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The Solution to Sovereign Insolvency, Part I: Taxation History

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An imbalance between rich and poor is the oldest and most fatal ailment of all Republics.”

- Greek philosopher, Plutarch (1st century AD)

 

Regular readers will be very familiar with this quotation, as I have cited it on numerous occasions. It is my instant rebuttal to right-wing knuckle-draggers, who automatically label any and all efforts at equalizing wealth amongst individuals as “socialism”.

Obviously, a doctrine which was considered “old news” 1,500 years before the birth of socialism cannot be “socialism”. In fact, as I have pointed out previously, Plutarch’s message is one part economics, and one part common sense.

Compare these two scenarios. One society has a small number of very wealthy individuals, with massive hoards of wealth hidden away in vaults, while the vast majority have barely enough wealth to survive.

A second society has the same number of wealthy individuals, but the hoards of wealth are much, much smaller. Instead, that “excess wealth” has been spread amongst all the individuals of society – giving the average individual much more spending power (and savings).

Is there any doubt which of these two societies would have the much healthier and more prosperous economy?

Few ancient cultures were advanced enough to have “philosophers”. With no educational systems, either, this left a huge information/education void in the lives of our ancient ancestors. To a large extent, religion attempted to fill this vacuum.

I won’t go into all the flawed examples of religious indoctrination, as they are too numerous to mention – in any/every religion. Instead, I will take a brief look at some of the more benign efforts of religions to provide societal guidance.

For those with ties to the Christian faith, the “Ten Commandments” is an example of early efforts to instill a (proper) code of behavior among the citizenry. A later example of such guidance are “The Seven Deadly Sins.” However, Christianity is almost completely barren when it comes to economic guidance, save for the warning in “John 2” (of the New Testament):

In the temple he [Jesus] found those who were selling oxen and sheep and pigeons,

and the money-changers [bankers] sitting there. And making a whip of cords, he drove them all out of the temple with the sheep and oxen. And he poured out the coins of the money-changers, and over-turned their tables. And he told those who sold the pigeons, “Take these things away; do not make my Father’s house a house of trade…

Rather than seeking to provide economic guidance to its followers, Christianity essentially abdicated all oversight with respect to commerce – as being some sort of corrupting influence. While there is certainly validity to that notion, in practical terms, Western societies engaged in commerce, and economy-building without any entrenched (religious) principles to guide them.

The Renaissance brought with it a plethora of philosophers and scholars, who produced vast amounts of literature. However, unlike religious doctrine which (for all of its flaws) penetrates awareness at all levels of society, the doctrines espoused by Renaissance philosophers and academics tended to only be accessible to the economic “elites” – with little awareness of these ideas and ideals amongst the peasant-populations of these societies.

Worse still, even with the work of these later academics, Western philosophy is almost entirely devoid of any analysis of one of the most important facets of modern economics: taxation. To obtain some historical insight into this important subject, we have to turn to the Islamic faith.

Unlike Christianity, the Muslim religion offers explicit guidance on economic matters. More importantly (for my own analysis), it offers the most notable effort among our ancient cultures to address the issue of “taxation”, and to offer guidance on how taxation should be (morally) instituted in Islamic societies.

Zakat” is one of “The Five Pillars of Islam”. It stipulates that the wealthiest individuals in any Islamic society have a religious duty to pay-out excess wealth – with the implicit premise that such contributions would be used to help the less-fortunate. It is important to note that this is not “religious charity”, but rather a mandatory duty for all Muslims – as such contributions are the only means by which affluent Muslims can “purify their wealth”.

Stripping-away the moral implications, what we have here is a doctrine of economics, which depicts several important principles. First of all, it establishes the only rational basis upon which to assess taxes: wealth. More specifically, it indicates what the “base” (and basis) of such taxation should be: “excess wealth”.

In the case of “Zakat”, excess wealth was defined as any wealth-surplus which had simply been sitting around for more than one year. While such a definition is both simplistic and arbitrary, the principle is based upon several, unequivocal economic truths.

Regarding the first principle, there has never been any academic/theoretical justification offered for income taxation. This huge, horrid, ridiculously complicated system of taxation is literally nothing more than an “accident of history”.

The Kings and Queens of the Middle Ages would have loved to tax wealth when they assessed their “levies” on the peasant population (in order to finance their wars).  It would have increased the amount they squeezed-out of their subjects. The problem was that these peasants simply hid their wealth. With no means of ascertaining the wealth of individuals, these oppressors were forced to assess their levies against the crops (or “income”) of the peasants – rather than their total wealth.

It is ironic that income taxation was initially dreamed-up by oppressive despots purely because of its simplicity – given that modern income taxation is the most-convoluted, most-inefficient function performed by government. In short, a system of taxation whose only “virtue” was simplicity now epitomizes complexity. I will return to this concept in a later installment – to explain in detail why this system of taxation is ridiculously unfair, in addition to being grossly inefficient, and insanely complicated.

In contrast, the Muslim principle of taxing excess wealth is obviously fair, very efficient, and refreshingly simple. Indeed, we almost certainly would have adopted this fair-and-efficient means of taxation if not for the “Big Lie” which has been spread among Western cultures by the ultra-wealthy – especially in the last century: “trickle-down economics”.

This economic heresy suggests that the best way to produce a “healthy economy” is to funnel as much money as possible into the hands of the wealthy – so that a few pennies “trickle down” (i.e. slip from the greedy-grasp of the wealthy) into the hands of the masses. In short, despite the fact that it has been self-evident for 2,000 years that wealth-equity is the means to maximize overall prosperity, our societies have been polluted by an economic myth (which is the “heart” of all right-wing pseudo-economics) that creating the most wealth-inequality possible is what maximizes prosperity.

If such nonsense were actually true, then “income taxation” would also be the “ideal” economic policy for our societies – as it is a system which (as a matter of simple arithmetic) must lead to the greatest level of wealth-inequality. In Part II I will explain why this is so.

 

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Jeff Nielson
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written by Jeff Nielson, September 08, 2010
Yes, Paxjds, the average citizen is CONTINUALLY being squeezed in two directions. Banker-debasement of our money-supply causes their REAL incomes to fall every year, while a morally and intellectually bankrupt system of taxation squeezes THEM even more (while giving the Fat Cats a "free ride").

I will disagree on ONE point. There IS enough taxable assets (and thus tax revenues) sufficient to restore solvency. It's just that 90% of those taxable assets are held by little more than 1% of the population.

Strip the ultra-wealthy of their ill-gotten gains, and there is MORE than enough wealth to restore sovereign solvency AND restore the standards of living of the average Western citizen.
Jeff Nielson
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written by Jeff Nielson, September 08, 2010
Harold, I think you missed my point.

In forming the basic principles of Christianity, UNLIKE Islam, commerce and taxation were not high priorities of religious teaching. Unless you can "trump" the quotation I used, the words of Jesus seemed quite clear on that subject.

Of course EVERY religion offers "advice" on any and every subject - as (by definition) religions attempt to guide/control all of our actions. My assertion is that the fact that Christianity did NOT make this subject matter a similar priority to what it is in Islam is very possibly an explanation of how we ended up with the worst possible form of taxation in Western cultures.
paxjds
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written by paxjds, September 07, 2010
Great comment by all to a great article. Power corrupts absolutely. Edmund Burke said something like "All that is necessary for the triump of evil is for good men to do nothing". All the worlds living religions have much truth and common good in them, and much can be accomplished when we the people of the world concentrate and inculcate all in our common goodness and not the sin or evil that dwells amonst us.
Taxation was a problem in the epic Tales of Robin Hood against the nasty and over taxing Sheriff of Nothingham. Overtaxation was a problem with King George and His American colonist in the 18th Century. Taxation is a problem today in this country as the politicians have promised way more than they can possible tax. I am sure the readers aroung the globe of different nationalities and religions have similar stories of excessive taxation by their politicians.
Bullion Bulls have themselves in past articles demonstrated the history of currencey debasement from the Romans to the Canadians to the USA. It is the oldest form of governance thievery that In am aware of. Now we live in a new era where the taxman and his fellow government employees make far more in wages and benifits than the serfs that still have jobs in America, much less the unemployed. As Central Bankers and the BIS form a new 'Unholy Trinity' with the Politicians of the world, things are not getting better, nor will they as long as this unholy alliance exists.
hwaldock
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written by hwaldock, September 07, 2010
Thanks to Jeff Nielson for a quick reply.

You continue to claim, despite evidence presented to the contrary, that there is no Christian law or teaching or rules on economic or tax matters.

Christian teaching on usury for instance, the lending of money at interest for necessities of survival or as an unjust method of stealing another's property has been very specific rule, with constant development through out the centuries. In the last century, the Western intellectuals and most governments have abandoned this and have created new methods of that old evil trick such as profiting from deflation and inflation through legal tender laws and the control of the "money" supply.

Your claim that we have the worst taxation system because of the weakness of Christian Teachings is goes against the history of the huge success of the Christian nations and ignores the historical reality that much of Western government in the last few decades is becoming intellectually non Christian. The Western world has a huge inheritance of Christian teaching that is being ignored, that had been embedded in the law, governance and philosophy and now the inheritance is being wasted with bad results as you can see and feel. But to blame it on Christian teaching is not to know history, the world as it is or Christian teaching. By the way, income tax is unconstitutional in the US, once a fine example of a christian state.

In prudential matters of the state, such as taxation, Christian teaching proposes no one form but principles that guide. Each society and culture in each time have different situations and those result in the application of the same principles in different ways. It allows for contingencies.

There is a trap I want to warn from falling in to, during these post modernist times, which is the last acceptable bigotry, that is to criticize all things christian and to blame christians and their teaching for all things wrong in the world. Reading history is a good antidote.

Please don't stop writing on economics but do study history.

Harold Waldock









Jeff Nielson
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written by Jeff Nielson, September 07, 2010
Hi Harold. Thanks for contributing that material. To clarify my point a little better, I wasn't trying to suggest that throughout the 2,000+ years of Christianity that no "Christian leaders" had addressed economic issues such as taxation.

Rather, my point was that unlike the Islamic example where "Zakat" was literally one of the "Five Pillars" of that religion, that Christianity had taken a somewhat opposite approach (at the level of Scriptures): to SEPARATE Church and commerce, rather than to construct a religious model which explicitly incorporated guidance on these matters.

Indeed, from the citations you have listed, these issues of money/taxation seem to take the form of "moral guidance" rather than specific rules.

Obviously, there is no attempt here (on the basis of this superficial analysis) to say any one religion is better than any other (personally, I tend to lean more toward Buddhist teachings). All that I wanted to illustrate was that the lack of CONCRETE principles in this area (with Christianity)COULD be a partial explanation for Western nations ending up with the worst form of taxation imaginable.
hwaldock
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written by hwaldock, September 07, 2010
Your article is interesting but it could be improved with some more accurate research on some of your claims about Christianity and Economics.

The claim that "Christianity is almost completely barren when it comes to economic guidance," and the claim "Rather than seeking to provide economic guidance to its followers, Christianity essentially abdicated all oversight with respect to commerce – as being some sort of corrupting influence. While there is certainly validity to that notion, in practical terms, Western societies engaged in commerce, and economy-building without any entrenched (religious) principles to guide them." are with out, foundation in truth, connection to traditional christian teaching, history or any reasonable basis. On the contrary, Western societies especially their intellectuals, have abandoned Christian teaching in economic, social and political matters.

In today's economic order, the economic and political leaders in the west have proclaimed that "God is dead" and ignored christian teaching, saying christian propositions are "teleological" or without scientific basis or as economics is "a science" it has no need of moral or religious principles.

* Christian teaching on economic matters is continuous, extensive but not well known: Among others St. Isadore of Seville (6th Cent), St. Antonius of Florence (14th Cent), St. Thomas Aquinas, (13th Cent) St. Antonio Rosmini-Serbati (19th Cent.) Catholic Social Teaching since 1891. Pope Benedict's last encyclical, Caritas in Veritate (Charity in Truth) covers topics in economics even making reference to the 2008 financial disaster.
* It is not much advertised these days that In the last century many economic reforms used christian teaching, especially Catholic Social Teaching such as: Some of the "New Deal" reforms of 1930's in the US, German 'social market economy' constructed under Konrad Adenauer, Mondragon Cooperative in Basque Spain, and others.
* When Jesus Christ said "Give to Ceasar's what is Ceasar's but give to God what is God's" he said economic practice is a prudential decision, of an intimately human judgement and that economic affairs was to be administered by those who govern, i.e. the political order, but not to be administered by those who lead the church. Here is true separation of church and state that does not occur in other religions. But it does not mean anything goes in economic affairs, or that morals, law and Christian teaching can be ignored there.
* The Christian teaching is often presented in the negative so that in all other things there is liberty in order that charity and what is good not be unreasonably constrained.
* Since human societies are varied no one formula about tax is given but there is guidance from the Jewish Bible - The Septuagint ie Old Testament, New Testament, writings of the 12 Church Fathers and notably the scholars of the School of Salamanca in 16th Cent. But there is much more recent work done too.
* The scripture especially the Psalms mention the injustice of the rich and powerful against the poor, ignoring God's word. Also the Psalms mention how the rich make law to benefit themselves, burdening and unfairly taking from the poor and the weak, just as you so skillfully explain in your interesting article.

You can find more information at
www.acton.org
www.vatican.va
http://distributistreview.com/mag

Thanks for your attention,

Harold Waldock





Jeff Nielson
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written by Jeff Nielson, September 07, 2010
Udayakumar, thanks for the comment.

There are some great quotes in there, so I'll try to file-away a few of them - it would make a nice change from simply quoting Plutarch again and again!
udaydeva000
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written by udaydeva000, September 07, 2010
Hi Jeff,

This is Udayakumar from india, I have been reading your articles and comments for quite sometime, it is really very nice and make lot of sense and worthy of knowledge.

Would like to add something to this article,

Pls find the few Quotes of Chanakya Pandit aka Kautilya (350 BC-275 BC,Indian kingdom),he had written a profound book on Wealth creation/protection/utilization through righteous way called 'Artha sastra'.He also written political Ethics 'Nithi sastra', He has been widely acknowledge by most scholar of his time and latter by many of different kingdoms of different parts of world as very learned and Wise man of that time.I would request if you can find his book pls do read it.

"Charity puts an end to poverty; righteous conduct to misery; discretion to ignorance; and scrutiny to fear.

"* A wise king can make even the poor and miserable elements of his sovereignty happy and prosperous; but a wicked king will surely destroy the most prosperous and loyal elements of his kingdom." ---- Chanakya pandit quotes

"Even from poison extract nectar, wash and take back gold if it has fallen in filth, receive the highest knowledge (Krishna consciousness) from a low born person; so also a girl possessing virtuous qualities (stri-ratna) even if she be born in a disreputable family."

"He who is not shy in the acquisition of wealth, grain and knowledge, and in taking his meals, will be happy."

"We should not feel pride in our charity, austerity, valour, scriptural knowledge, modesty and morality for the world is full of the rarest gems."

(Indian politician, strategist and writer, 350 BC-275 BC)

Thanks and Regards
Udayakumar D
Jeff Nielson
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written by Jeff Nielson, September 06, 2010
Null, no worries about anything being "off-topic" - that way I don't have to worry about the relevance of anything I post either!

Seriously though, I hope we can "build some bridges" here in spreading understanding about other cultures - that's one reason we've worked at building an "international audience", in addition to our natural base in North America.

In that vein, thanks for adding that additional info Hockmir - although I was actually hoping I hadn't left out anything of relevance from Judaism (since I hadn't done any research there - lol).

I noted one quote from the link you provided:

"...only wealth that yielded income could be taxed."

We see basically the same principles which Samix brought-up about Islamic law: first that "wealth" not income was the basis for taxation - and second that not ALL wealth could be taxed.

In the case of Muslims it is "excess wealth" which is to be taxed, while in the case of Jews it is "only wealth that produces income" (or excess) which can be taxed.

If there are any Christians here who can dredge-up some parts of the Bible talking about wealth-taxation, then help me out...
hockmir
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written by hockmir, September 06, 2010
Jeff - I agree in general with your premise stated in this piece, but, I fear you have been a bit lax in the research getting you to your conclusion. I offer the following link for you to follow to a description on the Jewish approach to taxation in the Halakhic legal system.

http://www.torah.org/learning/business-ethics/shemos.html

As we approach the Jewish High Holyday season, it is also important to realize that the Jewish people are commanded to give Tzedakah (Charity) in support of the needy, and, most modern Congregations hold drives to make provision for the poor and hungry in their communities.

Thank you for your efforts to provide us with an alternative view to the greed driven blather now being circulated by the captured media.
Null
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written by Null, September 06, 2010
Yes, it is interesting how some of the most unfair and ruthless ultra right wing policies have been justified using the logic that without such social inequality there would be no incentive for people to work and be productive in order to become wealthy, and that everyone would otherwise just become addicted to the dole and do nothing all day. While of course there is merit to this argument to some degree, it is just being used as an excuse to steal from the poor and middle class and give to the rich, and avoid having to address the fundamental problems with our economies.

At the risk of getting off topic again and since we are discussing Islamic societies a bit, I thought I'd share a link to a blog of an Irish guy about his recent bicycle trip around the world. His two favorite countries were Iran and Pakistan. It clearly dispels the myth perpetrated by our governments that the Muslims over there all want to kill us. I hope it's OK to post the link here.

http://www.crazyguyonabike.com/doc/page/?o=RrzKj&page_id=101583&v=Eu
Jeff Nielson
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written by Jeff Nielson, September 06, 2010
Thanks for those additional details, Samix.

I hope people will note here that what is MORAL (i.e. the wealthy giving to the poor) ALSO makes the overall economy HEALTHIER - through helping to balance savings/consumption.

What (supposedly) elevates us above the animals is the ability to reason. What is tragic is how GREED "short-circuits" our powers of reasoning (again and again and again). We allow "law of the jungle", me-first policies to take hold in our societies, and over the long-term, almost EVERYONE loses...
samix
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written by samix, September 06, 2010
In addition to the Zakat that is paid at the end of a year on the excess wealth, there is another compulsory charity that should be payed at the end of the Month of Ramdan(the month of fasting)to the poor and the needy.

This is because after 30 days of fasting we have Eid(the Muslim day of celebration), On this day the Muslims wear new clothes, dress up their children, meet with their relatives and friends after the prayers and exchange gifts.

So that no Muslim is deprived of this occasion, and does not feel left out, every Muslim who has excess wealth is supposed to seek out such a person or family and pay them Zakat-ul-fitr(a very small amount), if they do not do so then their fasts during the month of Ramdan are in jeopardy.

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