by Lawrence Wilson, MD
August 2008, The Center For Development
America
faces a major decision point in 2008.
Will America become a high-tax nation like Europe, Canada and parts of
Asia? Instead, we can opt for lower taxes with more money retained by the
people for their own spending purposes.
Barrack Obama believes in very
high taxes. John McCain and Sarah
Paylin believe in lower taxes for everyone, particularly businesses and wealthy
people.
This is the essential debate of
the 2008 election in many ways.
However, to appreciate this fact, we must understand something about
taxation in general. This is the
subject of this article.
Taxes
are fees charged by governments.
This could be the federal, state, county, city, town or other
governmental bodies.
Taxes are really user fees on
people, businesses, property, automobiles, utilities like electric power and
natural gas, phone services and every essential area of life.
They are even put on activities
like getting married, dying, traveling, renting a car, flying in a plane,
riding on a bus and so many more of our normal daily activities.
To levy taxes literally means to
put on as a yolk around the persons neck. That is what taxes are, in fact. They are a yolk around peoples necks.
If one does not pay ones taxes,
one usually goes to jail. In times
past, many people lived in dungeons for this single reason. Things are little better today, but not
much in many nations of the world.
America
locks up more prisoners for crime than any other nation. However, most nations lock up many more
people for tax evasion than does America.
This is an important distinction, too.
WHY HAVE TAXES?
Taxes
exist for a number of reasons. One
older reason is to support the government, which technically does no work so it
has no income. This was the reason
for taxes in the founding documents of the United States of America.
The American
principle of government. That principle is elaborated in the
American Declaration of Independence.
To paraphrase it, it states all
men are created equal (by the Creator) with inalienable rights to life, liberty
and the pursuit of happiness. It
says nothing about government interference in the life of the people.
The government was not to own
and operate businesses, as occurs in many nations of the world, even
democratically run ones. The only
role of the American government is to protect the rights of the all the people
to pursue their lives on their own.
That is the sole function of the government of the United States of America, originally.
However, this has changed
drastically today, little by little, over the past 100 years or so.
The move to
socialism and communism. Today the purpose of taxes is
often to redistribute income from the wealthier people to the poorer people or
to special interest groups that the government deems more worthy of
support.
To these people are given
subsidies, free support of many kinds, tax incentives and more favors. Meanwhile, other groups of people,
often poor groups, by the way, are forced to pay for these favors with higher
income taxes, gas taxes, property taxes, sales taxes on a local level and many,
many others.
The disastrous
change in America. Let us discuss the change that has
taken place in America in more detail.
It is basically a change from a republican form of government, in which
all are created equal, to a different for of government that is properly called
communist.
Communism defined. Communism is not about Russia or China. It is a philosophy best described by
its founder, Karl Marx, as from each according to his abilities to each
according to his needs. This is
the essence of communism.
This philosophy sounds utopian
and it is. It imagines a society
where everyone contributes to a large central fund and then money and goods are
given out freely to each person according to what they need or want.
It sounds great, but it does not
work in practice at all. Every
society that has tried it has failed, including experiments with it in the
United States and around the world.
It requires a totalitarian
government that makes all decisions for all the citizens.
How else can anyone know the abilities of each person and their needs?
Socialism defined. Socialism is government ownership of the means of
production. It, too, stems from
Marxs writings. It is a milder
form of communism that is practiced in Europe, Canada, Japan and a few other
nations to a greater or lesser extent.
Problems with
communism and socialism.
1. The government
tends to give a lot more to some favored people than it does to others in an
arbitrary way. In communist nations the party members,
for example, or the loyal elites drive nice cars and live in mansions while the
rest of the people often starve or live at poverty level.
2. This causes bickering,
unrest, high taxes, poverty, social unrest and often revolutions.
3. Morals decline as people
become depressed and angry at each other and their government.
4. The nation becomes
militaristic to have someone to blame for their problems. The people turn to military adventures
because life at home is so bad.
5. The economy
always suffers because free speech and free expression and businesses are
suppressed or even forbidden altogether. This stifles
innovation and excitement in the people, which makes them far less
productive. Eventually, the nation
usually cannot even feed itself for this reason. This has led to mass starvation in Russia, China, North
Korea at present and other socialist and communist nations.
6. Eventually the society falls apart for the above reasons. It
usually does not take more than a few generations for this to occur.
So this problem of socialism is
worth understanding. Let us now go
back to the subject of taxes.
Because of the change above, and
in relation to her past, Americas taxes are very high today. It was estimated that in 1950, the tax
rate was about 5%. Today many
people pay far more than this if one combines all the obvious and the hidden
taxes that we will discuss in this article.
However, in relation to Europe,
for example, tax rates are still quite low in America. This is why Mr. Obama wants to raise
our taxes so they are similar to Europe, Canada and parts of Asia.
For example, most of these
nations have additional taxes such as VAT taxes that can add 100% to the cost
of some manufactured goods, for example.
The VAT stands for value added tax, a tax on companies that manufacture
all sorts of goods.
In America, the government, so
far, is not permitted to have its own businesses. It supports some businesses, unfortunately, but it does not outright own
profit-making businesses, at least not officially.
The purpose of the US government is to protect the peoples
rights and that is basically all.
In other words, its purpose is administrative and military, not business.
Therefore, it needs to raise
funds in order to operate, just like any other administrative
organization. The idea was to make
this process very transparent so the people could control the purse strings of
the government.
The founders knew that governments
always tend to grow larger and fatter at the expense of the people. So the taxing concepts in the US
Constitution were designed to prevent this abuse of power.
Therefore, they prohibited
arcane taxes like income taxes, originally, and instead depended on fairly
simple, straightforward taxes like import/export taxes or duties or
tariffs. This was standard at the
time. Sales taxes were not used
because they were hard to track before electronic money. Today, however, they offer a real
alternative we will explore later.
An older type of tax that was
rejected was the poll tax or a tax to vote. This had been used for years, but is extremely
regressive. This means it falls
much more on the poor and America was quite poor at the time. Import taxes, by contrast, fall mainly
on the wealthy and this is easier to collect and monitor as well.
OTHER WAYS GOVERNMENTS RAISE
MONEY BESIDES TAXES
1. Plunder its
enemies when it wins a war. America wisely does not do this. However, Mr. Obama wants us to plunder
oil from Iraq to pay us back, but even that carries some danger.
When a nation is plundered, it causes great resentment. It has been used by armies throughout
history to raise funds and as a way to rub it in that the enemy is defeated.
However, the defeat of Germany
in World War I followed by the severe restrictions placed on Germany caused the
rise of Hitler Germany and another devastating world war. This convinced the world that it is far
better to rebuild a defeated nation than to plunder it.
As an aside, Russia plundered
Georgia in their recent invasion, according to the news reports. It was relatively minor but was a
throwback to the good old days of warfare that are fortunately now pretty much
behind us, hopefully.
Iraq, of course, is a little
different. This was truly a war of
liberation, which needs to be stated more often. It is not an occupation, as the left wing would believe. America is getting out as fast as
possible, not because we have to but because our resources are needed elsewhere
right now, such as Afghanistan and Iran.
2. Inflate the
currency. The modern method of stealing
ones own peoples wealth is through inflation.
It works by essentially
diluting the money by printing too much. This money the government can use for any purpose. Meanwhile, by diluting the supply of
money, the peoples money becomes worth less, thereby one effectively takes
their money and transfers it to the government with very, very few people
understanding what is happening.
As it becomes clear that prices
are rising, the people usually blame all the wrong ones, such as big
corporations or other nations, leading to anger, wars and more socialism. This is what is happening in America
and all over the planet at this time.
3. Nationalizing
industry or taking over corporations on the sly. This is being used worldwide as well, today. China is well known for owning many
corporations secretly. In America,
the Federal Reserve is running more and more banks and other lending
institutions that are supposedly broke.
Barack Obama and the Clintons want to nationalize or take
over the entire two-trillion-dollar health care industry in America. That would be quite a prize for them.
Other nations, especially socialist
nations, use taxes for very different purposes. Communist and socialist nations rarely need money to run the
government. This is an
important point that Americans often forget.
Usually, these foreign governments own plenty of businesses
so they dont need money for that purpose. In fact, nations such as China, Russia, Iran and many others
have extremely wealthy governments, as many know. The leaders of these nations have multiple Swiss bank
accounts with billions of rubles or dollars in them.
Meanwhile, their people almost
starve and are given just enough wealth to keep them from rebelling. This is an ancient formula to control
the people.
It is used in Cuba, too, where
the leaders are also extremely wealthy due to sugar cane revenue. The idea that Cuba is a utopian
workers paradise, as some believe in America, is a joke. Castro is very wealthy, but that isnt
stopping his cancer, of course.
That would require natural healing at this point, or a miracle. He is learning this bitter lesson, of
course, as do all people eventually.
However, communist nations still
tax their people heavily. They lie
to them that the government needs their labor and their money to operate their
paradise, as they call it in Cuba and some other nations.
Of course, they do not but lying
to the people is a universal feature of communism that has infected America as
well today. Reasons why communist
and some socialist nations tax the people include:
1. To keep the
people poor so
they cannot rise up and rebel, except if it serves the governments interests
as it occasionally does, usually as an excuse to impose martial law.
Recall that most socialist and
especially communist nations have
governments that own loads of profit-making businesses. So they dont need taxes to
operate. However, many are still greedy and use the
faade of taxes to take the remaining wealth of the people.
2. To reward
friends and destroy or punish their enemies. This is a very
common use of the tax code of all nations, but particularly communist
ones. It means that certain
industries, certain social programs and other policies will receive tax breaks
or subsidies while industries the government does not like, such as cigarette
companies, will be forced to pay extra taxes.
Also, in many nations, as soon
as a new leader gets in, he or she orders audits on his enemies and
mysteriously finds cheating somewhere and this is the excuse to arrest and
often execute the person or group.
3. To shape
social policy. For example, they might tax cigarettes
or large automobiles to discourage their use. Other behaviors or activities are tax-free to encourage
them.
This occurs worldwide, including
in America, of course. However, it
is not in the Us Constitution and is therefore technically illegal.
4. To redistribute
wealth among the people. Most communist nations, including many
European nations that are socialist, but not communist yet, redistribute wealth
with the tax code.
America does this also, but to a
lesser degree than in Europe. European
nations often have 100% tax brackets for those who make over $1 million per
year, for example. This is far
more confiscatory than America.
Once again, the Democrats want
this kind of taxation for the rich in America to put us on a par with Europe. While this sounds good, often it
backfires and the poor somehow become poorer and not wealthier. This is a different subject so we will
just mention it here and leave it for a later article on wealth redistribution.
Now that we know why taxes are
set up, how are they administered?
Taxes
are of many types. Here are the
most common onese, but there are many others possible:
Taxes levied against people:
1. Income taxes (tax on earned income and investment income)
2. Estate or death taxes (money owed when a person dies)
3. Poll tax (a fixed amount owed by every person who votes
or resides in an area. This is an
old tax that is not used much any more)
4. Duties and tariffs if you bring things in or out of the
country
5. Sales taxes on everything you buy retail.
6. Personal property taxes. In fairness, a little of this is user fees for water,
sewage, police and fire services.
However, much of it is a tax to pay for things like libraries, local
colleges and other schools and much more.
7. Utility taxes added to phone, water, gas, electric and
other bills
8. Taxes on gasoline, car registration and almost everything
else today!
Business Taxes:
1. Business income tax
2. Business property tax
3. Business license tax (needed to open and maintain a
business in many areas)
4.Annual corporation tax in some states and nations
5. VAT or value added tax. This is used in Europe, Asia and Canada. ( It is a tax at
many levels of the manufacture of an item such as a car or television set that
is charged to the companies that make the parts or the whole item)
6. Import/export taxes on goods and services coming in or
going out of the country.
7. Business property tax and business inventory and
furnishing taxes in many states and nations.
This
list gives one an idea why people become discouraged today when thinking of
starting a business, for example, or even owning a home because their time and
money goes for so many taxes.
The point is that taxes have
become a way of life and this is not healthful for any society. It is demoralizing and confusing for
people and there is ample room for abuse when there are so many taxes that are not
coordinated at all.
When a government and people choose what kind of taxes to
have, it must consider all of the following:
a) How easy is it to collect?
b) How acceptable is it to
people?
c) How hard is it to avoid
cheaters?
d) How much revenue can it generate?
e) What is the cost of
collecting and enforcing the tax, for the government and for the citizens or
businesses?
f) How transparent is the
tax? Transparency is good for the
citizens but governments usually do not like it. It lets the people know just how much their government is
costing them.
h) Whom or what behavior or
activity does it punish and whom or what activity or behaviors does it reward?
i) How easy is it to manipulate
by the congress, by special interest groups or social reformers?
j) How regressive or progressive
is the tax? This means, to what
degree does it target the rich and not the poor? As a principle, it is harder to collect taxes from poor
people and it is worse for society to try to get money from those that have the
least. However, that is exactly
how some of our taxes work.
All these considerations mean
that tax policy is complex in any modern society. Let us take a few examples of how these questions are
answered.
Income taxes. For example, an income tax is easy to collect by just
forcing everyone to keep detailed records of all income and expenditures and
file returns. However,
this is very costly for the American people, for example. It is estimated the number of hours and
money spent complying with the income tax is in the billions or even a trillion
dollars, more than the tax money itself.
Also, cheating occurs quite
easily with an income tax, especially with our complex income tax code that is
changing all the time, which confuses lawyers, accountants and everyone.
Income taxes also hit people
when they make money, which is demoralizing to realize you cant keep your
money.
Sales taxes. A sales tax is also easy to collect by forcing
merchants to collect it, and it is a little harder to cheat on. However, it has the problem that the
tax is transparent. That means it
is clear to see on everything you buy.
Thus the people know exactly how uch the government takes and may resent
paying it and vote the government out of office if it is too high.
Another
problem with the sales tax is it affects poor people as well as rich. In contrast, the income tax only hits
the rich, or at least the rich who dont know how to cheat on it by setting up
corporations, tax shelters and so forth.
So
all these factors must be kept in mind when designing a tax policy for a
nation. America, by the way, has a
very poor tax policy in my view.
This is why this discussion is important.
The ideal tax
system. The best tax is one that affects
everyone so that all believe they are helping their nation. It also must be easy to collect and not
too obvious, so that it arouses anger.
It also should hit the rich more
than the poor, so that the poor do not bear the brunt of the tax. This is just a practical matter. It is far easier to collect taxes when
the money is there than when someone is starving to death. The best tax should also be easy to
administer at all levels.
Yet America depends today on
income taxes for the bulk of its revenue.
This, I would suggest, is a huge mistake. And why is this method used?
Because it is easy to manipulate
politically for any purpose the senators and congressmen want. It can be tailored to benefit the black
businessmen, the oil people, the medical trust, and any other group that will
pay enough payola or bribe to the government.
Also, the social butterflies
love it because they can reward all the downtrodden groups such as the blacks,
the Hispanics, the homeless and so on.
This, by the way, is the real appeal of the income tax.
Otherwise it is nightmare for
the government and of course, for the individuals who have to decipher the
code, a very appropriate word for the horror that is the US tax code. Even Russia has a much simpler tax
system than the US.
So what is the
best tax? The ideal would be a sales tax. This is the easiest to administrer by
the merchants, who should be paid for their efforts to collect it.
It is also paid by everyone,
which is good. It is also fair, as
it hits the rich much more than it hits the poor. The poor could be issued a voucher for their food, water,
housing and basic expenses to offset any tax they must pay.
It is also relatively hardest to
cheat on of all the taxes, though there are ways around it, of course, if one
wants to try hard enough. One
could start a car business and then lose merchandise by selling it without
paying the tax. But this is
relatively difficult for most people.
At the same time, a sales tax
takes no work on the part of corporations or individuals in preparing
returns. Isnt the language
wonderful. This is a joke. It is not a return unless you believe
the government owns all your money so you are literally returning some to
them. It is confiscation of wealth
of the people to pay for the government so it should be called a stealing
paper or something like that.
So why do few
nations use a national sales tax? Some nations,
including America, have discussed going to a sales tax, but none do it that I
am aware of. The reasons, I
suspect, are:
1. It is transparent and would
show the people, and any other nation that uses it, just how much money the
government takes every year.
2. It is harder to manipulate
politically to favor certain groups, certain businesses and so forth. For this reason, the legislators and
lobbyists dont like it, even if it is best for the people.
3. It is harder to manipulate
for social engineering projects.
This means it cant be tailored to reward certain behaviors and punish
others, such as the opponents of the current administration.
It is not a coincidence that the
counties surrounding Washingon, DC are among the wealthiest in the nation,
though there is little industry there.
The industry is bureaucracy and the bureaucrats of America are among her
wealthiest citizens.
This is a shame, as they are
also among the least productive people in America. This is all truth that needs to be shared widely.
The
next topic is what should taxes go for?
Today they are used for war, for energy policy, medical research,
welfare, (the biggest cost by far in America and other advanced nations) and
for roads, infrastructure and much more.
It
is tempting to say that taxes should go for everything that is needed in
society. However, the US
Constitution is very clear about what taxes are to be used for. This is because the founders knew how
governments abuse the taxing power, so they were very, very clear.
Most of the taxes in the US are
thus unconstitutional. Here we
must applaud Ron Paul, the congressman from Texas with a reputation for being
called Dr. No.
Dr. Paul is a doctor, actually,
and he votes no on most legislation because the authorization for it is not in
the US Constitution. This is very
courageous, by the way, and we wonder how he stays in office. However, he is persuasive with his
constituents.
I would have loved him to be
vice president. However, Sarah
Paylin, too, will be excellent and in some ways she is stronger and younger and
more idealistic than Ron Paul ever was.
Ron Paul has the right idea. If it is not authorized, it is illegal, basically, no matter
how wonderful the program is. With
this in mind, let us examine the correct use of taxes in America.
USA one of very few
with tax restrictions. Before doing this, just a note to say
that no other nation has such restrictions on the use of taxes. The others just leave it up to the
parliament or president or whatever.
This is an open invitation to abuse, though America is now full of abuse
as well because they ignore their constitutions, federal and state, and the
states even worse in some cases.
This, by the way, would be treason in the old days. Today it is business as usual, which
must change to reign in spending. Nothing
else will do it, I am afraid to say.
Legal use of taxes in
the USA. The legal uses for
taxes in the USA are listed in the US Constitution. They include the military, making treaties with other
nations, the post office system, building roads and other needed
infrastructure, salaries for government employees, forts, docks, operations of
Congress and a few other jobs that government is decidedly better at doing than
any individual or state, for that matter.
All else, however, is not the business of the federal government.
Equally important is what is not in the Constitution as
governments legitimate activities for which taxes may be used. This includes
education, welfare, health care (a huge government expense today), Social
Security (the other huge expense) and most of the nations research and
scientific expenses, which are also quite large.
So you can see why Ron Paul is
Dr. No if he follows the US Constitution.
In order for these to become legitimate government expenditures, a
constitutional amendment is required and none has been passed. Especially troubling is the idea of
taking over the entire health care industry. Let us look at this current Democrat proposal.
Health care
nationalization. The word to use when a government takes
over an entire industry and runs it, whether for profit or not, is
nationalization. We read this word
often in the news because this is what dictators do all the time. They just take over factories,
refineries or whatever because they feel like it. It is wholesale stealing and nothing more.
This is what the Democrat party
is advocating for health care in America.
They use all sorts of fancy words such as universal care national
health care and so many more. But
it is all the same. This must be
clearly understood. It is totally
illegal and we salute ron Paul as he is the only voice in Congress, very, very
sadly, who has come out and said this is illegal, not just a bad idea.
It is also totally immoral. Let us explain. Health care is and always will be a
personal matter. What you eat, how
you live and more is a matter of personal choice and can never be delegated or
given to an administrative agency.
Yet that is the effort –
to control how people eat, live, sleep and more. This is why we say it is immoral as it violates privacy
totally and completely. This is
the way it works in Canada and Europe already and Americas HIPPA regulations
do the same here – namely, take away any privacy between doctor and
patient. The American people are
so stupid they accept these regulations as good, when they are terrible.
This will conclude this
introduction to taxes and how they affect your life. Future articles may elaborate on many of the ideas, but
these are basics that I have found are hardly ever taught in high school, where
they should be taught, much less college or even graduate school.
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