The Proper and Improper Role of Government: Chapter 4 – Tax Freedom Day – Do you know why this is important?

Working DollarIn 2019, Tax Freedom Day was 16 April 2019.  For those not in the loop, Tax Freedom Day is the day all Federal, State, County, and Local taxes are paid from your paycheck.  This date gets further into the new year every year, and with the amount of inflation seen since 16 April 2019, you can bet that Tax Freedom Day will shortly be in the middle of May or July.

What is Paper Money?

Dr. Clarence Carson wrote an article about paper money and the US Constitution, quoted heavily below.  Paper Money, “… Paper that was intended to circulate as money but was not redeemable in gold and silver was technically described as bills of credit at the time of the Continental Congress and writing of the US Constitution and US Bill of Rights. The description was (and is) apt. Such Paper is a device for expanding the credit of the issuer.”  The credit of the issuer is improved, not the benefit of those forced to use the Paper as credit.  Hence, the US Government, to improve its credit, began printing money, and the problems in American Economics took off like a rocket sled on greased rails!Plato 2

Paper Money only has value when the person holding that Paper has confidence in the government printing that money.  In every nation across the globe, the only thing keeping value in the paper currency is confidence in the government by citizens paying taxes.  Hence, the problems with depressions, the confidence in value are shaken, and the holders of Paper Money become restless and lack confidence that their money is valuable.  Bills of credit, Paper Money conveying the value of debt have been around for a long time, as discussed in a previous article on money.  Why did the USSR fall; the currency had been worthless for years, and when the citizens had finally had enough, the government fell apart.  A fitting tribute and pattern to be heeded from history if we, the government owners, cannot get the government to cease and desist forthwith!

Government and Paper Money

The US Constitution, as originally written, forbids the US Government from printing paper money why; because of how fast the government abuses this power, creating inflation.  The Continental Congress was well aware of government abuses with Paper Money, thus restricting the Federal Government to coinage and tying the value to the gold standard.  Inflation is nothing more than a hidden tax, where the government controls how much value your money is worth.  Every person using US Dollars to make a purchase pays this tax.  Thus, by the time a consumable product has been paid for in a store, that tax, inflation, has been paid multiple times, and the consumer is always worse for every point of inflation the government allows.

IronyDid you know that the Federal Government allows 2% inflation every year as a “target?”  Consider this for a moment; the government wants your money and calls this tax a “good thing” for the economy.  Thus, your prices for everything increase 2% or $.02 every year because the government wants it to.  The 2% devaluation of your money is part of the Federal Reserves’ “Dual-Mandate” to achieve 100% employment and price stability.  Do you see any logic in making money less valuable as a means to improve employment and stabilize prices?  I don’t!  Now, consider this, inflation has hit a this year (2021) and has not stopped climbing.  Worse, inflation is expected to continue to grow as the government prints more Paper Money, which will eventually end in a depression preceded by massive deflation of the value of the US Dollar.  Keep in mind; inflation has become a global problem, as the majority of governments spent money they did not have during the pandemic.  Imagine lemmings racing for a fiscal cliff.

Lemmings 5Josiah Quincy wrote George Washington “that there never was a paper pound, a paper dollar, or a paper promise of any kind, that ever yet obtained a general currency but by force or fraud, generally by both.”   Yet, Congress still refuses to learn the lessons taught during the Continental Currency.  Debts, runaway inflation, legal enforcement to demand paper money be accepted, all of these lessons were experienced by the Founding Fathers, with Rhode Island being the Continental equivalent of California for bad fiscal policy and idiotic fiscal enforcement.Tax Scheme 2

The founding fathers met during an economic period of deflation, which quickly became a severe depression caused by states issuing paper money that was useless.  The founders “hoped to erect a system that would endure, and to do that, they wished to guard against the kind of fiscal adventures that produced both unpleasant economic consequences and political turmoil. Paper Money was reckoned to be one of these.”  Paper Money, without the backing of silver and gold, has led to speculation, inflation, deflation, cycles of economic depression, and Congress essentially stole the right to print paper money and borrow from the citizens unconstitutionally!  This cannot be stressed enough; there is a direct causal relationship between Congressional action, Executive Orders, and the economic problems America is suffering, including the bondage of debts insurmountable and the abuse of tax schemes!  All of which were powers strictly limited in the US Constitution because the founders knew the government would abuse the power of Paper Money!Bait & Switch 2

History shows that when paper money was discussed, the states overwhelming voted to remove the power to print money from the US Government, seeing this as the best method for long-term economic success in America.  “The vote was overwhelmingly in favor of removing the authority of the United States to emit bills of credit. The delegates voted by state, and 9 states voted in favor of the motion while only 2 opposed it. (New York delegates were not in attendance, and Rhode Island, of course, sent none.) It is a reasonable inference from the discussion that the delegates believed that by voting to strike out the words, (from the Articles of Confederation, which made up the bulk of the US Constitution), they had removed the power from the government to emit bills of credit.”  It is important to note that allowing states to issue bills of credit, print their own money, or stamp coinage was also forbidden.  To avoid the economic crisis, the founding fathers were in the middle of when framing the US Constitution and the US Bill of Rights from the Articles of Confederation.  How many problems, and how much lower would your taxes be if the Federal and State governments had simply followed the law instead of stealing rights and powers from the governed?

Facts About Tax Freedom Day

IRSPlease note, the federal deficit, state deficits, pension crisis, student loan debt crisis, and interest are not included in the numbers quoted below.  The following information comes directly from the Tax Foundation (linked above):

      • Tax Freedom Day is a significant date for taxpayers and lawmakers because it represents how long Americans as a whole have to work to pay the nation’s tax burden.
      • This year, Tax Freedom Day falls on 16 April or 105 days into the year.
      • In 2019, Americans will pay $3.4 trillion in federal taxes and $1.8 trillion in state and local taxes for a total bill of over $5.2 trillion, or 29 percent of the nation’s income.
      • Americans will collectively spend more on taxes in 2019 than they will on food, clothing, and housing combined.
      • If you include annual federal borrowing, representing future taxes owed (interest on the debt), Tax Freedom Day would occur 22 days later, 8 May.
      • Tax Freedom Day in 2018 and 2019 was five days earlier than it was in 2017, primarily due to the recent federal tax law, the Tax Cuts, and Jobs Act.
      • From 1930 to at least 1995, Tax Freedom Day has taken 1.27 days longer per year to reach. – I do not have an updated reference for this information since 1995.
      • In 2019, on average, it took:
            • 42 days to pay the income taxes
            • 26 days to pay payroll taxes
            • 15 days to pay sales and excise taxes, not including surcharges and government fees for services
            • 11 days for property taxes – states control this, some municipalities, it took a lot longer
            • 5 days for Corporate Income Taxes
            • 6 Days for other taxes that always get passed along to the consumer.

Tax BurdenI have read economic reports from noted minds in economics that claim had the dollar not been loosed from the ties to the gold standard, America could not have produced the tools needed to win WWII.  To which I continue to claim, as Colonel Potter from M*A*S*H so aptly stated, “HORSE HOCKEY! and BULL COOKIES!”  Having Congress issuing massive letters of credit, borrowing tremendous sums of money, and the economic fallout remains a millstone about the financial neck of this country.  How much longer will Americans pay for debts created during WWII?  What about the ever-increasing debt burden and interest that is driving prices and taxes ever upwards?

Knowledge Check!The US Government has acted improperly since establishing the Department of the Treasury and the Internal Revenue Service.  Not just improperly but illegally under the US Constitution as drafted.  Illegally, immorally, and unethically towards the founders, and distorted the intent of the US Constitution to protect America from runaway government debt and inflation/deflation/depression cycles common when issuing Paper Money.  This is the utter truth, and until this problem is rectified, removing paper money is the right thing to do, even if it means some financial hardship!  America can survive financial difficulty; we cannot survive the bondage of runaway debt, interest that sucks all the GDP, and the socialism projects being paid for by tax dollars to buy votes from envious people looking for “equality and fairness.”

© 2021 M. Dave Salisbury
All Rights Reserved
The images used herein were obtained in the public domain; this author holds no copyright to the images displayed.

NO MORE BS: Understanding Money – Shifting the Paradigm on Money

LookDo you understand money?  Honestly, is how money is created, used, and tracked understandable or a complete mystery?  I have advocated for economics to be taught in high school to understand the actions of government since I was in high school.  I was forced to take a class to write checks, balance a checkbook, and other simple economic topics in US Army Basic Training.  I thought I knew how money worked after this class, but only later realized I knew enough to get into trouble with money, but not enough to fix the problems I had gotten myself into.  I was mid-way through my MBA when I finally took a class on money, economics, and how money works.

I have asked other adults and high school students what they think about money and remain aghast that basic economics is not taught in K-12 education.  There is no reason for fiscal illiteracy in America; yet, fiscal illiteracy is evident in the politicians elected, the lobbyists pushing agendas, and how American politicians of all levels understand money.  The following is a brief attempt to clear some of the confusion regarding money.

Green money is cash.

Dane-GeldGreen money is the dollars and cents in a bank account or your pocket and is quickly spent.  Green money is often called liquid money or liquid assets, liquid because the holder is presumed the owner, owns it, and can spend it freely any way he wishes.  Possession is nine-tenths of the law where liquid assets are concerned.  One of the first lessons most of us learned growing up was if you wanted to buy something and your pocket was empty, you went without.  Liquid assets are cash, green money and are available to be spent in any way the holder chooses.

Non-liquid assets are considered green money due to their sale; this is why a house, a car, a boat, and other such items are considered assets, investments, and opens the door to depreciation or money loss where an asset is concerned.  The sale of the asset provides the opportunity to turn a non-liquid asset into a liquid asset.  However, since the asset is often employed as collateral for a loan, the sale of that asset means the loan holder is paid first from the sale.  If the resale value is insufficient to cover the full loan owed, the loan, which is red money, can still be collected; this process is why red money is so important to understand.

Red money is debt.

Government Largess 3Historically, if a debt could not be paid, the debtor’s blood was allowed to be spilled; hence debt is red money.  Red money always comes with a penalty called interest.  Interest is green money turned red to return the profit to those who lent the initial funds or principle.  That debt, be it a loan, a credit card, or another debt model, remains a burden to the borrower, continues to accumulate interest, and can be called due at any moment in time.  While some laws protect the borrower from excessive interest rates, it remains essential to know about and be cognizant of the interest rate trap.  The legalese on a contract to launch a debt is important to understand, especially where prepayment penalties, late payments, and the ability to call the note due are concerned.

The interest rate trap comes in several forms.  While in the US Navy, stationed in Norfolk, Virginia, a sailor buddy bought a beautiful car for $4000 with a 45% interest rate.  He put $1500 in green money down, so the full loan amount, principal, and interest, for 60-months were $7805.49, including the sales tax.  Later that month, when the car was stolen, the insurance company valued the vehicle at only $1000, leaving the sailor to pay $6805.49 immediately.  This is one type of interest rate trap; another comes from Payday Loans.  Borrow your next paycheck today, get the money today, and pay your paycheck back during the next 36-months at an interest rate between 30-60%.  By the time the payday loan is paid off, more than four separate paychecks will have been paid to cover a single paycheck loan, provided all the payments have been made on time and as quickly as possible.

Welfare State BeginsWhile paying off this loan, you lose your job.  You can lose your car because your car is sometimes used as collateral for your payday loan.  If the resale value is insufficient, you lose your car, you lost your job, and now you still owe a considerable sum that gains interest.  Red money is dangerous; like Damocles’ sword, the danger hangs by a tiny thread above the borrower; one wrong move and the sword falls.  Debt, red money can be helpful; but, careful planning and budgeting are required before entering into debt obligations.  Always it is better to save and budget green money or obtain investors before contemplating debt.

Black money is dead money.

Consider the person who takes green money and places those dollars and cents under a mattress or coffee can in their home.  The cash is out of circulation, is not valuable enough to collect, and no one is benefiting from the money through interest.  Black money can be created in other ways that will be explored later in this article.

Potential Money – Blue Money

blue-moneyThe next type of money is blue money, also referred to as potential money.  Consider a hammer. The hammer might cost $20.00 in green money to buy and bring home.  In the hands of a trained construction worker, a $20.00 hammer, over the course of the hammer’s useful working life, has the potential to earn thousands of dollars in green money for the construction worker.  In the hands of an inexperienced worker, the hammer has the potential to cost thousands of dollars in green money through waste, destruction, and learning.  Training a person to improve their performance might cost $300 in green money; but, if that employee can improve his performance on the job, potentially millions of dollars can come into the company because of the training provided.

Money is created when it is borrowed, and interest is paid on the loan.  For example, Jack has an extra $500 (green money).  He gives this money to his friend Joe in the form of a loan (red money).  Joe takes the loan, adds to his business potential (blue money), and through increased profits, can pay Jack his $500 loan plus the interest of $300.  Hence, $300 (green money) is created as profits for Jack.  While a simple analogy, do the types of money become more apparent?

Welfare State EndsJoe’s loan to Jack showed on Joe’s books as red money until the loan and interest were paid.  During this time, Joe was also making green money, or profits sufficient to pay his workforce, his other obligations, and still retain adequate to pay himself.  Small business owners are not paid until everyone else is paid.  It is not uncommon for small business owners to be scraping by on the smallest margins because all their non-liquid assets are locked up in loans to keep the business afloat.  When poor business practices begin risking inventory and equipment and shareholder investments are added into the equation, is it any wonder why small businesses struggle.

quote-mans-inhumanityMoney is also created when saved in the various saving tools offered by banks.  The diligent saver can save $40 a week until he or she is 65 years of age and potentially have millions in the bank for retirement.  Why, because the bank will pay interest to the saver from the interest collected on the loans the bank makes with the green money invested from the savings account.  Many different savings tools can be considered non-liquid assets because of the agreements made between the saver and the bank.  Generally, the longer the bank’s contract to hold the savings money, the higher the interest rate paid as the bank can schedule payments and loan the same dollars more efficiently when the saver’s funds are expected to be in the bank for a more extended period.

quote-mans-inhumanity-2Often Federal treasury departments of governments create money by printing more or larger bills.  The problem with printing more money is one of surplus, which begins to increase interest rates and decrease the value of the green money held by citizens participating in the economy.  Consider that if the only way to create money is to work money through lending, improving business, etc., and then printing only makes it harder to put money to work.  Too much money on the market creates negatives; negatives include lower dollar value, which makes items cost more and increases interest rates, making borrowing costs rise, and inflation begins to increase prices for goods in the economy.  More importantly, except for necessities, producers’ willingness to spend money stops; these are typical cause-and-effect actions.  A long enough period of decreased desire to spend money and an economic downturn is initiated.

Blue Money BurningState, City, County, Town, municipal governments are even more pernicious with their plots and plans.  On the local government level, money cannot be printed.  Hence, debt is entered into, and municipal bonds are sold to create money in the private sector, which is then paid to the government in increased taxes, but the money lent to the local government was already spent.  One truth discovered about government, when taxes are increased, money is asked of the voters to borrow.  The truth is, the government body asking for more has already spent the increase, spent the budget, and usually spent twice as much as they are asking the voters to allocate.  Consider special elections for increasing taxes; the money being asked for has been spent, the budget was spent, and now the voters are asked to pay for the special election cost to decide if the local government can spend some more money.  The increase being asked very often has been spent three to four times before the election is considered to ask for permission to enter larger amounts of debt in the public’s name.

Poor fiscal planning increases debt by decreasing the value of the original municipal bonds.  The government has to borrow more to get relatively close to the value of the first municipal bond sold.  Note, municipal bonds are considered a debt to the local government and as green money non-liquid assets to the purchaser; municipal bonds can be bought and sold on the private market.  Government focuses upon the holder of the most bonds; because elected leaders are focused upon the holders of the most bonds, citizens bear no weight in being heard.  Money talks!

Detective 4In several different locales, municipal bonds can be held as unseen debt or black money, also referred to as unfunded liabilities, kept on other books, not currently open to the public.  The monies owed are not considered red money because there is no plan by those in power to pay these debts; thus, the city’s debt could be significantly higher than reported.  Unfunded liabilities never have a plan for repayment by those in power.  Unfunded liabilities can be a mixture of many different debts (employee retirement, some municipal bond types, unpaid bills to local service providers, etc.).  The common denominator remains, there is no plan or money to repay this debt.  Thus, black money is created because there are no plans or money to meet these obligations.  The taxpayer remains on the hook for the principal and the interest of those unfunded liabilities.  Unfunded liabilities are hopes of current politicians on future prosperity, and sometimes, depending upon laws, unfunded liabilities are part of the government’s credit rating. Low credit ratings by the government increase taxes, the risk increases, making borrowing money more expensive, and the taxpayer generally has no idea how poor their municipal government’s credit rating.  Never forget, municipal government, many times includes the local school board.

ToolsWhile this explanation is elementary, the lessons contained are sufficient to protect the bottom-line, improve knowledge, and provide an opportunity for improving circumstances.  When bottom lines fail, before anything else, look to lost blue money as the cause.  When blue money is disregarded long enough, red money increases exponentially, and green money evaporates; this formula is set in stone.  Potential blue money is not elusive, but it takes keen observation to protect and grow.  Grow enough blue money, and green money multiplies exponentially.

Americans must start demanding fiscal literacy in the politicians running for office.  Americans must begin understanding the captivity they are in where the government spending is concerned.  Ask yourself, would your bank honor a post-dated check?  Why should the government be allowed to write a check the bank won’t allow you to write?  Can you spend 8-15 times your salary between paychecks and maintain your house, car, and other assets?  Of course not, so why should the government be allowed to do this on your tax dollars?

DutyFiscal literacy improves freedom and liberty.  Fiscal literacy is required to maintain the US Constitution and US Bill of Rights.  Budgets are not bad things for government to live on; in fact, the government should be the first exemplar of budgetary soundness and fiscally literate action.  A Liberty FIRST Culture will require fiscal sanity and fiscal restraints, a reduction in debt, and a payment plan for all unfunded liabilities.

© 2021 M. Dave Salisbury
All Rights Reserved
The images used herein were obtained in the public domain; this author holds no copyright to the images displayed.