Taxes, Freedom and
the Constitution
Fundamental change is required to save this nation from becoming a totalitarian state.
Decay is evident in every facet of our society, but few understand the cause. The Rightists simply blame it all on “communism,” which is an effect rather than the cause. The Liberals frantically search their first aid kits for palliatives to treat the most painful effects of the underlying cause. This essay tells why “the rich get richer and the poor get poorer.” It tells why centralization of wealth occurs, and it prescribes the only solution possible within the framework of a representative democracy.
In the rush toward industrialization, it became expedient for people to turn toward specialization. They forgot that this is an orderly universe and an orderly world which works according to scientific, i.e., natural laws which are inviolable. Now the extent of environmental destruction has forced us to recognize that everything in the environment has an effect on everything else. With that recognition, the first feeble efforts at a multidisciplinary approach to problems has begun We have yet to recognize that the design of a viable social order can not be accomplished by sociologists who know nothing of economics, economists who know nothing of sociology, and lawyers who know only their allegiance to the laws of the status quo. Few of them recognize that the social order and the environment are completely dependent on each other.
There is a relationship between mathematics, overpopulation, and poverty which is simple enough and startling enough to draw the attention from the trees long enough to see the forest. The population problem has forced us to recognize that numbers which increase according to an exponential equation become totally incompatible with the finite limits of the world. We must, therefore, change our breeding habits to stop the increase and, preferably, decrease our numbers. It is not optional. It is mandatory. Those nations which fail to comply are doomed to poverty, pollution, starvation, and death. This fact will dominate both domestic and foreign policy in the years ahead.
P . 1 8 0
T H E S U R V I V A L O F C I V I L I Z A T I O N
In the matter of economics, a similar exponential equation is destroying our economy and our democracy. It is the rot that runs through the forest. Benjamin Franklin willed $100 to the city of Philadelphia. It was to be kept at compound interest until it reached $1,000,000. The inheritance paid off in a little less than 200 years. If the million were kept at 6 percent compounded annually for 20 years, it would reach 3.2 million; in 40 years, 10.3 million; and in 60 years it would reach 33 million. At 3 percent it would be only 5.9 million in 60 years; but at 7 percent it would be 57.9 million. Long before Franklin’s time many people made business investments of much more than $100 and realized more than 6 percent. Those investments which were invested in the steady moneymaking businesses, and passed on through inheritance, now are valued in the hundreds of millions. Today these fortunes control capital now measured in hundreds of billions. Applying the 20-, 40-, or 60-year factors shows by inspection that the rate of increase of such vast sums has far exceeded the potential rate of growth of the economy. The growth rate of the centralized pools of wealth has exceeded the finite limits of the capacity of the economy to support it. This is particularly so now, because the growth of population is the primary basis for the growth of the economy. The population growth must be stopped.
One dollar can be plotted as a series of curves (Fig. 7.1) using a different rate of interest compounded annually for each curve and plotting time on the abscissa against fund increase on the ordinate. The result is the accumulation of a single dollar—the factor to be multiplied by the amount of the initial fund to find its present value. It will be noted that the curves bend gently upward until half to one million dollars is reached. Then in a 50 - to 100-year period, the curve breaks upward toward infinitely large numbers. The number of years it takes to reach the break point depends on the rate of interest (or profit). At 3 percent it takes about 450 years, at 6 percent about 220 years, and at 10 percent about 125 years to reach the break point. After that point is reached, the rate of increase in funds reaches absurdly large rates of increase which have no relation to the rate of increase of real values in the economy.
Therefore, the only way such fortunes can continue to increase is to expand ownership over everything in the economy which makes money. Because of the power of large fortunes to buy out or freeze out competition, they take control of the most stable and lucrative businesses. The theoretical end result is one fortune in possession of everything in the country. In practice, when a majority of people have been impoverished, there is a revolt and a wiping out of all debts. Historically, this has occurred every few hundred years, i.e., when the large fortunes in a country have reached the break point in the curve and have transferred much of the ownership from the people to the pools of wealth. They then have the power to reach out for every real value in the economy. The more they take, the faster the process works until they have it all.
One does not argue with the laws of nature. One either conforms or pays the penalty. The mathematics of compound interest is natural law. We are in the self-destruct stage. Our economy is at the break-point in the curve. If we continue to permit funds to accumulate, we are certain to have our economy destroyed and our people in revolt. Money, like everything else in the environment, must be recycled to prevent destructive pollution of the economic environment.
P .. 1 8 1
T A X E S , F R E E D O M A N D T H E C O N S T I T U T I O N
n )
$40,000,000
0
1 0
A = money placed at
compound interest
P = A x X = principle at N
1 + INTEREST
(
years
$30,000,000
n years = X =
$20,000,000
$10,000,000
10%
6%
3 %
(breaks at
450)
$1
Money “earned” by $1 at compound interest for
Fig. 7.1 The Irrational Behavior of Funds at Compound Interest Specifically, there is now about one and one-half trillion dollars in public and private debts.
Most of these debts are owed to pools of money which annually grow by the amount of the interest (or profit) added to them. In 60 years, at an average of 7 percent interest, the value of the funds would be 58 times their present value. The total growth rate has far exceeded the real growth rate of the economy. The best-protected funds have passed the break-point. They are well on the way to owning the entire country.
Senator Phillip Hart has said, “200 decision makers control two-thirds of all production.”
Senator Fred Harris has said that centralization of wealth and the question of how to re-distribute it will be the major issue of this decade. It had better be, because the claims to ownership by those funds are going to try to double in ten years time. An awful lot of people and small businesses are going bankrupt. Inflation and government and personal debt will continue at high rates of increase. Super-wealth has a counterfeiting machine and a government to legalize its product. It can buy us all.
P . 1 8 3
T A X E S , F R E E D O M A N D T H E C O N S T I T U T I O N
The excessive rate of growth of large sums of money according to an exponential equation is responsible for virtually all the deficiencies of the present capitalistic system as follows:
1. The constant growth of large pools of money in excess of real growth in the economy is highly inflationary. The avidity with which the holders of great wealth seek to multiply it leads to over-expansion of industrial capacity, over-extension of credit to consumers, and vicious competition for ownership of all income-producing values.
2. The inflationary “boom” is turned into a “bust” when a significant number of people have used up their credit, and when competition caused by over-production has closed out the least competitive companies, further depleting the consumer demand. Small savings are robbed by inflation. So great is the ever-ready inflationary capacity of large pools of wealth, that the cycle of boom and bust has occurred roughly every ten years since 1840. In each one there is a transfer of ownership from those who fail to those who have larger funds subsidizing them at the exponential rate. Example: In 1935 there were 750 breweries. In 1970
only 140. The rate of bankruptcy and conglomeration insure that there will be a lot fewer breweries after this “bust” period. The power of the major funds now dominates the economy. Production has become centralized, leaving behind centers of poverty.
3. Charity and the government pick up the bill to feed the people left destitute. If all present government and private debts were collected from the people tomorrow, most of us would be penniless or in debt. Almost everything in the country would be owned by about one-half of one percent of the people or the businesses in which they hold a controlling interest. Most of the people are broke. The wealth has become highly centralized. Inflation eats up the savings of older people, and they are forced on welfare or social security. They have relied on fund growth for security. Insurance and private pension funds pay off about 40
percent and 10 percent respectively, and they pay off in inflated dollars. Social security is not an insurance fund. It is a tax on present producers to feed older, less productive workers forced off the job by the fixed wage, fixed 8-hour day, maximum profits concept. If social security tax payments had been funded at compound interest, inflation of the dollar would be far worse than it is, and the government would be well on the way toward ownership of the entire country. The 153 billion dollars in private pension plans doesn’t help the 90 percent of contributors who get nothing back, but it sure helps the big corporations with their conglomeration plans.
P . 1 8 4
T H E S U R V I V A L O F C I V I L I Z A T I O N
4. Because the people of this country have been largely separated from ownership of the real wealth, the pressure of the rapidly multiplying huge pools of wealth has moved toward exploitation of the people and their resources in less developed countries. To insure those investments, large sums have been spent since WW II to insure “friendly” national legislators and administrators. The result has been the absurdly hopeless policy of “Containment of Communism.” Meanwhile, revolt grows within our nation.
5 . The forced flow of wealth from the people to the funds (directly and indirectly through taxation) reduces large numbers of people to poverty and the majority of the working force to the insecurity of having only the job between themselves and poverty. These demoralizing stresses induce crime, alcoholism, dope addiction, prostitution — all escape mechanisms to alleviate the pains, needs, and wants that attend poverty.
Poverty provides little market demand. The total national product must therefore shrink relative to actual need. This contraction means that more people enter the ranks of poverty.
As the funds increase, poverty increases—“the rich get richer and the poor get poorer.” Those who still work are heavily taxed to sustain the poor. Ultimately it is the taxpayers who revolt.
Presently this “Silent American” has refused to raise property taxes and he has heard and approved of what George Wallace has been saying. The sleeping giant has awakened. The establishment has kept him ignorant of the cause of his dilemma. If he runs true to form, he will wind up with a dictatorship on his back.
We are ruled by an exponential equation. Either we control it or we will join the two-thirds of the world’s population which have yielded to dictatorship for survival. Sooner or later, those who fail to control their breeding will have to be restrained by legal means in order that the nation can survive as a human society. Right now is the time to protect ourselves from the rule of centralized pools of wealth if we are to save our political freedom.
P . 1 8 5
T A X E S , F R E E D O M A N D T H E C O N S T I T U T I O N
This brief, broad view of the economic (and resultant social) problems has served to show that the rich get richer and the poor get poorer because of the fact that money “earns”
money at an exponential rate, whereas the economy expands directly with population and the technical ingenuity of the people. The difference between the two rates is the margin of power by which the owners of wealth impose poverty on everyone else.
In a barter economy, the rate of increase of the economy is directly related to the needs of the people. The amount of labor and skill in a bartered item is known to all, and the exchange proceeds on an equal basis so that the balance of the economy is never upset. The invention of money obscured the equality of labor exchange. Starting with the concept that an economy is simply a system for exchanging equal units of labor value, we can discover why the imbalance in our economy occurs. By considering taxes in the general sense of any burden placed on producers, the elements of unequal exchange can be isolated. What are the burdens placed on workers? Do they receive equal labor value in return?
Taxes, in the broad sense, are government-enforced demands for a share of the consumer goods. Nothing has monetary value until human labor is applied to it. Thus a tax is forced human labor. Whether or not equal goods and services are given in exchange for the tax determines whether it is a service institution or a means of enslaving the people.
We can further simplify taxes if we note that all taxes collected ahead of the consumer goods sales tax are added to the cost of goods sold and are therefore sales taxes, i.e., claims for a share of consumer goods. The burden of taxation cannot be shifted from consumer goods. The graduated income tax passed in 1913 to effect a more equitable distribution of income has failed to do so primarily because it can be shifted to the cost of consumer goods.
Recognition of this fact by outlawing all taxes ahead of the sales tax will return to all the people very important increments of freedom.
Deferment of taxation to the point of consumption of goods makes it much more feasible for a frugal person to accumulate funds to start a business. Only when this freedom to use our national fund of ingenuity and initiative is established can we expect to eliminate the welfare rolls and withdraw workers from government into the productive economy. Then our tax burden will be lowered accordingly and this, too, is an increment of freedom.
A further increment of freedom to be gained by elimination of taxes at the production level is that politicians could no longer sell loopholes in exchange for campaign support. This practice has resulted in establishing economic advantages for the highest bidders with the result that farmers, for instance, can not compete with agribusiness which can lose money on farming and make it up elsewhere in the conglomerate where tax loopholes support it. Thus the big corporations would be less powerful and the government less corrupt. These are important increments of freedom for the people.
P . 1 8 6
T H E S U R V I V A L O F C I V I L I Z A T I O N
Within the broad definition of taxes, there are three taxes which are included in the cost of consumer goods which government says are lawful but which are collected by individuals.
When the inheritor of wealth goes to the market place for a yacht or a mansion, he brings no products or labor to exchange. The same thing is true of a land speculator who does nothing to increase the value of land but whom the government allows to collect the increased value. The same is true of the stockholder, who by the grace of government and a stock split, finds himself in possession of a share of several years of company surplus earned by the ingenuity and effort of a good working force. He brings to the consumer market place no value which he has earned if it is profit above the true market value (rightful interest) of his original investment. These government-sanctioned private taxes have the same effect as government taxes. They increase demand without increasing supply and therefore inflate the price. They take units of labor without giving units of labor, which is slavery.
This element of slavery is what makes possible the rapid conglomeration of companies and ultimately the centralization of the nation’s wealth. Man-hours of labor can be legally expropriated from each person’s paycheck to obtain a pool of wealth with which to buy a new plant from which to hire people from whom man-hours of labor can be expropriated to obtain a new pool of wealth, etc. When slavery is legalized, the anti-trust laws have all the effect of a peashooter against an elephant.
It is these three something-for-nothing deals which, by means of the exponential equation, generate sufficient funds to transfer all ownership from the people to the funds.
They are taxes collected directly by the property class and enforced by the government it controls. In Russia, the dictatorship serves the Communist Party which controls all the property. In this country it is the Demopublican party that serves the property class.
P . 1 8 7
T A X E S , F R E E D O M A N D T H E C O N S T I T U T I O N
Recently one other private tax system has been invented. It is the 2 percent “savings stamps” tax on consumer goods. Since private taxes have been given the cloak of legality throughout recorded history, there is little basis for objecting to one more such tax on the grounds that only government can collect taxes. To argue the point would open up the whole can of worms.
Another general class of taxation consists of taxes on savings, such as property taxes. The Demopublican property party has seen fit to levy savings taxes almost exclusively on property. The effect has been to drive the older workers with little income (they are thrown out of industry when deemed unprofitable) out of their homes. The homes then become the property of the mortgage holders. The people are trapped in apartments and in boxes called mobile homes. The property tax is an excellent device for transferring ownership from the people to the centralized pools of wealth.
Savings are stored labor. If the individual is to be able to take care of himself, he must be permitted to accumulate the results of labor and use it to support himself over unproductive periods. The government that collects property or other taxes on stored labor is patently an institution of slavery.
Another class of taxes are those used to control imports and exports. When we have obtained economic freedom, we are going to be able to work a four-hour day and have a standard of living and a quality of living which is beyond most people’s imagination. Other nations can and will obtain the same results. But it can not be done if we attempt to compete with technically advanced nations overpopulated with wage slaves. We must therefore control our foreign trade to protect our own progress. As other nations turn toward freedom, we can establish free trade with them and operate as a single economy with a common standard of living. Maybe some day it will be one world. Meanwhile, we have yet to establish one peaceful nation.
Finally, there are special-use taxes based on the principle that if government performs a service for a particular group, they should pay for it. Gasoline taxes pay for roads.
Unfortunately, the pressure group that results from the pooling of such funds has not led to intelligent environmental planning. Special use taxes are no longer practical.
One wonders why the people have tolerated these burdens for countless centuries. The answer is two-fold. Those who hold power have always been those who have access to the unearned values. They have written the laws to suit themselves. Until very recent times they have kept the people illiterate. Even to this day, all preachers and most schoolteachers fear to discuss the three something-for-nothing deals. It is only because these three causes of the centralization of wealth have brought us to the brink of crisis that the great power of wealth to perpetuate itself is slowly yielding to the force of necessity. For two-thirds of the world’s people, these ancient prerogatives of rulers have yielded to the force of bloody revolutions led by ostensibly altruistic dictatorships. Hopefully, an enlightened electorate will bring these institutions down in this country without the loss of political freedom won with so much blood through the centuries.
P . 1 8 8
T H E S U R V I V A L O F C I V I L I Z A T I O N
What should be done to return these values to those who produced them?
Inheritance and land rent value must be collected by the government. This will decrease the sales tax required.
The privately collected tax on the earnings of a working force in excess of interest is composed of increased technical efficiency, human effort, and product demand. Heretofore, this has always accrued to ownership simply because they have hire, fire, and bribe control over the management. The unions now contend for this value, while the white collar workers who had a good deal to do with the increased earnings sit on the side lines and take whatever is handed out.
Instead of the single inflationary force of profit-taking, we now also have an inflationary force from union wage demands. In monopolistic or near-monopolistic necessity industries, the reaching for profit and wages is passed on to consumers as inflated price. Of necessity, less favored industries and unorganized workers follow along behind. This built-in inflation can be slowed by recession. It might be stopped by depression. But after recovering, it would start up again. The dollar is depreciating at a chaotic rate because we no longer have any semblance of a free market product evaluation.
In order to solve this problem, we are going to have to redefine the “commodity called labor” as human beings and redefine the investor as one enjoying the privilege of investing his savings at whatever interest rate the market will currently support. We must transfer the management of each company from the ownership board of directors to the working force.
This will result in companies whose size rests solely on economic factors. No group of workers will remain in a conglomerate if it costs them money to do so. The better producers will pull out, and the massive pools of wealth that now dictate to government will be dispersed among small companies. We will have, for the first time since man left the barter economy, free market conditions. Of greatest value is the right of a working force to earn all it can earn. Under this incentive, there will soon be an abundance of goods in the market place. Since the working force will no longer be bound by the rigid (most profitable) 8-hour day, they will work when there is work to do and cut hours back when the demand declines.
Technical improvements will be used to shorten hours instead of eliminating people from the payroll. The security (now based on the total payroll) of the individual and the company will both be vastly increased. Interest rates will decline to true market values. Since supply and demand are both relatively constant factors and the rigid artificial factors will be gone from the economy, the economic cycles will cease.
P . 1 8 9
T A X E S , F R E E D O M A N D T H E C O N S T I T U T I O N
Small businesses initiated and managed by one or two persons must be permitted to operate as they have been. These are some of the creative geese who lay the golden eggs.
They probe all the diverse avenues for economic development. They develop products, services, and jobs. Of necessity, they must have full control over their initiative.
Our economic troubles are man-made. They persist to this late day in the history of civilization because greed has maintained institutions of enslavement. Even our Constitution contained a provision for the return of run-away slaves. In the intervening 200 years, human populations have covered and been compressed into the habitable lands. The means of destruction of human life have been perfected. We are at Armageddon. Either “good” will triumph over “evil” or all or most of humanity will be destroyed.
Every conceivable economic system except economic freedom has been tried without bringing internal peace to any nation, let alone between nations. It is time to test whether or not man, freed of his shackles, can find peace. In the United States, the first step toward that end is the establishment of Constitutional basis for constructing a free society.
P . 1 9 0
T H E S U R V I V A L O F C I V I L I Z A T I O N
Proposed
General Revision of the
Constitution of the United States of America
Preamble:
We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, establish and preserve the integrity of the laws of creation, provide for equality of education, establish a just distribution of earnings, eliminate the perpetual growth of accumulations of wealth, insure freedom from taxes on earnings and savings, and secure the blessings of liberty to ourselves and our posterity, do ordain, establish, and amend this Constitution for the United States of America.
Article I
Section 1
All Legislative Powers herein granted shall be vested in a Congress of the United States which shall consist of a Senate and a House of Representatives, and in a one-house Educational Congress, and a one-house Environmental Congress.
The Congress of the United States shall retain legislative power in all matters not delegated to the Environmental Congress and to the Educational Congress. In the event of conflict over legislative authority between any two of the Congresses, a nine-person board appointed by the third Congress which is not involved in the conflict shall arbitrate the matter. If no agreement is reached, the matter shall be decided by the Supreme Court.
Section 11
An Educational Congress shall be established to provide equality of educational opportunity for all and to maintain educational standards and facilities which will most enhance the quality of life for the nation’s citizens. In the performance of its purpose, it shall establish school zoning laws based solely on proximity to the school, and in all other matters every child shall be treated as such without regard to race, creed, or color.
P . 1 9 1
T A X E S , F R E E D O M A N D T H E C O N S T I T U T I O N
The Educational Congress shall be composed of one member from each state. The term of office shall be four years, with a limit of two consecutive terms.
All school funds shall be budgeted and submitted to the Congress for approval and inclusion in the national budget. No public school shall receive tax funds from any other source.
Section 12
The Environmental Congress shall be composed of one elected environmentalist from each state. The term of office shall be eight years with a limit of two consecutive terms.
It shall be the duty of the Environmental Congress to identify and to establish and maintain the integrity of the laws of creation with the object of attaining a perfect environment for human habitation. The perfection of the food supply shall be the first responsibility.
The Environmental Congress shall have the power to pass all general laws and specific regulations as it deems necessary to perform its duty. Where the interest of other units of government conflict with the environme