Tis Only My Opinion

April 2001 - Volume 21, Number 4

Remember Runnymeade!

The burden of taxes can create recessions, depressions and even revolutions!

A government has the power to print money and when it does so without financial reserves, it is robbing its citizens no less than a thief who demands your money or your life!

The impact of taxes on the course of civilizations and their length is rarely considered by today's politicians. Charles Adams in his "For Good and Evil", a study of the origins of taxes throughout history with a particular emphasis on the development of the American tax scheme brought a unique insight to today's debate over whether the tax surplus should be returned to the taxpayer, or whether the public debt should be reduced.

First, a little history!

Taxes have been with mankind almost since civilization began. Both the Egyptian and Chinese cultures evoked tax systems as well as the early South American cultures. In most early societies in Europe, Egypt and the Asian land mass, the earliest taxes were based upon land holdings and/or the value of the products grown. Hence, we see references to land taxes and harvest taxes in the early histories. Poll, or head, taxes were enacted later.

In Egypt, the harvest tax was originally about 20% of the crops. Yet, many people became exempt for various reasons. To make up for the revenue loss by these exemptions, the Pharaoh's scribes (tax collectors) became very powerful people and were able to control the government for centuries. The Egyptians taxed just about everything: sales, slaves, foreigners, imports, exports, business. Yet, even in Egypt, temples and priests were exempt from taxation.

Most agricultural land was owned by the state and leased out for the harvest tax. However, the harvest tax was based not upon what was produced by what the tax collector decided production should be. Scribes were permitted to examine everything and anything at any time to determine compliance. (Sounds like our IRS today.) They could even inspect a household's kitchen to determine if wives were not using free drippings in place of the taxed oil they were required to use.

Many civilizations have fallen when their tax systems and revenue requirements were so onerous that tax evasion was the only way to survive. In the end, it was the tax system as much as the Romans that vanquished the magnificent Egyptian culture. The Rosetta Stone which unlocked the secrets of Egyptian hieroglyphics was, in fact, a grant of tax immunity.

The Pharaoh's did allow the remitting of taxes in the event of crop failures. This practice was known as "philanthropa" from which our word philanthropy is derived.

The island of Rhodes was a prosperous trading center and charged a 2 percent harbor tax on trade. Yet, it lost 85 percent of its trade one year after Rome established the tax-free port on the Isle of Delos. Even in the early part of recorded history, people acted in their own best economic interest.

Rome fell because tax evasion was so rampant that the government could not pay its mercenary troops and corruption was literally eating away at the sinew of the system.

The initial tax in England was the danegeld which was a special land tax levied to defend against the marauding Vikings. By the time of William the Conqueror (A.D. 1066), that unpopular system had been replaced with a land tax on plowed land only. William the Conqueror caused the famous Doomsday Book to be compiled which listed every piece of property in England for taxation purposes.

The Magna Carta was largely an effort to rein in the absolute power of the King's ability to tax his subjects. Charters restricting taxing powers were common throughout the medieval period. King John of England had major financial problems. When an English king had special needs, he was supposed to meet with the Great Council of Barons and asked for an aid which was the forerunner of national taxation. The Magna Carta was signed in 1215 after King John was forced by his Barons to agree not to increase taxes without meeting with the Great Council of Barons. In his effort to meet his financial requirements, King John in 1210 and 1211, increased the customary scutage (tax) for knights without authorization from the Great Council of Barons. He also tried to introduce a fine of from three to ten marks for knights who refused to join his forces. The meeting on the plains of Runnymeade on June 15, 1215 saw the signing of the Magna Carta which was supposed to stop his continual disregard of the tax customs of the realm.

In one sense, King John lost but in another, he won as now extra taxation could be collected with consent. And shortly the wealthy commoners in the House of Commons was meeting to approve taxation. The king had now become a politician. Rather than stealing or arbitrarily increasing taxes, he could now present a case for increased taxation.

The role of Money.

Money came into existence as a medium to store up value which could be used to acquire goods and services which could not be directly bartered between individuals. Gold, silver, gems, beads, and even fishheads have served as money equivalents. Paper money backed by known money equivalents like gold and silver is a relatively new invention of mankind. During the course of history, almost all governments have found a way to debase their currency which in effect robs their citizens of value. Governments do not have to just reduce the gold and/or silver content of their coinage to cause inflation.

Fiat (paper) money such as the D-marks of Germany during the 1920's and today's Federal Reserve notes are just paper money and depend totally upon what level of confidence the holders have in them. In Germany, confidence diminished and toilet tissue was more valuable.

The power to tax is the power to destroy!

In most societies up till the beginning of the 20th century, the total tax burden on citizens was rarely over 20% of the national income and oftentimes, less. But in the late 19th century and the early 20th, the politics of greed and envy took root. As the welfare state became stronger following the Great Depression of the 1930's and with the cost of fighting WWII, many changes in the American scene occurred.

In 1916, the 16th amendment was declared ratified although today, many would argue that such ratification was improper and as a result, the income tax is an "unconstitutional" tax. In 1933, President Franklin Roosevelt decreed that gold was illegal for American citizens to own. President Nixon finally removed the link between gold and our "so-called money." As a result, the American citizen is left with a piece of paper that is backed by nothing other than the Federal Reserve notes which are just pieces of paper. One wonders at what point, the confidence of the citizen will change.

Since 1900, the value of the dollar has fallen in terms of real value significantly through taxation and inflation. Today's dollar is worth about 4.2 cents when compared to the dollar's value in 1900 and can not be converted into either gold and/or silver.

The politicians and the Federal Reserve strive mightily to prevent the citizens from knowing that they have stolen (depreciated) the U.S. currency to where today it is hardly worth a plugged nickel in terms of value.

Today, the federal government tax burden is over 40% for most tax payers. Unfortunately, the Democratic party aided and abetted by the Republicans have created a tax system that is so confusing that not even IRS agents can come up with the same amount of tax due for most citizens who have any deductions and income from other than wages.

The Tax Changes are coming!

Congress is now talking tax reductions spread over a 10 year period. Whoopee! The amount of the reduction in this tax year is so insignificant that it won't possibly have any effect upon the economy this year. Of course, the politicians can say that they are solving the problem but that the government's spending plans must be met. With the Federal Reserve pushing M3 into the stratosphere, and with the economy still going downhill, the tax changes will only further increase the complexity of the tax system. The AMT (Alternate Minimum Tax) will now effect more taxpayers than ever. That will probably alone offset the supposedly tax relief in this bill.

When the taxpayers will just start refusing to send in their tax returns is still a question but even the professionals last year were unable to agree on my tax return by a significant amount. In fact, two IRS agents did my 2000 tax return at an AARP help group and they decided that my tax due was different by $2,310. When a government creates a tax system that even those who are required to enforce it can not agree on the amount, the confidence in that tax system becomes eroded and its application arbitrary.

Yes, even if they pass this tax law, the sunset provision will mean that the rates are not set in stone. Congress can change anything it wants in this tax law at any time. To base a tax system on a forecast of the economy that is ten years down the pike seems to be an exercise in stupidity. Most economists can not forecast next weeks interest rates so how can they agree on the size of the economy in 2010. It is nothing than a great big SWAT (Simple Wide-A**ed Guess) wound around a computer printout whose assumptions are probably wrong! But no politician is willing to stand up and tell the truth.

The economy is in a down-draft and the tax surplus can vanish!

As we head into the 2nd quarter of 2001, it is hard for me to believe the reported numbers for the economy. Looking at sales and earnings prospects for many of our largest companies, it seems unlikely that the numbers will not be revised downward and significantly. If we are not in a recession, then I am capable of flapping my wings and flying to the moon!

As the economy decreases, tax revenues will decrease. With the meltdown of the stock market in 2000 and continuing into 2001, P/E ratios are still higher than one can reasonably expect from a historical basis. As a result, tax revenues from capital gains taxes will be down. It is my belief that the federal and state tax surpluses will disappear before the end of 2001 and both the federal government and state and local governments will become hard pressed to continue to fund their expanding programs without resorting to increased taxes.

In fact, many state and local governments are already facing surpluses that have vanished within the last quarter. Ah, so illusory - - - but what do you expect when you make your predictions based on SWAG's.

Increase arbitrary taxes and the people could revolt.

Runnymeade and the Boston Tea Party were actions against unreasonable and arbitrary tax actions. When the citizens find out that this tax reduction package actually puts many of them in a higher overall tax bracket thanks to the AMT, will the stage be set for another tax revolt?

One can only hope!

But then - 'Tis Only My Opinion!

Fred Richards
April 2001

Corruptisima republica plurimae leges. [The more corrupt a republic, the more laws.] -- Tacitus, Annals III 27

This issue of 'Tis Only My Opinion was copyrighted by Adrich Corporation in April 2001.
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Tis Only My Opinion is intended to provoke thinking, then dialogue among our readers.

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