Our Tax Addiction

TAXATION

It is not true that death and taxes are the only certainties in this world – death is the only one – taxes are purely a human concept that is imposed for the benefit of some and the detriment to the vast majority of people.

 

There is nothing natural or inevitable about taxes. It is simply a historical practice that has been imposed on people over such a long time that people have become brainwashed into accepting the concept as immutable.

 

That is really stupid.

 

Taxation started off as a way for the people at the top of the food chain to steal from the weaker people at the bottom of the chain. In other words, the least productive people in a community used force to steal from the people who actually worked to produce something.

Originally, the theft only involved goods and chattels, or where needed, the enforced obedience and labour from slavery.

Naturally, the weaker segment of the society had little choice but to comply when the option was either life or death.

 

This historical devotion to paying taxes has become so imbued into the human psyche that it seems almost impossible to wean people off the addiction.

 

In today's world, everything but everything revolves around “money”. “Money” has become an absolutely essential tool for survival for almost everyone. The very few people who can survive without money will automatically free themselves from paying taxes. However, those few people must inevitably succumb to death like all the rest of us.

 

Inequality and a Wealth Tax

It is this current level of inequality in most of the developed nations that has led to the increasing demand for imposing a “wealth tax” on the rich. The paper by E. Saez and G. Zucman, How would a progressive wealth tax work? , clearly demonstrates how complex this idea is and the likely difficulties involved in policing the inevitable avoidance schemes that will surely arise from the loopholes in the legislation.

Naturally, the idea of soaking the rich has great appeal to the people not described in that class.

However, given the worldwide addiction to imposing and accepting tax systems, and the seemingly impossibility of convincing people that a monetary sovereign nation does not need to impose any taxes at all, we should look at the underlying philosophy for applying a tax system.

There seems to be different principles involved for different people. For example, the income tax system is based on taxing what people earn. The corporate tax system is based on what profits the corporation makes and ignores their earnings. Creative accounting can usually find ways to make a very lucrative business show negligible profits, and with various Government approved incentives, often result in those corporations paying minimal taxes.

Then there is the system of sales taxes that comes under various labels, such as, VAT, GST, excise, and forms of custom duty on imports and exports.

However, there is another way to impose a tax system that is actually much simpler, virtually avoidance proof, and also far more equitable for everyone. That system involves a very low tax on ALL expenditure and at the same rate for everyone. A tax rate of 1%, and possibly even less, on every financial transaction would be sufficient for most developed countries to eliminate EVERY other form of tax imposition currently in place. The tax rate could be calculated and adjusted to provide the Government with its required revenue and would be collected by the banking fraternity responsible for processing the transactions.

Every million dollar high speed trade in the huge gambling casinos called stock and commodity markets would deliver $10,000 to the government while an employee on $1000 a week would return $10 to the same Government if he/she spent that amount each week.

Considering there are no other taxes on anything, just imagine the impact this would have on the economy.

 

“Why do we need to use “money” in the first place?”

Because, in today's world, virtually all taxes are imposed in the form of “money”, it immediately raises the question of “where does the “money” come from?'

When we start to talk about “money” a number of other questions are raised.

It should be obvious to everyone that there are certain things we all need to survive. Food and water are the first essentials followed by clothing and shelter according to the climatic conditions of where one lives. Because every one of us is different and each is endowed with different abilities and different interests, it is natural that some of us are better able to do things compared to others. It is this difference that forms the foundation of trade between people, whether it is the exploitation of some resource or the creation of some product.

Although it is postulated that the earlier forms of exchanging goods and services was likely based on a shared system, it is generally accepted that when people started to trade with each other the common form of trading was a barter system. People exchanged goods and services according to needs and wants and the way the buyer and seller perceived the value to each other. This can be a very cumbersome system in trying to establish a “value” for each exchange. At some stage, someone came up with the idea of using a “token” to measure the value of a given item or service and that “token” represents the original concept of “money”. The idea of a “token” greatly improved the convenience and effectiveness of trading.

 

“What is the purpose in having a “money” system?”

In truth, there is really only one single purpose for establishing a “money” system and that is to provide a convenient and acceptable token that can be used as a medium of exchange. Of course, as Minsky says, anyone can create a “money system” but the trick is in getting the tokens accepted. Obviously, if within a given society or nation, multiple types of “money tokens” are allowed it can become a real problem in assessing the creditability and reliability of one type of token against another. It would seem logical that it would be far more convenient for any given nation to have one single accepted type of “money token” that can be universally accepted within the society and one that comes with a guarantee that it is not a false token.

 

“Who should have the authority, or privilege, to create the “money”?

The simple answer to that question is anyone who can acquire the confidence of the people to issue a token that is universally accepted within a given society and is also able to guarantee the authenticity of the token by punishing anyone who tries to counterfeit the token. Logically, a representative Government, acting on behalf of the people is in the position to declare what shall be used as the nation’s legal tender and also in the position to enforce the guarantee that the token is not a false token.

As it happens to be a fact in today's world that “money” is virtually an essential tool for survival, it can easily be classified in the category of essential needs, such as food, water and clean air, amongst other such needs. By all logical reasoning, only a nation's Government is in a position to create and legitimise such a token as an essential public service.

 

“How should “money” be distributed in a society?”

That has been the single question throughout history that has never received a universally satisfactory answer. Logically, there should be an equal amount of “money” provided for the consumption of goods and services that is available to the production and creation of those goods and services.

 

It is absolutely pointless to produce anything, anything at all unless it is going to be consumed.

 

So, how might it be possible to balance what is produced with the ability to consume it?

First of all, we need to understand who the consumers are and how many consumers are involved.

Essentially, that is a marketing question, as not all products and services are consumed by everybody. However, the ultimate consumer in every case is the people. It doesn't matter whether the product is a bridge, a bomb or a bottle of milk, if it is not used by people it is a waste of resources, of time, of energy, and not the least in today's vernacular, of “money”.

A bridge represents a service to the society and it is only useful if it is used by people. A bomb represents a form of politics by other means and again is only useful if it promotes or deters the aims and intentions of some people. A bottle of milk, on the other hand, represent a symbol of life for a great number of people and is only useful if it becomes available to those consumers.

Under the concept of taxation there is absolutely no way a balance between what is produced and the necessary level of funds needed to allow the consumption of those products can ever be achieved. That statement is proven by the fact that the consumer is always the person who pays every tax that is imposed by every Government. Producers do not pay any tax – they always include the tax component in their pricing and simply transfer the tax they receive from their customers to the Government. This is the reason why tax avoidance and tax minimisation is so lucrative to the corporations, as any savings translates directly into increased profits.

 

Thus, we arrive at the concept of taxation

As pointed out above, all forms of taxation are really just a system of theft from people who consume the many things that are produced.  The people in the position to impose a tax always assume, or claim, they have an authority to justify their theft. Where that authority comes from has varied over the millenniums. Some claim it comes from “God”, others claim it comes from a crown placed on one's head, some claim it comes from the barrel of a gun, or in earlier times, the blade of a sword.

In today's world, it is mostly claimed to come from a “law” made by a Government that is supposedly granted to them through a Constitution.

This latter assumption raises the question;

 

Where does a Constitution come from and who really owns it?

Now, that is a tricky question for several reasons.

Firstly, the Constitution of any nation is supposed to be that nation's Primary Law. If that is the case then it should be incumbent on every citizen of the nation to know and understand what this Primary Law says. In other words, teaching the nation's Primary Law should be a compulsory subject of the education system because that Primary Law controls everyone's life.

Secondly, and logically then, if the people are going to accept a “law” that will effectively control their lives, surely they must be the ones to write this law?

Thirdly, virtually no Constitution of any nation is ever written by the people - it is always written by lawyers and politicians to make sure their position in the society is maintained and the status quo will prevail for their benefit.

Fourthly, some Constitutions pay lip service to the notion that the Constitution is written in the interests of the people but no person in their right mind would ever allow other people to steal from them by the threat of force, which is the basis of every tax system ever put in place.

Any Constitution that includes the provision for a Government to impose a tax on the people is verifiable proof that the Constitution was never written for or by the people.

 

So, who is going to pay for having a Government?

We all know that there is always a “cost” involved whenever any endeavour is undertaken in an effort to improve one’s wellbeing. Obviously, there is no point in wasting energy and resources if the endeavour is going to be to the detriment of one’s self and of no logical benefit to anyone else.

At the very rudimentary level the “cost” would simply be the “expense” of effort and time, as is the case with people at the “hunter/gatherer” level of existence. In today’s environment, the cost of any endeavour is normally measured in terms of “money” in relation to the time and resources needed to achieve the goal.

Clearly, to set up a governmental organisation is quite an extensive undertaking that will automatically involve a lot of people and require considerable resources. In terms of today’s philosophical thinking, someone will have to pay for the establishment and functioning of a Government because, as has been drummed into our psyche from birth, “There is no such thing as a “free” lunch”.

That, of course, is a deliberate misrepresentation of reality, as everyone receives the benefit of past endeavours and experience of our forebears. We all benefit from their ingenuity and inventiveness without having to contribute to their effort. If that is not a “free lunch” I don’t know what is.

As pointed out above, the Government is the only entity which is in the position to declare what shall be used as a nation's legal tender, and also in the position to punish anyone who tries to counterfeit that legal tender. As that is a fact, why would the Government need to steal “money” from the people when the Government is the creator of the “money”?

In this day and age, “money” is an essential tool for the survival of virtually everyone. There is no logic in the suggestion that a Government needs to tax their people in order to force them to use the declared “money” tokens. Every society needs a viable and guaranteed medium of exchange, and as long as the Government can provide that medium and guaranteed its authenticity, people do not need to be coerced into using it.

People will use it because it is the most convenient and practical means of fulfilling the daily requirement for buying and selling goods and services.

 

Every nation that is in the position to allow their Government to create the nation's supply of “money” is in the position to prevent anyone else from creating an alternative supply of “money”. That is done by defining what shall be legal tender under the laws of the nation.

It would seem quite ludicrous to allow other people to create different types of money systems for use within a given society, as it becomes a major problem to compare the relative purchasing power between the different tokens.

As President Lincoln recognise that back in 1863 when he said, “The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers….. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government’s greatest creative opportunity. By the adoption of these principles, the long-felt want for a uniform medium will be satisfied....... The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power.”

 

So, if the people of a nation give their Government this sole authority to create a nation's supply of “money” why can't it pay for the cost of running the Government?

 

A good question?

 

I guess fear and tradition is probably the most common answer, coupled with almost total ignorance about the fundamental role of “money” in a society and a complete lack of understanding for what monetary sovereignty actually means.

 

A Nation with Monetary Sovereignty

Every independent nation has the authority, the capability and the legal right to create their own supply of “money” for use as the nation's universal and guaranteed medium of exchange.

Because every nation needs an acceptable token to use as its medium of exchange, and if such a token is guaranteed by the Government, the people do not need any coercion for accepting it. The argument that a monetary sovereign nation needs a tax system in order to force the people to accept what is really an essential service, is clearly a mistaken assumption. The further argument that a tax system is necessary to soak up excess “money” in the system is also false as it is is the Government that is in control of the money supply. Any “excess” is obviously a case for mismanagement.

However, there are restrictions on how much “money” a responsible nation needs to create. Those restrictions are dictated by the amount of products and services that are available. The productive capacity of the nation, particularly in respect to the nation's available natural resources and the people available to achieve the required level of production, is another restriction.

A further restriction results from distributing the money supply to the consumers in a way that can balance the production without causing inflation or deflation. Thus, the quantity of “money” needed for the nation is a function of the nation's productive capacity in relative balance with the nation's consumption capacity, which in turn, depends on the nation's population levels.

 

In today's world of “globalisation” it becomes essential to take into account the nation's import and export capabilities. For a nation with the capability to create all the money it likes does not mean a responsible Government can import things without restrictions. The Government's primary responsibility is to promote local productivity and only import what can't be produced locally. A nation's import capacity is also restricted by the perceived value of its currency in relation to other currencies. The only logical way to handle the nation's imports and exports factors is to strive for a close annual balance. If this is a governmental policy then any dependence and influence to foreign currencies will be negated.

Whenever a nation becomes dependent on either imports or exports it will automatically lose its independent status and come under the control of outside entities. This will be even more conditioned to the extent a nation allows its natural resources to be developed by foreigners.

 

The irony of “foreign investment”

No independent monetary sovereign nation ever really needs foreign investment, as it can always create the money necessary to develop whatever enterprises it wants. It may require access to foreign know how to develop its resources and productive capacity but in the world of today, there is an abundance of well-educated and experienced people from all walks of life who are available through the internet to provide access to the know-how needed for virtually any development.

Almost every affluent nation has foreign aid programs who can provide international consulting and/or volunteer organisations to offer competent expertise as required. Provided this expertise and assistance can be provided on conditions acceptable to the recipient nation, without coercion, then it will serve the people.

An independent monetary sovereign recipient nation is in the position to provide any foreign expertise with the necessary resources and conditions to achieve the aim of a given exercise.

Creating the local “money” to do this is not a problem if the “investment” is judiciously planned to improve productivity through exploiting a nation’s natural resources.

 

Can a nation survive or function if it doesn't raise taxes?

The answer to the above question depends entirely on the sort of nation involved and whether it is an independent monetary sovereign nation.

Any nation that is dependent on another nation's currency or has relinquished its monetary sovereign status is automatically under the control of whoever creates and supplies the “money” system, e.g., the Eurozone comes under the dictates of the European Central Bank.

 

The contradiction of taxation is that it restricts citizens in their economic activity in order to support the economic activity of its citizens.

 

That conundrum illustrates the stupidity of a tax system.

If an independent monetary sovereign nation is to survive and function without a tax system it will depend on the nation's Primary Law and the type of Government created by the Constitution. This in turn, depends on what conditions the people are prepared to allow their Government to rule their lives, which is invariably what every government system will do.

A nation’s Constitution must be the vehicle that controls the way the money supply is created and distributed. Essentially, the Constitution must promote the concept of a self-sufficient nation that is neither dependent on imports or exports to survive and certainly not dependent on foreign investment for the nation’s development.

In terms of the nation's economic “growth,” the aim must be to improve the general welfare for the standard of living for all its citizens in accordance with the nations environmental and resources capability.

 

How is tax revenue applied?

There is basically two assumptions as to how the revenue from a tax system is applied. The generally accepted assumption, by most Governments and the general public, is that the tax revenue is accounted for in a conventional budget, and related to the proposed expenditure of that income for the theoretical benefit of the society.

In other words, Government financing is considered to be the same as every household or company financing in the private sector. For any Government that has the authority to create and authorise the nation’s supply of money, that concept is patently ridiculous. Unfortunately, the assumption that a monetary sovereign government’s budget is the same as a household budget in the private sector is a carry-over from the days when a nation’s money supply was dictated by the amount of gold the nation had stored away in some vault. That gold standard myth went out the window in 1971 when the world’s reserve currency, the US dollar, was changed to a simple fiat currency with no intrinsic value other than “the full faith and credit of the United States.”

The second, and less understood assumption is that the Government treats their tax revenue on a purely accounting basis. A charge is allocated to the account of each and every taxpayer and when the tax is paid the account is credited with the tax paid and returns the balance to zero. Thus, tax revenue does not fund anything at all and the Government simply creates additional money as and when needed to fund whatever programs it is authorised to deliver.

Both these assumptions are really just theories as how the tax revenue can be treated and there seems to be no rational way to prove the validity of either assumption; the proof is entirely in the mind of the beholder.

 

The concept of capitalism now controls all economic systems

As all the current economic “systems” are predicated on the basis of virtually unconditional “growth”, the only way this can be achieved is through planned obsolescence and/or expanded markets. Expanded markets really mean more people to buy what is produced, which translates to either increased populations or persuasive marketing to get the consumers to ditch the earlier product and upgrade to a new one, along with tying the ever-increasing debt noose around their necks.

At least, throughout our more recent history, there appears to have been little problem in finding sufficient “money” to create and expand productive capabilities in almost every field. The major problem that hasn't been resolved for the benefit of the consumer is a viable method to distribute adequate and balancing purchasing power without saddling the people in a long term web of debt.

The creation of “money” as debt is really the foundation stone of the capitalist system because it makes the demand for profits the central motivation for the system, and making a profit now dictates what can happen and what can't.

Unfortunately, over the past century or more, and still persisting in today’s environment, the political system in almost every nation has been skewed to benefit the “capitalists” at the expense of the ordinary people. It is this deliberate and planned control of the political system that has led to the enormous disparity in wealth for the benefit of the rich and at the expense of the vast majority of the people.

 

Available Books by the Author

 

The recently published book, as illustrated above, "Where to, Australia?" is now available. 

 

This is a new and challenging book that is divided into two Parts - the first Part explains the reasoning and philosophy behind each chapter of a new and better political and economic system that is contained in the draft of a new Constitution. The Second Part of the book is the draft Constitution itself.

 

If you are interested in this book and either of my two other books, "A Constitutional Journey" and "The Australian Constitution as it is Actually Written" I can send you a free eBook version, but you will need to download the free version of Adobe Digital Editions.  

 

Whilst I have copyright, these books were written to promote a true and proper understanding of the 19th century British Act Australia still uses today, as its Constitution. The only restriction on distributing the books, or excerpts, to anyone interested is to include a reference to this blog at www.aussieindependence.com.

 

These books are also available from www.sbpra.com or alternatively, contact the author at guggzie@gmail.com if you wish to obtain a copy.