Taxes Part 2… How Do We Fix It?

taxes-scrabbleIn part one about taxes I took the time to discuss my views on taxes; Which ones were constitutional in my view and which ones were not. And I am writing this one simultaneously. What is right and what needs to be the way forward are two different discussions in my opinion. So I wanted to keep them separate from one another. That thread for discussion of what taxes are constitutional and this one for what might be a better way to incorporate taxes in the government as I would attempt to run it today. So here goes…

The fix…. well there sure isn’t an easy one is there? Let’s start with the two biggest alternatives that are out there in the public domain right now: The fair tax and the flat tax. Amazingly, I talk to lots of folks who don’t know the difference between the two. So I will give the very quick synopsis and my thoughts on each one”

Fair Tax

The fair tax is a proposed replacement to the federal income tax that would be done primarily through retail sales. The fair tax would not eliminate the sales tax you already pay. It is in addition to the sales tax. So if you pay $100 for an item with 5% sales tax for a total of $105, then the fair tax would be a percentage of the entire $105. The “Fair Tax Act” has been formally proposed by John Linder (R, GA) in the House and Saxby Chambliss (R, GA) in the Senate. Under the Fair Tax Act, the rate would be 23% of that $105, payable by you at time of purchase. It basically comes out to you paying roughly 30% sales tax if you looked at it that way. 

Under the Act proposed, those families below the poverty level would receive a monthly payment as a type of “pre-bate”. The proposal would eliminate federal income taxes, estate taxes, payroll taxes, and gift taxes. Because this would be a consumption tax, there is no dodging it. No tiers for amount of income would exist. Basically you can control how much federal tax you pay by controlling how much you spend.

This would seem to be the closest to what BF could accept. I know he wouldn’t accept any tax, but at least this one gives him the legal right to choose not to purchase something as opposed to the government just outright stealing it from every paycheck for no other reason but because they live the Obama mantra “Yes We Can”. This tax would lower the burden on the wealthy as a lower percentage of their income is spent regularly, meaning they would be contributing a lower percentage of their income. The middle class might be the victims in this proposal, as they tend to spend more than the poor and that spent income is a higher percentage of gross than the wealthy. 

This would alleviate the concerns of illegal aliens paying income taxes, as they would be paying the consumption tax when they purchase goods like anyone else. The proposal on the table would eliminate the IRS, a giant money hole that is ineffective (or extremely effective at keeping us confused and scared, depends on your point of view). The fair tax would be paid on all consumption, including health care, investments, and tuition. I see pros and cons to this idea, but we will save it for the discussions.

Flat Tax

The flat tax is a much more basic concept. The flat tax would keep income tax in place and replace the current progressive tax rate with a flat, across the board rate, regardless of income level. This proposal has stalled a bit in recent years. It would do the fair thing of taxing everyone equally. It would also vastly improve the simplicity of the current tax codes if done correctly.

The tough part of the flat tax would be figuring out how it would affect other taxes and tax breaks. Eliminating the progressive income tax means that the rich would not be paying as much as they did previously, and the poor would be probably paying a bit more. That is a downside. The flat tax as proposed would close a lot of loopholes that corporations and the wealthy take advantage of. 

So those are the two big ones. My proposal is a little different and simplified since I am also not a tax attorney or one of the great minds of economics. I would probably say that the place to begin is the passage of a new amendment to the Constitution. This amendment would eliminate the 16th amendment which calls for income taxes. That is a start, because then government is not arbitrarily taking our money and then operating with free (and corrupt) reign. 

I would then say that if there are taxes that America as a whole believes are necessary, that they come in the form of specific bills that directly related to the prupose of the bill. We want government to do the roads, then we establish a road tax. Want to build a new power grid, then we have a power grid tax. See this way every new tax implemented has to be done on its own bill and debated before Congress. 

The big thing for me is that I get all the arguments for the earmarks that we see today. But the Polynesian Nautical Society, if America decides to fund it should be debated alone on the floor I propose that Congress cannot pass a bill that does not stand on it’s own. Government can make up any tax that they think the people want. But the bill would be passed on its merits, not tucked neatly in the 8 page stimulus bill. 

I know that there are a lot of questions as to how this would impact other aspects of government. I have heard the cries of those who believe that this would cripple Congress’s ability ot function. It would be too many bills, with too much debate, etc. But I also believe that the system I outlined would force Congress to spend money more wisely and would eliminate the ability to tuck some new tax thing in the fine print of the giant spending bills we are seeing today. 

So there are my ideas so far. I look forward to everyone’s thoughts on these matters. I don’t have everything figured out in my head quite yet. So pick these ideas apart, especially mine. This is where we are debating what we can do to fix a broken tax system.


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  2. I have no problem with either a fair or flat tax as long as there are NO exemptions.Once the first exemption is granted to any person or entity then I oppose either tax.Distributing the money collected to people below a set income level is also o.k with me as long as it’s a graduated distribution.I don’t want to see full distribution up to a set income then nothing after that level.That’s a cruel pill to a person $5 over the limit.Do both these requests and I’m a supporter.

  3. Personally, I believe either would be light years better than what is currently used. I do not particularly believe that anyone should get a “prebate” or any government support in the form of money. I would support providing the non working with shelter, food, and clothing, but to give them a “prebate” invites their misuse of money we would supply them. The shelter and food would give the basics of what they need, and perhaps motivate them to better themselves. We could also offer training to those folks to provide an avenue for them to better themselves I don’t mind giving someone a hand up, but to provide handouts just creates a class of do nothings that drain the economy.

    I believe that you have to have some “skin” in the game to ensure positive involvement. If anyone has to pay taxes, then everyone should have to pay taxes, no exceptions, that is the attraction of the fair tax minus the prebate portion, for me at least.

  4. Karl from Esom Hill says:

    I too have no problem with either plan as long as their are no exemptions. If you have those, you might as well have the old system. You’re right back to the superrich getting out of them and the poor not paying anything. Graduated distribution sounds good too. I know from personal experience about being $5 over the cut off line. Literaly. You go from $500 in benefits that you paid taxes to get to $0 because your PAST income is $5 over the limit! But, enough of that. Being from GA, I am familiar with Saxby Chambliss’ Fair Tax Plan. It definitely has pros as well as a few cons. One con is, I believe 23% is too much and would like to know where that number came from. It may be that it only SOUNDS like too much. Need more info to make a sound judgement. The Flat Tax I am more agreeable to. The only way it will work though, is if there are NO exceptions. Or Exemptions. If you want to make a graduated distribution to the poor folks that would be OK, I reckon. Personally, I don’t think 10% of anyones earnings is asking too much, regardless of income. I also know that the poor folks would howl like coyotes if you don’t give them something and the bleeding hearts out there in Obamaland would too. The rich? Screw ’em! They can start paying their share like the rest of us poor blighted souls. Anyway; these are the only tax structures I feel would work. I’m not sure about your system US. Maybe with a little more info I could make a better judgement. I will say that with the current members of Congress, your plan would be a non-starter. Not because it wouldn’t be a good plan, but because you couldn’t expect those morons to implement it correctly or in a timely manner. It takes Obama to get them off their collective asses and do something in a hurry! Anyway, I’m starting to ramble. Don’t know how much this helps, but thats my take on the situation. Peace Out!

  5. I don’t have problem with either plan, and I do like your modifications to the flat tax plan, US. I think that ‘crippling Congress’ would be a great thing. It they were forced to do more work to get a bill that spent MY money on something, then necessarily, they will spend less of it. I do think that the ‘prebate’ is a bad idea, and I don’t think that the federal government shold be providing any support to the non-working. The 23% is based on current spending levels, which most of us can agree is way too high. We need a wholesale revamping of not just the tax system, but we also need to look at our spending priorities. You can’t address on without the other.
    If I were President, I’d tell congress two things: 1) don’t put a bill on my desk unless you are willing to repeal at least 3 other laws that are on the books, and 2) any bill must contain an end date for the law, regulation or spending that they are trying to pass. I would alos ask for the American peoples support to pass an amendment requiring a balanced budget, and to repeal the 17th Amendment, giving control of the Senate back to the states where it belongs. The congressscritters would hate it, the American people would love it, and it just might force Congress to actually only work on the important things.

  6. This is a tough row to hoe.

    I suspect that the present tax codes are designed to do nothing other than confuse. You pay too much, you get a refund. Wow, talk to 90% of the folks out there and they actually think they are getting something from the Government.

    NJ is one of the most progressive states around I believe we invented the Homestead rebate concept. Now, there is a winner. Pay your property taxes to your locality for services mandated by the state and then at the end of the year the state sends you a rebate. Voila, a gift from Trenton! Meanwhile back at the ranch, your municipality knows you got the rebate and busy little beavers that they are, they raise your taxes to pay for non state mandated items like (for me) three, that’s right three band rooms in the new high school annex and a gourmet cooking program in the high school for all the aspiring chefs out there. We can’t seem to train a plumber to plumb nor an electrician to electrify but we are damn good at “presentations”.

    Nobody ever seems to question the sheer stupidity of sending money to Trenton and then paying, in effect, a service fee to have it returned to you. Let me pay locally to begin with, don’t let the mayor, council, school board hide behind the impersonal “State” government. let them stand before the voters and explain why they are robbing me.

    Complain of course, and you are told that you need these to keep up with the next town or God Forbid your property value will fall!
    I wonder what excuse they will have to come up with next year. Heh, heh.

    The free bridges in NY are about to be tolled to pay for a bloated transit system that we need but has no caps or controls on it. Forget the taxes I pay on Gas, registration, tires etc. they, like Edward G. Robinson in “Key Largo” need more, yeh, that’s it, they need more. The traditional toll bridges, all supposed to be paid off more than 30 years ago are now linked to the transit system. Bridges that cost me a quarter to cross in the late 70’s are now eight dollars but, they charge only six at non peak hours. Thanks, guys.

    The big con is accountability. There is none on any level. Everything to do with taxes is a shape shifting chimera, it never is what it seems.

    NY does what Jersey does. Mayor Bloomberg raises property taxes then rebates to homeowners, condo and co-op owners but not to owners of rental property. That way, we can encourage more class warfare. The “evil” landlord raises the rent of arguably the poorest in the city. The city council complains and passes laws. The tenant population now has confirmed in their minds that they were right, it was the evil landlord all the time. The mayor and council smirks, they got away with it again.

    You want to change it, start small, start local, go county and then state. Demonstrate it works bring the concept to adjoining states and then go national. Don’t think that will work in a reasonable time frame? Wrong. Look at the right to carry a concealed weapon. Twenty five or so years ago this was trotted out in Florida. Everybody in the media, local and national was against it. Dodge City, OK corral were a few of the more moderate comments. Well Fla. passed it, nobody died and it took off. Today I believe we are at 40 states with right to carry. That’s 80%. Even I don’t believe it but, unless you are a gun owner, you are totally unaware of the fact. Total media blackout except when the next state tries to introduce it then it’s like starting all over again. Dodge City, OK Corral. So, it can be done but like all good revolutions it has to be from the bottom up and not top down. We need the state legislatures to go flat or consumption and get away from income taxes. No rebates to municipalities. They stand or fall on their own.

  7. Fair Tax: As I understand it the prebate goes to anyone who signs up for it. The idea is that no one should have to pay the sales tax on their expenditures for basic living. The amount of the prebate, to everyone, is based on the poverty level to make sure the tax would not change the existing situation. IT IS NOT A GOVT PAYMENT OR SUPPORT. It is a monthly payment based on formula for the taxes you would have paid that month, again based on formula. The formula approach is used to avoid costly filing of actual expense records. FAIR TAX WOULD ELIMINATE THE IRS AND THE NEED FOR ALL TAX RECORDS AND FILILING REQUIREMENTS—FOR THE FED GOVT. The Fair Tax as I studied did not add to the retail plus state sales tax. It was embedded in the sales price as a tax on retail value. I decide I want 100 for my item then the sales price is 105. The state tax is added to the 105. So a 5% state tax would result in total cost of 110.25. This is an important difference in that the state tax method could be revised to the same as the Fair Tax. Then a 5% state tax would result in a 110 total cost, saving 0.25 per 100 spent. Those quarters saved add up in a 14 trillion dollar economy.

    This method also eliminates all fed. tax on production, employment and wholesale sales. It is a retail only and then only applied to retail sale of new goods/services. Thus money is only taxed once. All those hidden taxes in the retail products would be eliminated. Thus, in theory, the net total tax paid under this system is less that the proposed rate. Tha actual difference will depend on real economic forces as cost of labor and materials will be based on supply/demand relationships without consideration for recovering tax costs as well.

    THE MIDDLE CLASS WOULD NOT BE THE VICTIM: We all spend much less than our current taxable income on new retail items. The fair tax rate is less than the current rate for those tax brackets, thus they will pay less tax. The key here is that it will be their choice as whether they want to purchase new goods or settle for used. ILLEGAL MONEY IS NOW TAXED ALSO. Black market and other illicit money (drug dealers, etc) spent on new goods is now taxed equally. No more free ride. Of course now the feds can’t use tax evasion to prosecute (hows that sound BF?).

    As stated above, the high rate is because this one tax would replace all others under our current system. It is revenue neutral based on budgets of a few years ago. Another advantage is everyone starts getting their full GROSS pay. When they see the total 30% tax on their purchase they will be constantly reminded of how much we are spending on govt. The hope of the proponents is that folks will then wake up and start demanding reductions. Note several here complained about the high rate. That is exactly part of the idea.

    Flat Tax: The original proposal, and I have seen no other, exempted the first 18-20000 per year in income (don’t recall exact number but again based on poverty level)The only other exemptions were interest on your primary home. That was because they didn’t think they could pass it because the American public expect that deduction. The original rate proposed was around 18% and by the way, most rich folks would pay more under this system than the current system. That is because all income is taxed, capital gains, etc. THE IRS WOULD BE MOSTLY BUT NOT TOTALY ELIMINATED. YOUR TAX RETURN WOULD BE MADE WITH 3X5 INDEX CARD SHOWING INCOME AND HOME DEDUCTION AND TAX OWED.

    I PREFER THE FAIR TAX: This is the closest we have come to a voluntary tax and it completely eliminates the need for the IRS and it gets the govt out of our private and business affairs. That is why they hate it, especially the progressives. No tax code to force social change. You would think the greens would love this. The cost of new house just went up 30%, less the tax savings on labor and materials. Should encourage us to buy existing homes and used cars. Of course there will be no taxes on the gains when you later sell your house.


    There is one other option, much like any business would use. Set the tax rate based on what we think is reasonable overhead cost, then fit the WHAT WE WANT to the available revenue. If we use this approach I propose a 10% rate for current spending and an added 5% tied strictly to debt reduction. Of course if we changed our monitary system we could eliminate the debt and drop the other 5%.

    P.S.: Years ago I went to New Zealand and found a country that was running entirely on a 15% GST, general sales tax. This was applied to all goods so the effective rate was probably closer to 30%.

  8. Ah, now we get to the good stuff. More and more I find that while it feels better to talk about my ideals because I can be true to my beliefs, it is far more important to talk about the practical and immediate applications or else nothing is really accomplished.

    Of the two taxes proposed, I certainly like the fair tax better, and I would like it with no prebates. To successfully implement it, however, a few things would have to be done:
    1) Cut spending drastically. Even a 23% tax, once prebates are done, would fall well short of our budget. We friggin’ spend too much, so a balanced budget would have to be in place, with a mandated percentage of tax revenue going to paying the national debt, in order to get the government accustomed to limited money (and therefore limited power) and to get them on the path of cutting programs and budgets for programs.
    2) The prebates, or some other form of tax cut/exemption for persons below certain income levels would have to be in place. It would have to be temporary with certain qualifications for extensions, it would have to be graduated. This makes it workable for the dependency society we now have. I think everyone needs “skin in the game”, but right now, just making the poor pay for their own existence tax free would put a lot more skin in the game than they have now. No more housing allowance or food stamps, but also still no taxes. Even that may be too harsh at first, but we can move towards it quickly.
    3) This and all other proposals would have to be phased in over at least 2-5 years AFTER the spending cuts and balanced budget requirements have been in place for at least 5 years. As much as I would love to send the IRS a memo saying “You’re Fired!”, there will need to be a transition.
    4) USW’s idea of all new taxes and bills having to be passed on their own would have to be implemented. The final result of this would essentially be that most pet projects would be moved to the state level. That takes care of crippling congress, which is not a bad thing as it is. They got elected to do a job, not to be powerful people.
    5) I would like to see charitable giving remain an exemption. I think it is the only exemption that should exist, and I think that it should only apply to actual charitable work. In other words, non-profit status would not automatically be granted to religious institutions and other various associations. Tax exemption would only apply to charitable spending. Food bought for the starving or medical supplies purchased for the sick that cannot afford care would be exempted from tax. This will be especially important since many of the government programs that will have to be cut will be safety net and assistance programs.

    The biggest issue with this tax plan is that there will be an explosion in the black market, the bartering system, etc. A lot of transactions will take place under the table, cutting the tax revenue. This may not happen to much greater a level than under the table wages happen now and for the same reasons, but it will be something opponents will use to either prevent such a plan from being accepted, or the power hungry will use it to try to pass more restrictions on private transactions and bartering, and will attempt to cut into personal privacy to that end. Just something to watch for.

    The flat tax would be more likely to get passed in the current climate. For that one to even be workable, we would have to do the following.
    1) The spending thing again, and the implementation of balanced budget requirements for the Federal government.
    2) The phased implementation again, similar time tables.
    3) Graduated tax rates for those below certain income levels. At no point should it go to zero, I think the 10% minimum mentioned is good.
    4) Removal of exemptions is fine, although I would again say that the charitable giving exemption should remain. In this case it could be discounted from one’s taxable income much as it is now. One could not use charitable giving to drop them to a lower percentage, i.e. a wealthy person with few expenses could not use charitable giving to drop their tax percentage to the 10% minimum even if they gave away all but a few thousand of their income. They were likely only able to do so because of minimal expenses since they are likely to have no debts and this tax is designed to eliminate many other taxes. Again, non-profit status would not automatically exempt you from taxes, only charitable work would do so, and paid persons at a non-profit firm would still have their flat income taxes to pay.
    5) All income types would be equally taxed. Interest, profits, payroll income, tips, investment income, dividends, etc. would all be held to the same flat tax percentage. This would help close the loopholes used by the super-rich to avoid taxes, and it prevents undue stress on those whose fixed income is derived from investment portfolios rather than wage earnings.
    6) All business taxes would have to be eliminated in order for people to understand what they are really being taxed. In the short-term, however, some of those may remain, although they would have to be done at the same fixed levels. This would be in order to prevent too much use of corporations to hide income and assets for the super-rich, and it would make the whole idea more acceptable to those who don’t understand how business works. Also, it will help cut down on under-the-table wages since the businesses will need to discount wages from their profits.
    7) This tax would have to be implemented as a maximum level, with future changes only permitting a reduction in the flat percentage, never an increase.

    The major issue with this one will be the same as now, people not reporting their wages. The simplicity will help a great deal, but there are large sectors of employment that may shift more and more to under the table deals. The business tax remaining may help with this, but not eliminate it, especially in the arena of tips and barter.
    Overall, it beats what we have, but it is still arbitrary in the sense that the government gets a chunk of money that is not tied to any particular expenditure. I would like to see, with any tax system, a balance sheet for where your dollars were spent be given to you by the government. It would basically act as a receipt for your purchases.

    An idea I heard recently would be that all taxes would be levied by the state. Most federal functions of any importance can be done at the state level, and they would likely be done better in many cases. Also, it would allow a variance in how programs were run, making state governments almost competitive, the better you run your programs, the more you attract people and business, etc. States would pay the federal government for national programs such as the military, national jurisdiction law enforcement, emergency support like FEMA (obviously a better version than we have now), national courts and constitutional oversight, etc.

    I think at the state level, the same two tax ideas could be implemented, but a lot more transition of services would have to occur before this concept could be implemented, thus, it is an idea much farther from practical application.

    I am sure I will have more input but my brain is starting to cook, I think I need to eat something.
    More later….:)

  9. Jon Smith: I urge you to read “The Fair Tax Book” and “Fair Tax: The Truth” both by Mr. Neal Boortz and Congressman John Linder. If you have then please re-read. I think you will find your concerns have been addressed and others are moot. There is no need for a gradual implementation. The only issue is the cost to the federal govt of the first year, because taxes are paid as money is spent. But the books address this also.

    Donations to charities are not taxed, the same as everyone else. It is a tax on retail sales of new products and services, not on any type of income. Charities would have to pay the tax on any new goods/services purchased as would the criminals and other black market types. There would be no increase in black market because the tax doesn’t apply to used goods. No more illegal income from yard sales.

    You hit the real spike in the head: WE HAVE TO CONTROL SPENDING.

    TO ALL: Another fellow who commented this morning on yesterdays issue suggested two tax types. Flat rate for fixed, essential, expenses such as military and courts. Sales or fair tax on goods/services for luxury items, such as medicare, medicade and pig odor studies. I had not considered this (my desire to always simplify) but the idea has merit and could fit well with US’s honesty in labeling proposal.

  10. I would be OK with either plan, as an improvement on the current system. I think both parties will fight them to the death. As SK Trynosky indicated, they do not want clarity or transparency, which might lead to accountability. The government passes “blank check” laws. The will have spent $27,785,000 by 2010 searching for the Ivory Billed Woodpecker.

  11. Crimsonjihad says:

    Just have a quick second to post something small. I’d be for a luxury tax on true luxury items. I.E. a basic car, that takes you from point A to B, could be flat taxed or fair taxed. Anything above the ability to get you from here to there, leather seats, seat warmers, bigger engine, whatever, would then be luxury taxed. Same thing for a house. The basic, need to live/survive has a flat/fair tax. Want a million dollar home? Fine, but slap a luxury tax on there, because it’s not “needed” to survive.

  12. Black Flag says:

    Ok, I’ll weigh in…

    …as I’ve said before all taxation is evil, because (re-read the 1,218 previous posts of mine)….

    Now that we are all clear about that 😉

    In another thread, a poster (whose name I can’t remember, nor do I remember what thread and with no search function…. sorry…) asked about the taxes I cannot avoid paying…

    Anyway, it made me recall why the choice of the Founders for government income was import/export duties.

    So I’d like to offer some background and reasoning – and perhaps allow those “Little ‘G'” advocates some understanding to why their task is futile of “shrinking government” (always a catch with me, right 8) )

    Recall one of the complaints of the Revolution was the implementation of a “Poll (or Head) Tax” – which is conceptually equal to “Flat/Fair Tax” concepts of today – and is taxation based on “census”.

    Since Americans had no representation, this became one of the cornerstones of their complaint against the Crown – “Taxation without Representation!”

    Moving on, since the Poll Tax was vile, the government of the Revolution decided on taxes on imports/exports as their revenue source.

    So, bouncing back to today, I pay gas taxes – because I can’t reasonably avoid doing so. They are excise taxes – internal (to the nation) taxation on goods paid indirectly by a consumer – that is, it is placed into the price before my choice to purchase/not purchase a good or service.

    Since I am offered the goods of gasoline from the seller with the tax as part of the price (not external to the price as say, a ‘sales’ tax) – I cannot separate the payment of the tax from the goods as supplied to me. I’m sorta stuck in a real dichotomy, pay and get, don’t pay and don’t get.

    (Background aside: I can get a refund on my ‘sales’ tax – but I cannot on an ‘excise’ tax – since the latter is embedded before purchase and the former is added after purchase.)

    Same with import/export (customs) duty and taxes…

    The founders organized the taxation to be indirect taxation to the most ‘fair’ – it was only paid by those that use the imported goods (and on those that sold goods outside the USA) and did not directly contradict the right of any American human being to keep the the fruits of his own labor.

    Thus, their theory was, if you wanted to buy from some foreigners fruit of labor, they’d tax you – but not if you bought from the fruits of labor of an American – (same theory with selling to a foreigner vs. selling to an American). So they backed away from excise taxes, and taxed goods crossing the border (regardless of direction).

    As government grew (as it always must) – import/export taxes were not sufficient to maintain its growth – so excise taxes were introduced, then sales, then income – all justified by the government. These were government income sources – because the government did not hold the power of creating money. The gold standard held in check much of the government’s ability to manipulate the currency.

    FDR changed that.

    He seized the gold of the nation from the people – made it illegal for the people to own gold – and replaced it with Fed Notes.

    Though FDR was still held in check to foreign governments and their power to redeem Fed Notes into gold, thus his ability to inflate the currency compared to, say, France was restrained – there was no limit to what could be done in the country.

    So, FDR introduced heavy protectionism.

    You can’t have dollars flowing out of the country into foreign hands which will risk those dollars being redeemed for gold. So you put up trade barriers, and force the economy to be introspective only – then you can inflate the currency at will!

    By 1971, and the Vietnam war’s consequences as well as the every-growing international trade, this hold on internal inflation could not be restrained – and the USA abandoned gold and any constraint on the creation of money.

    Here is the key. When a government has the complete power to create unlimited amount of money it has no need to tax!

    Herald the age of the tax breaks~!

    Taxation becomes a tool for government policy and public manipulation.

    The government has many weapons to inflict upon the citizens to force the citizens obedience.

    Some, like law, are whips – but any animal can only be whipped so hard and so often before you kill it.

    If the whip no longer serves and the people still refuse to do as you demand – you must manipulate their wallets.

    By taxing somethings, and giving tax breaks somewhere else, the economic distortion allows the government to manipulate the masses into obedience, without a whip.

    It becomes a tool of influence upon the people and favoritism to government ‘supporters’.

    Think about this – tobacco taxes.

    American tobacco growers are among the richest farmers in the world.

    American tobacco farmers wanted to make more money – but they can’t raise their price, or else tobacco companies would buy Brazilian tobacco. So global competitive forces kept their selling price low. So what do you do?

    You convince government to tax smoking – brilliant backhanded strategy (’cause you’d think this would reduce the demand of their product! – but they knew it wouldn’t….)

    You now sell your tobacco to the tobacco companies below the market! They will most certainly buy all your product – and they sell the cigarettes at the same price – which means their profit goes up! Great deal for them!

    But government adds a tax – so the price of the cigarettes goes way, way up, but its not the companies or the tobacco farmers fault – it’s the government – who says “It’s for your own good – we want you to quit~! for the sake of your health!” But they don’t, really, at all, even for a nanosecond give a hoot about your health.

    The government takes 1/2 the tax and gives it to the American tobacco farmer as a subsidy, and keeps the other half.

    Voila! Ultra Rich farmers, rich tobacco companies, a justified reason for the taxation, and everyone wins! Except for the consumer, of course.

    The other use for taxation is policy control – by offering tax breaks, compels the citizen to move in directions of the design of government.

    Example, housing.

    Banks love to rent money. But they really love to rent money made out of air. And they really, really, really love to rent ‘air’ money guaranteed by something not-air, like REAL property. They will make a super-killing for nothing, and small risk.

    How do you compel citizens to buy into the game?

    Give a tax deduction on home ownership, of course!

    Consequence – housing boom – consequence – debt explosion – consequence – “economic disaster today”.

    Who got rich? – banks! Who owns most of the housing property today? Fannie May and Freddie Mac. Who owns these guys? The Fed Reserve. Who owns the Fed Reserve? The banks! And you thought this was a game? — You were right, and you were the sucker!

    So, USWep and others suggest moving back to import/export taxes – the Founder’s taxation of the nation. But it cannot happen.

    Every country on earth exists on fiat currency – and therefore, in varying degrees, dependent on inflation for funding their governments. And, thus, all taxation is a tool of policy for every government on earth.

    Globalization is not about free trade – it is about organizing trade globally under the auspices of global government authority.

    Thus, export/import taxes reduce international trade – thus, the threatens the power of authority over trade but ‘free trade’ agreements – which is not free trade at all, but overt, direct control of trade – proliferates – NAFTA, EU, APac, etc.

    Regardless of the yelling and screaming about protectionism – all governments are working in a step-wise direction to international control of trade, and away from import/export duties.

    Thus, all governments use the reduction of import/export duties to compel the citizens to accept international control of trade and commerce. USA enters into ‘agreements’ so to ‘reduce’ trade barriers – when in fact, they are entering into agreements to manipulate and control free trade.

    The fallacy the voting citizens hold dear to the hearts is that government is their friend (misguided, sometimes, but a friend nonetheless) – and sometimes, it makes mistakes in the policies it implements.

    Let me tell you – there is not one thing government does that is by accident!

    Quote from FDR – the horse’s mouth – “In politics, nothing happens by accident. If it happens you can bet it was planned that way. ”

    Taxation is one of the most powerful tools of public manipulation in the arsenal of government.

    Government reduce its use of the whip – and replace it with simple public manipulation to achieve a more lasting consequence in its favor.

  13. Black Flag says:

    And the bank thing, there was one more link I forgot to add…

    “Who got rich? – banks! Who owns most of the housing property today? Fannie May and Freddie Mac. Who owns these guys? The Fed Reserve. Who owns the Fed Reserve? The banks! Who just nationalized the banks? The government! And you thought this was a game? — You were right, and you were the sucker!

  14. G. A. Rowe says:

    O.K.; I have been busy and away from here the last few days. Got back last night & have been catching up on some reading. Glad to see that BF is back up to par and book writing again. Got something for him to really chew . . . or eschew. Whatever. Here goes;

    Quite some time ago I came up with something to replace the currant insanity that is more commonly referred to as the United States Tax Codes. Before I hit you with that little item, let me explain something – I am not about to debate wether or not it is legal for the U.S. Government to tax our wages. FDR already shoved that one up our rectums a very long time ago, much to the delight of Lady Eleanor. My Stepfather purchased the other half of his business from his partner of many years. Neither one of them believed in the tax system. When the IRS confiscated, through a plea bargain deal(or swindle), literally everything he and my Mother owned to keep them out of federal jail, I had to take emergency leave(I was on active duty at the time)to help my siblings move them and get them a place to stay. Whether you think it is legal or not, ask that actor who is now in federal jail what he thinks. The Judicial system sides with the IRS every time.

    Now for what to replace it with;

    First remove ALL taxes. And I mean ALL! – Absolutely every little tax you can find in the niches and cracks that the House and Senate snuck (I like that word) in there over the last few millennium! And that includes all State, Municipal, and local taxes!

    Now, once that is done via a permanent “Alteration” (not an amendment – amendments can be repealed at a later date) to the U.S. Constitution, replace it with (via that same alteration) a single statement that acknowledges that the government has the right to a 10% earnings allowance that the Government will return 50% of that to the state in which that money was earned. IE – Earn a dollar, pay a dime, and then a nickel of that dime is given to the state in which that dollar was earned. No exceptions, exemptions, or other “If’s, And’s or But’s” included. This would apply to absolutely everyone – Businesses, individual, Churches alike would all pay the same amount -10%, and only 10%.

    This alteration would be ratified as set down in the original Constitution.

    To me, at least, this seems like the only viable solution to the ever present taxation problem. Not paying any taxes at all just isn’t a realistic solution, except to the singularly selfish of course. We all must realize that if we are to continue as a viable nation in this world, we will ultimately have to support our central government in some form of monetary manner. Giving a 10% allowance seems logical and fair, well to me at least.

    I know that BF will have a lot to say about this, so . . . . . Go for it, BF!

  15. GA: Your idea of putting in the original constitution and not an amendment is not possible. Either we amend the original as already revised or we start completely over with a new constitution. The current one allows change with 2/3 majority of states. It also allows a convention to be called with 2/3 of states. The convention could amend or it could create a new document that replaces the original altogether. Remember that is what the boys in the three corner hats did. Amendment or new doesn’t matter as both take the same vote (2/3 of the states).

    I know of no way that an amendment could be repealled by the courts except by outright tyranny. That would be grounds for impeachment. I guess I don’t understand your aversion to amending the darn thing. Our problems today are due to incomplete description of the American philosophy and the holes left in the original as a result. Such as what does General Welfare mean? What is “regulation of interstate commerce” mean? There are only a few clauses that have been used to create the mess we are in. If we could close them the beast would be back in the cage. How long it stays would then depend on us, once again.

    glad to see you back

  16. G. A. Rowe says:


    Maybe I am showing some of my age here. Alcoholic beverages was banned way back when . . . Senior moment here, can’t remember the amendment . . . but, that one was repealed at a later date. Same thing happened, I think, with something called the thirteenth? The abolishment of slavery in the late 1700’s? I seem to remember an argument with one of my cousins about that several years ago.

    Anyway . . . What is needed is something that cannot be changed, like repealing an amendment. As I see it, if we the people agree with an overwhelming majority to wipe out the currant mess and replace it with something much simpler, it would be better for all of us. Right now we are being taxed to death! Literally everything we touch is taxed. One of my children’s friends figured it out that we wage earners only get to keep less than 10% of what we earn in the long run. This kid ended up becoming an actuary. I think he added up all the little odds and ends that we even get on our phone bill, electric bill, water bill, gas bill, property tax bill, etc. He also figured it out that by eliminating all of the tax exemptions and then replacing it with all of us paying a dime on every dollar earned – then the feds giving the states a nickel of that dime – that the governments would have more money than they would know what to do with. Sounded pretty logical to me at the time, and still does. We just have to figure out a way to keep the lawyers (politicians) fingers out of it.

  17. GA: The amendments you referenced were repealed by other amendments that also required 2/3 of states to approve. The repeal of prohibition went fast. Based on todays economy I am sure glad that one got through. I understand your concern over changing the doucment but if the primary doc can not be amended then it could become stagnant or it might include mistakes, like the original we now have. Maybe would could increase the #of states needed to amend. Any way, right now we have neither option.

    If you go back a few comments you will see I suggested a similar idea this morning. Only I added 5% earmarked for paying down the debt. That is because I think we should pay it, not our kids. The number is tied to GDP so it would mean all gross sales and gross income, no exceptions.

    We all agree, we need to find a way to put the rats in a box and the simpler the better.
    Best Wishes

  18. Black Flag says:

    Good gentleman,

    Your underlying premise is that there is a will within the politics to change taxation.

    Do you seriously believe that the government will willing destroy their #1 tool of public manipulation?

    Why would they do that?

  19. BF: Because we are the govt and we want it to be so!!!!

  20. Black Flag says:

    “Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.”
    Frederic Bastiat (1849)

    If “we are the government,” then anything a government does to an individual is not only just and untyrannical but also “voluntary” on the part of the individual concerned. If the government has incurred a huge public debt which must be paid by taxing one group for the benefit of another, this reality of burden is obscured by saying that “we owe it to ourselves”; if the government conscripts a man, or throws him into jail for dissident opinion, then he is “doing it to himself” and, therefore, nothing untoward has occurred. Under this reasoning, any Jews murdered by the Nazi government were not murdered; instead, they must have “committed suicide,” since they were the government (which was democratically chosen), and, therefore, anything the government did to them was voluntary on their part. One would not think it necessary to belabor this point, and yet the overwhelming bulk of the people hold this fallacy to a greater or lesser degree.

    We must, therefore, emphasize that “we” are not the government; the government is not “us.”

    Murray N. Rothbard

  21. Black Flag says:


    I believe you are under the misconception that the government needs taxes to raise money.

    It does not.

    As the sole creator of money – and unlimited in its ability to do so – why would the government need to tax?

  22. G. A. Rowe says:


    Read your American History. BEFORE we had the U.S. Dollar . . . Drum roll, please . . . we had . . . TA-DA = BANK NOTES! Each individual bank actually printed its own currancy, and that money was only accepted locally. Most banks did not honor another banks money. What was accepted by all was precious metals (gold & silver) and precious stones (diamonds, rubies, etc) at each banks assay office. Each bank had different values for everything. Fits right into your pipe dream of no government at all. BTW Governments did not create the monetary concept, greedy people did. It evolved from tradng chickens and eggs for services rendered.

    If we remove the ability of the government to charge tarriffs and such, then we have the burden of funding government, along with that burden comes the responsibility of making sure our government doesn’t get away from us. Therefore we set an immovable solid limit as to how much funding the government gets. If government wants more, then government needs to create ways for more money to be earned. Right now it just decides to increase our taxes whether we like it or not. We all agree that we need to close Pandoras box, we just need to agree as to how.

  23. G. A. Rowe says:

    One more thing . . .

    Who ever decided that we Americans could act rich by using all those credit cards, and we could buy enormous houses that were wayyyyyy overpriced with an adjustible rate mortgage that we only paid the interest on for five years or so (or something like that), are the same numbskulls (bf likes the word idiot 😉 )that are now saying we should not save our money, but spend it like there is no tomorrow and that will improve our economy!

    Who let all those folks out of the nuthouses?

  24. Black Flag says:

    G. A. Rowe

    Read your American History. BEFORE we had the U.S. Dollar . . . Drum roll, please . . . we had . . . TA-DA = BANK NOTES!

    You do know how dangerous it is for anyone to quote ‘history’, ‘science’, ‘mathematics’, ‘economics’, ‘technology’ and, of course, ‘politics’ in an attempt to use it against me, right? 8)

    The History of U.S. Paper Money
    In the early days of the nation, before and just after the revolution, Americans used English, Spanish, and French money.

    1690 Colonial Notes
    The Massachusetts Bay Colony issued the first paper money in the colonies which would later form the United States.

    1775 Continental Currency
    American colonists issued paper currency for the Continental Congress to finance the Revolutionary War. The notes were backed by the “anticipation” of tax revenues. Without solid backing and easily counterfeited, the notes quickly became devalued, giving rise to the phrase “not worth a Continental.”

    1781 Nation’s First Bank
    Also to support the Revolutionary War, the continental Congress chartered the Bank of North America in Philadelphia as the nation’s first “real” bank.

    1785 The Dollar
    The Continental Congress determined that the official monetary system would be based on the dollar, but the first coin representing the start of this system would not be struck for several years.

    1791 First U.S. Bank
    After adoption of the Constitution in 1789, Congress chartered the First Bank of the United States untill 1811 and authorized it to issue paper bank notes to eliminate confusion and simplify trade. The bank served as the U.S. Treasury’s fiscal agent, thus performing the first central bank functions.

    1792 Monetary System
    The federal monetary system was established with the creation of the U.S. Mint in Philadelphia. The first American coins were struck in 1793.

    1816 Second U.S. Bank
    The second Bank of the United States was chartered for 20 years until 1836.

    1836 State Bank Notes
    With minimum regulation, a proliferation of 1,600 local state-chartered, private banks now issued paper money. State bank notes, with over 30,000 varieties of color and design, were easily counterfeited. That, along with bank failures, caused confusion and circulation problems.

    1861 Civil War
    On the brink of bankruptcy and pressed to finance the Civil War, Congress authorized the United States Treasury to issue paper money for the first time in the form of non-interest bearing Treasury Notes called Demand Notes.

    1862 Greenbacks
    Demand Notes were replaced by United States Notes. Commonly called “Greenbacks,” they were last issued in 1971. The Secretary of the Treasury was empowered by Congress to have notes engraved and printed, which was done by private banknote companies.

    1863 The Design
    The design of U.S. currency incorporated a Treasury seal, the fine line engraving necessary for the difficult-to-counterfeit itaglio printing, intricate geometric lathe work patterns, and distinctive linen paper with embedded red and blue fibers.

    1865 Gold Certificates
    Gold Certificates were issued by the Department of the Treasury against gold coin and buillion deposits and were circulated until 1933.

    1865 Secret Service
    The Department of the Treasury established the United States Secret Service to control counterfeits, at that time amounting to one-third of circulated currency.

    1866 National Bank Notes
    National Bank Notes, backed by U.S. government securities, became predominant. By this time, 75 percent of bank deposits were held by nationally chartered banks. As State Bank Notes were replaced, the value of currency stabilized for a time.

    1877 Bureau of Engraving and Printing
    The Department of the Treasury’s bureau of Engraving and Printing started printing all U.S. currency, although other steps were done outside.

    1878 Silver Certificates
    The Department of the Treasury was authorized to issue Silver Certificates in exchange for silver dollars. The last issue was in the Series of 1957.

    1910 Currency Production Consolidated
    The Department of the Treasury’s Bureau of Engraving and Printing assumed all currency production functions, including engraving, printing, and processing.

    1913 Federal Reserve Act
    After 1893 and 1907 financial panics, the Federal Reserve Act of 1913 was passed. It created the Federal Reserve System as the nation’s central bank to regulate the flow of money and credit for economic stability and growth. The system was authorized to issue Federal Reserve Notes, now the only U.S. currency produced and 99 percent of all currency in circulation.

    Each individual bank actually printed its own currancy, and that money was only accepted locally. Most banks did not honor another banks money.

    Actually, they did and do now.

    There is a central clearing house, or a “settlement” bank that handles inter-bank transactions.

    It is easier today, due to the speed of communication, but it always existed.

    If we remove the ability of the government to charge tarriffs and such, then we have the burden of funding government, along with that burden comes the responsibility of making sure our government doesn’t get away from us.

    I’m confused.

    If we don’t pay taxes – which is a burden on us – we are doomed to have government burden us with their costs….

    errr…. huh?

    Therefore we set an immovable solid limit as to how much funding the government gets. If government wants more, then government needs to create ways for more money to be earned.

    Government is not a business.

    How can it create “more ways to earn”?

    What is it selling in a free market that anyone wants to buy?

    However, you avoided my question:

    If the government is the sole creator of money, and is unlimited in its ability to do so, why do you think it needs to tax?

    • USWeapon says:


      Hypothetically doesn’t fiat money get its value from the government’s ability to tax? I admit that it is late and my brain isn’t working well.

  25. Black Flag says:

    G. A. Rowe

    Who ever decided that we Americans could act rich by using all those credit cards, and we could buy enormous houses that were wayyyyyy overpriced with an adjustible rate mortgage that we only paid the interest on for five years or so (or something like that), are the same numbskulls (bf likes the word idiot 😉 )that are now saying we should not save our money, but spend it like there is no tomorrow and that will improve our economy!

    Who let all those folks out of the nuthouses?

    Sorry, I do not blame the people at all.

    You are told, convinced by the ‘experts’, and told again if you work against these ‘experts’ you were a moron – that buying a house is the best investment of your life.

    You were told by the experts that prices were rising 10% per year – and would do so for the rest of your life.

    You were told that though other investments may rise and fall, property always goes up.

    You were told that you did not have to pay into the property, but let the ‘natural’ increase of property value increase your equity while you merely paid the interest.

    22.5 million Americans believed this – and why not?

    Are you willing to bet against the ‘experts’? Are you that smart?

  26. Black Flag says:

    PS: I do think you are right – the ‘experts’ were never expert, and their advice today is horrifically wrong.

    Save, save. Cut your costs. ANYTHING, and I do mean ANYTHING that is not necessary is not to be bought.

    Pay off short term debt like it was the plague.

    Batten down the hatches. The modern world has never witnessed this explosion of fiat currency.

  27. G. A. Rowe says:


    You said;

    “If the government is the sole creator of money, and is unlimited in its ability to do so, why do you think it needs to tax?”

    Government PRINTS money, does not create it.

    Answer this – What backs a Federal Reserve Note?

    Why did Clinton always say “It’s the economy, stupid”?

    You said – “Government is not a business.”

    Then why do I always hear about “The business of government” from the talking heads on the boob tube?

    Not trying to equal you . . . I do not know a whole lot about any one thing, but a little about a lot of things. What is happening to our economy is not localized, it is global. If this continues, and I fear it will, the hollywood doomsday movies will look like childs play.

    The only folks I seem to see who are trying to find a solution are those of us here on this blog. I look around and all I see are idiots happily trudging around smiling and gigling as the Bummer “Spreads the wealth” . . .

    People seem to think that the Bummer has an endless supply of Federal Reserve Notes.

  28. Black Flag says:


    If it borrows money in the market place, then, yes, it is its taxes that it uses to secure that debt to the lenders.

    But if it Prints Money – it has only itself as its ‘lender’ — see below.

    Government PRINTS money, does not create it.

    It actually creates the money –

    1) Government creates a Treasury Bill – a debt instrument
    2) The Fed buys the note – with money out of its bank, called the Reserve
    3) The Reserve gets its money from…..a computer.

    Answer this – What backs a Federal Reserve Note?


    That is why it is called a “FIAT” currency.

    > You said – “Government is not a business.”
    > Then why do I always hear about “The business of government” from the talking heads on the boob tube?

    Because the are boobs on the tube.

    By pretending government is a business it helps sell government programs.

    The core of business is pricing. A business uses profit/loss to determine price.

    A government is immune to profit/loss mechanisms, therefore it prices based on politics not economics.

    A business is economics. Government is politics.

    Therefore, because Government has way to measure profit, therefore no economical price mechanism, therefore it is not economics – it is not a business.

  29. Can’t tell you how glad I am to finally find a site that has some decent people on it!! I’m probably out of my league with you guys, but I’ll learn a lot from you. So thanks!

    I haven’t decided yet on whether the fair or flat tax is better. I’m leaning toward the fair tax with some of the conditions that I’ve seen written about here. In Tennessee, we stopped the implementation of an income tax and voted for increasing the sales tax. Hard to avoid paying that kind of tax.

    This brings me to the thoughts I have had regarding the “states”. One of the problems I keep running into on both taxes and policies of the federal government is the “one size fits all” theory. We’ve somehow let the federal government overrun the authority of the states. Isn’t it suppose to be the other way around? Shouldn’t the majority of taxing be done on the state level, not the federal? As an individual, I have more control at the state level than I do at the federal level. Each state has it’s own needs and the cost of these needs can differ from state to state.

    This was all really brought home to me when they announced the “mortgage bailout”. The maximum limit was set at $729m. Do you know what kind of house that buys in Tennessee? About 5000 sq.ft. in the best part of town. In some areas of the state it would be a lot bigger sized home. I’m sure in CA it would be a much smaller house. I can imagine that there are going to be a lot of people in Tennessee upset to find out they’re bailing out these kinds of homes.

    So, I think we also need to add some restrictions on what the Federal government can spend our tax dollars on. We need to work on defining the “common good” term and put more power in the hands of state government for distributing the tax dollars.

    Look forward to reading your thoughts on this.

  30. Swctenn

    Welcome aboard.

    You agree with my main contention, that change has to start on the local level and go to the state level. When the majority of states enact fair tax laws (an oxymoron?) then it can be pushed to the federal level. Ain’t gonna happen overnight but with a concerted push through local Libertarian/Conservative third parties and with some fellow travelers in the Republican and even Dem parties it doesn’t have to be that long either.

    Feel free to read my earlier post where I tried, at the end, to demonstrate how it could be done.

    Folks, change will come only through slight of hand on our part and outright subversion. Make ’em think it’s one thing while it’s really another. Remember, while Ike was breaking out of Normandy, the Germans were still waiting at Calais.

  31. Not much time at the moment, but I wanted to say I agree with BF’s point on Fiat currency. Much of the changes sought in shifting the tax system are moot if the government can print money. Printing money, as well as fractional reserve banking, creates massive inflation which becomes, essentially, a hidden tax, since the government gets the full value of its printed money, but as it trickles down the value of the dollar drops, meaning that we are impacted, especially those of us who actually save money.

    The replacement of a gold standard would be the best defense against something like this. A balanced budget amendment forcing the federal government to operate within its means would be fairly effective as well to a similar end. It would at least prevent money printing…

  32. dreweth says:

    I need more time to read the rest of the comments (and post!), but you have identified two parts of the fair tax incorrectly, one by omission.

    The prebate is not for those below the poverty line, it is for everyone. No one will pay taxes on the basic necesities of life under the FairTax. This means that those below the poverty level pay ZERO taxes, eliminating the idea that a consumption tax will unfairly target the poor.

    Secondly, you portray the tax as a 30 percent hike, which is wrong in two ways. You mention that the 23% tax is laid out, which means that a $100 product on the shelf contains 23 dollars of tax, which is not 30%. The tax is not added to the top of the cost of the item like sales tax, it is built into the cost of the item itself.

    Also, you fail to mention that tax is only on the final products used for consumption. So, instead of a product that you buy now, such as a car, that has thousands of parts that have changed hands several times delivering sales tax burdens along the way, you have one final product that has tax built into the price. Why is this important?

    Every car you buy right now has all of that other tax built into the MSRP price now, plus the taxes you will pay on top of it. When a manufacturer doesn’t have to pay payroll tax among others, as well as taxes on each part of the car that they put together, they can offer the car for a lower price. That price just happens to be around 21-23%, which is the same rough rate as the FairTax.

    If you believe in competition in this country, then you know that a company that can deliver the same product at a lower price and steal market share from their competitors will do so. It will happen almost instantaneously. For those that believe the companies will keep the prices the same to pocket the windfall profits while their competitors steal their market share have their heads in the sand.

  33. Black Flag says:



    Inflation is a far more powerful revenue tool for government than any tax yet conceived.

    So, my question – still outstanding to the ‘power’ posters of USWep’s team –

    Given my posts, and Jon’s –

    Why do you think government still taxes? (Especially the most hated income tax?)

    • USWeapon says:

      Well I see two purposes for government taxing and I think they are the ones you would agree with BF. First, they must have revenue to institute the social programs and “services” they provide as well as providing an army for the common defense. Second, the tax codes and the system of taxing is one of the most powerful tools they have to control the people. I do concur with that thought process. Giving “tax breaks”, increasing tax on the wealthy, pretty much everything to do with taxes these days is as much or more about the power they get from it than it is about revenue. I don’t live in a different reality than that which is why I know changing the tax system or the mindset around taxing is a massive undertaking which those players in Washington won’t take lying down.

  34. Jon & Flag: Excuse the scientist in me but lets be precise on this Fiat money issue. The mere printing of Fiat is not inflationary. BF you actually agreed with me on this some time ago. The existence of Fiat does not create the existence of inflation.

    It is the amount of Fiat printed that affects inflation and it is the amount of Fiat available in the market that determines inflation, the combined effect of supply and demand.

    Fractional Reserve Banking (Lending) has allowed the supply of Fiat to expand by a factor of 10 beyond the amount actually, excuse me, virtually, printed.

  35. Just a Citizen,
    You are correct that fiat currency does not automatically mean inflation. You are also correct that fractional reserve banking is the greatest cause, although it is accomplished differently and with less effect than printed money.

    Government printed money, if it increases the overall money supply, is inflationary. More importantly, however, is the way it is accomplished. The government does not just print money, it borrows money, even when there is none to borrow. In other words, it issues bonds, then spends that amount. Those bonds become part if the national debt. This debt has interest owed and becomes part of the budget, requiring an increase in government cost.

    So, an ever increasing amount of funding in required, and that funding is pulled from actual production or from more debt. Thus, taxpayers get saddled with the increased money supply and the interest on the debt. More importantly, much, of that debt is owned by foreign entities, meaning our wealth is being sent elsewhere. Also, the value of our currency is being thrust upon the global market through the bond market. An excess of supply will drop the value, making the negative effects on our currency more immediate than the effects of fractional reserve banking.

    With fractional reserve banking, the debt is almost all held within the country, and any that is loaned outside of the country means that another country’s wealth is coming here in order to pay it. This way, the extra money loaned out is only loaned and paid back at the rate of increased production or value. If responsible lending is used, then the inflationary effects of fractional reserve lending are minimized because only money that can be paid back is actually lent out. The government does not stay within such boundaries.

    The reason we are in trouble is that the banks, with the government’s support and pressure, have not held with responsible lending practices. Their solvency is threatened by a surprisingly low percentage of failed loans, especially considering the perceived wealth of banks. The reason for this is that, with fractional reserve lending, when a loan of virtual money fails, not only is it lost, but the “reserve” for all moneys tied to that so-called asset are also without the required reserve. This means that while real assets are increased by as much as a factor of 10 with our current fractional reserve, those same assets are reduced by a factor of 1.9 for every defaulted loan. In other words, when the bank loses a $200,000 loan to a bankruptcy, its balance sheet just lost $380,000 in assets, because it now has to cover the fractional reserve of all of the loans made based on the so-called “asset” that was the $200,000 loan. It is a house of cards. Failed loans have an enormous impact, and can cause massive devaluation, huge amounts of wealth are consumed, as can be seen in the stock market.

    Basically, both printing and fractional reserve banking are dangerous for similar, but different reasons. The fractional reserve system has gotten away with what they are doing for a long time because of certain limitations on lending. The government is way outside of those lines, making its borrowed and printed currency the more immediate concern for inflation.

    BF and USW,
    The government still taxes for 3 reasons.
    1) It is a control tool, both for manipulation through taxation and tax breaks, and for manipulation by keeping the populace, especially the middle class, weak. It increases dependency on the part of the lower class, and it keeps the powerful middle class from becoming too powerful and threatening both the government and the super-rich.
    2) It is being used to hide the effects of printing and borrowing. If there were no taxes, people would start to catch on that something was up. Also, the negative effects of printing would be far more pronounced, and with no real assets coming in, only more printed money, our bonds would be worth nothing on the world market. This means that their whole scheme is based on fooling all lenders, foreign and domestic, into thinking that the production of the US can cover the value of the debt.
    3) They want more. Always more. So they will take it where they can. They go for taxes first, then borrowing when they can’t get away with taxes, but they want to take the money directly and redistribute it, with themselves getting the most. Then, when they can’t take enough without waking people up, they print and borrow in order to continue expanding.

  36. Black Flag says:


    I wholly agree – therefore, my conclusions –

    Flat/Fair Tax initiatives will never succeed.

    The Tax Code will become more complex and arbitrary.

  37. esomgazette says:

    A Fair OR Flat Tax intiative will never suceed because the current Tax system is a license to steal from the American people. Government tax beaurocracies are never willingly going to cut their own throats. Also the ones in power have to have all that revenue to institute their pet pork projects. This sounds like pessimistic whining and it is, but that doesn’t make it less true either.

    • USWeapon says:


      Your ID tag seems to have changed to esomgazette. I corrected it on the other post. Do you want me to correct it on this last one as well or do you want it to remain that way. I assumed the first time it was a mistake, but the second time I have to ask. I am not trying to “control” anything here, just trying to be helpful if you didn’t realize it was doing so.

  38. esomgazette says:

    I started a blog on wordpress and ever since if I’m still logged in it puts my name in as esomgazette. I don’t really think it matters. Haven’t seen anyone else from Esom Hill, GA on here although I’m trying to change that. I do so love reading and talking on this site. This is the only site I’ve found so far without a lot of nasty Verbal squawking between libs and cons and instead thought provoking commentary

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