Tilting At Windmills: The Absurdity Of The Great Tax-Cut Debate

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How to Protect Your Wealth against the Soaring Tax Every American Will Have to Pay

As the contentious debate over the bailout package continues, the great central issue is, who should be taxed and how much should they pay?

In his first Federal budget proposal, President Barack Obama pointed to the dire economic plight of working Americans and argued that their taxes should be lowered, while businesses and the wealthy should pay more. Republicans, pointing to the economic boost provided by the Reagan tax cut in 1981 and the Bush tax cuts in 2001 and 2002, adamantly maintain that the way to boost the economy out of the depression and really help working Americans is to lower taxes on business and on capital gains.

In truth, both liberals and conservatives are tilting at windmills. Neither plan lowers taxes for either the rich or the poor. The liberals’ plan to shift more of the income tax burden to the rich does not lower overall taxes for the working classes. The conservatives’ plan to cut income and capital gains taxes for businesses and investors does not lower overall taxes for either. As for the argument over the Reagan and Bush cut taxes, they didn’t. There has not been a reduction in the rising level of taxes for either rich or poor at any time in the past 50 years.

While these statements seem to fly in the face of the evidence, let us look at it through the lens of common sense.

What is the overall tax burden on the American people? Do you believe, as most do, that it is the total of tax receipts collected by the Treasury? It is not. The actual tax is total government spending.

To grasp this critical point, ask yourself, what is a tax?

It’s money collected by government to cover its expenditures.

Government has two ways get money. The first is by force. Government demands that individuals and businesses pay a percentage of their income to the Internal Revenue Service (IRS). If they refuse, they are faced with fines, imprisonment or both.

Face it, taking property by force or threat of force is stealing. Lysander Spooner, one of the great free market advocates on the 19th century, pointed out the absurdity of thinking otherwise: “What can be more absurd in nature and contrary to all common sense,” he wrote, “than to call him Thief and kill him that comes alone or with a few to rob me; and to call him Lord Protector and obey him that robs me with regiments and troops?”

Robbery, however, does not need to be done at gunpoint. It can also be done through fraud. If you lend someone money and that person has no intention to repay the loan, you have been robbed just as surely as if the money had been taken at gunpoint.

Just ask any of Mr. Madoff’s victims if they feel they’ve been robbed.

The government takes as much as politically possible by force through taxes, but if politicians try to raise taxes too high, they get tossed out of office. They have learned that what they can’t get by taxes, they can borrow.

Robbery By Any Other Name

It should be obvious that when the United States government borrows, there is no chance at all that it will ever repay. The history of government borrowing in the U.S. over the past century confirms it. From a debt of less than $2 billion a century ago, there are now more than $8 trillion in outstanding Treasury IOUs. (That figure, of course, does not count more than $60 trillion in pension and medical care promises.)

These government IOUs cannot and will not ever be redeemed.

How do we suffer the tax loss when governments borrow? Through price inflation. As the government borrows, interest rates rise and the central bank lowers those rates by monetizing the Federal IOUs. More money in circulation causes money to lose purchasing power. It has been going on for a century.

In 1910 a $20 bill could purchase an ounce of gold. Today, it would take 47 $20 bills to buy that ounce of gold. (That means, the Feds “taxed” away 46 of them through the fraud of government borrowing!)

The tax proposals in the stimulus package purport to lower taxes for all whose incomes are below $250,000. Thus the implication is that the bailout will help the working class, and the costs will fall on the rich. This is the opposite of the truth.

Lower income workers, retirees and the poor pay only a small portion of their income to the IRS. As they tend to spend most of their income on daily living, they are inflation’s biggest victims.

The more affluent members of society, on the other hand, spend a smaller percentage of their income on daily living, and through adroit investing have the opportunity to profit from rising prices.

One final point regarding the great tax-cut debate is important: Taxation through devaluation Is the politically expedient course; but it is also more damaging.

The fraud of secretly taxing through borrowing (deficit spending) is far more socially and economically destructive than it is to cover the full cost of government by raising taxes to the level that would balance the budget.

Price inflation makes it difficult if not impossible for both consumers and businesses to plan ahead.

It impedes growth and progress in every society in which it occurs. If citizens were forced to pay for all government expenditures up front through direct taxation, voters would be shocked into the realization that the free lunch politicians promised is no free lunch at all.

If every dollar spent by government came immediately out of taxpayers’ wallets, politicians would find it impossible to fund their vast pork-barrel spending programs.

We’d all be able to plan for our future, confident that the purchasing power of our savings would be there when we’re ready to use it. Unfortunately, there is zero chance that the fraud of deficit spending will be exposed and eliminated. The stimulus package will go forward, and the deficits will soar to the stratosphere. It is as inevitable as… well… death and taxes.

And don’t buy the argument that these exploding deficits mean that you are laying the burden of debt on your children and grandchildren. No, you’ll be paying the fraud tax yourself in the months ahead as price inflation soars.

What should a sovereign individual do in the face of this incredibly destructive bailout now underway? Prepare yourself for the consequences that history shows always follow an explosion of irredeemable debt.

  • Stay away from long-term bonds that promise to repay you in the distant future.
  • Invest in hard assets, and the companies that produce them.
  • Diversify out of depreciating dollars and into those currencies and tangible, useable assets that will rise in value as the dollar falls.
  • Internationalize your assets.

P.S. The Great Taxation debate is just the beginning. When you start to peel back the layers, you’ll realize the U.S. is coming closer and closer to a tipping point, where a 212-year-old secret could devastate the fortunes of millions, while a tiny clutch of prepared investors reach a new level of wealth. It’s all in my FREE report, which you can read here

—John Pugsley

John Pugsley

Widely respected for his commitment to freedom, privacy and other libertarian ideals, John Pugsley is one of the Sovereign Society’s co-founders and currently serves as its chairman. John’s long and successful career in finance and publishing began in 1975 with his personal monthly commentary on economic and political events, Common Sense Viewpoint, which boasted 30,000 subscribers at its peak. He is the author of two books and for 10 years published an investment and economic newsletter. As Sovereign Society chairman, John is continuously discovering outstanding companies around the world that are unknown, suppressed and, most-often, totally avoided by brokers and advisors.