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Aug 16, 2003 America's currency is backed by the total goods and services produced by the nation as a whole. Therefore, the value of the dollar can be manipulated several ways; the number of dollars in circulation, interest rates, tax rates, money created by credit, and the GDP. When the number of dollars in circulation rises, the inflation is obvious, although if the increase in the money supply is equal to the increase in the GDP, there is no inflation. Increasing interest rates and tax rates each have the same effect of cutting into purchasing power, which, in turn, decreases the GDP, causing inflation. When the fed "foresees" inflation on the horizon, although no one else can see it, the fed raises interest rates, and, magically, inflation appears, proving the fed right in a self-fulfilling prophecy. Yet if raising interest rates prevented inflation, it would not occur AFTER the rate increase. The total of all the federal tax revenues combined cannot exceed the amount of the gross manufacturing product, less any trade deficit. This is because taxes can only originate from wealth as it is created. Pre-existing wealth can be taxed, of course, but only once, and then it is gone. Only an on-going tax based must be tapped. Taxes on services are only a derivative of the manufactured product. As our economy has consistently been comprised of 18% manufacturing, and 82% services, the tax revenue to the treasury always remains about 18% of GDP, which is manufacturing. This has been true, regardless of the wild tax rate fluctuations from 90% to 28%. Every time the government announces a change in the tax rate, we hear of either a $250 billion increase over 5 years, or a $100 billion cut over 7 years, and on and on. This is absolutely fraudulent. Go back to any tax increase over the past thirty years. Not one rate increase has increased revenues. The only increases from year to year are due solely to the increases in the GMP {Gross Manufacturing Product}. If the rate increases had any effect, the revenue to the treasury would be 18% plus $50 billion for the above mentioned rate increase. $50 billion was 4% of total tax revenues at the time of the latest tax hike in 1993, yet tax revenues remain 18% of GDP. If the rate increase had its desired effect, tax revenues would now be 24% of GDP. A tax rate cut from one source does NOT reduce revenues. It merely shifts the revenue flow to other sources. When nominal rates are increased, the discretionary income remaining to purchase services is less as a ratio to manufactured goods, so although it looks as if tax revenue is a higher percentage of GDP, it is in reality just the same amount equal to GMP, but the decrease in the ability to buy services, makes manufacturing a larger % of the economy, not by increasing manufacturing, but by the desrease in services. These principles have been demonstrated repeatedly. Carter raised interest rates several times during his presidency to stop inflation, but it never worked. Instead, it raised the cost of living, fueling inflation. Reagan immediately began to ratchet down interest rates, and inflation was curbed, while the economy boomed, disproving the myth of an "overheated" economy causing inflation. There is no such thing as an overheated economy. Reagan also cut tax rates in half, and revenues to the treasury shot up, mirroring the increase in the GDP. In 1986, Reagan allowed a rate increase, being promised spending cuts by congress. This started a slow slide in the economy, nearly killing real estate outright. This became an actual recession when Bush raised rates again in 1990. In all this time, no matter what tax rates are, the revenue to the treasury has remained constant as a percentage of GDP. The ONLY way to increase tax revenue is to increase the size of the GDP, and more importantly, the GMP. This can only occur with an increased demand for products. The elimination of income taxes will increase this demand by increasing spending power. Income taxes currently account for 40% of total federal taxes. Imports, exports, and excises, all paid by businesses, account for the rest. These taxes are, of course, paid by the consumer as part of the price of the product. So, obviously, ALL taxes are a tax on income. The only difference is whether or not some benefit is derived from the money before it is taken. Another problem to be considered is whether or not the Constitution means anything. Article 1, Section 9, Clause 4, forbids direct taxation. The income tax, as currently imposed, is a direct tax, making it unconstitutional. Taxes paid by consumers to business as part of a purchase are indirect taxes, and therefore legal. The increased consumption will simply transfer the taxes paid directly by individuals to the indirect tax collected by business. The effect will be no inflation, lower interest rates, no unemployment, a higher standard of living, and a lower cost of living. Government spending is blamed for the national debt, but no amount of local government spending can create debt if taxes are at their optimum. Every dollar spent by congress is taxed, respent, and retaxed, until there is nothing left of the original money; it ALL goes back to the government, and cannot create debt. The only government spending that can create debt is that which leaves our economy, also known as foreign aid. Military spending can also create debt, but only to the extent that the money is spent overseas. The only other cause of the debt is interest. A common misconception is that we pay interest on the debt. In actuality, the interest is paid on COLLATERAL. The government borrows money from the fed, giving treasury bonds as collateral. Interest is paid only on the BONDS. This is not only stupid, it is unconstitutional. The government can and should use its own property as collateral, and issue its own debt instruments. Kennedy did this with U.S. Notes in the early sixties. These notes were backed by gold, and had no interest. The treasury can recall all treasury notes and bonds, and replace them with U.S. Notes backed by gold, silver, land, anything the government owns. The current holders of these notes and bonds will simply invest the U.S. Notes elsewhere. This will eliminate the annual budget deficit immediately, as over the past thirty years the interest on the debt has always been more than the annual deficit. The debt will be quickly paid off in subsequent years. This will not be inflationary, as this is nothing more than an exchange of one debt instrument for another. The numerical explosion of the national debt occurred in the 80's, but as a percentage of the economy, the debt began its spiral upward when Johnson took over the presidency, and, as his first executive order, recalled Kennedy's U.S. Notes, so we would borrow money from the federal reserve, and pay interest on borrowed collateral. This will never happen though, as too many powerful people make too much money from the sale of treasury bonds. Interest rates can be lowered though, and it cannot be inflationary, as bonds are not liquid. The only borrowing that can cause inflation is when banks use checking and savings accounts to lend. This was the cause of the hyper inflation of the late seventies, when Carter allowed congress to deregulate that portion of banking. If I deposit $100 in a checking account, and my bank then lends $90 to someone, and then I write a check for that $100, the bank has just created $90 out of thin air. When only term accounts were used for lending purposes, no amount of borrowing could cause inflation, as no new money was created. This kept interest rates lower, and could do so again. Clinton now claims that the deficit reduction that he lucked into was caused by tax increases and budget cuts. Neither of these contributed to the reduction. It was all accomplished by refinancing 15 year old bonds that carried 14% with new bonds at 6%. With a $7 trillion debt, every 1% in interest rates creates $70 billion less in the annual deficit, so another 2 point drop will balance the budget immediately. The Only way the deficit is lowered is when the percentage increase in the GDP is greater than the overall interest rate on government debt multiplied by (the total debt divided by the GDP.) Interest rates must not be manipulated with the pretense of controlling inflation; this does not work. It simply raises the producer and consumer price indexes. If less borrowing is desired, this should be accomplished by raising the reserve requirements on lending institutions. Another misconception is that tax cuts must be paid for with spending cuts. Although cutting the budget would be nice, the theory is flawed. It is actually tax cuts that are needed to allow for budget cuts. As all government spending goes directly to pay wages and salaries, any cut in spending kills jobs. These jobs must be replaced with private sector jobs. Only increased consumer spending brought on by the elimination of income taxes can create these new jobs. Conventional wisdom has declared that 100% employment would be inflationary. That is simply ridiculous. During Carter's administration unemployment and inflation went up together, during Reagan's presidency they both went down together. In reality, we have 100% employment all the time. Those receiving unemployment benefits or welfare ARE employed; they get a pay check every week. They just don't add to the GDP while collecting these pay checks. This IS inflationary. The CPI has nothing to do with the inflation rate, in fact there has been no inflation since 1982. Inflation is one thing, and on thing only; the decrease in the value of a nation's currency. Once gold settled at about $400 an ounce in the early 80's, it hasn't risen in since. The reason prices have gone up is all due to government interference in the economy. Each of the three tax increases have raised the cost of doing business, which must be passed on to the consumer. Every new government regulation adds to the cost of doing business. The reason a new car costs twice as much as it did in 1982, is not due to inflation, but to regulation heaped on the manufacturers. A new car today is not the same as a new car 15 years ago. They now have anti lock breaks, air bags, fuel injection, electronic ignition, on board computers, high efficiency engines, and many other changes that cost more money. If they were built the same as 15 years ago, they would cost roughly the same. In summation, every tax is a tax on income, because that is the only way to pay them; property taxes are not paid with part of a house. Taxing income before it is spent is as stupid and ineffectual as flushing food down the toilet BEFORE it is eaten. ------------ Email John Marker: realnewsjohn@icqmail.com Comment on this column in the forum. Tell a friend about this site! ------------ |
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