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Fair tax vs. flat tax

8/21/2013

2 Comments

 

By Tim Fullerton

The latest round of scandals at the IRS has, once again, forced scrutiny upon the income tax – and those who enforce it.  The framers knew the evils associated with what they called a “direct tax” (a tax directly put upon citizens).  They specifically listed it in Article I Section 9 (the “What congress cannot do” Section):  “No Capitation, or other direct, tax shall be laid, unless in Proportion to the Census. . .”  Furthermore, one section earlier (Section 8) the congress was limited in its power to tax by stating, “...all duties, imposts and excises shall be uniform throughout the United States.” Meaning, no graduated tax rates.  Taxes had to be uniform, and could not vary from state to state, or person to person.

The sixteenth amendment, which initiated the income tax, had to include wording carving out exemptions for itself:  “The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without the apportionment among the several States, and without regard to any census or enumeration.”

Two schemes have developed recently to create a more fair and honest method of collecting taxes, the fair tax and the flat tax.

The Flat tax is a simple elimination of all tax brackets (but one).  All income, regardless of source, would be taxed at the same rate.  And nearly all deductions (also known as loopholes) would be eliminated.  What could be fairer?

The costs of making money would be eliminated as exemptions.  Write-offs for businesses such as depreciation, maintenance, research and development would all disappear.

What would that single tax bracket be?  Ten percent?  Seventeen?  Fifty?

But the worst aspect of the flat tax is that it's still an income tax, and any income tax allows the IRS access to your pay and investment records without a warrant (in violation to the fourth amendment).  It remains a violation of Article one, Sections eight and nine.  The founders put those in there for a reason.  Income taxes treat each person as though he was NOT created equal.  Each taxpayer is rated and judged on how much money he makes, not as an individual human being.

The other option, the Fair Tax, is a complicated scheme involving a 23% sales tax on all retail purchases.  To make life easier for the less fortunate, it comes with something called a prebate (like a rebate but it comes before, not after the sale).  Monthly prebate checks are sent out based on income and number of dependents.

I see no end of creative ways of cheating on the forms designating the monthly prebate check amount.  If 24,000 illegal aliens can all have their income tax refunds sent to the same address, what is the likelihood this system can too be gamed?

If only retail sales must suffer the 23% burden, will there not be a blooming of second-hand shops?  Would you buy a new car or a newly built house if you knew the price would have a 23% premium on it?  Especially when you could buy a used car (or house) without that added expense.  Want to bet the seller of that house or car doesn't include that 23% premium when computing his asking price?  So you probably will pay the tax (in a manner of speaking) on used goods.

Under the radar another scheme has quietly started bubbling to the surface: a value added tax, VAT.   Like the Fair tax, it's a sales tax of 11%, but with no prebates.  The only exclusion would be for the sales tax paid by retailers, who collect the tax from consumers, but can deduct the sales tax they pay.   

WARNING, some of the folks in Washington would like to add a VAT on top of all the other taxes you already pay.  This is not the intention of this scheme, it is designed to eliminate the income tax, not reinforce it.

2 Comments

Too big to fail (Part II)

7/29/2013

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By Tim Fullerton

Last time I wrote about companies (even industries) should not be considered too big to fail.  The next logical progression: small companies or industries too “important” to fail.

We all know about “Green” jobs.  Those new technologies designed to provide a clean, natural way of generating energy.  I was amused as I read a special edition of US News & World Report a few months back that highlighted all the green industries that are going to save our planet from us.  Each and every industry or company profiled by the magazine: ethanol, wind, solar, and a host of others, all had one thing in common.  They all were either getting or wanted to get some federal subsidy.  Cash from you and me to get their product to market at an affordable price (or just get it out of the testing lab).

In my mind, this makes all of these simply, “Too costly to Succeed!”

If these industries cannot provide a safe, effective, efficient, necessary product, what are they doing in business in the first place?  Just to suck up our tax dollars?  

Again, the government is picking winners and losers.

Take ethanol (drinking alcohol, usually made from corn), for example.  Did you know that Methanol (so called wood alcohol) has fewer of those nasty carbon atoms everyone is so concerned about?  That it is less costly to produce?  And has more energy than ethanol?  But the government has determined that only ethanol is worthy of pursuing.  Why?  I don't know, but it might have something to do with Iowa corn farmers.  Ethanol has to be heavily subsidized since it costs more to make a gallon of ethanol than it can be sold for (they want its price to be comparable with gasoline).  

Your tax dollars at work.


3 Comments

Why is inflation such a threat right now?

7/26/2013

3 Comments

 


I see separate long-term policies converging:

1. Gold Standard.  Under a gold standard, the country can only have as many dollars in circulation as it has solid assets.  The currency represents those assets.
FDR took our country off the gold standard (for internal purposes) in the 1930's so he wouldn't be constrained in his effort to spend our way out of the great depression.

Nixon took us off the gold standard for international trading in the 1970's.  So he could fund LBJ's war on poverty, the brand new EPA, and the Viet Nam war all at the same time.

Since then, our money has been backed by nothing except the "Full faith and credit of the United States."  Faith?  That means our money is now physically not even worth the paper it's printed on.

2. Related to #1.  Quantitative Easing.  Since even before the recession or crash or whatever it was back in September of 2008, the Federal Reserve has been printing money at an extraordinary rate.  Like any asset, the more rare something is, the more valuable it is.

Simple law of supply and demand; if the supply of something grows and the demand stays the same or drops, the price (inherent value) must fall.

3. Related to #2.  The American dollar is the "global reserve currency." 
This means, that when Brazil wants to buy something from South Korea, the Brazilians must convert the purchase funds into dollars to make the purchase.  Then the South Koreans convert those dollars into whatever their money is called.  This is supposed to keep all international transactions fair (level the playing field).

Lately, Russia, China and the International Monetary Fund (IMF) have all called for a switch from the dollar for international trading.  If this happens, the worldwide demand for dollars will go down by a LOT.  (I read one estimate of a 25% drop).  This may cause havoc here -- since this demand is what has been propping our (paper only) dollar up for so long.

4. American government debt.  (You knew this one was coming, didn't you?)  There's been some talk that the government actually wants to inflate the dollar so they can pay off foreign bond holders with worthless money.  That's the Full Faith and Credit of the United States?!??!

How is this advantageous?  I recall that during the inflationary 1970's, this same strategy was employed by average citizens; they bought everything (and I mean EVERYTHING) on their credit cards assuming the money sent to pay off the cards would be worth less than “today's” dollars.  Admittedly, I'm no math wiz, but I fail to see any advantage here; you still have to pay off your debts and the accumulated interest besides.

I foresee a convergence of these policies into a PERFECT STORM.  Savings accounts: worthless.  Paychecks: worthless. Prices rising faster than the money can depreciate.  $100,000 bills becoming commonplace – one of them might cover a single month's worth of electricity.

3 Comments

Too big to fail

7/23/2013

3 Comments

 


By Tim Fullerton

How many times have we heard this phrase in the past couple of year?  The insurance company, AIG was too big to fail.  General Motors and Chrysler were too big to fail.  An untold number of banks were too big to fail.  It started in the Bush Administration and continues to this day.

The free market economy is all about winners and losers.  The cycles of boom and bust are despised by socialists and communists, whose entire purpose is to even out the economy so no one can win big and no one can lose big.  But these cycles are the natural way for the economy to “refresh” itself.  As new technologies, for example, reach the market, older technologies must either change or fail.  

Should the age of the personal computer been halted because the typewriter manufacturers were too big to fail?  Deny automobile companies the right to make cars because it would put the harness and buggy-whip makers out of business?

It's not the job of the federal government to decide which companies deserve bailing out and which ones can quietly go bankrupt.  Should “too big” companies such as these be allowed to continue making buggy-whips blithely knowing the government will prop them up any time it looks like they might be in some kind of financial trouble?  What does this accomplish in the big scheme of things?  

Maybe I should start selling T-shirts with the logo: “Too Big to Fail.”  And sell them in only XL and 2XL sizes.  If my company doesn't succeed, we can always get a bailout, right?



3 Comments

Certain unalienable rights...

7/20/2013

2 Comments

 
By Tim Fu

One sentence in the Declaration of Independence seems to sum up all that makes the United States what it is or what it is supposed to be.  Not surprisingly, it's the most famous and repeated sentence:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

We hold these truths.
Not we hold these opinions.  Not we hold this consensus.  Not we hold these suggestions.  Truths.

To be self-evident.
Truths so obvious that no matter where you come from, your background, your religion, you know (KNOW, not think or feel) that it is the truth.  

That all men are created equal.
Not equal in height, strength, speed, wealth, or intelligence.  But equal under a just set of laws.  The laws of nature, for example.

That they are endowed by their creator.
Whether you refer to the creator as God, Allah, Jehovah, Yahweh, evolution, biology, or The Force, we are all born with certain birthrights.  They are natural.  They take effect the moment you do.

With certain unalienable rights.
Rights granted to you from a higher power and any effort by mere men to remove or repeal them is null and void.  These rights are not granted by law, or governments.  So governments and laws have no power over them.

That among these.
A short list.  There is not enough parchment or ink to list them all, so just the basics.

Life.
Once born, you have the unalienable right to continue living.  That may mean, there are times you will have to defend yourself.

Liberty.
Once living, you have the unalienable right to freedom of thought and action.

And the pursuit of happiness.
Another way of saying, liberty.  This is usually associated with a vocation.  You have an unalienable right to pursue the job, the way of life, that will create the most happiness for you.

It should be noted here, that  “pursuit of happiness” was originally “property,” in the earliest drafts.  But some of the northern delegates to the continental congress objected to the word property since the southern colonies insisted that one man could legally own another.  But the ability to 1. acquire, 2. own, and 3. dispose of property is still considered your unalienable right.

Notice that none of these rights is something you can purchase.  Not something that can be owned – bought or sold.  If unalienable rights included things like a house, a car, or healthcare, then you would have been born with them.  

The idea of unalienable rights carried over to the Bill of Rights (15 years later).  The phrase, “the right of the people,” is used repeatedly.  Also, the government is recurrently restricted by wording such as: not abridge, shall not be infringed, and shall not be violated.  

Of course, if your actions violate the creator-endowed rights of other people, then you are in forfeit of those rights for yourself.  

2 Comments

The Laws of nature and nature's God

7/19/2013

0 Comments

 
By TimFullerton

Where are listed the laws of nature?  How will we know what they are?  Nature writes no books, she is too natural for that.  Can we simply look around us at nature and determine what the laws are?

The natural world seems divided into two groups: predator and prey.  Survival of the fittest.  Cull the herd; eliminate the weak and the sick.  Predators in the wild show no mercy.  Their very survival depends on it.  As you work your way up the food chain, how many predators are also prey?  The great circle of life.  

Some species of prey have but one defense, herding together. Sheep, zebras, and wildebeests cannot defend themselves from lions or leopards or wolves; all they can do is try to save the herd, not individuals.  The weak and sick will be sacrificed for the good of the herd.  Herd members do not get to vote on who the next sacrificial victim will be.  Herds don't have any leadership that I can detect.  Except, possibly certain migratory birds.  Geese fly in a V formation – one leader.

Like herds but more complex; some animals form communities.  Bees and ants have a leader.  It does seem like an honorary role since we know of very few queen bee edicts (executive orders) sent to the drones from the throne.  Members have specific, assigned duties to perform.  They must perform them well, with no complaints, since there are no beehive prisons or ant hill jailhouses that I know of.  Do ants and bees have little suburbs they can go to at night when it's Miller time?

All in all, the laws of nature don't seem very inviting.  If we had to live under nature's laws only, life wouldn't be very pleasant;  we would be ruled by the biggest, toughest, meanest bullies around.  You could call nothing your own.  At any time, someone bigger or more ruthless than you could take it all away.

At first, mankind gathered themselves into herds (tribes, villages etc.) to protect from both predators and predatory humans.  Some of these herds had rulers;  usually a self-appointed bully or a democratically elected chief.  Sometimes that worked out well, sometimes not.

What was lacking: A set of laws designed for all people regardless of which tribe they belonged to.  A universal set of laws for rulers as well as the ruled.  

Generally accepted as the laws of nature's God, might be the 10 commandments.  I prefer Matthew's (7:12) condensing of (at least 6 of those commandments) into one sentence, the golden rule.  If you do what you say you'll do, and if you don't harm another person or his property, you can pretty much do anything you want.

Any law written by men must follow this basic formula to be valid, and good.

So, in conclusion, the laws of nature are cruel and heartless, while the laws of nature's God offer almost limitless freedom.  This seemingly impossible paradox yields the perfect fulcrum to keep all life on earth in balance.  The laws of man should strive to fortify this delicate balance; tipping neither one way nor the other.



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Founders Keepers: Francis Lewis

6/28/2013

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By Tim Fullerton

Born in Wales, Francis Lewis was orphaned at the age of four.  A maiden aunt raised him.  She insisted he master Welch, Gaelic and Scottish.  When his formal education completed, he took a position in a counting house, soon mastering that as well.  Upon his 21st birthday, he collected the inheritance from his father's estate, bought a shipload of goods, and set out for the new world.

He formed a partnership with a Mr. Edward Annesly of New York City.  Francis left half the goods with Mr. Annelsy to be sold on consignment.  Francis took the remainder to Philadelphia.  It took him two years to set up the Philly branch of the company.  Then he returned to New York.

He married his partner's sister.

Mr. Lewis became a supply agent for the British army during the French and Indian war.  He was present at the surrender of Fort Oswego to French General Montcalm. Francis was one of 30 prisoners handed over to the Indians.  Legend has it that the Indians were fascinated by the strange language he spoke and let him live.  Since the Indians didn’t appear to want him, the French took him back, sending him to a prison camp in France.

Upon his release, Francis attempted to reestablish his mercantile empire – like a man frantically making up for lost time.  He traveled over a considerable part of Europe, making deals from Shetland to Russia.  

Perhaps because of his worldliness, he jumped on the independence bandwagon long before most other New Yorkers.  He joined the, “sons of liberty,” (not unlike our own TEA Party); possibly starting the New York branch of that organization.

He got himself appointed to the continental congress in 1775.  And in 1776, voted for and signed the Declaration of Independence.

Francis served on several committees in the congress, mainly dealing with importing military equipment – his expertise in importing was well known.

During the war, Francis moved his family out of the city to Long Island.  An unfortunate decision.  The house was overrun by the British.  Books and papers burned.  Mrs. Lewis taken prisoner.

Congressional protests did nothing regarding the release of Mrs. Lewis.  A prisoner exchange was negotiated, but the deal fell through – only to be taken up again, by General Washington, himself.

Francis' wife was returned to him.  But she was not the same woman.  Her health was broken.  She died shortly thereafter.

And so too was Francis broken.  He died in obscurity and poverty.  His empire, and fortune gone; sacrificed to his country.

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Cap and Trade.

6/27/2013

1 Comment

 
By Tim Fullerton

The world is warming.  Evidence is everywhere; ground water in Egypt and Bangledesh is so salty crops are dying.  Glaciers is Wyoming, Peru, Switzerland and Nepal are all receding.

Speaking of glaciers, ponder for a minute the glacier that carved out the American Great lakes.  A wall of ice 600 miles long – from east of Buffalo all the way to Green Bay – half a mile high.  A huge chunk of ice creeping south from Canada.  Grinding soil and rock  beneath its relentless push.

Where is that glacier now?

On the day that particular glacier started to melt, I guarantee there wasn't one single Ford Explorer or incandescent light bulb in the neighborhood at the time.  One day it just started melting – the result of global warming – thousands, if not millions of years ago.

Today governments around the world are trying to stop this natural occurrence.  Suddenly, carbon dioxide (the stuff plants breathe and the bubbles in soda pop) is public enemy number one.  The current administration want's to put a “cap” on how much CO2 every company may emit.  Companies can “trade” leftover allowance with each other.  Hardest hit will be coal-fired electric power plants and oil refineries.

Make no mistake – it isn't only industry that will be effected.  They're coming after you too!  Beginning 1 year after enactment of the Cap and Trade Act, you won't be able to sell your home unless you retrofit it to comply with the energy and water efficiency standards of this Act.  Can you afford, for example, replacing every window in your home with triple-pane glass?  Just so you can sell that house!

Please call and write your senators.  Don't let Cap & trade tax us all back to when that glacier was still carving out the Great Lakes.
1 Comment

Founders Keepers: Dr. Benjamin Rush

6/25/2013

0 Comments

 
By Tim Fullerton

His father died when Ben 6 years old.  Young Benjamin was sent to a boarding school in Maryland.  Then to Princeton.  Graduated after ONE YEAR! (at the age of 15!)

Studied medicine in Philadelphia for 6 years.  Then to Edinburgh , Scotland.  Received his MD after 2 years.

He returned to Philadelphia to practice medicine, elected professor of chemistry in the college of Philadelphia.

A strong advocate of, “bleeding,” for nearly any malady even though most doctors of the day had dismissed the practice.  In 1793, a yellow fever epidemic nearly wiped out Philadelphia.  In addition to bleeding, he prescribed calomel and jalap, after reading about them in a book given to him by Benjamin Franklin.  He had great success.  More, he did not keep this knowledge to himself but shared with doctors, even pharmacists.  Proving that no good deed goes unpunished, the medical establishment attacked him and his methods.

He didn't see independence from England as did most of the Declaration's signers.  Instead of commerce, or military might, he considered first and foremost the freedom to experiment.  To learn.  To share knowledge.

He tended to the wounded during the war.  But in a dispute with another physician, he resigned after one year.  He also spent the war trying to get George Washington fired as commander in chief!  Rush later, expressed regret for his actions against Washington. In a letter to John Adams in 1812, Rush wrote, "He [Washington] was the highly favored instrument whose patriotism and name contributed greatly to the establishment of the independence of the United States.

He attended the constitutional convention.  He called the federal government a, “masterpiece of human wisdom.”

Appointed by President John Adams to the post of treasurer for the U.S. mint.

He was the principal agent in founding Dickinson College, in Carlisle, PA. For some years, he was president of the society for the abolition of slavery, and, also, of the Philadelphia Medical Society. He was a founder of the Philadelphia Bible Society, and one of its vice presidents.  Ben was also a vice president of the American Philosophical Society.

Dr. Rush purchased a slave in 1776. He still owned this slave when he joined the Pennsylvania Abolition Society in 1784. (Go figure)

Rush may be more famous today as the man who helped reconcile the friendship of Thomas Jefferson and John Adams by encouraging the two former Presidents to resume writing to each other.  He wrote to Adams: “Some talked, some wrote, and some fought to promote and establish it, but you and Mr. Jefferson thought for us all. I never take a retrospect of the years 1775 and 1776 without associating your opinions and speeches and conversations with all the great political, moral, and intellectual achievements of the Congress of those memorable years.“

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What Congress cannot do.

6/24/2013

2 Comments

 
By Tim Fullerton

How will you know if the present congress is overstepping its bounds if you don't know what restraints were placed on congress by the Constitution?  In an earlier blog, I listed the 17 things congress can do, so I felt I should also list what it cannot.  

From Article 1, Section 9

1. Congress may not interfere with migration between the states, nor the importation of slaves – at least not until 1808.  But even before then, a tax (or duty) of up to $10 per slave may be imposed.
2. The privilege of the Writ of Habeas Corpus may not be suspended except in time of revolution or invasion.
3. No Bill of Attainder or ex post facto law shall be passed.
4. No direct tax shall be laid.  (nullified by the 16th amendment)
5. No tax or duty shall be laid on any articles exported from any state.
6. No preference shall be shown the ports of one state over another.  No vessel traveling from one state to another shall be obliged to pay a duty.
7. No funds may be drawn from the Treasury without an appropriation in Congress.  An accounting of all public money shall be published from time to time.
8. No titles of nobility may be granted by the U.S.  And no public office-holder who is getting paid may receive gifts, money, office or title from a foreign country without the approval of congress.

There you have it, only half as long as the previous list.  And this one sounds like it was written by lawyers.  I'll wade through these as best I can (Ryan, you may correct anywhere I'm off base)

A Writ of Habeas Corpus is like a court order, demanding the government prove it has good reason to detain (imprison) someone.  Habeas Corpus is Latin for, “you have the body.”  President Lincoln, famously, suspended Habeas Corpus during the Civil War.  His actions are, strangely, compared to the actives of George W. Bush after 9/11 in this piece at CNN, http://www.cnn.com/2011/US/04/08/civil.war.today/index.html

A Bill of Attainder was used in English law to yank titles, land and castles etc. away from noblemen accused of serious crimes.  The king didn't even need the bother of a trial.  

An Ex Post Facto (“after the fact,” in Latin of course) law would retroactively impose legal consequences.  For example, you can't write a law today that would result in the arrest of someone for what he/she did yesterday (when it was legal).

I have heard it said that when President Obama accepted his Nobel Peace Prize, he was in violation of paragraph #8, since he did not petition congress for approval before accepting the money associated with the prize.  But since it comes from a committee instead of directly from the Norwegian government (NOTE: only the Peace Prize comes from Norway, all others come from Sweden), I don't see a problem.


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