Many people have been trying to reform the U.S. tax laws for many decades, but without much success. With each attempt, the politicians add more complex provisions to the tax code and in a few years, they introduce new tax breaks for various supporters and interest groups.
Meanwhile, even if the income tax were eliminated, the government could generate unlimited money through the inflation tax. This is done by issuing Treasury notes to the Federal Reserve in exchange for new money. Combined with the fractional reserve banking rules whereby banks are allowed to loan out as much as 90% of their net deposits, the new money causes an increase in the money supply and in inflation.
For those who despair of being able to repeal the income tax and the ability of the Fed to create new money, there is the alternative of expatriation -- of giving up citizenship after acquiring dual citizenship in another country. New laws passed in June of 2008 impose a complex "exit tax" on the unrealized gains and deferred income of expatriates. But for those who have modest assets and are seriously concerned about the increasing degree of government control over the economy, there are other countries that offer lower taxes and less government intrusion.
I've just completed a new book called "The Tax Reform Alternative" that ties together these three issues. How can we reform the income tax? How can we limit the ability of the Fed to create new money? And if we can't do that, how can we escape from an America that is turning into a socialist state? It's available as an e-book (in a PDF Format) and is designed to be easy to read on a digital device like a computer, ipad or smart phone. The price is a a modest $15 and can be ordered at http://www.offshorepress.us/rismanforami.html
Copies are available at no extra cost to paid subscribers of my online library of e-books and my bi-monthly newsletter. Further details about The Tax Reform Alternative are available at http://www.offshorepress.com/vernonjacobs/taxreform2010.html
Vern
Wednesday, October 20, 2010
Tuesday, September 21, 2010
An inflated Recovery
The big news today and yesterday is that the "great recession" is over. Five economic indicators are given as proof that the economy has turned around and the President is quick to take credit for the recovery.
However, what did we expect to happen when over a trillion dollars is pumped into the economy as part of a variety of stimulus and bail out programs? And it appears that all of that money has not yet reached the general public.
The infusion of new money into the economy is like giving a drunk another drink or giving a junkie a fix.
But what happens as the dust settles in the aftermath of the infusion of new money?
After a while, prices go up. Sometimes it's the price for various investments. Other times it's the price of consumer goods. And most times it's a combination. Those who weren't on the receiving end of the stimulus will have to pay higher prices for various goods and services. Or they may have to pay more for some investments. Those who held any investments that enjoyed a price rise because of the new money will feel like they have made some money, but when they have to sell the investment, they will have to pay taxes on the inflated value. And the money they get from selling won't buy as much stuff as before.
The government is telling us that the rate of inflation is low and under control. But they aren't talking about the concurrent deflation that is still ongoing. Businesses are going bankrupt. Homeowners are still defaulting on their loans. Consumers are taking bankruptcy. Debts are being written off. Without the infusion of new money into the economy, the elimination of debt would be causing deflation. And without the bankruptcies and debt defaults, we would be experiencing higher prices on assets, on consumer prices or both.
So it seems we are experiencing both deflation and inflation at the same time.
Whether this is really the beginning of a recovery or a temporary correction from a recession remains to be seen. Caution seems to be the better choice for now.
Vern
However, what did we expect to happen when over a trillion dollars is pumped into the economy as part of a variety of stimulus and bail out programs? And it appears that all of that money has not yet reached the general public.
The infusion of new money into the economy is like giving a drunk another drink or giving a junkie a fix.
But what happens as the dust settles in the aftermath of the infusion of new money?
After a while, prices go up. Sometimes it's the price for various investments. Other times it's the price of consumer goods. And most times it's a combination. Those who weren't on the receiving end of the stimulus will have to pay higher prices for various goods and services. Or they may have to pay more for some investments. Those who held any investments that enjoyed a price rise because of the new money will feel like they have made some money, but when they have to sell the investment, they will have to pay taxes on the inflated value. And the money they get from selling won't buy as much stuff as before.
The government is telling us that the rate of inflation is low and under control. But they aren't talking about the concurrent deflation that is still ongoing. Businesses are going bankrupt. Homeowners are still defaulting on their loans. Consumers are taking bankruptcy. Debts are being written off. Without the infusion of new money into the economy, the elimination of debt would be causing deflation. And without the bankruptcies and debt defaults, we would be experiencing higher prices on assets, on consumer prices or both.
So it seems we are experiencing both deflation and inflation at the same time.
Whether this is really the beginning of a recovery or a temporary correction from a recession remains to be seen. Caution seems to be the better choice for now.
Vern
Tuesday, September 14, 2010
The Road Less Traveled
In economic circles, the views of Lord Keynes reign supreme and are the conventional wisdom of the day. A very simplified part of his economic theory is that increases in the money supply do not cause inflation. Instead, he argued that the government can use borrowed money to stimulate the economy and to generate income for the citizenry. He also claimed that government debt doesn't matter. His theories are the basis for the government stimulus program and for the ongoing effort to continue providing unemployment benefits to the unemployed and to continue bailing out failing industries. Keynesian economic theory gives the government the theoretical justification to expand the money supply, expand federal spending and to entice more and more people to feed at the public trough.
At the polar opposite of the economic spectrum, an Austrian economist by the name of Ludwig von Mises argued that debt does matter and that prosperity can't be created with borrowed money. Mises also argued that increased taxes result in a decrease in economic activity. But his views are ignored by most of the economic community, the political establishment and the mainstream media.
Like the little girl who saw that the emperor was naked, a relatively few people agree (with Mises) that endless borrowing and spending by the government will result in either a hyper-inflation or a massive deflationary depression. But it's not comfortable to be in the minority and to be on the opposite side of the popular perception of the times. How can so many really smart people not see what seems so obvious? The best reason I can think of is that it's easy to believe whatever everyone else believes. And it's difficult to believe anything that is ridiculed by the intelligencia of the day. But what we believe will dictate what we do or fail to do. And it will dictate whether we take steps now to avoid or at least to minimize severe losses as a result of a potential economic Armageddon.
Check out the great insights available at the http://mises.org
Vern
www.vernonjacobs.com
www.offshorepress.com
At the polar opposite of the economic spectrum, an Austrian economist by the name of Ludwig von Mises argued that debt does matter and that prosperity can't be created with borrowed money. Mises also argued that increased taxes result in a decrease in economic activity. But his views are ignored by most of the economic community, the political establishment and the mainstream media.
Like the little girl who saw that the emperor was naked, a relatively few people agree (with Mises) that endless borrowing and spending by the government will result in either a hyper-inflation or a massive deflationary depression. But it's not comfortable to be in the minority and to be on the opposite side of the popular perception of the times. How can so many really smart people not see what seems so obvious? The best reason I can think of is that it's easy to believe whatever everyone else believes. And it's difficult to believe anything that is ridiculed by the intelligencia of the day. But what we believe will dictate what we do or fail to do. And it will dictate whether we take steps now to avoid or at least to minimize severe losses as a result of a potential economic Armageddon.
Check out the great insights available at the http://mises.org
Vern
www.vernonjacobs.com
www.offshorepress.com
Friday, August 27, 2010
When Will The Economy Turn Around ?
During long periods of financial prosperity, people feel optimistic and are confident their income will continue to increase. So they are eager to borrow money to buy stuff now rather than having to wait. Even with moderate inflation, there is a feeling that prices will be higher in the future, so it is better to buy now.
But when the economy turns around and people start to lose their jobs or have to take big pay cuts, they quickly adopt an opposite attitude toward the future. They are not confident they can repay more debt in the future or that prices will increase. So they start to reduce their debts and to accumulate assets by cutting way back on every kind of discretionary expense.
At the same time, the banks, credit card companies and other lenders that have been overly eager to extend credit begin to adopt a far more conservative practice about making further loans. So even if people want to borrow, there is less money available.
The government sees this as a bad thing because this kind of behavior will put more downward pressure on prices and will lead to less buying and therefore to more business failures and to more unemployment. Voters get angry. Politicians worry about being voted out of office. So they jump on the stimulus bandwagon and agree to use borrowed money to prime the economic pump and to bail out businesses that are deemed "too big to fail".
The stimulus and bailouts provide a lot of people with money but it does not cause people to feel optimistic about the future. Businesses with non-essential goods and services continue to suffer and go broke, adding to the unemployment statistics.
To a large extent, the bailouts, stimulus and extended unemployment benefits simply delay the point when the excesses of the earlier financial bubble are gone, when businesses that have survived are lean and mean and when the unemployed are willing to accept jobs that are far less lucrative than the ones they enjoyed during the boom times. And everyone except the government has been reducing their debt or accumulating savings.
Gradually, businesses begin to rebuild their inventories and some entrepreneurs embark on new ventures that require them to hire some of the unemployed. Little by little, pessimism and fear give way to cautious optimism and the economy begins to recover. But the more the government continues to intervene, the longer it will take.
Just my two cents.
Vern
www.vernonjaccobs.com
But when the economy turns around and people start to lose their jobs or have to take big pay cuts, they quickly adopt an opposite attitude toward the future. They are not confident they can repay more debt in the future or that prices will increase. So they start to reduce their debts and to accumulate assets by cutting way back on every kind of discretionary expense.
At the same time, the banks, credit card companies and other lenders that have been overly eager to extend credit begin to adopt a far more conservative practice about making further loans. So even if people want to borrow, there is less money available.
The government sees this as a bad thing because this kind of behavior will put more downward pressure on prices and will lead to less buying and therefore to more business failures and to more unemployment. Voters get angry. Politicians worry about being voted out of office. So they jump on the stimulus bandwagon and agree to use borrowed money to prime the economic pump and to bail out businesses that are deemed "too big to fail".
The stimulus and bailouts provide a lot of people with money but it does not cause people to feel optimistic about the future. Businesses with non-essential goods and services continue to suffer and go broke, adding to the unemployment statistics.
To a large extent, the bailouts, stimulus and extended unemployment benefits simply delay the point when the excesses of the earlier financial bubble are gone, when businesses that have survived are lean and mean and when the unemployed are willing to accept jobs that are far less lucrative than the ones they enjoyed during the boom times. And everyone except the government has been reducing their debt or accumulating savings.
Gradually, businesses begin to rebuild their inventories and some entrepreneurs embark on new ventures that require them to hire some of the unemployed. Little by little, pessimism and fear give way to cautious optimism and the economy begins to recover. But the more the government continues to intervene, the longer it will take.
Just my two cents.
Vern
www.vernonjaccobs.com
End the Health Care Mandate?
Ron Paul, (R-Tx) has introduced a very short bill to "End the Mandate" in the health care bill that requires everyone to obtain a minimum amount of health care insurance or to pay a fine. This extremely short proposed bill (HR 4995) would simply end the mandate and would make no other changes in the health care legislation. One problem that has been mentioned by opponents of Paul's bill is that is does not also eliminate the mandate for insurance companies to provide coverage for people with a pre-existing condition. If Paul's bill were to become law, it would encourage people to wait until they have a medical problem before they buy health insurance. The insurance industry is therefore very likely to oppose this bill to end the mandate. And while I strongly support the sentiment about getting the government out of the health care business, I believe this is an overly simplistic solution that would create more problems in the unlikely event that it were to become law.
However, Paul has also introduced a more extensive bill (HR 5444) to repeal the entire Patient Protection and Affordable Health Care Act and to replace it with a number of changes in the law to encourage more competition in the health care industry and a more equal tax treatment of health care costs. The bill also offers a novel way to deal with the problem of malpractice during surgery. So while I can't support the bill to end the mandate, I can certainly support his bill to simply repeal the entire health care act and to eliminate some obstacles to competition in the health care marketplace.
Ending the mandate is a catchy sound-bite that grabs our attention, but like many sound-bites, it papers over some serious complications. I wish Paul's supporters would spend more time and effort in promoting his bill to simply repeal the health care act in its entirely. For more on this topic, see
End the Mandate
http://www.house.gov/apps/list/speech/tx14_paul/EndMandate.shtml
http://www.ronpaul.com/legislation/end-the-mandate/
http://www.chooseliberty.org/hr4995.aspx?pid=cz01
Private Option Health Care Act (Repeal the Health Care Act)
http://www.house.gov/apps/list/speech/tx14_paul/PrivateOptHealthcare.shtml
http://www.ronpaul.com/legislation/private-option-health-care-act/End the Health Care Mandate?
Vern
www.vernonjacobs.com
However, Paul has also introduced a more extensive bill (HR 5444) to repeal the entire Patient Protection and Affordable Health Care Act and to replace it with a number of changes in the law to encourage more competition in the health care industry and a more equal tax treatment of health care costs. The bill also offers a novel way to deal with the problem of malpractice during surgery. So while I can't support the bill to end the mandate, I can certainly support his bill to simply repeal the entire health care act and to eliminate some obstacles to competition in the health care marketplace.
Ending the mandate is a catchy sound-bite that grabs our attention, but like many sound-bites, it papers over some serious complications. I wish Paul's supporters would spend more time and effort in promoting his bill to simply repeal the health care act in its entirely. For more on this topic, see
End the Mandate
http://www.house.gov/apps/list/speech/tx14_paul/EndMandate.shtml
http://www.ronpaul.com/legislation/end-the-mandate/
http://www.chooseliberty.org/hr4995.aspx?pid=cz01
Private Option Health Care Act (Repeal the Health Care Act)
http://www.house.gov/apps/list/speech/tx14_paul/PrivateOptHealthcare.shtml
http://www.ronpaul.com/legislation/private-option-health-care-act/End the Health Care Mandate?
Vern
www.vernonjacobs.com
Tuesday, August 24, 2010
If I pay Less Will You Pay More?
A scholarly analysis of the IRS penalties versus the excessive fines clause of the Constitution concluded with the statement (in part) that
"When one taxpayer pays less, we all pay more."
This is also an often used comment by various IRS officials. But is it true?
If it is true, it means that the government somehow arrives at some budgeted amount that is somehow divided among all taxpayers. Furthermore, if the full amount that is budgeted isn't collected in the current year, it must somehow be picked up in a later budget year.
And what happens when a lot of taxpayers lose their jobs and end up paying less taxes? Do the rest of us have to somehow make up for that lost tax revenue?
If that's true then every time the government introduces some kind of new targeted tax incentive (aka special interest tax expenditure), all of the taxpayers who are not part of the favored group must have to somehow make up for the shortfall. And what about the fact that roughly 50% of the households in the U.S. don't pay any income taxes at all? Clearly, the other half must make up for the shortfall.
However, it doesn't really work that way.
First of all, this cliche' presumes that the expense side of the budget can't be changed. Is that the way things are in your household or business? If there is a shortage of revenue, don't you make up for the difference by either borrowing (if you can) or by cutting back on expenses if borrowing is not an option? And if the loss in revenue persists (or is expected to persist), you start cutting some expenses, like the cruise you wanted to take or the new car you were going to buy. In extreme cases, you might even downsize by moving to a smaller home and selling some stuff.
With the federal government, there is a lot more opportunity to borrow the funds, which are rarely repaid. The annual deficit is just added to the accumulated national debt which results in having to pay more interest. But the debt isn't repaid -- it is just rolled over from year to year. And if the debt gets to be too much, we pay off some of it with new money courtesy of the Federal Reserve. Of course we try to do that gradually because if we print too much too fast, it would upset all of our trading partners around the world. (Because our money would lose value.)
Back to the question. If I somehow pay less taxes by not working or by getting a cut in pay or by using some sort of obscure tax break, do you have to pay more? The answer is no! There is no connection because the government has an almost unlimited ability to borrow money.
But I can hear a few readers asking, "O.K., if that's true why do they need to collect taxes at all?" And my humble two cents on the question is that they don't have to collect taxes as long as they have the Federal Reserve available to create new money in exchange for new treasury obligations. But doing that would make it obvious that inflation is actually a substitute for taxes.
Vern
"When one taxpayer pays less, we all pay more."
This is also an often used comment by various IRS officials. But is it true?
If it is true, it means that the government somehow arrives at some budgeted amount that is somehow divided among all taxpayers. Furthermore, if the full amount that is budgeted isn't collected in the current year, it must somehow be picked up in a later budget year.
And what happens when a lot of taxpayers lose their jobs and end up paying less taxes? Do the rest of us have to somehow make up for that lost tax revenue?
If that's true then every time the government introduces some kind of new targeted tax incentive (aka special interest tax expenditure), all of the taxpayers who are not part of the favored group must have to somehow make up for the shortfall. And what about the fact that roughly 50% of the households in the U.S. don't pay any income taxes at all? Clearly, the other half must make up for the shortfall.
However, it doesn't really work that way.
First of all, this cliche' presumes that the expense side of the budget can't be changed. Is that the way things are in your household or business? If there is a shortage of revenue, don't you make up for the difference by either borrowing (if you can) or by cutting back on expenses if borrowing is not an option? And if the loss in revenue persists (or is expected to persist), you start cutting some expenses, like the cruise you wanted to take or the new car you were going to buy. In extreme cases, you might even downsize by moving to a smaller home and selling some stuff.
With the federal government, there is a lot more opportunity to borrow the funds, which are rarely repaid. The annual deficit is just added to the accumulated national debt which results in having to pay more interest. But the debt isn't repaid -- it is just rolled over from year to year. And if the debt gets to be too much, we pay off some of it with new money courtesy of the Federal Reserve. Of course we try to do that gradually because if we print too much too fast, it would upset all of our trading partners around the world. (Because our money would lose value.)
Back to the question. If I somehow pay less taxes by not working or by getting a cut in pay or by using some sort of obscure tax break, do you have to pay more? The answer is no! There is no connection because the government has an almost unlimited ability to borrow money.
But I can hear a few readers asking, "O.K., if that's true why do they need to collect taxes at all?" And my humble two cents on the question is that they don't have to collect taxes as long as they have the Federal Reserve available to create new money in exchange for new treasury obligations. But doing that would make it obvious that inflation is actually a substitute for taxes.
Vern
Monday, August 23, 2010
Fight or Flight?
The political left try to divert the real objectives of the Tea Party movement by arguing that taxes are low for the middle class and that Obama intends to continue the Bush tax cuts for those making less than $200,000 per year. (Those on the bottom half of the economic spectrum don't pay any income taxes.)
But the Tea Party people aren't complaining about current tax levels. They see the huge amounts of deficit spending and the costly laws that the liberals are passing or trying to pass and they understand that huge deficits and enormous levels of debt will translate into either higher taxes or inflation or a combination of the two.
So the members of the Tea Party are organizing and exchanging information in order to replace the liberal members of the Congress with candidates who seem to reflect the goals of the Tea Party for a smaller government, less spending and less taxes. Of course, voting for newcomers is a lot like buying the proverbial "pig in a poke". We won't know if the new comers are just jumping on a bandwagon or are sincere in their intentions and have the fortitude to resist the siren call of power and influence.
Meanwhile, there are some of us who remember the very limited success of the "Contract with America" where a lot of newcomers went to Washington and quickly got indoctrinated with the way things are done in the "Land of Oz." (The crystal city was not in Kansas; it was in Washington.)
I currently have four clients who have retained me to help them with the paperwork to expatriate. That means they are going to give up their U.S. citizenship. For those who don't have any confidence that the Tea Party or anyone else can really change things in Washington, flight is their choice. And there are many indications that flight is becoming the choice for a lot more people.
For myself and my wife, we are at an age and have a family situation such that we are going to stay. Since we have ruled out the choice of flight, we intend to do what we can to join the fight -- even if past efforts to turn things around were not successful. At a minimum, I will continue to share what I'm learning about the issues with those who may have an interest in one more voice for freedom.
As Glenn Beck and some other have concluded, the first step is for all of us to learn about the history of the Progressive Liberal movement so that we can better understand what is happening now. The second step is for each of us to share our discoveries with others and to encourage them to become politically aware.
Just my two cents.
I invite you to visit my Liberty portal at http://www.offshorepress.com/liberty/
Vern
But the Tea Party people aren't complaining about current tax levels. They see the huge amounts of deficit spending and the costly laws that the liberals are passing or trying to pass and they understand that huge deficits and enormous levels of debt will translate into either higher taxes or inflation or a combination of the two.
So the members of the Tea Party are organizing and exchanging information in order to replace the liberal members of the Congress with candidates who seem to reflect the goals of the Tea Party for a smaller government, less spending and less taxes. Of course, voting for newcomers is a lot like buying the proverbial "pig in a poke". We won't know if the new comers are just jumping on a bandwagon or are sincere in their intentions and have the fortitude to resist the siren call of power and influence.
Meanwhile, there are some of us who remember the very limited success of the "Contract with America" where a lot of newcomers went to Washington and quickly got indoctrinated with the way things are done in the "Land of Oz." (The crystal city was not in Kansas; it was in Washington.)
I currently have four clients who have retained me to help them with the paperwork to expatriate. That means they are going to give up their U.S. citizenship. For those who don't have any confidence that the Tea Party or anyone else can really change things in Washington, flight is their choice. And there are many indications that flight is becoming the choice for a lot more people.
For myself and my wife, we are at an age and have a family situation such that we are going to stay. Since we have ruled out the choice of flight, we intend to do what we can to join the fight -- even if past efforts to turn things around were not successful. At a minimum, I will continue to share what I'm learning about the issues with those who may have an interest in one more voice for freedom.
As Glenn Beck and some other have concluded, the first step is for all of us to learn about the history of the Progressive Liberal movement so that we can better understand what is happening now. The second step is for each of us to share our discoveries with others and to encourage them to become politically aware.
Just my two cents.
I invite you to visit my Liberty portal at http://www.offshorepress.com/liberty/
Vern
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