As 2016 begins, the day of reckoning is fast approaching for all Americans: April 15 2016. This is the day we are obligated to pay our personal income taxes.
Most Americans don’t realize that this hasn’t always been the case. The Constitution, as originally drafted, had no tax clause. Excise taxes (like sales tax) and tariffs were the primary ways that the U.S. government financed its operations. But given government’s penchant for power, it was only a matter of time until it figured a way to feed its financial hunger by creating a Constitutional Amendment for taxing citizens.
We live in strange times. The notion of paying personal taxes has become more complicated as a result because the federal government has developed a much more intrusive role than was ever intended by the Founders. In its original design, the role of government was to provide for its citizens’ safety, enforce the laws, and honor basic property rights. There are many other derivative laws which flow from these; however, the government’s role today is nothing like what the Founders envisioned or intended.
The U.S government now reaches into almost every aspect of our lives. From education, to housing, to labor law… there are few things we can do freely as citizens that do not infringe upon some law penalizing or criminalizing behavior. Due to this overreach by government, there are many things for which tax money is spent that the average citizen finds objectionable. From wars to abortion services there is now something to which almost every citizen can object. Republicans, Democrats, Libertarians and Progressives all have something to loathe in the IRS Code; yet, they continue to pay because 1) they want a functioning government and 2) they fear the heavy hand of government should they not pay.
As stated earlier, this growth in government has been accompanied by a voracious need for money. As citizens, we hope the government is a good financial steward because absent that, the results can be dire. Many would say we have reached that point.
Part of the problem is that the federal government has poorly (no pun intended) mismanaged the nation’s finances, particularly over the last 15 years . Since 2008, the national debt has doubled from 8 trillion dollars to 16 trillion dollars! Much of this debt and spending was attributable to the financial crisis of 2008. The narrative from the government is that the crisis was initiated by greedy bankers who caused the system to fail. But like everything in life… the story is much more complicated.
At the heart of the crisis was the Community Reinvestment Act passed in the 1970’s but only enforced as of the 1990’s. The federal government began forcing local and regional banks to make riskier and riskier loans to the under-qualified lest they lose their banking license. Fannie Mae and Freddie Mac (two quasi government entities) bought these loans and in-turn sold them to investment banks touting U.S. seal of approval. This set the stage for a massive scandal that nearly wrecked the entire U.S. economy. If you want more information please take a look at the fascinating story here: (Reckless Endangerment).
After the crisis in 2008, the government bailed out the banking sector at a tune of 700 billion dollars. Realizing this wasn’t enough, the governments started printing money in the form of quantitative easing. Printing money is not done by firing up the printing press but rather by the central bank buying securities in the open market, lending new money to private banks and/or buying assets from banks. The money is then credited to private banks. Theoretically, the private banks then use this money to create more money through lending (although this did not happened). This process then adds more money into the economy.
Part of the reason that this money never went back into the economy in the form of new loans was because there was no incentive for the banks to do so. In the role that government took, it became the proverbial “300 pound gorilla” in the room, buying tons of assets from the banks. All the banks had to do was copy what the federal government was doing to start making money. Once the banks got wind of what the Treasury was buying, they in turn bought the same assets and sold them back to the government at a profit. Its called “monetizing the debt.” There was no longer a need to loan money to make money as the government itself was providing free money.
Sadly, this bailout only helped a select few institutions in the form of free money and asset purchases paid for by that taxpayers. But for those same taxpayers, we the people, there has been no aid. The whole notion that the government needs taxpayer money to function seems a bit of a stretch given the fact that when it needs money it can print (digitize) it… and has done so repeatedly. The IRS Code, as it stands today, is the way the government keeps people in line, indebted and for some enslaved. It is the ultimate tool of control.
If only I could act the same way the government does, come April 15th, I’d print my taxes instead of sending them a check.