A Modest Proposal


The powers that be have been engaged in an epic struggle to justify the U.S. tax system, while various proposals for total reform are making the rounds. Most involve the sort of revenue thought that has permeated the states united since the founding of this republic. Many may recall history’s lessons of the 1794 Whiskey Rebellion, when Western Pennsylvania farmers rebelled against the whiskey tax imposed by Alexander Hamilton’s fledgling treasury. The idea was simple. Tax an item widely used within the borders of the U.S. This was far different from tariffs on imports or duties collected on goods imported from abroad. Thus was the first internally generated U.S. tax born. To look after these taxes, the forerunner of the Internal Revenue Service was created. These agents wielded tremendous power that reminded many early Americans of the tyranny they had just denounced in the Declaration of Independence. The abuses heaped on unfortunate citizens by these taxing agencies are widely documented in various Congressional testimony. Suffice it to say that they have not made many friends. “Abolish the IRS” seems to be the common theme among tax reform proposals. It seems the tax man has not made many friends during his tenure. It is more telling to consider what has fallen within their grasp. First was the aforementioned whiskey, or alcohol in general, the natural companion, tobacco, and the ubiquitous American firearm. These so called “sin taxes” were justified on the grounds that one could refrain from consumption and thereby avoid the tax. This is also the logic deployed by the proponents of a so called national sales tax. The plan would eliminate the income tax or reduce and augment it with a tax on items that were purchased. Those that spend a lot pay a lot. Those that spend the least pay the least. Sounds good in theory, but it still comes out of your pocket, passed there by the merchant selling the goods. The other popular plan, the much bandied flat tax, is merely a simplified version of the current production based tax. At least the national sales tax operates on consumption, encourages repair instead of replacement, and rewards those thrifty citizens in contrast to the heavy spender, who will presumably pay the most in taxes. Both of these plans overlook the obvious. Why does the government need our money at all? Do parents look to their children to pay the bills? We are the basis for this country, we the people shouldn’t be wanting for a means to conduct our joint affairs. My proposal is a simple one. It requires a few basic premises. With its implementation you could eliminate the income tax and the IRS. Premise 1. Congress has the power to issue money, and they have delegated this power to the FRBs and the commercial banks. These entities receive debt instruments, such as mortgages, muni bonds, a car or a student loan, all of which pay interest . The bank then discounts the debt ( currently by 1.5%) and receives the balance, 98.5 cents on the dollar, as a credit on their books. They loan a dollar at 4 percent or so and only put up a cent and a half of their own money. The rest is monetized by the Federal Reserve. This a very valuable privilege for which the U.S. Treasury is paid about $34 billion a year. The government finds itself in the same predicament as you and I when it needs funds beyond its means to collect. It borrows money in the same fashion. So while the fed returned $34 billion to us as our share of the profits, it charged the U.S. government $450 billion in interest on its debt. That fact alone took one half of all income tax revenue for 2003. The other half is more than covered by the profits of the two biggest users of this franchise, FNMA and FRB. These two private companies combined, create at least $1 trillion annually, and loan it into circulation. My proposal is to recapture the franchise. Let Congress directly issue the $854 billion it collected from the income tax last year. Restrict the Federal Reserve and the commercial banks from creating money. Nationalize the issue of money, and let the profits offset the income tax. It is time to cut out the middleman.

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