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Realistically Ending the Federal Income Tax and Corporate Tax

December 30, 2016 by Cor Bader

Martin Armstrong recently had a blog post regarding ending the Income Tax and replacing it with a system where the Federal government prints what they need with a maximum cap of 20% of GDP.  Though I believe he stated 10% to 15% of GDP would be much better (which I agree).

I can’t find Martin’s post right now, but the premise was, why bother with all the back and forth with taxes?  It took a bit to wrap my head around the idea, but the more and more I thought about it the more I liked the idea.

So basically the printing of money would be more inflationary and that aspect would replace the income tax.  So why is that better?

Here are the Pro’s and Con’s.

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Pro’s:

  • It would save everyone time and money going through complex tax code each year.
  • The government could end their NSA spying on it’s own citizens, and it’s war on cash since it is all just a hunt for money under the guise of fighting terrorism.
  • It would render government smaller as there would be no need for the IRS and the hunt for money.
  • It would reduce stress likely resulting in much more favorable opinions about government.
  • Without taxation business would be equalized for competition.  Example: GE makes windmills. Another company want’s to compete with GE on making windmills.  Thanks to GE’s lobbying efforts they have an effective tax rate of 0% while the new smaller company must pay the full 35% in corporate tax.  The smaller company can’t compete with such a drastic disadvantage even though their windmills are more efficient.
  • Companies would have no tax reason to hold their money overseas, much of which would be brought back to the Unites States.
  • It would end Federal debt. Governments never have any intention on paying back debt which results in:
    • Defaults, loss of confidence and the destruction of a currency.
    • Governments try and distract it’s citizens with war when the debt gets out of control.  WWII is a great example.
    • May prevent large capital flows out of an economy.
  • It caps spending to the economy and business cycle.  So that if GDP is down, government spending would also be down.
  • No longer a need for Primary Dealers.  Wall St primary dealers always hold sway over the government for the government needs these banks to sell their debt.  The Wall St. / Government manipulation would be greatly diminished.
  • Because government spending would be consistent, and the fact that taxation is no longer a mystery, confidence would rise for the nation, which could result in making the currency more valuable globally and the global currency demand may offset the inflationary printing.

Con’s:

  • The biggest con is that printing money is inflationary.  Though if Federal spending was capped to 15% of GDP the effects should be consistent.  Currently the Federal government is spending over 20% of GDP.
  • Is it realistic to be able to hold the government to only 15% of GDP?  Would congress keep passing bills that would adjust the amount higher?  Definitely a big concern.
  • There is an entire industry based on taxes and filing taxes.  This industry would be greatly reduced an many jobs loss.  Though I believe jobs in other industries and small business would more than make up for the loss of jobs.  There is also state taxation that will require assistance.
  • The change over to a new system would likely be difficult, and most likely only to occur after a crash and burn of the current system.
  • May be difficult for people to mentally adjust and understand the new system.

The bottom line is the inflation would be the substitute for taxing. Basically, what is better… the constant back and forth with taxes and the need to police for tax money? Or just printing a constant that the Feds can spend each year with no more interference? The inflation would be the substitute for taxing.

For those that say there would be massive inflation, well we already have massive taxation.  So which is worse?  Which is easier for everyone and results in more liberty?

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Filed Under: Personal Finance and Money Saving, Politics Tagged With: Income Tax

You owe me $5 bucks, here is my phone number.

July 29, 2015 by Cor Bader

I just sent some money to a friend to pay for my dues for our softball league.   I sent it using my phone with the Square App.  You may have used this technology before.  I was at a bar with some work friends and instead of splitting the check, one person took care of it on his credit card and the others sent him cash for there beers, while one person sent money via Venmo on his phone.

There are now tons of ways to send money via your phone.  There is Apple Pay, Google Wallet, Pay Pal, you can now even send money to a friend via Facebook.

We are rapidly becoming a cashless society.  It is not stoppable.  There are lots of advantages to being able send people money via smart phone.  For one it will be much harder to get robbed especially as security improves.  It is also extremely convenient.

The downside is the tax man will be able to track everything and could put your transactions in question leaving you to explain why people are sending you money.  The government will prefer every cash transaction to be digital.  Don’t believe me? “With the passage of House Bill 195 into law, the State of Louisiana has banned the use of cash in all transactions involving second-hand goods.”

You read that right.  Cash is now illegal to use at garage sales in the state of Louisiana.   I won’t blame you if you get all revelations on me, but I’m not sure what good it will do.  In any case what the heck am I getting at here?  Oh yeah!  Here at Tao Economics we view both yin an yang.  When one side gets tilted something else seems to pop up to counter.  In the case of government tracking all your banking transactions the counter may just be bitcoin.  It is possible to track bitcoin transactions, though you can  run your blockchain through a tumbler making it very difficult to track in the sense that no law enforcement will have the time to put together the jigsaw puzzle that makes your transaction.  I don’t know if bitcoin will stand the test of time or if something else will take it’s place, but I believe digital anonymous transactions will become easier and more frequent down the road.   One last thought on bitcoin, it is much easier to move bitcoins out of the country than it is gold.   This is not a knock on gold.  Make sure you have monetary insurance in the form of precious metals if you do not, but it may just be worth having some bitcoins as well.  Heck Greece found bitcoins be to quite helpful during 30 minute wait times to access a ATM.  Or why not combine the two!  There is something new out there called bitgold. It combines bitcoin like transactions that are backed by gold.

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Cash is not dead yet and it may be vital to keep some good old cash in your home.  Multiple financial newsletters I have read recently point out problems of people trying to withdraw large amounts of cash.  Many times the bank will not have the cash they want and we are talking in the $2,000 range.  What if a crisis hits and there isn’t enough cash to go around?   There really isn’t that much actual physical currency compared to all the 1’s and 0’s floating around.

The velocity of money is dead.

The velocity of money is how fast money changes hands and it has never been so low.  The chart above shows the extreme, and when something gets extremely lopsided we will eventually see a reversion to the mean.  My prediction is that new mobile phone payment systems will increase the velocity and that inflation will eventually pick up again.  However, I do not believe the velocity will pick up right away, in fact we could see the velocity taking some time to bottom as deflation is still the bigger threat at the moment.

Bottom line, make sure you have physical gold for monetary insurance and physical cash in your home to get you buy in case of an emergency.

-Cor

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Filed Under: General Market Commentary, Personal Finance and Money Saving

How Much Do you Rely on ATM’s?

July 14, 2015 by Cor Bader

Greek pensioners attempt to withdraw their money from one of the country’s national banks Louisa Gouliamaki / AFP – Getty Images

“How much do you rely on ATM’s?” that was the question I was asked last week by a work colleague during the Greek crisis.  The answer?  Not at all!  It was a strange to realize how little I rely on getting cash out of the ATM machine.  I use cards for most purchases as it is easier to track my spending.  I do like having a little cash on hand though just in case.   What if credit was suddenly cut off and limits were imposed on how much cash you could access from the ATM?  That is what happened in Greece last week and their future is still uncertain.  My brother-in-law was in Greece over the last couple of weeks.  Citizens were only allowed to withdraw $60 Euro’s a day, that is if you were willing to wait in line.  He told me that the wait time to access an ATM machine was 30 minutes.  He went on to say, “It is strange. Some people act as if nothing is wrong, while at the same time everyone is trying to get their money out of the banks”.  It is foolish to think that something similar could never happen where you live.

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I do not say such a thing to scare anyone, but to inform so that one can prepare just like you would prepare for a hurricane or an earthquake.

According the Federal Reserve there is about $1.3 trillion of U.S. currency in circulation. It sounds like a lot, but remember other countries like Ecuador use U.S currency as well. Total outstanding consumer credit is $3.4 trillion. Credit out numbers cash 3 to 1 and if you start to add State and Federal debt it gets much worse. My head would spin if I added the government’s future liabilities on top of that.

Just look at the current and projected debt to GDP ratio by the non-partisan Congressional Budget Office:

The U.S. will certainly hit another crisis over the next 10 to 20 years barring some major unforeseen positive disruptions. So what to do? Have some physical cash as part of a “Just in case scenario”. The cash should be able to cover food and gas for at least a month. This cash should be in addition to your any precious metals you should have.

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Filed Under: Personal Finance and Money Saving, Precious Metals & Alternative Currencies

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