July 4, 2006

by John Koraska

 

For Social Security updates please visit my new website US Public Policy and our new blog!

 

 

The legal principle of Equal Justice Under Law, engraved over the Supreme Court has become a uniquely American oxymoron. Violation of this principle has evolved into Injustice Under Law.

 

 

Freedom without justice is as elusive
as justice without truth. John Koraska

 

As a practical matter, getting ready for hard times requires changing the course of tax and welfare policies that are driving the country deeper into unsustainable, perpetual debt. That means education of voters and election of new faces with new ideas. From a personal perspective survival requires an examination by each household to determine the extent of their financial dependency on government promises of entitlements. To the degree possible, individuals must become personally responsible for funding their anticipated future requirements without relying on government assistance. Government generosity should be viewed as a bonus beyond those assets held under personal control that may satisfy projected needs.

 

A primary focus of this article is to provide proof that tax and welfare laws erected on a depreciating currency is equivalent to legalized fraud. The US tax code and welfare laws that have evolved over the past century are corruptive and contrary to constitutional intent and restraint. The system is morally repugnant, unjust and unjustifiable. Under this system citizens are often required to pay taxes on nominal fake gains denominated in fiat dollars that decrease in value instead of a tax deduction against real losses measured against changes in inflation-adjusted assets.

 

INJUSTICE CREATED BY A TAX SYSTEM

BUILT ON FIAT CURRENCY

Throughout history, governments have regularly relied on trickery and legal obfuscation to cover up their real objectives from a suspicious public.

 

Contradictions between law and justice may be explained by comparing real money (representing intrinsic value or paper currency backed by a physical store of value) to fiat currency backed ONLY by faith and credit of the issuing government, their elected politicians and/or a fractional reserve banking apparatus created by politicians and delegated to private bankers.

 

The unsustainable debt induced by fiat money orchestrated by the Federal Reserve Banks fractional reserve banking system and the insatiable appetites of politicians to spend now and borrow from the future is leading this country into a social and economic nightmare that will make the last depression look like a stroll in the park.

 

Interest at an assumed 5% rate on the inestimable tens of trillions of statutory federal debt combined with shortfalls of un-funded entitlement debt is more than double the US governments 2006 2.6 Trillion-Dollar budget. If the government cannot pay its bills in the 5th year of an economic recovery with employment levels at all time highs, how can the government IOUs be redeemed in the future under less favorable conditions?

 

Tax and welfare laws (legalized theft) denominated in a depreciating currency disrupt and corrupt the natural forces of supply and demand. Direct government intervention into the financial affairs of its citizens has created injustice by penalizing labor and thrift while rewarding redundant labor and debt. Resources are misallocated and parasites are produced off the backs of cheap menial labor. Erected on the quicksand of a depreciating currency, these wealth redistribution schemes have resulted in more, not less reliance on government assistance. Hard (sweat) labor is demeaned by jobs that pay less than living wages and the middle class is being taxed into government dependency. .

 

 

Any tax and welfare system

Erected on a depreciating currency is corruptive!

 

Note: A depreciating currency is one that loses purchasing power over time.

 

While the Constitutionality of the fiat $100 bill is questionable, the fact that gold is a store of value and the fiat currency loses value is not questionable.

 

The average monthly price of one ounce of gold in 1970 was $35.94. A single $100 bill could have purchased 2.78 ounces of gold. Today, July 24, 2006, the spot price of 1 ounce of gold is $612.50. 2.78 ounces of gold will buy over 17 $100 bills, and change. Today, adjusted for inflation it requires $521.91 to purchase the same goods and services that could have been purchased in 1970 for $100.00. An ounce of gold today has the exact same physical qualities it had in 1970. While its market value changes drastically over time, it retains a store of value that is absent from fiat currency. While a $100 bill today will purchase less than $20 in goods and services it could have purchased in 1970, an ounce of gold has increased its purchasing power. The above coins are supported by the US Constitution.

 

What it boils down to is the government has developed a legal, but constitutionally questionable means, whereby they can pick the pockets of taxpayers without them realizing that theft has occurred. It requires tens of thousands of pages of tax and welfare laws and fiat currency to conceal the thievery.

 

Under US law a $100.00 has the same legal value of two $50 American Gold Eagles (AGE) or one hundred $1.00 American Silver Eagles (ASE) and they may be exchanged based on their respective face value. A $100.00 bill may be produced for 6 cents. As of June 15, 2006, the market value for a single $50.00 AGE is more than $600.00 and a single ASE is more than $12.00. American Eagle PROOF (Silver, Gold and Platinum) may be purchased directly from the US Mint www.usmint.com/ .

 

American Eagles are official legal tender gold coins of the United States. Their face values are largely symbolic, however since the market price of gold has historically been much higher than the face values of the coins, since their introduction in 1986. The Gold American Eagles are minted in four sizes from 1/10 of an ounce to one ounce. They are the only bullion coins whose weight, content and purity are guaranteed by the United States Government.

 

You cannot buy bullion American Gold Eagles directly from the US mint. However, they are widely available for sale at major coin and precious metals dealers, as well as some banks. They sell at gold's  prevailing market price, plus a small premium to cover coinage and distribution costs. American Eagle bullion coins are also available in silver and platinum.

 

At face value, a $100.00 bill should purchase two $50 AGE or 100 $1.00 ASE; since all are legal tender backed by the full faith and credit of the United States government. They misrepresent true value because they cannot be fairly exchanged based on their legal face value denominations.

 

The problem with these "face value" representations of legal currency is the public is lead to believe a fiat $100.00 bill (that cost only 6 cents to produce) is more valuable than silver and gold; when it is obvious, even to a politician, that the reverse is true. The fiat dollar is a depreciating asset that disguises the true value of physical assets, the nominal price of which is determined by fundamental principles of supply and demand. AGEs and ASEs represent a Store of Value that is distorted by the decreasing value of the currency in which they are denominated. The tax collector thrives on this fraudulent confusion.

 

CAPITAL GAINS TAX

 

(Precious Metals and Stones, Stamps, and Coins)

 

Gold, silver, gems, stamps, coins, etc., are capital assets except when they are held for sale by a dealer. Any gain or loss from their sale or exchange generally is a capital gain or loss. If you are a dealer, the amount received from the sale is ordinary business income.

 

The question arises that if AGE's or ASE's are subject to a capital gains tax because its market value has increased against the US Dollar, why is it the loss in purchasing power of the fiat US dollars against AGE's and ASE's not subject to a Capital Loss?

 

Besides the market price, the purchasing power of both legal currencies can be valuated against inflation as measured by the Consumer Price Index (CPI) at any fixed point in time. If a hundred dollar bill loses purchasing power, it is no less a real loss than if it was used to purchase any other asset that failed to keep up with inflation. Why is it that this loss in purchasing power not a legitimate tax deduction?

 

EXAMPLE: A $50 AGE purchased for $300. then sold 20 years later for $400 is not a real capital gain although nominal gain of $100 is subject to tax when in fact the $400 adjusted for inflation is less than the purchasing power of the $300 at the time of purchase.

Minneapolis Federal Reserve Bank Inflation Calculator

The calculator demonstrates how the same goods and services purchased with a $100.00 bill in 2006 would have cost only $19.16 in 1970 - an 80% loss in purchasing power.

 

ANOTHER EXAMPLE: Boeing Aircraft (BA) common stock sold at an average price of $18.74 in 1970. On June 22, 2006 "BA" closed at $84.06 per share. If sold at the recent price, 1000 shares would have a nominal value of $84,060.00 producing a gross profit of $65,320.00 subject to capital gains tax. Using the Inflation Calculator BA would have to sell at $97.81 per share just to maintain purchasing power against the depreciated US dollar. In inflation adjusted terms, this transaction results in a real loss of $13,750.00.

 

The above examples exposes the tax and welfare confusion or fraud created by denominating income tax liabilities in a fiat depreciating currency. Gains or losses on assets inflated by a depreciating currency should not be taxed because in terms of purchasing power wealth is diminished not increased. And if the current system is maintained, equal justice would require that losses in purchasing power of assets denominated in dollars and measured by the CPI should result in a capital loss deduction.

 

A general understanding of how these policies work and how they have developed is necessary, so an individual may create a comprehensive plan to achieve financial independence. The evolving dynamics of government and business policies and activities are often determined by concentrated power that promote complex obstacles inimical to individuals who may have strong desires to control their own financial destiny.

 

Growing public unease and uncertainty with respect to the nation's future prosperity is not rooted in the political agendas of the Senate, the House of Representatives, the Executive Branch or the Courts. President Bush's initiatives for Social Security reform in 2005 and tax and immigration reforms in 2006 have failed; NOT just because of partisan politics; but because the complexity of the issues has become so hopelessly confusing and counter-productive that political consensus has become almost impossible to achieve.

 

Baby Boomers will not enjoy the same level of retirement as their parents. Government has confiscated their SS nest egg and spent it on current retirees leaving a bag of debt for boomers to wrestle with in coming years. Besides the tax code that provides favorable treatment to equities and dividends, the equity and bond markets are inflated by a large number of IRA and 401k and mutual fund deposits that will likely decline as boomers hit retirement age and begin cashing in their chips.  Note: Should a market decline occur, retired investors will be required to pay income taxes on capital losses of assets withdrawn from their IRAs and 401ks and additional income taxes on SS benefits (above the taxable thresholds) because of the same withdrawals. It's a win-win situation for the government and a perilous predicament for investor/social security beneficiaries.

 

Monetary, tax and welfare laws, rules, and policies are examined, analyzed, coordinated and condensed in a manner so knowledge on how the system really works may be expanded without prodigious research that may be time prohibitive for the general public. Productivity gains achieved from more efficient uses of labor, capital and new technologies are eroded by increased taxes and inflation that result from the depreciated value of the currency in which they are denominated. Real prosperity, freedom of choice and financial security for the masses suffers as a consequence.

 

Aside from an expanded summary, this article also serves as a directory to complex issues, often in conflict, but not in a typical format. Links are embedded for quick references so the reader may visit a broad base of source information as particular interests may dictate, without interrupting continuity of the overall theme. Facts and supporting links:

 

1. Social Security Trust Fund functions more like a Slush Fund with little Trust and No Cash, only IOUs. See social security slush fund

 

2. Employee/employer FICA Income Tax ratio of 1/1 is false; that the real NET ratio is over 3/1 after corporate expense tax deductions. See The truth about social security

 

3. Program rewards wealthy beneficiaries (See social security freeloaders) at the expense of high-income working couples See income ceiling and low to middle income employees. See Social security welfare or fraud?

 

4. Current program is not financially viable. See The Social Security Surplus Myth - Biggest Fraud in US History! and  Social security tax reform The 2006 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, summarized status of the Trust Funds for 2005. The Trustees Summary reported: "We do not believe the currently projected long-run growth rates of Social Security or Medicare are sustainable under current financing arrangements." http://www.ssa.gov/OACT/TRSUM/trsummary.html

 

5. Cumulative FIT and FICA taxes on wage earners are punitively disproportional to taxes on investment income (i.e. capital gains, dividends, royalties, interest; etc.) See Double Taxation

 

6. Social Security Act of 1935 is fundamentally flawed; and the only way to fix it is to CHANGE THE LAW. The Social Security Act of 1935 requires all surplus contribution amounts be invested only in US government securities or Securities guaranteed by the US government. Repeal the flawed provision and replace it with: "All surplus contributions and Earned Interest may be invested ONLY in ventures external to the Federal Government". (See Social Security Slush Fund) A more legitimate remedy is to repeal the Act and Amend the U.S. Constitution to remove most of the charity and welfare provisions and restore equity into the system that existed when the system was created. "Means Tested" welfare law, (i.e. Medicaid, Earned Income Tax Credit, Supplementary Security Income, etc.) are already in place to provide assistance to the truly needy. Provisions in an Amendment could also address these "welfare" issues while creating enforceable legal claims of equity by wage earners on future benefits (thus reducing political promises that exceed the national pocketbook).

 

7. The Uncle Sam Scam website identifies a number of government policies that have produced results other than those intended.

 

8. The Grandfather Economic Report website is a valuable resource of information critical of US debt and the increasing size of government.

 

Explaining how and why the richest nation in history became earth's greatest debtor is another objective of this article. The "American Dream" is rapidly evolving into an "American Nightmare". The lack of responsible efforts by government, business, banking and think tanks to take curative actions to avoid the approaching economic disaster and social disorder is distressing and depressing.

 

9. US Government debt to the Penny at US Treasury website

 

10. US Population Calculator at the United Nations Population Division

 

Forward to Part 2>>>

 

Getting Ready for Hard Times