users are paying, through their electric and gas bills, for a variety of energy efficiency and alternative energy programs. However, the money has gone mainly into failed projects, academic research centers and private companies that are part of the political patronage system of the state. For example, California is spending nearly $15 million to build 10 hydrogen fueling stations, even though just 227 hydrogen-powered vehicles exist in the state today. According to a report from the state’s Legislative Analyst’s Office, the state soon will be spending more on these programs than it spends on the University of California system.

The alternative-energy projects are largely financed by small charges on electricity bills or obscure consumer fees that are seldom noticed. The California Public Utilities Commission estimates that these projects have added $24 annually in costs for an average residential electrical user and another $12 for gas customers. 15

Taxes in disguise

Taxes come in a variety of ways that, at first impression, do not look like taxes, but have the effect of taxes.

For years, cities in Los Angeles County have been increasing overtime parking fines, which now exceed $60 in some cities. These parking citation hikes impact many low-income renters and young people who live in crowded neighborhoods in buildings that don’t provide parking. The city of Los Angeles brings in $150 million a year from parking citations. This, combined with the fact that politicians can hike rates without upsetting donors or unions, makes increasing parking fines an easy way to alleviate the city’s constant money problems. 16

Citations in Los Angeles for moving violations generally cost $200 to $400, or more, even though no one is injured or endangered by the driver. This is a form of taxation. To those who would question that statement, consider the evidence that Los Angeles traffic police have quotas for a minimum number of citations they must issue, although this is against California state law, and is denied by police officials. 17

This is a widespread phenomenon across the U.S. and Canada, as can be verified by a brief internet search. 18

Paying people for not working; paying people who do not need the payments; paying people for doing unproductive work

In addition to taxes on consumption there are taxes exacted from everybody that increase the cost of everything that people buy through the taking of taxes from productive people to pay other people for not working; to pay people who do not need the payments; and to pay people for doing unproductive work.

When the state pays people not to work, there are more than a few who will take advantage of the opportunity to choose unemployment and leisure rather than choosing work. This is especially so if the income from the state is nearly as much, as much, or more than they could earn through work.

The statements in the two foregoing paragraphs will antagonize both people who are being paid not to work and people who think it is a good thing to tax some people in order to pay others not to work.  Nevertheless, it is undeniable that paying people not to work adds to the cost of living for everybody else in two ways: (1) the outlay is paid for by taxes; and (2) society is denied the production that would otherwise be forthcoming from people who are paid not to work.

Without arguing the pros and cons, the merits and demerits of the various federal and state income redistribution programs, just listing some of the larger programs is illuminating. They include:

  • Federal and state disability income
  • Federal supplemental security income payments
  • Income support under welfare programs of the various local states, counties and municipalities
  • Food benefits under federal programs such as the food stamp and Women, Infants and Children programs
  • Local state workers compensation long-term income awards
  • Unemployment benefits

In the case of some of the programs listed above, there are some people benefiting from the programs who are unable to work because of physical or mental disabilities or both.

However, it is not uncommon for people to get benefits under all of these programs by fraud and abuse.

[NOTE: To distinguish benefits paid by the federal state from benefits paid by a state such as California or one of its political subdivisions, such entities are referred to herein as the local state.]

The number of people receiving Social Security disability insurance benefits has grown substantially following 1984 law changes that liberalized the disability screening process, making such benefits much more accessible to workers with non-life threatening disorders, such as mental illness and back pain. Much of the expansion is due to people seeking disability benefits as a form of long-term unemployment benefit. The costs are huge, potentially posing financial risks to the finances of the disability insurance program and the Social Security system at large. 19

Payment of welfare benefits on the basis of need has created a culture of dependency in which recipients by the millions lose incentive to provide for themselves. 20

Nearly 50 million people, about one American in six, receive federal food stamps. 21

Numerous studies have been published that show the length of unemployment benefit payments has a high correlation to the level of unemployment throughout the various countries that provide unemployment benefits; and that reducing unemployment benefits reduces unemployment. 22

Part of the reason for the large unfunded liabilities of Social Security is that many people who receive benefits do not need them because they have accumulated and saved enough to support themselves in old age.

There is no productive work performed by many millions of people who are on the payroll of the federal state and the local state. Their jobs consist in being cogs in the wheels of the giant wealth redistribution system that has developed over many years, or who are in jobs where they produce no goods or services to exchange with others.

Again, the foregoing paragraph will antagonize many people. Here are examples of payment for work that is unproductive or counter-productive.

If, as is argued in this book, taxation is theft, then everyone employed in the tax system is being paid for anti-social conduct.

The same is true for much of the payments to people in the U.S. military services and to private companies that supply the requirements of the U.S. military, if it is taken as a given that since World War II the United States has expanded its military forces and military spending far beyond the actual requirements of defending the country. That case was argued in Chapter 12 above, “Wars of the United States of America.”

In the introductory chapter entitled “Replacements for the Political State,” a case is made for replacing everything the state does by substituting individual and cooperative ventures organized strictly on the basis of providing services that people are willing to pay for voluntarily.

Activities of the state have at least doubled the cost of all goods and services

Although precise demonstration is not feasible within the confines of this chapter, it appears self-evident that the taxes taken by the state not only deprive taxpayers of the monetary benefit of their work, but also operate to at least double – perhaps even quadruple – the cost of everything that people purchase. This occurs via direct and indirect taxes on consumption, and depriving society of the benefit of work by otherwise capable people who are not productive because the state effectively pays them not to work, or pays them money they do not need for their existence.

There is a corollary to the principle that the state greatly increases the cost of consumption. That is, if costs were reduced greatly by the state going out of business, then the perceived need for state aid to the poor would greatly diminish, as society would produce such a cornucopia of consumer goods that the poor would not be poor in the traditional sense of the word. That is, they would be much better able to afford the necessities of life and many of the amenities of contemporary society as well.

German hyperinflation steals the wealth of the people

Before World War I Germany was among the most prosperous nations in the world. The exchange rate between the German mark and the U.S. dollar was around 4.2 marks to the dollar. By 1923 the German mark was essentially worthless as the Mark-Dollar exchange rate had fallen to 4.2 trillion marks (4,200,000,000,000) per dollar.

The principal causes of this historic decline were actions of the German state in financing World War I by printing money, and then, after the war, by trying to honor its social welfare obligations with money created virtually out of thin air by still more money printing.

In effect, the German state financed its war making of 1914-1918 and its subsequent welfare payments by stealing the wealth of Germans held in claims fixed in German marks.

By 1923 the German economy was reduced to barter, as the German fiat money had lost all value as a medium of exchange. The consequences of this gigantic inflation included wiping out the savings of the middle class that had been held mainly in bank accounts, German state bonds, and insurance contracts, and preparation of the German people for a political savior. Into this milieu stepped Adolf Hitler who never won an election. Hitler maneuvered himself into power at the depths of the Great Depression, in early 1933, and promptly demolished German political democracy. 23

Argentina: hyperinflation and the state theft of bank accounts and retirement savings

Once prosperous Argentina began a descent into economic chaos and poverty under the rule of the national socialist party of Juan Peron (1895-1974), commonly known as the Peronist party that has ruled the country most of the time since 1945.

Peron achieved popularity by virtually ordering a 70% rise in salaries as well as initiating a number of generous but expensive new social welfare programs. Tax collections of the Argentine state could not begin to cover its vastly increased costs, so the state printed money to pay these costs. The result was a runaway inflation. Between 1976 and 1991 the cumulative inflation was 2.1 billion percent, an average of 164% per year, climaxing with a 26,000% increase in just thirteen months in 1989-1990.

Argentine social security benefits became virtually worthless due to hyper-inflation. Poorer citizens were especially hard hit because their assets, if any, were in cash and they lacked the sophistication and ability to get their financial assets out of the country. In 1989-1991 the country was reduced to a state of virtual anarchy with constant protest demonstrations and sometimes bloody and fatal rioting in the streets.

In 1992, a new Peronist President brought about temporary price stability by pegging the Argentine peso to the U.S. dollar while initiating “austerity” in state spending, namely cutting spending drastically. However, by 1992, decades of ultra-high inflation and attendant loss in purchasing power of the Argentine fiat money had caused middle- and upper-class Argentines to move liquid assets out of the country to safe havens in Uruguay, the U.S. and elsewhere.

Consequently, starting in 1992 the Argentine state encouraged bank accounts and retirement accounts to be invested in U.S. dollars and dollar-denominated securities, in order to create an incentive for Argentines to bring their money home.

With so many people working for the state or dependent on state welfare programs for subsistence, “austerity” in state spending brought hyper-unemployment which engendered renewed social unrest. In 1995 the Peronist state abandoned its austerity program, thereafter funding its over-spending with massive borrowing via bond issues to foreign countries and institutions that were willing to lend based on the promise of the Argentine state to repay the loans in U.S. dollars.

By 2001 Argentina’s credit was exhausted; no more borrowing was possible. So the state obtained money for its operations by confiscating about two-thirds of the value of the people’s savings and their personal retirement accounts. Bank deposits were frozen, but depositors were still able to access their bank deposits by check or debit card in order to make payments.  However, the freezing of bank deposits was a crushing blow to poorer Argentines, who did not possess debit or credit cards and who mainly held bank deposits not accessible by check.

Massive protests and rioting in the street occurred again in 2001-2002. The worldwide media reported widespread complaints by Argentines that the state was stealing the money of bank depositors.

Next, the state arbitrarily converted all bank deposits and retirement accounts held in U.S. dollars into a new Argentine peso that had only one-third the purchasing power of the U.S. dollar. In effect, this was theft of two-thirds of the value of bank accounts and retirement accounts that had been invested in U.S. dollars.

At the same time the Argentine state defaulted on its largely dollar-denominated foreign debt, in effect stealing the capital of the foreign states, institutions and individuals that had invested in Argentine bonds payable in U.S. dollars. The state ultimately settled with most bond holders by paying back only one-third of the principal amount of the bonds. 24

The cost of needless and unjust incarceration

There were about 1.5 million people incarcerated in federal and state prisons in the year 2012. In a subsequent chapter entitled “Justice,” we will argue that a great many of these people are in prison because of conduct which harmed no one but themselves, or for conviction of offenses against others that could better be dealt with by requiring an offender to make restitution to an injured person rather than by criminalizing such offenders and punishing them with incarceration. We shall argue further that needless incarceration costs all other Americans an average of more than $1,200 per year per household.

Cyprus: state theft of bank deposits; Greece

The Republic of Cyprus (Cyprus) is a small island-nation of about 1 million people in the eastern Mediterranean Sea. Cyprus became notorious in 2013 for proposals to confiscate portions of deposits in Cypriot banks by means of a tax on the principal of the accounts.

Cyprus joined the European Union (EU) in 2004. Thereafter, the state and its banks so badly mishandled their finances that both the state and its banks had become insolvent and probable bankrupts by 2013. That year, the Cypriot state negotiated a bailout with the EU and the International Monetary Fund whereby bank deposits would be subject to a tax on the principal value of the accounts. That solution was rejected by the Cypriot parliament. Instead the Cypriot state and the EU entered into an agreement whereby uninsured deposit accounts over €100,000 (roughly $US 130,000) would have some of their value confiscated indirectly. 25 The problems of Cyprus are a smaller version of debt problems that led to rioting in the streets of Greece in the years 2011-2013.

The U.S. federal state and major American banks are in no position to criticize Cypriot banks and Cyprus for imprudence, since in the financial crisis of 2008 twelve of the thirteen largest banks in the U.S. would have failed but for a federal bailout. 26

The public debt of the United States of America: stealing from future generations

Explicit federal debt in 2013 was nearly $17 trillion. In the four federal fiscal years 2009-2012 inclusive the debt increased by $5.33 trillion, an average of $1.33 trillion per year. Over those four fiscal years federal spending averaged $3.59 trillion per year while federal tax revenues averaged $2.26 trillion per year. Thus, 41% of federal spending was financed by new borrowing.

This is an acceleration of the longstanding trend of virtually perpetual federal deficits since the Korean War of 1950-1953. The U.S. has experienced a budget surplus in only two years since 1950. 27

The total federal debt at any time is the sum of all prior annual deficits. The reported federal debt is the tip of an iceberg of debt. The federal state also has unfunded liabilities for old-age pensions, health care for the elderly, the impecunious, and military veterans, inter alia, and other welfare programs. The unfunded liabilities are the excess of benefits promised in the long-term future in excess of tax collections projected to be available to pay those benefits.

A book published in 2012 put the total debt of the United States of America, including the unfunded social welfare liabilities, at $211 trillion. 28 The authors of the book, Economics Professor Laurence J. Kotlikoff and Scott Burns, based their calculations on information from the Congressional Budget Office. 29

According to actuaries working for the Trustees of Social Security and Medicare, the unfunded liabilities for these programs consist of the amount by which estimated future benefits exceed estimated future tax revenues to pay the benefits.

The $211 trillion of total federal debt is roughly three and one-half times as much as total U.S. household net worth in 2012. That is an amount beyond the ability of the American people ever to pay. Americans’ household net worth includes home equity and all other investments of any kind. All of such assets would have to be sold to pay even a part of total federal debt.

Who would be able to buy all the assets consisting of Americans’ household net worth? No other individual country has that amount of money available in cash.

Would Americans be willing to give up all (100%) of their assets to pay federal debt and social welfare benefits?

The answers to these questions are self-evident. There is no one able to finance payment of the total debts of the U.S.

The U.S. Congress has committed America to living and spending beyond the means of its citizens.

To pay even part of the federal liabilities would require Congress literally to confiscate—that is to steal—from the generations now gainfully employed and from future unborn generations.

An attempt to pay these debts will create a conflict between generations—between older generations expecting the benefits they have been promised, and younger generations that will be called upon to pay them. This conflict would cause enormous social upheaval, similar to what the world has seen in the rioting in the streets of Argentina, Cyprus, and Greece.

The IMF Report to the United States

On January 7, 2004 the International Monetary Fund (IMF) issued a report to the U.S. warning of the underlying insolvency of the U.S. Social Security and Medicare Systems. This report noted that the unfunded future liabilities of Social Security and Medicare then could be as high as $47 trillion (then equivalent to about $400,000 per U.S. household). That amount, together with other U.S. debt approximately equaled total U.S. household net worth. The IMF warned that to fund Social Security and Medicare adequately “would require an immediate and permanent 60 percent hike in the federal income tax yield, or a 50 percent cut in Social Security and Medicare benefits . . . with the burden on future generations increasing if further corrective measures are delayed.” [Emphasis added]   30

NOTE: There have been no corrective measures taken since issuance of the IMF report.

It is paradoxical that the IMF issued such a report to the U.S. One might think that such a report would be addressed to a perennial deadbeat such as Argentina, not to the U.S., co-founder of the IMF, home to its headquarters, and the country with the world’s largest and most productive economy. 31

Taxing the rich to finance U.S. obligations: a chimerical “solution”

There is a popular political, supposed solution to the U.S. debt problem: taxing the rich more heavily. That is not a solution. Rather, it is a chimera. No matter how one defines the term “the rich,” such people do not have enough income or wealth the seizure of which could make any meaningful reduction in federal debt and deficits.

In the year 2009 the 400 wealthiest American families had an estimated total net worth of $1.27 trillion. 32 That $1.27 trillion was slightly less than the $1.29 trillion federal deficit for 2009. Had the U.S. confiscated all (100%) of the assets of the families in the Forbes list of the 400 wealthiest families that would have come close to eliminating the federal deficit for the fiscal year 2009. However, it would have been a one-time event, as those family fortunes could not be rebuilt for a second plucking.

Confiscating that wealth would have wreaked havoc on the American economy as wealthy people do not keep their assets in cash under a mattress or even mainly in cash at all. The wealth is represented principally by ownership interests in companies. To seize and sell those ownership interests all at once would depress the stock market, thereby causing the sale to yield significantly less than the preceding market value of company shares owned by such wealthy families. Furthermore, such a seizure of wealth would have done nothing about paying down the enormous, and growing, unfunded liabilities for social welfare programs.

It is the nature of the political state eventually to fall into irreparable debt. This is what happens when politicians make expensive promises to get elected. Even if the wealth of the rich could cut federal debt, it would only address the symptom (debt) not the cause (the political state).

Rather than outright confiscation of accumulated assets, proposals for taxing the rich focus on increasing the amount of their annual income tax. That, too, is no solution.  A “tax the rich” proposal for higher income taxes advanced seriously in the year 2011 hypothetically could have reduced the federal deficit for 2011 from $1.3 trillion to $1.2 trillion. 33

Tax compliance costs

Compliance with tax laws is a costly drain on the American economy, amounting to about $350 billion per year, equivalent to 2.3% of Gross Domestic Product. 34 There is an additional cost not included in the reported costs of tax compliance since it does not involve payments out of pocket, but just the time of taxpayers. That is the time the taxpayers lose keeping records for taxes and preparing their own tax returns or preparing submissions of the records to the person that prepares the tax return.

The scope of coercion in U.S. tax law

The following are among the principal coercive rules in U.S. federal tax law.

Everybody is subject to a tax on income from all sources, including not only income from work and from investments, but from a long list of other sources of what is considered income under the tax law.

Everybody must report their income to the state on a state-prescribed document, the income tax return.

Failure to file an income tax return when due, willful failure to pay the tax due, and willful evasion of the tax (deemed tax fraud) are subject to assessment of interest and penalties on the tax due and are punishable by fine or imprisonment.

Despite the constitutional provision that no one shall be compelled to be a witness against himself or herself 35 statements made on the income tax return can be used against the taxpayer in a criminal prosecution for tax evasion.

Investment income is subject to the income tax.

The estate of a deceased person is subject to federal estate tax. Gifts during lifetime are also subject to gift tax. The taxes apply to annual gifts above a specified amount, and to the value of the estate of a deceased person above a specified amount.

In consequence of the foregoing there are multiple occasions to tax a person who is working and trying to save to assure his future personal financial security. For someone who has been successful in earning and investing, these taxes can take 70% or more of an individual’s lifetime earnings.

Employers are required to withhold income tax and payroll tax (for Social Security and Medicare) from employees and to remit the withheld taxes to the U.S. Treasury. Failure to comply strictly with this duty can lead to heavy penalties and even federal action to close down an employer’s business.

When the IRS determines taxes are due and unpaid it makes an assessment (statement) of the amount claimed due and sends it to the taxpayer. If the taxpayer disagrees there is a dispute resolution system through which the taxpayer may contest the assessment. If the dispute resolution proceedings result in a decision in favor of the IRS, and the taxpayer does not pay the assessment promptly, the IRS has the power to seize bank accounts of the taxpayer. If the taxpayer’s bank accounts are not adequate to satisfy the tax assessment, the IRS can seize any other assets of the taxpayer that it can locate.

The individual states, such as California, New York, etc. have and use similar powers to collect their taxes.

U.S. law has, since 2010, imposed strict reporting requirements on banks in other countries that hold deposits of U.S. citizens. Consequently, foreign banks are turning away American customers. And Americans living abroad are renouncing U.S. citizenship in increasing numbers to rid themselves of this restriction on their freedom to transact business abroad. 36

U.S. law imposes an “exit tax” on Americans renouncing their citizenship. The exit tax applies to persons with assets or average income above specified levels. No other country levies such a tax on citizens renouncing their citizenship. 37

The United States is the only country in the world that taxes nonresident citizens in the same manner as residents. 38

Conclusion

In the lexicon of Andrew Galambos, “freedom is the societal condition that exists when every individual has full (i.e. 100%) control over his property.” Someone whose property is controlled by another is not free. Rather, such a person is enslaved.

In the United States of America, the federal state and the local states, through their taxing powers alone, control much of the property of individual Americans. Americans are enslaved by the state to the extent that the state steals and controls their property.

Worse still, in the teaching of Galambos and Snelson, is the enslavement of the minds of Americans by the fraudulent idea that taxes are the price that must be paid for the security and services provided by the state. A great many Americans are so convinced that is true and correct that they could respond to the ideas in this book with the comment: how could society possibly function without taxation?

It is true that the state could not exist without taxation. However, America as a nation separate from Great Britain came into existence to escape the coercion of Britain, to establish a land of freedom.

It is also true that thanks to the spirit and traditions of America, its citizens and permanent non-citizen residents enjoy more freedom than people in any other country.

Nevertheless, it is a poor sort of freedom in which the American people have conceded to the state the power to steal their property to provide services they may not need and may not want, including the power to drag the country into foreign wars that many Americans despise and abhor.


Notes:

  1. Wikipedia, Founding Fathers of the United States of America, at Collective Biography of the Framers of the Constitution, http://en.wikipedia.org/wiki/Founding_Fathers_of_the_United_States
  2. Lysander Spooner (1808-187) was, perhaps, the first to say that the U.S. Constitution could not authorize, morally, any act of the state not agreed to by every individual affected by the state’s action. This is the premise of Spooner’s essay “No Treason, No. VI” (1870) Brown & Michaels, PCreproduced in The Lysander Spooner Reader (Fox & Wilkes edition, 1992).
  3. Quoted at the website of the law firm Brown & Michaels, PC, http://www.bpmlegal.com/cotwain.html
  4. See “Galambos and Snelson,” at http://www.capitalismtheliberalrevolution.com/galambos-snelson/
  5. whose lectures inspired this internet book and website
  6. Quoted from Diamond, Jared, Guns, Germs, and Steel (1997), chapter 4, “Farmer Power,” page 90; and Chapter 14, “From Egalitarianism to Kleptocracy,” pages 276-278
  7. As used throughout this book, “the state” means what most people call “government.”
  8. The taxes include:

    • federal income tax
    • state income tax
    • payroll tax for Social Security
    • payroll tax for Medicare
    • federal unemployment tax
    • State unemployment tax
    • California State Disability income tax
    • state sales tax
    • state gasoline tax
    • federal gasoline tax

    Our estimates of typical spending and automobile driving by California residents are the basis for the amount of sales tax and gasoline tax.

  9. According to “Rate Shock: In California, Obamacare to Increase Individual Health Insurance Premiums by 64-146%,” by Avik Roy, Forbes.com May 30, 2013, http://www.forbes.com/sites/theapothecary/2013/05/30/rate-shock-in-california-obamacare-to-increase-individual-insurance-premiums-by-64-146/
  10. Taking into account that medical insurance costs for two people are more than for one, the estimated medical insurance cost for the couple has been estimated at ,000.00 per year
  11. In the year 2010, 41% of all federal income tax returns filed show no income tax liability. Forty-seven thousand dollars in annual income is the threshold at which a typical married couple with two children will likely be a nonpayer. : “Tax Equity and the Growth in Nonpayers,” The Tax Foundation, http://taxfoundation.org/article/tax-equity-and-growth-nonpayers 36% of all California income tax returns show no income tax liability, according to Nonpayers by State, 2010, The Tax Foundation, http://taxfoundation.org/article/nonpayers-state-2010  The threshold at which a typical married couple with two children will pay no California income tax was ,248 for the year 2010, according to 2010 California Tax Rates and Exemptions, California State Franchise Tax Board, https://www.ftb.ca.gov/forms/2010_California_Tax_Rates_and_Exemptions.shtml
  12. The calculation was done by the Tax Foundation of New York and reported by syndicated columnist Sylvia Porter in November, 1966. See http://news.google.com/newspapers?nid=1774&dat=19661129&id=n5scAAAAIBAJ&sjid=0mUEAAAAIBAJ&pg=5473,7319922 
  13. The CEO’s opinion cited above was communicated to the author by a close relative of the CEO. No other citation is available in direct support of this assertion. However, another refined petroleum product, kerosene, sold for less than six cents a gallon in late nineteenth century America, a time of low taxes, according to Folsom, Burton W., The Myth of the Robber Barons (2007), p. 92. In 1913, when the overall level of prices in America was roughly the same as in the late nineteenth century, six cents had the approximate purchasing power of $1.50 in the early 21st century, according to the U.S. Bureau of Labor Statistics CPI Calculator, http://www.bls.gov/data/inflation_calculator.htm  In 1871, at a time when taxes in America were negligible, “. . .  the price [of kerosene, then the principal petroleum product] dropped to forty-eight cents a barrel, three cents a barrel less than drinking water.”  Quotation from Yergin, Daniel, The Prize: The Epic Quest for Money, Oil and Power (1992) at pages 40, 42. There are forty-two gallons in a barrel of gasoline, so that the low price of kerosene in 1871 amounted to a per gallon price of $0.01143 , just over a penny a gallon; and that equates to an inflation-adjusted price of about $0.29 per gallon in the second decade of the 21st century. For additional comparison, in the second decade of the 21st century retail prices of gasoline were less than US $1.00 per gallon in the oil-producing countries of the Persian Gulf, according to “Petrol Prices” at http://www.mytravelcost.com/petrol-prices/ 
  14. Quoted from “Seeking a Smoother Altitude,” by Brad Tilden, CEO of Alaska Air Group, inflight magazine, Alaska Airlines/Horizon Edition, September 2013.
  15. “California’s alternative-energy program under scrutiny,” by Ralph Vatabedian and Evan Halper, Los Angeles Times, October 14, 2013, http://www.latimes.com/local/la-me-energy-subsidies-20131014,0,1024399.story
  16. “Action on L.A.’s parking ticket problem is overdue,” by Gale Holland, Los Angeles Times, February 15, 2013 http://articles.latimes.com/2013/feb/15/local/la-me-holland-parking-20130216
  17. See “LAPD officers who complained about ticket quotas are awarded million,” by Andrew Blankstein and Joel Rubin, Los Angeles Times, April 12, 2011, http://articles.latimes.com/2011/apr/12/local/la-me-ticket-quotas-20110412
  18. See, e.g., “Secret Tax: Cities and States using traffic tickets as revenue,” April 20, 2011 by Scotty Starnes, http://scottystarnes.wordpress.com/2011/04/20/secret-tax-cities-and-states-using-traffic-tickets-as-revenue/
  19. See “Unemployed to the point of disabled?” by Nin-Hai Tseng, Writer, CNN Money,  November 19, 2010, http://finance.fortune.cnn.com/2010/11/19/unemployed-to-the-point-of-disabled/; “The Growth In The Social Security Disability Rolls: A Fiscal Crisis Unfolding,” by David H. Autor and Mark G. Duggan, the National Bureau of Economic Research Working Paper No. 12436, August, 2006, http://www.nber.org/papers/w12436; and “60 Minutes Disability Investigation,” by Chris Edwards, Cato Institute, October 7, 2013, http://www.cato.org/blog/60-minutes-disability-investigation
  20. See Murray, Charles, Losing Ground: American Social Policy 1950-1980 (Tenth anniversary edition 1994); Wikipedia, “Welfare dependency,” http://en.wikipedia.org/wiki/Welfare_dependency#Reducing_poverty_or_reducing_dependence.3F
  21. See “Record 46 Million Americans Are on Food Stamps,” by Jeff Cox, CNBC, September 4, 2012, http://www.cnbc.com/id/48898378
  22. See “Curbing Unemployment in Europe,” by Cedric Tille and Kei-Mu Yi, Federal Reserve Bank of New York, May 2001, http://www.newyorkfed.org/research/current_issues/ci7-5/ci7-5.html
  23. For a history of the German hyper-inflation see Ferguson, Adam, When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany (1975, reprinted in 1910)
  24. The foregoing account is based largely on Rojas, Mauricio, The Sorrows of Carmencita: Argentina’s crisis in a historical perspective (2002); and also on “Confiscatory Deflation: The Case of Argentina,” by Joseph T. Salerno, Mises Daily of the Ludwig von Mises Institute, February 12, 2002, http://www.mises.org/daily/890; and on “Argentina Reopens Debt Swap for Second Time,” by Taos Turner, The Wall Street Journal, Aug. 26, 2013, http://online.wsj.com/news/articles/SB10001424127887323906804579037643720426328  and conversation with individual citizens of Argentina over a number of years.
  25. See Wikipedia, 2012–13 Cypriot financial crisis, at Eurozone/IMF deal, http://en.wikipedia.org/wiki/Cypriot_bailout#Eurozone.2FIMF_deal
  26. Mayo, Mike, Exile on Wall Street (2012), page 5
  27. There was a reported budget surplus in fiscal years 1995-1998 but only because federal borrowing of Social Security revenues was treated as tax revenues rather than as a borrowing from Social Security.
  28. See Kotlikoff, Laurence J. and Scott Burns, The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy (2012)
  29. The details of the analysis of Kotlikoff and Burns appear in the preceding chapter entitled “Political Democracy in America, below the heading “Debt.”
  30. “U.S. Fiscal Policies and Priorities for Long-Run Sustainability,” Martin Mühleisen and Christopher Towe, Editors, International Monetary Fund (2004), quotation under heading “Long-Run Insolvency of Social Security and Medicare,” http://www.imf.org/external/pubs/nft/op/227/index.htm
  31. The IMF was co-founded by the U.S. in 1944-1945 to assist in the reconstruction of the world’s international payment system after World War II had disrupted it. The headquarters of the IMF are in Washington, DC. The U.S. has by far contributed the most of any country in terms of leadership and in financial support. In 2013 the U.S. provided nearly 17% of IMF funding, almost as much as France, Germany, Great Britain and Japan combined, and nearly five times as much as China. See Wikipedia, International Monetary Fund, http://en.wikipedia.org/wiki/International_Monetary_Fund
  32. According to the annual survey of Forbes magazine, mentioned by film maker Michael Moore at http://www.michaelmoore.com/words/must-read/forbes-400-vs-everybody-else
  33. Proposals to tax the rich more heavily were analyzed in the blog portion of this website, at http://www.capitalismtheliberalrevolution.com/blog/the-futility-of-higher-taxes-on-high-incomes/ and at http://www.capitalismtheliberalrevolution.com/blog/taxing-the-super-rich/
  34. Source: “Flat Tax Won’t Restore Our Global Competitiveness,” by William F. Shughart II, Sacramento Bee, June 30, 2011. Dr. Shughart is a Professor of Economics at the University of Mississippi and a nationally syndicated newspaper columnist.
  35. The Fifth Amendment to the constitution
  36. See “U.S. tax law has some expatriates waiving the American flag,” by Henry Chu, Los Angeles Times, October 14, 2013, http://exactcpa.blogspot.com/2013/10/us-tax-law-has-some-expatriates-waiving.html
  37. Wikipedia, Expatriation Tax, http://en.wikipedia.org/wiki/Expatriation_tax
  38. Wikipedia, Renunciation of Citizenship, http://en.wikipedia.org/wiki/Renunciation_of_citizenship#Taxation

Add a Comment

Your email address will not be published. Required fields are marked *