1. POLITICIZED TAXATION
Taxes are collected to cover the cost of running a human system of production; running a system involves solving and preventing problems that affect everyone. Taxes should be collected according to the degree that one benefits from a stable, balanced system of production. Beyond any question of morality, a balanced collection of taxes is a pragmatic necessity. Economic stability unravels when taxation is not pragmatically exacted according to how people benefit from the stability.
The system by which the American Government taxes its citizens needs reform. Too many people escape paying their share. Those who do not escape are overtaxed, yet a ballooning National Debt indicates insufficient tax revenues.
The National Debt has numerous, counterproductive ramifications. These negative effects eventually settle the score against those who escaped taxation. For example, government borrowing for the National Debt crowds out private demands for cash; funds are currently insufficient to lubricate industry. The subsequent reduction in production causes not only shortage inflation but also potentially violent unemployment. If unemployment rises sufficiently, those who escaped taxation will stick out like sore thumbs to the unemployed. Being unemployed as a result
of insufficient tax revenues,
does not close a person's eyes and mind. Suffering prompts people to ask why and often to seek revenge.
Tax reform should approached on two levels: direct taxation of the substance of people's time and indirect taxation of the symbols of people's time. Presently, no system taxes people directly. Direct taxation of people's time is the essence of a National Universal Service Act. The subject matter of the next group of chapters is the reform of the existing system of taxation, that is, taxation in dollars which are merely the symbols of people's time.
This first chapter is an introductory assessment of the present system. The present system has the illogical complexity of a garbage dump. Over the years--and without any forethought to organization or future consequences--people have haphazardly denied their problems and bought tax favors from each new clique of garbage collectors in the Washington cesspool. Can the tax system continue in its present condition? No. Simple numbers dictate that it and the nation's financial structure will collapse.
The second chapter describes specific abuses and injustices perpetrated by corrupt and/or incompetent politicians. Specific, illogical, but legal laws have made taxation the mess that it is. Our present system is like a major city built without zoning laws.
A third chapter on taxation describes the taxes of Reaganomics from the position of capitalism per capita. Reagan's tax programs had basic flaws which were obscured by the rhetoric of a practiced actor whose personal wealth grew under questionable "private Reaganomics."
A chapter of taxation analogies describes the "timely" premises on which the reforms of indirect taxation must be based. The present garbage dump can be replaced by a system that has lower direct and indirect costs. The replacement will be fair and just. In this system, everyone pays taxes according to how much they benefit from the
American Economic System Of Production.
Next, a "timistic" analysis of taxation is provided which describes the long-term pragmatic benefits of the reforms. A subsequent chapter details the de facto private taxation of America by the segment that monopolizes the nation's money supply.
What a Garbage Dump
When confronted with a complex, confusing situation, one must determine whether the complexity is that of logical organization or illogical associations. Who would not conclude that the American tax system has the complexity of a garbage dump? It is not a complexity to be admired, unless one admires quagmires of corruption and incompetence. Just a few media extractions not only support the contention that the current "system" is a mess but also show the inevitable inflationary result of illogical taxation.
U.S. Effort to Aid Savers Called Lost in New Rules.
These excerpts highlight a few of the undesirable side effects of an unnecessarily complex tax system. With each new clique of garbage collectors in Washington, more and more human resources must be diverted into untangling the mess. The aftermath of the supply-side tax-cut in 1981 has prompted some people to call 1982 the "year of accountants."
An illogical, confusing tax system forces the growth of a service industry--accounting. The effect is an inflationary diversion of human resources away from more productive activity. Less wealth is produced when illogical complexity requires increased accounting for each new product. Instead producing new goods, more and more people are manipulating the figures of production. Valuable human time and intelligence is being diverted from solving life's natural complexities (disease, hunger, mortality, etc.) into unravelling the unnecessary, unnatural complexities of our tax system. The present tax system is a counterproductive, inflationary mess.
Unfair: Who Pays Total Taxes
Why has taxation become a self-destructive mess? Too many people escape taxation by monopolizing the ears of the politicians. This pursuit is not an occasional after-hours activity on Capitol Hill. As the following quotation from a former congressman shows, Congress is spending less time on national problems and more time on personal tax exemptions for a privileged few.
Now we witness a horrendous daily commitment made by members of Congress to those seeking special preference under the law. That's one reason we haven't been able to deal with the question of tax justice--the people who want preferences buy them with their tremendous campaign contributions.
The effects of these special tax cuts are seen in the changes of revenue sources over the years. The following statistics illustrate a trend.
Tax collections for federal, state and local governments totaled $468 billion in that year [77-78 fiscal year], the study said. Of that individual income taxes totaled $214 billion.
Individuals pay three times as much as corporations. However, when income tax began in 1913, taxation was equally divided between individuals and corporations. Since 1913, a lot of favors have been bought and sold producing the disproportionate taxation that we see today.
While the top ten percent of the population controls ninety percent of the wealth, they do not pay ninety percent of the taxes. "Middle-income Americans make up 38.2 percent of the taxpaying population but are liable for 60.1 percent of the taxes, according to an Internal Revenue Survey."
Like the elite individuals mentioned above, corporations also avoid paying their share of the cost of running the government from which they benefit. "At last count, almost half of all corporations were paying no income tax at all." In addition, many "business" deductions have been passed in the last sixty years. Corporations pay taxes on a smaller net portion of their gross income. For example, corporations can deduct the benefits provided to employees.
The recently enacted federal tax cut, say financial experts, is not likely to dull the appetites of many executives for the kind of 'sheltered income' that perks usually provide.
If these "perks" increased productivity and decreased prices, fine--but they don't. Too many perks distract workers and policy-makers alike. In the end, the average taxpayer must pay the taxes escaped by corporations and their employees and bear the consequences of reduced production. Tax breaks for non-productive activities within corporations or for non-productive service corporations are simply counterproductive.
Personal corporations are another indication of corruption and incompetence on the part of tax-writing politicians. A person need only incorporate to benefit from lower taxes and thereby retain more income without increasing his or her actual production. In most cases, personal corporations are nothing more than legalized inflation.
All non-productive tax breaks increase the tax burden on the average taxpayer without giving him the benefit of increased productivity per capita, e.g., lower prices for a more efficiently produced product. What is the future direction of corporate taxes? "A Treasury Department analyst sums up the trend: 'We are headed in the direction of a zero effective tax rate on corporate profits.'" Given the specific, non-productive nature of most corporate tax cuts, this trend does not bode well for individuals. Our tax laws must distinguish between producing corporations and paper corporations.
Incentive to Immorality
Politicized taxation prompts people to forego earning more wealth from production and opt for increasing revenues through tax privileges. For many individuals and industries, the route to increasing retained wealth is not investing in new production. Today, the best way to shelter your income is to make a contribution to a politician. With a politician in your pocket, tax breaks on your income are a cheaper, faster way of increasing your net wealth. It's easy to get wealthy if you pay no taxes. Why spend a dollar on capital production when you can spend a dime on Capitol Hill for more net gain?
Politicized taxation causes honest people to bear greater tax shares.
Through their legisflative tax laws, politicians have imbalanced the material economy and the moral fiber of America. The honest are increasingly forced to consider breaking their value systems in order to survive--the "everybody's doing it" syndrome.
Illogical is Counterproductive
By what process did these counterproductive laws come about? As noted initially, the present tax laws are the product of people trying to escape taxation by buying politicians. For cash or campaign contributions, politicians have made it possible for certain people to avoid paying their share of running the American economy. These exemptions have amounted to legalized inflation: more money without more production.
As a result of this "legisflation," the laws have become increasingly illogical. The productive are rewarded less and less. Ideally, laws should reflect the logic of production. One should retain according to his productivity.
Pragmatic Share: Legal=Logical
When people evade their financial responsibility to the government that protects them, they force others to pay more than their fair share. A pragmatic share is proportional to one's gain from the existence of a stable government. If economic stability allows me to produce twice as much as you, then I depend on a stable government twice as much as you. It follows that my taxes should be twice what you pay. It would be foolish of me to intentionally deny my share of taxes, because undertaxation undermines the economic stability upon which I depend.
One scenario of tax dodging followed by governmental and economic instability is unfolding before us. Politicians have written illogical laws that do not tax people according to how they benefit from America. The tax laws benefit a fewer few at the expense of the whole.
Aside from the pragmatism of economic stability, there is another reason why man's laws should reflect the logic of natural laws. This reason has to with the common Latin root of two similar words. The root is "legein;" it means "to collect or gather" which is synonymous with "to produce." Logical acts consistently increase human wealth.
If a society is to benefit from a continual creation of wealth, its laws must reflect the logical, productive laws of gathering or collecting a living. If legalities are illogical, the economy will be plagued by legalized forms of thievery, that is, an unnatural shift of wealth. Legalized inflation is nothing more than legalized thievery. Each dollar of legisflated gain is a dollar of legalized loss for another. Everyone eventually loses when politicians legalize escape from one's logical share of running a stable government.
In a legislative process polluted with corruption and incompetence, what is legal is not necessarily what is right. Dedication to "rule by law" is self-defeating for people suffering from legisflation. Under any circumstances, can one really expect modern politicians to uphold the logical laws of producing a living?
An economy burdened by illogical laws will suffer from the counterproductive activities encouraged by those laws. One examples of counterproductive activity are the accountants who waste valuable human resources on unraveling the illogical garbage dump we call taxation. Another example would be the pursuit of legalized inflation by buying a politician. The following accounts provide a specific example of legalized inflation through the legal laws.
Hit by low flow? Cash and profit problems can be eased by tax maneuvers.
These are examples of "magic accounting" using existing legal laws and bills.
Consider the more audacious magic accounting of General Motors. In Fall of 1981, GM announced a loss of half a billion dollars. Did GM directors, whose stock income was tied to their decision, adjust the dividends to reflect the losses? No, they kept the dividend at the same level. They repeated their actions the following quarter when a dividend of 60 cents was declared despite earnings of only 31 cents. Maybe there would be more money for production if GM's directors were not using borrowed money to inflate dividends.
Straddles and Leaseback
Within commodity trading, the "straddle" is a vehicle of legalized theft to avoid paying one's share of running the government.
A straddle involves purchase of a commodity for delivery in one month while at the same time selling it for delivery in another month. Some traders use straddles to provide tax losses in the current year and to defer gains to later years for tax purposes. That enables them to report the gains as long-term instead of short-term gains, which are taxed at higher rates.
Through straddles, a person can escape paying his share of a stable America at the time he transacts his purchase. By straddling another time frame in the future, he continues to delay paying taxes until he either pays lower taxes or no taxes at all: "A well-straddled investor has yet to pay taxes on a $10 million gain earned from a 1976 stock sale, Treasury officials say."
Can the middle class backbone of America defer its income for reduced taxation? (A piddling Individual Retirement Account does not count.) Or, does the middle class pay the taxes that the "straddlers" avoid paying?
Has money been used to buy laws that favor straddlers? Yes. "At a time when grassroots lobbying seems to succeed on Capitol Hill, the commodities industry has scored a major victory with the old-style, big money approach." Straddles are an example of how persons find it cheaper to increase their net income by buying politicians rather than investing in actual production.
The leaseback tax provisions of Reaganomics are another example of illogical, legal laws. Leasebacks increase the tax burden for the unrepresented. The missing tax revenues increase the National Debt.
Leasebacks originated in financially strapped companies that were unable to use depreciation tax write-offs on physical plants. The Reagan administration found that a private way to help such companies was to allow them to sell off their tax credits (and assets) to money-rich corporations. For instance, Ford can sell $100 million worth of assets to Exxon for a $20 million infusion of cash. This sounds good and logical until one realizes a few points.
The auto industry is suffering, in part, because of the tax exemptions already possessed by money-rich companies. One should also be leery of a plan that offers something for nothing:
The new rules can be used to transfer billions of dollars of tax credits from company to company through the loosest kinds of lease agreements. Most of these arrangements will be leasing agreements on paper only.
The amount of taxes that the Treasury Department would lose as a result of this aspect of Reaganomics was estimated at $9.6 billion by 1986. Estimates a few months later, upped it to almost $30 billion.
Who will make up these lost revenues? Certainly not the financially strapped basic industries. Obviously, prospective car buyers, who will be fewer in number because of increased taxes, will bear the brunt.
The country and its basic industries would be ahead by now if the proper taxes had been collected from the likes of Exxon and if some of it had been given gratis to basic industry. The Treasury would be carrying a smaller deficit and the basic industries would not be competing with it for limited funds.
Because certain corporations escape taxation, the would-be car buyer forgoes buying a car because of his higher, unfair tax load. In addition, interest rates on auto loans skyrocket because of competition caused by the ballooning National Debt. As the wealthy corporations escape further taxation by buying high tax exemptions for few dollars, there will be fewer auto buyers. Individual taxes will rise, government borrowing will rise, interest rates will rise and unemployment will rise. Who will even be able to buy the cars? Our basic industries are selling their tax credits and their future for the proverbial 30 pieces of silver.
Time Bomb: Taxes and Tax-Dependent Government
The present system of collecting dollars to fund the cost of a national government is a time bomb. There are several, simple mathematical ways of showing that the present system must not continue. For instance,
Taxes climbed more rapidly than prices and output in 1979. The Tax Foundation's index of federal, state and local taxes jumped 13%, while prices of goods and services rose 9% and real output went up just over 2%.
Simultaneously, taxes jumped faster than wage increases. Such tax increases will eventually consume all personal income.
How much is the total take of all governmental units from the average American? In reading the following figures for 1980, compare them with those of the 1977-78 fiscal year cited earlier in this chapter.
Putting the numbers on the pain: Government spending--federal, state, local--will top a trillion dollars for the first time this year. Estimates by the Tax Foundation put the total at 1.07 trillion, up from 942 billion in a year.
Where have these additional tax dollars been coming from? Clearly, the tax increases have not resulted from politicians reversing past tax abuses. The source is the inflation of the wages of the middle class which have exceeded increased prices. The process is called "bracket creep" which is "the tendency of inflation to push people into higher tax brackets." How bad is bracket creep? "Within 10 years, the median income taxpayer will be pushed into the 50% tax bracket...."
A mark against the political competency of Congress was their proposed solution to bracket creep. Some, including the occupant of the White House, want to "index" the tax tables to inflation by a given date. Indexing the tax tables would mean that the tax rates would change on par with the inflation of wages. With indexing, taxes would take the same percentage of one's inflated wages as the year before.
Indexing is no way to deal with inflation. Indexing institutionalizes inflation like COLA--cost of living adjustments. Indexing treats the symptoms, not the disease, of inflation. The disease? Unsolved problems.
Inflation and taxation index the cost of unsolved problems. Someone has to pay the cost of unsolved problems, and the cost is passed on in higher prices for goods or services, or through taxation. Cutting taxes or the money supply does not solve the problems infesting America. The solution lies in organizing the people and requiring them, through a direct tax in time, to solve their problems. That solution is embodied in NUSA.
Summary: What A Complex Garbage Dump
Who's responsible for the garbage dump tax laws? Not the taxpayers ... directly. Who politicized the unfair exacting of taxes? Who warped the basic logic of producing a living into counter productive, but legal, laws? Will politicians reform the tax system? Consider what one person said about proposed tax increases to offset the Reaganomics tax cuts: "Like any revenue bill ... it will be a mess." This is the exact sentiment of Noble Reforms. Is it yours?
NUSA Proposition #1: Given the nature of the present system of collecting taxes, it is only a matter of time before it collapses.
Neither the Democrats nor the Republicans can be expected to produce a logical, legal replacement. They are not pragmatic; they refuse to accept that everyone must pay his just share for running the American economy.
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