Tax question for supscription

Great Debates
41

Yes. Because inflation isn’t just caused by too much circulating money. It can also be caused by interest rates being too low.

You’ll notice that these days when the Federal Reserve wants to cool off the economy they do it by raising interest rates, not by withdrawing cash from circulation. In our credit-heavy economy the actual supply of bank notes is not as important for determining the inflation rate as it once was. And in any case it’s easier and quicker to tweak the interest rate than it is to increase and decrease the number of bills in circulation.

42

Others have covered this better than I could have. I will add this, though:

43

And also look at the long history of debasement of coinage. You’d have Roman Emperors declaring that a silver coin weighing 9/10ths of the old silver coin, or with only 90% silver content, had to under pain of law be accepted at the old value. Of course, this leads to all kinds of nonsense. Coins get clipped, etc.

A promise by the government to exchange paper money for precious metals means nothing if the government can, by fiat, change the terms of that promise. Money backed by nothing more than the government’s credit is MORE honest, because it reflects the reality that the government can manipulate the money supply, make it illegal to own gold, or all the other shenanigans that have gone on in the past. “It’s money because we say it’s money” is what money really IS, a promise to exchange those pieces of paper for bits of metal is just as flimsy as a promise to accept those pieces of paper for all debts, public and private.

And anyway, printed paper money is only one small part of the total money supply. And not just banks do this…every time you buy on credit you’re doing your little bit as well.

I know during the 70s it was an article of faith that double-digit inflation was a consequence of fiat money, and the only cure was a return to the gold standard. But we’ve had fiat money during the 80s, 90s and 00s, and where’s the inflation? There are no modern industrialized countries on the gold standard any more, it’s ALL honest fiat money, backed by the credit of the taxpayers of each country. If the promise to repay in paper is not good, the promise to repay in metal won’t be any good either.

44

That quote was not made on Wilson’s deathbed, but comes from a book published in 1913. Here is the complete text of the passage. You can see that it is mostly an attack on trusts (not surprising for a Democrat) and that the Federal Reserve was never mentioned. In fact, I’d say that a government created Federal Reserve Bank would make credit far more available than the privately owned banks, and would improve the situation Wilson was describing, not worsen it.

I figured this was not a deathbed speech, since Wilson died soon after leaving the Presidency and was not in great shape in his final years.

45

How much they charge and how much you get is purely market driven. No one forces you to put money into a savings account, and it is a terrible investment in general. If the bank had to have on reserve all the money in savings accounts, how could they lend anything out, and how could they pay interest? Once their reserves are less than their deposits, they can make money off of them. The amount of reserves is regulated, IIRC, and the system works (where it didn’t in the Depression) thanks to the FDIC.

You’ve already seen cases of inflation. A problem in the late 19th century (and the cause of Bryan’s Cross of Gold speech) was not enough capital, and in fact deflation was common. If you watch old, old movies, one them was the widow losing her homestead to the evil banker. This was an actual problem during times of deflation, where her income would fall, and she would not be able to keep up payments on her mortgage. A currency backed by precious metals means the government no longer can control the money supply, which leads to instability. That’s not good.

46

OK so let me get this straight.

A promise by the government to exchange paper money for precious metals means nothing if the government can, by fiat, change the terms of that promise. So you’re saying rather than hold them to an honest standard its better to just let them manipulate it because they are going to anyway?

That is the very crux of my argument. Why do we accept fraud from a government that was set up to be completely transparent in this area? Changing the agreements of a contract already made is fraud.

You had to go all the way back to Spain in the 1600s to find an example of “backed” currency inflating and that was because they found (well, stole) a whole new reserve of precious metals and directly injected it into the money supply.

You showed that in fiat currency its not as much about the supply of money (although it still has a big impact) but the fiscal policies set forth. Once again why do we have a private group of bankers decide this as opposed to open debate in a Congressional committee?

The cross of gold speech doesn’t apply either because as far as I know they didn’t use any silver (far more plentifull) as currency so there was so little gold (money) in the economy that a private cartel could take over the whole system. Which is different from central banking today controlling our whole money supply how?

Am I wrong in thinking that there hasn’t been a government on earth yet that had a fiat currency and didn’t destroy it? Is ours going to be the first one that lasts? Or are we just repeating history over and over and over?

And lastly, if you are telling me that this country hasn’t had a high rate of inflation in the last 2 decades, I want to know what you are smoking and where I can get some. Gas, Food, Power, Homes, ect. have all more than doubled in price in the last 10 years. How are you gonna be able to retire if the money you put away is worth half as much as it was every 10 years? No I don’t care about the bogus CPI that has been re-engineered whenever it starts to look ominous (doesn’t even include the price of gas now).

That is my point and I am still waiting on the reason why the system we have is better than the “honest” money which seems to be the only one talked about in the original Constitution. Like I said, I am convinced the IRS/FED are legal. Now give me a good argument as to why they don’t run counter to what the founding fathers new about the onset of tyrrany in relation to taxation and money?

And you can’t use that run on the gold and silver argument because if a bank tells me they have my money and then don’t becuase they loaned out more than they have, then that bank is crooked and deserves to fail. Would you go back to the grocery store and complain if everything you purchased was packaged the same as always but when you got home there was half as much food in every bag? I sure would.

47

You’re totally wrong that prices have doubled in the past 10 years. That’s just totally wrong. Are you trying to tell me that if I made $40,000 in 1996, and $40,000 in 2006, my real income has fell by half? That’s just ludicrous. Don’t you remember the 70s, when we had real inflation, where stores were raising their prices every few months? To claim that we are really facing “secret” inflation is nonsense, because it doesn’t happen. We’ve SEEN double digit inflation.

Fiat money is honest because it reflects the reality that money is only money because everyone agrees it is money. Gold isn’t money, and declaring that gold==money and money==gold does not make it true. Money is an arbitrary standard of value, just like stores print coupons for goods, so do governments print and create money. Government fiat money is exactly the same as a store-printed coupon that the government agrees you can pay your taxes with. And “printed” money is really only a very small part of the actual money supply. Every time you get a paycheck, pay your mortgage, pay your credit card bill, you’re dealing with electronic money backed by nothing at all.

And a bimetallic standard won’t work, because that allows speculators to arbitrage against the fluctuating values of the two metals. If someone digs up more gold tomorrow and gold drops in value, speculators sell gold to the government at the official price and buy silver. When silver drops, speculators sell silver and buy gold. Gold is a terrible way to back money, because the value of gold constantly fluctuates, and a government proclaimation that the value of gold is fixed at such and such a value doesn’t mean the value is really fixed, it just creates market distortions and ways to arbitrage…that is, steal from the taxpayers. It’s just as stupid as requiring gas to be sold at a particular price, or bread, or any good.

And your last argument doesn’t make sense. If a bank was legally required to have 100% of the value of all deposits on hand so they can pay off every depositor, then they have no money left to loan. A bank can’t loan people money unless they can lend out money in deposits. Think about it this way. You probably have a mortgage, like most people. Should you be required to have cash reserves to pay off that mortgage whenever the bank demands? You can’t pay off your mortgage all at once, you don’t have the money. Or suppose you have a credit card, and you buy a TV with it on Tuesday. But you get paid on Friday. You don’t have the money to pay your credit card bill! So why does the credit card company pay for the TV? Simply because you’ve promised to pay them…later, when YOU get paid.

If you can’t borrow money unless you’ve to the money to pay back the loan immediately, why would you borrow money in the first place? The whole point of borrowing money is that you DON’T have it today, but expect to have it tomorrow, when you will repay the loan. And a deposit in the bank is really a bank borrowing money from you, with the expectation that they will have the money tomorrow and so can pay you back.

Yes, such a system sometimes causes problems, and you get recessions where one person borrows money but CAN’T pay it back, so the person who lent the money can’t pay the people they borrowed from, and they can’t pay their creditors, and they can’t pay their creditors and then the economy goes bad and jobs get scarce so people buy less so the factories lay people off so those people buy less and the factories lay MORE people off, and so on.

But the alternative is to make borrowing and lending money illegal, like you propose to do. What’s THAT going to do to the economy?

48

Not if the change in terms is negotiated - which it has been by our representatives in Congress.

You obviously don’t understand the speech. The goal was to start using silver, which would inflate the money supply, which would make life easier for farmers and those with mortgages.

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Well, the bad inflation was about 25 years ago. I lived through it. I financed a home buyer at 12% interesti, and I got raises of well over 10% which was slightly over the inflation rate. Inflation has been relatively minor since then. As for retirement, yeah, you have a problem if you put your money under your mattress. If you have a decent investment strategy you’re in good shape. My retirment savings have done rather well in the past two decades, thank you. The problem is not inflation, it’s that people don’t save enough.

There are two inflation measures, by the way, at least, one with gas and one without. Perfectly reasonable, since it is so volatile.

The most efficient use of resources in not necessarily reserving all for each potential user. For instance, in the old days your telephone line was directly connected to the central office. That was inefficient, since most of the time there was a lot of unused capacity. Now there are SLCs (subscriber loop concentrators) which multiplex a bunch of phone lines into a smaller number of central office connections. This means that if everyone in the neighborhood called at once some would get busy signals, but it means that the phone company can add lines for your computer without spending much more money. That’s the same principal that banks use. Advances are not just new inventions, but new and more efficient ways of doing business. Yeah, you can have a run on a bank, but if everyone is sure they’ll get their money, it’s less likely, which is what the FDIC is for.

Really, I get the impression that you think economic leaders are just stupid. They’re not.

49

RookXPY, did you read Captain Amazing’s link?

A great link and it should address many of your concerns.

Other than that, do you realize that you are making a some highly problematic value judgments?

No, we’re saying let them manipulate it because it should be manipulated. We’re saying it’s a good thing for it to be manipulated. Also, given that the standard you’re referring to has catastrophic problems, I don’t think that standard should be called “honest”.

No, the manipulation is clearly spelled out in the contract.

Because a century of experience proves that they’re the best group to decide this, bar none, given how they are chosen today. See e.g.: Central bank independence

No, but you’re drawing the wrong conclusion. The solution is to have a government that has a fiat currrency and doesn’t destroy it. Governments today are getting better and better at having a fiat currency and not destroying it.

By investing it in instruments whose nominal return exceeds the rate of inflation. Pretty basic. Why would anybody expect to retire on an investment that has a zero-percent nominal return (if that’s what you mean by “put away”)? The expectation is utterly unrealistic.

I wouldn’t call the CPI “bogus”. Re-engineering the CPI is a good thing and doen’t make it bogus. There are sound arguments why the CPI is/was re-engineered. (E.g. this, from a Google search.) Inflation is a complex phenomenon and the various CPIs are just statistics that, although meant to be useful, still carry the general and specific limitations inherent in all such numbers.

Like I said, ISTM that you need to examine some of the basic values underlying your judments. Sorry if that sounds… whatever. Economics is a complex subject and the founding fathers didn’t know everything.

50

I agree that CPI is not bogus, but it does have some flaws. Anyone looking to fund a secondary education account can’t use CPI at all to gauge the rise in college costs. Healthcare is also vastly underrepresented.

51

Not that I think we disagree on anything… One can hardly expect one single number to represent cost increases for multiple different, widely varying items or situations. In any case, inclusion or exclusion of something in the CPI, and the details of that basket and its weighting and the manner of data collection, are complex subjects that hardly have a single “right” answer.

This BLS article describes how the health care component is collected and calculated for “the” CPI, and nicely illustrates the complexity of the subject. (My own impression had been that they had a new, separate CPI for retirees that had a higher weighting of health care, but I couldn’t find info on that right away.)

52

OK, this is my last try at this, because you’re arguments for my last 2 questions still make no sense to me. The last 100 years is a blip on the scale of history and I think that the Founding Father’s had much more experience with how tyranny slowly creeps into a society. I am not arguing that a fiat system doesn’t have some advantages over “backed” currency (ie. precious metals). I am trying to figure out why the “tax resistor” arguement that the Fed/IRS is an organization that will, ultimately, do nothing more than propogate injustice and inequality among people is wrong?

Really, I get the impression that you think economic leaders are just stupid. They’re not.

No the problem is I think they are very smart. Right now I think they are greedy and corrupt and will manipulate the system to get the most benifit out of it for themselves. This is a very pessimistic worldview I don’t like and why I am here listening to the other side of the argument.

Because a century of experience proves that they’re the best group to decide this, bar none, given how they are chosen today

I can put pure grain alcohol into my car to make it run really fast too, doesn’t mean its a good decision and a century is a blip on the timescale of humanity. They are choosen by the President from a short list provided by the Fed. Why not have a Congressional Committe that listens to experts and then makes the best deicision for the people like they are supposed to?

Not if the change in terms is negotiated - which it has been by our representatives in Congress.

I assume you are talking about handing over control of the money supply to the Fed when the Founding Father’s gave Congress that responsibility for a reason. By that logic Congress should just hand over EPA policy to Big Energy companies because they know more about the matter, oh wait, they do that too. What the f$#% do we pay Congress for if they are just going to delegate their oversight responsibility to the companies they are supposed to be overseeing?

You obviously don’t understand the speech. The goal was to start using silver, which would inflate the money supply, which would make life easier for farmers and those with mortgages.

I think I do understand the speech because my point was that they needed more currency than just gold because there was so little of it that it was being hoarded and manipulated. Would they have needed to inject silver into the economy if the wealthy elite of the time hadn’t been buying all the gold to manipulate the value? And how is a group buying up all the currency different from just handing that group control of it through legislation?

As for the CPI argument, you’re admitting its flawed but not bogus. And that even though almost every American has to buy gas every day, its too volatile to be included. I’m just gonna let that one speak for itself, but if you’re want to argue that anymore make sure you include how they include food, clothing, housing and education costs? Add in gas and that is everything the average American is worried about paying for.

By investing it in instruments whose nominal return exceeds the rate of inflation. Pretty basic. Why would anybody expect to retire on an investment that has a zero-percent nominal return (if that’s what you mean by “put away”)? The expectation is utterly unrealistic.

So in order to get ahead to the point of being able to retire in this country, you can no longer just work hard and save, you now have to understand financial markets and have capital you are willing to risk in investments. I’m guessing you are also an advocate of social Darwinism? How about eugenics? You and I may find this a great system because we understand economics. But, I know very good hard working people that will never be able to comprehend this and would probably lose their money if they tried. If you’re saying “oops, too bad, no American Dream for you” because you aren’t smart enough or don’t have the means for it, I find that not only callous, but morally offensive.
So why is it better to have your government (or even worse a private conglomerate of wealthy bankers) control a fiat currency that is backed by future taxes which will fluctuate anyway, than to have a system where the money is tied to something of real value that the government cannot change which will also fluctuate but never completely lose value and cannot be controlled by anyone? The only difference I see is government control and seeing as how government usually manage to completely ruin most of what it touches…

And once again why does the original Constitution appear to allude to that same view and why can I find pages of quotes from founding fathers, presidents, captains of industry, ect. to back up that view? Yes back to those completely irrelevent quotes…

P.S. I never said the Wilson quote was from his death bed, but I will try to look for the reference as I have heard that he lamented it on his deathbed although I know no one has a direct quote. Also I thought he used the terminology “money trusts” to denote the huge fortunes of the big bankers at the time, if I am wrong on that please fill me in what he meant by money trusts.

53

The Fed and IRS are totally different organizations. I’m not denying there have been IRS abuses, but the purpose of the IRS is to administer and enforce the tax system. If there was no enforcement, law abiding people would have to pay more and tax criminals would get away free. What would happen to the rule of law if you could disobey the law with impunity?

Economists do well, especially when they rise to the level of the Fed, but they don’t get rich from it. Do you have any evidence of corruption in the Fed? You talk later of Congress doing it - we all have evidence of corruption in Congress. Do you really think them controlling the economy is a better idea?

The Fed is nonprofit, so this is not a good analogy. Interest rate setting is purely for the economy, not to make the Fed money.

Any evidence of gold hoarding? In times of deflation, farmers, who borrow cheap money and have to pay back expensive money, want a loosening of the money supply. That and the economy was expanding, so there was need for more capital. I suspect the problem with a silver standard would be that it would dump a lot of money into the economy suddenly. Loosening interest rates, like the Fed does today, allows the money supply to be controlled better.

Actually, there are two measures, one with energy and one without. They are used for different purposes.

Yeah, when I was a kid everyone had pensions and the best savings instruments, unless you were rich, were bank accounts or maybe savings bonds. Now mutual funds allows better investments to be available to anyone. You don’t have to be an economics major to get a decent return in very safe investments. If you have enough money for it to matter, you can get a financial planner. I’ve found that when I disagree with mine, he is almost always right. For anyone, buying into a mutual fund gives you the benefit of someone who can spend full time on the investment. If you don’t like that, you can buy index funds. It is a lot easier for Joe Average to get a decent return than it used to be, and that’s good. BTW, I’m all for Social Security pretty much the way it is.

The Constitution was written just ten years after The Wealth of Nations was published. You might as well adhere to the Founding Fathers views of cosmology! As Captain Amazing’s link says, that old policy led to panics and crashes. Our economy is much more stable today thanks to Keynes and the Fed and to modern economics. BTW, my daugher has a degree in economics from the University of Chicago, and the math is far scarier than the engineering math I took. No way your average Congressman could ever know what he or she is doing, or the consequences of an action. Scary!

No, you said Truman. :slight_smile: I think you are correct about his usage of money trust - but that is the alternative to the Fed in controlling the money supply.

54

I don’t know if all of this has already been addressed but I watched the video and it is basically about tax protesters. Both the IRS and the Fed Reserve are under the thumb of the executive branch (Treasury Department).

The video lies and takes things out of context at pretty much every turn. The entire code is authorized by the 16th amendment and the code is available for free in the library of congress (its chapter 26). Chapter 61 (there are many other sections that impose a tax but 61 is the catchall) imposes a tax on income from whatever source derived.

The IRS considers all of these arguments frivolous and won’t entertain or address any of them. They just won’t dignify tax protesters with an answer.

I will also note that the video is so rife with inaccuracies and misinformation that it is basically one big lie. You really have to stretch credulity on several fronts before any of their arguments make any sense.
I like the way they take Sheldon Cohen (former IRS commissioner) out of context.

There has been a resurgence of tax protester arguments for failure to pay taxes on wages due to a recent court case. Here is a typical evolution of a tax protester argument:

The constitution does not allow a tax on income.
But the 16th amendment does.

The 16th amendment was never ratified because one of the states ratified the amendment using a semicolon in the middle and the rest ratified it using a comma.
Courts have called Bullshit on that.

There is not actual law that imposes the income tax.
Section 61 of the Internal Revenue Code imposes a tax on income from whatever source derived.

Yeah but is unconstitutional, you can only impose an income tax on DC residents and government employees.
Didn’t we go over this before?

55

An IRS link regarding tax protester arguments.