There are two principles of leadership. One is the method used by modern politicians in efforts to appear more “moderate.” The other hasn’t been seen since Ronald Reagan.

            One is a principle of statesmanship. One is a principle of cowardice.

            Lets begin with the one used today, I’ll let you decide which is which.

            I’ll also preface these comments with the fact that I don’t believe there is such thing as a moderate. There is not even such a thing as a moderate political position. Even if one tends to be liberal in some views and conservative in other views, that doesn’t make one moderate, as if it were some average that could be calculated. It means only that one is liberal in some things, conservative in others. If you are pro-gun control and pro-life, you aren’t a “moderate.” You are conservative on the right to life and liberal on the second amendment.

            The oft stated spectrum is said to go something like this:

                               LEFT   --------------------- CENTER   ------------------------    RIGHT 

COMMUNISM - SOCIALISM - LIBERALISM - CONSERVATIVISM - NATIONALISM - FASCISM

 

This spectrum is not correct. That is why conservatives are labeled as fascist. A twisted notion of patriotism is confused with Mussolini. I’ve even heard liberals denounce patriotism as a negative attribute. “What makes one country better than another? Everybody is equally good, they can’t help where they are born, so we shouldn’t judge.” …as if they had just stated something very profound.

Fascism is a belief that seeks to place the nation above all other sources of loyalty, and to create a mobilized national community. While those on the right tend to be patriotic, their patriotism is based on the principles America was founded on: individual liberty and freedom. The conservative right support individual rights, the patriotism is only secondary because we believe our country is the best at promoting those rights. If the nation is to be placed above all other sources of loyalty, and conservatives are just fascists, why do conservatives oppose big government?

In reality, that is a flawed understanding of what conservatism stands for. Conservative technically means that one supports the status quo, resists change. Liberals, on the other hand, tend to label themselves as progressive. But if the country is going the wrong direction, the most “progressive” changes are actually conservative held positions, or even those changes that reverse the direction of the country.

Flat tax is one example that illustrates this. We have a tax system which taxes different rates based on income. The flat tax is a radical departure from this idea, which has been in place since the passage of the sixteenth amendment in 1913. The flat tax is progressive, yet it is the conservative postion. Social security privatization is another example. The radical change is the more progressive, but position held by conservatives. That means that progressive and conservative do not mean what they are commonly understood to mean.

Conservative today means what liberal used to mean. Often you will hear Thomas Jefferson and James Madison being called liberals. Liberals say this is because they stood for progress, instead of the status quo. Liberal has the same roots as “liberty.” Today, conservatism is the political philosophy which promotes individual liberty.

So the real divide is between those who promote individual liberty on one hand, and those who think of equality as the most important objective. Equality vs. Liberty. It is the foundation of modern politics.

Moderation is often considered the gold standard. A moderate position is often hailed as “reaching across the aisle”, “bridging the gap”, and “able to compromise” and the ever popular holy adjective: "Bipartisanship." Candidates such as John McCain and Barack Obama are hailed as the best of American candidates because of their ability to compromise and bring consensus to the two parties. But is it a great and noble thing to compromise your principles?  Especially to with those who stand opposed to your principles?

To do so is to, in fact, abandon your principles. And now your own principles are in a weaker position, ready to be further denigrated.

It can be debated as to the reasons why, but this desire to be moderate has caused of shift of the “center” in recent history towards the left. I believe this is because the left has tried harder. Liberals have more sinister tricks up their sleeves, as was shown in the sixties, with mob violence and the hubris that comes through feeling morally superior. Theoretically, the desire to be moderate could shift the political “center” to the right, but historically it hasn’t happened that way.  

            Because we live in a politically diverse society, there is a natural bell curve across the political spectrum. Some really whackjob communists on the left, and some rather confused libertarians on the right. But what about the whole group of people in the middle? I remember back in the 2004 election when Kerry and Bush had a townhall debate with questions posed by self declared “undecideds.” All that means is that they haven’t made up their mind where they stand on political issues yet, likely because they don’t understand them. If people truly had principles they based their political beliefs on, they wouldn’t be swayed so easily. But as politicians try to pander to these undecideds, they abandon their principles to appear moderate (whatever that is) and throw away any chance of truly convincing some of those undecideds of the correctness of any particular position.

            Clinton was a master of this. He would lick his finger, stick it in the air, and whatever direction the wind was blowing is the direction he would go. It is all too common.  But just because a majority of people support or oppose a certain issue doesn’t make it right. 51% of people may support a particular tax, that doesn’t mean it won’t harm the economy.

            A true leader is one who points in the direction he wants to go, and then goes there. The people then choose if they want to follow by voting for that person. And it doesn’t alienate voters. Reagan was a leader like this, and he carried 49 states in 1984. (that’s known in elections as a landslide…)

            A finger in the air, or pointing forward. Which one do we vote for? Who should we be voting for?

This is a reprint of what is quite possibly the best exposition on conservative principles I've read. It is reprinted here since as president of the Church of Jesus Christ of Latter Day Saints, his words have probably only been read by Mormons... and that is a shame, as you will see below...

The Proper Role of Government
by The Honorable Ezra Taft Benson
Former Secretary of Agriculture to President Eisenhower
Published in 1968

Men in the public spotlight constantly are asked to express an opinion on a myriad of government proposals and projects. “What do you think of TVA?” “What is your opinion of Medicare?” How do you feel about Urban Renewal?” The list is endless. All too often, answers to these questions seem to be based, not upon any solid principle, but upon the popularity of the specific government program in question. Seldom are men willing to oppose a popular program if they, themselves, wish to be popular – especially if they seek public office.

GOVERNMENT SHOULD BE BASED UPON SOUND PRINCIPLES
Such an approach to vital political questions of the day can only lead to public confusion and legislative chaos. Decisions of this nature should be based upon and measured against certain basic principles regarding the proper role of government. If principles are correct, then they can be applied to any specific proposal with confidence.

“Are there not, in reality, underlying, universal principles with reference to which all issues must be resolved whether the society be simple or complex in its mechanical organization? It seems to me we could relieve ourselves of most of the bewilderment which so unsettles and distracts us by subjecting each situation to the simple test of right and wrong. Right and wrong as moral principles do not change. They are applicable and reliable determinants whether the situations with which we deal are simple or complicated. There is always a right and wrong to every question which requires our solution.” (Albert E. Bowen, Prophets, Principles and National Survival, P. 21-22)

Unlike the political opportunist, the true statesman values principle above popularity, and works to create popularity for those political principles which are wise and just.

THE CORRECT ROLE OF GOVERNMENT
I should like to outline in clear, concise, and straight-forward terms the political principles to which I subscribe. These are the guidelines which determine, now and in the future, my attitudes and actions toward all domestic proposals and projects of government. These are the principles which, in my opinion, proclaim the proper role of government in the domestic affairs of the nation.

"(I) believe that governments were instituted of God for the benefit of man; and that he holds men accountable for their acts in relation to them, both in making laws and administering them, for the good and safety of society."

"(I) believe that no government can exist in peace, except such laws are framed and held inviolate as will secure to each individual the free exercise of conscience, the right and control of property, and the protection of life…"

"(I) believe that all men are bound to sustain and uphold the respective governments in which they reside, which protected in their inherent and inalienable rights by the laws of such governments; and that sedition and rebellion are unbecoming every citizen thus protected, and should be punished accordingly; and that all governments have a right to enact such laws as in their own judgments are best calculated to secure the public interest; at the same time, however, holding sacred the freedom of conscience." (D&C 134: 1-2,5)

THE MOST IMPORTANT FUNCTION OF GOVERNMENT
It is generally agreed that the most important single function of government is to secure the rights and freedoms of individual citizens. But, what are those right? And what is their source? Until these questions are answered there is little likelihood that we can correctly determine how government can best secure them. Thomas Paine, back in the days of the American Revolution, explained that:

"Rights are not gifts from one man to another, nor from one class of men to another… It is impossible t discover any origin of rights otherwise than in the origin of man; it consequently follows that rights appertain to man in right of his existence, and must therefore be equal to every man." (P.P.N.S., p. 134)

The great Thomas Jefferson asked:

"Can the liberties of a nation be thought secure when we have removed their only firm basis, a conviction in the minds of the people that these liberties are of the gift of God? That they are not to be violated but with his wrath?" (Works 8:404; P.P.N.S., p.141)

Starting at the foundation of the pyramid, let us first consider the origin of those freedoms we have come to know are human rights. There are only two possible sources. Rights are either God-given as part of the Divine Plan, or they are granted by government as part of the political plan. Reason, necessity, tradition and religious convictions all lead me to accept the divine origin of these rights. If we accept the premise that human rights are granted by government, then we must be willing to accept the corollary that they can be denied by government. I, for one, shall never accept that premise. As the French political economist, Frederick Bastiat, phrased it so succinctly, "Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place." (The Law, p.6)

THE REAL MEANING OF THE SEPARATION OF CHURCH AND STATE
I support the doctrine of separation of church and state as traditionally interpreted to prohibit the establishment of an official national religion. But I am opposed to the doctrine of separation of church and state as currently interpreted to divorce government from any formal recognition of God. The current trend strikes a potentially fatal blow at the concept of the divine origin of our rights, and unlocks the door for an easy entry of future tyranny. If Americans should ever come to believe that their rights and freedoms are instituted among men by politicians and bureaucrats, then they will no longer carry the proud inheritance of their forefathers, but will grovel before their masters seeking favors and dispensations – a throwback to the Feudal System of the Dark Ages. We must ever keep in mind the inspired words of Thomas Jefferson, as found in the Declaration of Independence:

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed." (P.P.N. S., p.519)

Since God created man with certain unalienable rights, and man, in turn, created government to help secure and safeguard those rights, it follows that man is superior to the creature which he created. Man is superior to government and should remain master over it, not the other way around. Even the non-believer can appreciate the logic of this relationship.

THE SOURCE OF GOVERNMENTAL POWER
Leaving aside, for a moment, the question of the divine origin of rights, it is obvious that a government is nothing more or less than a relatively small group of citizens who have been hired, in a sense, by the rest of us to perform certain functions and discharge certain responsibilities which have been authorized. It stands to reason that the government itself has no innate power or privilege to do anything. Its only source of authority and power is from the people who have created it. This is made clear in the Preamble to the Constitution of the United States, which reads: "WE THE PEOPLE… do ordain and establish this Constitution for the United States of America."

The important thing to keep in mind is that the people who have created their government can give to that government only such powers as they, themselves, have in the first place. Obviously, they cannot give that which they do not possess. So, the question boils down to this. What powers properly belong to each and every person in the absence of and prior to the establishment of any organized governmental form? A hypothetical question? Yes, indeed! But, it is a question which is vital to an understanding of the principles which underlie the proper function of government.

Of course, as James Madison, sometimes called the Father of the Constitution, said, "If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary." (The Federalist, No. 51)

NATURAL RIGHTS
In a primitive state, there is no doubt that each man would be justified in using force, if necessary, to defend himself against physical harm, against theft of the fruits of his labor, and against enslavement of another. This principle was clearly explained by Bastiat:

"Each of us has a natural right – from God – to defend his person, his liberty, and his property. These are the three basic requirements of life, and the preservation of any one of them is completely dependent upon the preservation of the other two. For what are our faculties but the extension of our individuality? And what is property but and extension of our faculties?" (The Law, p.6)

Indeed, the early pioneers found that a great deal of their time and energy was being spent doing all three – defending themselves, their property and their liberty – in what properly was called the “Lawless West.” In order for man to prosper, he cannot afford to spend his time constantly guarding his family, his fields, and his property against attach and theft, so he joins together with his neighbors and hires a sheriff. At this precise moment, government is born. The individual citizens delegate to the sheriff their unquestionable right to protect themselves. The sheriff now does for them only what they had a right to do for themselves – nothing more. Quoting again from Bastiat:

"If every person has the right to defend – even by force – his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly. Thus the principle of collective right -–its reason for existing, its lawfulness -- is based on individual right." (The Law, p. 6)

So far so good. But now we come to the moment of truth. Suppose pioneer “A” wants another horse for his wagon, He doesn’t have the money to buy one, but since pioneer “B” has an extra horse, he decides that he is entitled to share in his neighbor’s good fortune, Is he entitled to take his neighbor’s horse? Obviously not! If his neighbor wishes to give it or lend it, that is another question. But so long as pioneer “B” wishes to keep his property, pioneer "A" has no just claim to it.

If “A” has no proper power to take “B’s” property, can he delegate any such power to the sheriff? No. Even if everyone in the community desires that “B” give his extra horse to “A”, they have no right individually or collectively to force him to do it. They cannot delegate a power they themselves do not have. This important principle was clearly understood and explained by John Locke nearly 300 years ago:

“For nobody can transfer to another more power than he has in himself, and nobody has an absolute arbitrary power over himself, or over any other, to destroy his own life, or take away the life of property of another.” (Two Treatises of Civil Government, II, 135; P.P.N.S. p. 93)

THE PROPER FUNCTION OF GOVERNMENT
This means, then, that the proper function of government is limited only to those spheres of activity within which the individual citizen has the right to act. By deriving its just powers from the governed, government becomes primarily a mechanism for defense against bodily harm, theft and involuntary servitude. It cannot claim the power to redistribute the wealth or force reluctant citizens to perform acts of charity against their will. Government is created by man. No man possesses such power to delegate. The creature cannot exceed the creator.

In general terms, therefore, the proper role of government includes such defensive activities, as maintaining national military and local police forces for protection against loss of life, loss of property, and loss of liberty at the hands of either foreign despots or domestic criminals.

THE POWERS OF A PROPER GOVERNMENT
It also includes those powers necessarily incidental to the protective functions such as:

(1) The maintenance of courts where those charged with crimes may be tried and where disputes between citizens may be impartially settled.

(2) The establishment of a monetary system and a standard of weights and measures so that courts may render money judgments, taxing authorities may levy taxes, and citizens may have a uniform standard to use in their business dealings.

My attitude toward government is succinctly expressed by the following provision taken from the Alabama Constitution:

“That the sole object and only legitimate end of government is to protect the citizen in the enjoyment of life, liberty, and property, and when the government assumes other functions it is usurpation and oppression.” (Art. 1, Sec. 35)

An important test I use in passing judgment upon an act of government is this: If it were up to me as an individual to punish my neighbor for violating a given law, would it offend my conscience to do so? Since my conscience will never permit me to physically punish my fellow man unless he has done something evil, or unless he has failed to do something which I have a moral right to require of him to do, I will never knowingly authorize my agent, the government to do this on my behalf.

I realize that when I give my consent to the adoption of a law, I specifically instruct the police – the government – to take either the life, liberty, or property of anyone who disobeys that law. Furthermore, I tell them that if anyone resists the enforcement of the law, they are to use any means necessary – yes, even putting the lawbreaker to death or putting him in jail – to overcome such resistance. These are extreme measures but unless laws are enforced, anarchy results.

As John Locke explained many years ago:

“The end of law is not to abolish or restrain, but to preserve and enlarge freedom. For in all the states of created beings, capable of laws, where there is no law there is no freedom. For liberty is to be free from restraint and violence from others, which cannot be where there is no law; and is not, as we are told, ‘a liberty for every man to do what he lists.’ For who could be free, when every other man’s humour might domineer over him? But a liberty to dispose and order freely as he lists his person, actions, possessions, and his whole property within the allowance of those laws under which he is, and therein not to be subject to the arbitrary will of another, but freely follow his own.” (Two Treatises of Civil Government, II, 57: P>P>N>S., p.101)

I believe we Americans should use extreme care before lending our support to any proposed government program. We should fully recognize that government is no plaything. As George Washington warned, “Government is not reason, it is not eloquence – it is force! Like fire, it is a dangerous servant and a fearful master!” (The Red Carpet, p.142) It is an instrument of force and unless our conscience is clear that we would not hesitate to put a man to death, put him in jail or forcibly deprive him of his property for failing to obey a given law, we should oppose it.

THE CONSTITUTION OF THE UNITED STATES
Another standard I use in deterring what law is good and what is bad is the Constitution of the United States. I regard this inspired document as a solemn agreement between the citizens of this nation which every officer of government is under a sacred duty to obey. As Washington stated so clearly in his immortal Farewell Address:

“The basis of our political systems is the right of the people to make and to alter their constitutions of government. – But the constitution which at any time exists, until changed by an explicit and authentic act of the whole people is sacredly obligatory upon all. The very idea of the power and the right of the people to establish government presupposes the duty of every individual to obey the established government.” (P.P.N.S., p. 542)

I am especially mindful that the Constitution provides that the great bulk of the legitimate activities of government are to be carried out at the state or local level. This is the only way in which the principle of “self-government” can be made effective. As James Madison said before the adoption of the Constitution, “ (We) rest all our political experiments on the capacity of mankind for self-government.” (Federalist, No.39; P.P.N.S., p. 128) Thomas Jefferson made this interesting observation: “Sometimes it is said that man cannot be trusted with the government of himself. Can he, then, be trusted with the government of others? Or have we found angels in the forms of kings to govern him? Let history answer this question.” (Works 8:3; P.P.N.S., p. 128)

THE VALUE OF LOCAL GOVERNMENT
It is a firm principle that the smallest or lowest level that can possibly undertake the task is the one that should do so. First, the community or city. If the city cannot handle it, then the county. Next, the state; and only if no smaller unit can possible do the job should the federal government be considered. This is merely the application to the field of politics of that wise and time-tested principle of never asking a larger group to do that which can be done by a smaller group. And so far as government is concerned the smaller the unit and the closer it is to the people, the easier it is to guide it, to keep it solvent and to keep our freedom. Thomas Jefferson understood this principle very well and explained it this way:

“The way to have good and safe government, is not to trust it all to one, but to divide it among the many, distributing to every one exactly the functions he is competent to. Let the national government be entrusted with the defense of the nation, and its foreign and federal relations; the State governments with the civil rights, law, police, and administration of what concerns the State generally; the counties with the local concerns of the counties, and each ward direct the interests within itself. It is by dividing and subdividing these republics from the great national one down through all its subordinations, until it ends in the administration of every man’s farm by himself; by placing under every one what his own eye may superintend, that all will be done for the best. What has destroyed liberty and the rights of man in every government which has ever existed under the sun? The generalizing and concentrating all cares and powers into one body.” (Works 6:543; P.P.N.S., p. 125)

It is well to remember that the states of this republic created the Federal Government. The Federal Government did not create the states.

THINGS THE GOVERNMENT SHOULD NOT DO
A category of government activity which, today, not only requires the closest scrutiny, but which also poses a grave danger to our continued freedom, is the activity NOT within the proper sphere of government. No one has the authority to grant such powers, as welfare programs, schemes for re-distributing the wealth, and activities which coerce people into acting in accordance with a prescribed code of social planning. There is one simple test. Do I as an individual have a right to use force upon my neighbor to accomplish this goal? If I do have such a right, then I may delegate that power to my government to exercise on my behalf. If I do not have that right as an individual, then I cannot delegate it to government, and I cannot ask my government to perform the act for me.

To be sure, there are times when this principle of the proper role of government is most annoying and inconvenient. If I could only FORCE the ignorant to provided for themselves, or the selfish to be generous with their wealth! But if we permit government to manufacture its own authority out of thin air, and to create self-proclaimed powers not delegated to it by the people, then the creature exceeds the creator and becomes master. Beyond that point, where shall the line be drawn? Who is to say "this far, but no farther?" What clear PRINCIPLE will stay the hand of government from reaching farther and yet farther into our daily lives? We shouldn’t forget the wise words of President Grover Cleveland that "… though the people support the Government the Government should not support the people." (P.P.N.S., p.345) We should also remember, as Frederic Bastiat reminded us, that "Nothing can enter the public treasury for the benefit of one citizen or one class unless other citizens and other classes have been forced to send it in." (THE LAW, p. 30; P.P.N.S., p. 350)

THE DIVIDING LINE BETWEEN PROPER AND IMPROPER GOVERNMENT
As Bastiat pointed out over a hundred years ago, once government steps over this clear line between the protective or negative role into the aggressive role of redistributing the wealth and providing so-called "benefits" for some of its citizens, it then becomes a means for what he accurately described as legalized plunder. It becomes a lever of unlimited power which is the sought-after prize of unscrupulous individuals and pressure groups, each seeking to control the machine to fatten his own pockets or to benefit its favorite charities – all with the other fellow’s money, of course. (THE LAW, 1850, reprinted by the Foundation for Economic Education, Irvington-On-Hudson, N.Y.)

THE NATURE OF LEGAL PLUNDER
Listen to Bastiat’s explanation of this "legal plunder."

"When a portion of wealth is tranferred from the person who owns it – without his consent and without compensation, and whether by force or by fraud – to anyone who does not own it, then I say that property is violated; that an act of plunder is committed!

"How is the legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime…" (THE LAW, p. 21, 26; P.P.N.S., p. 377)

As Bastiat observed, and as history has proven, each class or special interest group competes with the others to throw the lever of governmental power in their favor, or at least to immunize itself against the effects of a previous thrust. Labor gets a minimum wage, so agriculture seeks a price support. Consumers demand price controls, and industry gets protective tariffs. In the end, no one is much further ahead, and everyone suffers the burdens of a gigantic bureaucracy and a loss of personal freedom. With each group out to get its share of the spoils, such governments historically have mushroomed into total welfare states. Once the process begins, once the principle of the protective function of government gives way to the aggressive or redistribute function, then forces are set in motion that drive the nation toward totalitarianism. "It is impossible," Bastiat correctly observed, "to introduce into society… a greater evil than this: the conversion of the law into an instrument of plunder." (THE LAW, p. 12)

GOVERNMENT CANNOT CREATE WEALTH
Students of history know that no government in the history of mankind has ever created any wealth. People who work create wealth. James R. Evans, in his inspiring book, "The Glorious Quest" gives this simple illustration of legalized plunder:

"Assume, for example, that we were farmers, and that we received a letter from the government telling us that we were going to get a thousand dollars this year for plowed up acreage. But rather than the normal method of collection, we were to take this letter and collect $69.71 from Bill Brown, at such and such an address, and $82.47 from Henry Jones, $59.80 from a Bill Smith, and so on down the line; that these men would make up our farm subsidy.

"Neither you nor I, nor would 99 percent of the farmers, walk up and ring a man’s doorbell, hold out a hand and say, ‘Give me what you’ve earned even though I have not.’ We simply wouldn’t do it because we would be facing directly the violation of a moral law, ‘Thou shalt not steal.’ In short, we would be held accountable for our actions."

The free creative energy of this choice nation "created more than 50% of all the world’s products and possessions in the short span of 160 years. The only imperfection in the system is the imperfection in man himself."

The last paragraph in this remarkable Evans book – which I commend to all – reads:

"No historian of the future will ever be able to prove that the ideas of individual liberty practiced in the United States of America were a failure. He may be able to prove that we were not yet worthy of them. The choice is ours." (Charles Hallberg and Co., 116 West Grand Avenue, Chicago, Illinois, 60610)

THE BASIC ERROR OF MARXISM
According to Marxist doctrine, a human being is primarily an economic creature. In other words, his material well-being is all important; his privacy and his freedom are strictly secondary. The Soviet constitution reflects this philosophy in its emphasis on security: food, clothing, housing, medical care – the same things that might be considered in a jail. The basic concept is that the government has full responsibility for the welfare of the people and , in order to discharge that responsibility, must assume control of all their activities. It is significant that in actuality the Russian people have few of the rights supposedly "guaranteed" to them in their constitution, while the American people have them in abundance even though they are not guaranteed. The reason, of course, is that material gain and economic security simply cannot be guaranteed by any government. They are the result and reward of hard work and industrious production. Unless the people bake one loaf of bread for each citizen, the government cannot guarantee that each will have one loaf to eat. Constitutions can be written, laws can be passed and imperial decrees can be issued, but unless the bread is produced, it can never be distributed.

THE REAL CAUSE OF AMERICAN PROSPERITY
Why, then, do Americans bake more bread, manufacture more shoes and assemble more TV sets than Russians do? They do so precisely because our government does NOT guarantee these things. If it did, there would be so many accompanying taxes, controls, regulations and political manipulations that the productive genius that is America’s would soon be reduced to the floundering level of waste and inefficiency now found behind the Iron Curtain. As Henry David Thoreau explained:

"This government never of itself furthered any enterprise, but by the alacrity with which it got out of its way. IT does not educate. THE CHARACTER INHERENT IN THE AMERICAN PEOPLE HAS DONE ALL THAT HAS BEEN ACCOMPLISHED; AND IT WOULD HAVE DONE SOMEWHAT MORE, IF THE GOVERNMMENT HAD NOT SOMETIMES GO IN ITS WAY. For government is an expedient by which men would fain succeed in letting one another alone; and, as has been said, when it is most expedient, the governed are most let alone by it." (Quoted by Clarence B. Carson, THE AMERICAN TRADITION, p. 100; P.P.S.N., p.171)

In 1801 Thomas Jefferson, in his First Inaugural Address, said:

"With all these blessings, what more is necessary to make us a happy and prosperous people? Still one thing more, fellow citizens – a wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it had earned." (Works 8:3)

A FORMULA FOR PROSPERITY
The principle behind this American philosophy can be reduced to a rather simple formula:

1. Economic security for all is impossible without widespread abundance.
2. Abundance is impossible without industrious and efficient production.
3. Such production is impossible without energetic, willing and eager labor.
4. This is not possible without incentive.
5. Of all forms of incentive – the freedom to attain a reward for one’s labors is the most sustaining for most people. Sometimes called THE PROFIT MOTIVE, it is simply the right to plan and to earn and to enjoy the fruits of your labor.
6. This profit motive DIMINISHES as government controls, regulations and taxes INCREASE to deny the fruits of success to those who produce.
7. Therefore, any attempt THROUGH GOVERNMENTAL INTERVENTION to redistribute the material rewards of labor can only result in the eventual destruction of the productive base of society, without which real abundance and security for more than the ruling elite is quite impossible.

AN EXAMPLE OF THE CONSEQUENCES OF DISREGARDING THESE PRINCIPLES
We have before us currently a sad example of what happens to a nation which ignores these principles. Former FBI agent, Dan Smoot, succinctly pointed this out on his broadcast number 649, dated January 29, 1968, as follows:

"England was killed by an idea: the idea that the weak, indolent and profligate must be supported by the strong, industrious, and frugal – to the degree that tax-consumers will have a living standard comparable to that of taxpayers; the idea that government exists for the purpose of plundering those who work to give the product of their labor to those who do not work.

The economic and social cannibalism produced by this communist-socialist idea will destroy any society which adopts it and clings to it as a basic principle – ANY society."

THE POWER OF TRUE LIBERTY FROM IMPROPER GOVERNMENTAL INTERFERENCE
Nearly two hundred years ago, Adam Smith, the Englishman, who understood these principles very well, published his great book, THE WEALTH OF NATIONS, which contains this statement:

"The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security." (Vol. 2, Book 4, Chapt. 5, p. 126)

BUT WHAT ABOUT THE NEEDY?
On the surface this may sound heartless and insensitive to the needs of those less fortunate individuals who are found in any society, no matter how affluent. "What about the lame, the sick and the destitute? Is an often-voice question. Most other countries in the world have attempted to use the power of government to meet this need. Yet, in every case, the improvement has been marginal at best and has resulted in the long run creating more misery, more poverty, and certainly less freedom than when government first stepped in. As Henry Grady Weaver wrote, in his excellent book, THE MAINSPRING OF HUMAN PROGRESS:

"Most of the major ills of the world have been caused by well-meaning people who ignored the principle of individual freedom, except as applied to themselves, and who were obsessed with fanatical zeal to improve the lot of mankind-in-the-mass through some pet formula of their own….THE HARM DONE BY ORDINARY CRIMINALS, MURDERES, GANGSTERS, AND THIEVES IS NEGLIGIBLE IN COMPARISON WITH THE AGONY INFLICTED UPON HUMAN BEINGS BY THE PROFESSIONAL ‘DO-GOODERS’, who attempt to set themselves up as gods on earth and who would ruthlessly force their views on all others – with the abiding assurance that the end justifies the means." (p. 40-1; P.P.N.S., p. 313)

THE BETTER WAY
By comparison, America traditionally has followed Jefferson’s advice of relying on individual action and charity. The result is that the United States has fewer cases of genuine hardship per capita than any other country in the entire world or throughout all history. Even during the depression of the 1930’s, Americans ate and lived better than most people in other countries do today.

WHAT IS WRONG WITH A "LITTLE" SOCIALISM?
In reply to the argument that a little bit of socialism is good so long as it doesn’t go too far, it is tempting to say that, in like fashion, just a little bit of theft or a little bit of cancer is all right, too! History proves that the growth of the welfare state is difficult to check before it comes to its full flower of dictatorship. But let us hope that this time around, the trend can be reversed. If not then we will see the inevitability of complete socialism, probably within our lifetime.

THREE REASONS AMERICAN NEED NOT FALL FOR SOCIALIST DECEPTIONS
Three factors may make a difference. First, there is sufficient historical knowledge of the failures of socialism and of the past mistakes of previous civilizations. Secondly, there are modern means of rapid communications to transmit these lessons of history to a large literate population. And thirdly, there is a growing number of dedicated men and women who, at great personal sacrifice, are actively working to promote a wider appreciation of these concepts. The timely joining together of these three factors may make it entirely possible for us to reverse the trend.

HOW CAN PRESENT SOCIALISTIC TRENDS BE REVERSED?
This brings up the next question: How is it possible to cut out the various welfare-state features of our government which have already fastened themselves like cancer cells onto the body politic? Isn’t drastic surgery already necessary, and can it be performed without endangering the patient? In answer, it is obvious that drastic measures ARE called for. No half-way or compromise actions will suffice. Like all surgery, it will not be without discomfort and perhaps even some scar tissue for a long time to come. But it must be done if the patient is to be saved, and it can be done without undue risk.

Obviously, not all welfare-state programs currently in force can be dropped simultaneously without causing tremendous economic and social upheaval. To try to do so would be like finding oneself at the controls of a hijacked airplane and attempting to return it by simply cutting off the engines in flight. It must be flown back, lowered in altitude, gradually reduced in speed and brought in for a smooth landing. Translated into practical terms, this means that the first step toward restoring the limited concept of government should be to freeze all welfare-state programs at their present level, making sure that no new ones are added. The next step would be to allow all present programs to run out their term with absolutely no renewal. The third step would involve the gradual phasing-out of those programs which are indefinite in their term. In my opinion, the bulk of the transition could be accomplished within a ten-year period and virtually completed within twenty years. Congress would serve as the initiator of this phase-out program, and the President would act as the executive in accordance with traditional constitutional procedures.

SUMMARY THUS FAR
As I summarize what I have attempted to cover, try to visualize the structural relationship between the six vital concepts that have made America the envy of the world. I have reference to the foundation of the Divine Origin of Rights; Limited Government; the pillars of economic Freedom and Personal Freedom, which result in Abundance; followed by Security and the Pursuit of Happiness.

America was built upon a firm foundation and created over many years from the bottom up. Other nations, impatient to acquire equal abundance, security and pursuit of happiness, rush headlong into that final phase of construction without building adequate foundations or supporting pillars. Their efforts are futile. And, even in our country, there are those who think that, because we now have the good things in life, we can afford to dispense with the foundations which have made them possible. They want to remove any recognition of God from governmental institutions, They want to expand the scope and reach of government which will undermine and erode our economic and personal freedoms. The abundance which is ours, the carefree existence which we have come to accept as a matter of course, CAN BE TOPPLED BY THESE FOOLISH EXPERIMENTERS AND POWER SEEKERS. By the grace of God, and with His help, we shall fence them off from the foundations of our liberty, and then begin our task of repair and construction.

As a conclusion to this discussion, I present a declaration of principles which have recently been prepared by a few American patriots, and to which I wholeheartedly subscribe.

FIFTEEN PRINCIPLES WHICH MAKE FOR GOOD AND PROPER GOVERNMENT
As an Independent American for constitutional government I declare that:

(1) I believe that no people can maintain freedom unless their political institutions are founded upon faith in God and belief in the existence of moral law.

(2) I believe that God has endowed men with certain unalienable rights as set forth in the Declaration of Independence and that no legislature and no majority, however great, may morally limit or destroy these; that the sole function of government is to protect life, liberty, and property and anything more than this is usurpation and oppression.

(3) I believe that the Constitution of the United States was prepared and adopted by men acting under inspiration from Almighty God; that it is a solemn compact between the peoples of the States of this nation which all officers of government are under duty to obey; that the eternal moral laws expressed therein must be adhered to or individual liberty will perish.

(4) I believe it a violation of the Constitution for government to deprive the individual of either life, liberty, or property except for these purposes:

(a) Punish crime and provide for the administration of justice;
(b) Protect the right and control of private property;
(c) Wage defensive war and provide for the nation’s defense;
(d) Compel each one who enjoys the protection of government to bear his fair share of the burden of performing the above functions.

(5) I hold that the Constitution denies government the power to take from the individual either his life, liberty, or property except in accordance with moral law; that the same moral law which governs the actions of men when acting alone is also applicable when they act in concert with others; that no citizen or group of citizens has any right to direct their agent, the government to perform any act which would be evil or offensive to the conscience if that citizen were performing the act himself outside the framework of government.

(6) I am hereby resolved that under no circumstances shall the freedoms guaranteed by the Bill of Rights be infringed. In particular I am opposed to any attempt on the part of the Federal Government to deny the people their right to bear arms, to worship and pray when and where they choose, or to own and control private property.

(7) I consider ourselves at war with international Communism which is committed to the destruction of our government, our right of property, and our freedom; that it is treason as defined by the Constitution to give aid and comfort to this implacable enemy.

(8) I am unalterable opposed to Socialism, either in whole or in part, and regard it as an unconstitutional usurpation of power and a denial of the right of private property for government to own or operate the means of producing and distributing goods and services in competition with private enterprise, or to regiment owners in the legitimate use of private property.

(9) I maintain that every person who enjoys the protection of his life, liberty, and property should bear his fair share of the cost of government in providing that protection; that the elementary principles of justice set forth in the Constitution demand that all taxes imposed be uniform and that each person’s property or income be taxed at the same rate.

(10) I believe in honest money, the gold and silver coinage of the Constitution, and a circulation medium convertible into such money without loss. I regard it as a flagrant violation of the explicit provisions of the Constitution for the Federal Government to make it a criminal offense to use gold or silver coin as legal tender or to use irredeemable paper money.

(11) I believe that each State is sovereign in performing those functions reserved to it by the Constitution and it is destructive of our federal system and the right of self-government guaranteed under the Constitution for the Federal Government to regulate or control the States in performing their functions or to engage in performing such functions itself.

(12) I consider it a violation of the Constitution for the Federal Government to levy taxes for the support of state or local government; that no State or local government can accept funds from the Federal and remain independent in performing its functions, nor can the citizens exercise their rights of self-government under such conditions.

(13) I deem it a violation of the right of private property guaranteed under the Constitution for the Federal Government to forcibly deprive the citizens of this nation of their property through taxation or otherwise, and make a gift thereof to foreign governments or their citizens.

(14) I believe that no treaty or agreement with other countries should deprive our citizens of rights guaranteed them by the Constitution.

(15) I consider it a direct violation of the obligation imposed upon it by the Constitution for the Federal Government to dismantle or weaken our military establishment below that point required for the protection of the States against invasion, or to surrender or commit our men, arms, or money to the control of foreign ore world organizations of governments.

These things I believe to be the proper role of government.

We have strayed far afield. We must return to basic concepts and principles – to eternal verities. There is no other way. The storm signals are up. They are clear and ominous.

As Americans – citizens of the greatest nation under Heaven – we face difficult days. Never since the days of the Civil War – 100 years ago – has this choice nation faced such a crisis.

In closing I wish to refer you to the words of the patriot Thomas Paine, whose writings helped so much to stir into a flaming spirit the smoldering embers of patriotism during the days of the American Revolution:

"These are the times that try men’s souls. The summer soldier and the sunshine patriot will in this crisis, shrink from the service of his country; but he that stands it NOW, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly; ‘tis dearness only that gives everything its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed, if so celestial and article as FREEDOM should not be highly rated." (THE POLITICAL WORKS OF THOMAS PAINE, p.55.)

I intend to keep fighting. My personal attitude is one of resolution – not resignation.

I have faith in the American people. I pray that we will never do anything that will jeopardize in any manner our priceless heritage. If we live and work so as to enjoy the approbation of a Divine Providence, we cannot fail. Without that help we cannot long endure.

ALL RIGHT-THINKING AMERICANS SHOULD NOW TAKE THEIR STAND
So I urge all Americans to put their courage to the test. Be firm in our conviction that our cause is just. Reaffirm our faith in all things for which true Americans have always stood.

I urge all Americans to arouse themselves and stay aroused. We must not make any further concessions to communism at home or abroad. We do not need to. We should oppose communism from our position of strength for we are not weak.

There is much work to be done. The time is short. Let us begin – in earnest – now and may God bless our efforts, I humbly pray.

            If Marx was alive today, he’d be conservative.

            Karl Marx lived during the industrial revolution. People were finally giving up their cottage industry or street rat professions to go to work for the first evil CEOs, who were quickly learning the skills of exploitation of the worker. To give him some credit, Marx saw some roaring inequalities. Workers got paid pennies per day, while the greedy capitalist was making millions. Accidents were common, since OSHA hadn’t been invented yet, and child labor was getting a lift from the more entrepreneurial minded evil bourgeoisie. What made things worse was that workers’ unions didn’t exist yet, so if someone was being exploited and wanted more pay, their only option was to go find another line of work. Or stay at that job. Or be out of work.

            Yes, it was a lot like today, only with no unemployment checks. That meant that usually people waited until they actually found another job before quitting their first one… or if they were fired, they tended to (gasp!) find another line of work or (double gasp!) rely on the kindness of family or churches to keep from starving to death instead of the government.

            But I digress. I believe the only reason that Marxism ever got so popular, and how it still manages to stay alive today is that he was the first to effectively point out what was quickly becoming obvious. Some people were rich, and some were not. To socialism’s credit, it recognizes inequality and wishes that people could be more blessed. That desire even has roots in a moral basis: it’s the same one Jesus talked about in that whole ‘feed the poor, bless the sick and afflicted, comfort the widows and the fatherless’ thing. But that is where similarities end.

            Marx misinterpreted the trend. He assumed that the rich would get richer and the poor would get poorer. History has shown us differently. Sure, socialists still will point to the percentage difference between evil CEOs and janitors, which has probably gotten even larger than when Marx was busy not shaving. But in terms of actual poverty, that janitor probably has a car, a microwave, his own flat and an iPod.

            This is where socialists and conservatives tend to talk right past each other. Socialists still see the inequality, whereas conservatives tend to look at whether the man is free to make his own standard of living. How can one have a meaningful discussion if it can’t even be agreed on what the topic is?

            So let’s use a little Karl Marxian logic and see how his theory would best be applied today for the benefit of all the communists who may be reading this post. Maybe they’ll finally understand:

            A wicked CEO exploits his workers because they work for him. Now even if he pays them what an evil conservative would call a fair and equitable wage, by definition of making a profit, some of that worker’s labor energy is going to another person. When the fruits of one’s labor go to another, which is the definition of slavery. The only way to eliminate this slavery inherent in the capitalist system is to have the workers own the means of production.

            Now since the time of Marx, we have discovered a natural resource called the Stock. This wonderful resource allows a worker at, say, Ford Motor Company to use each and every paycheck if they so choose to buy into the company and (Gasp!) own the means of production for that company. But further than that, it allows even more equity than Marx imagined. Workers at McDonalds, for example, don’t have to buy McDonald’s stock. No, they can buy any stock they desire, even the really stupid ones. A burger flipper can own IBM on the side. That janitor we talked about earlier can own part of the company that is about to put his own boss out of business. Instead of restricting someone to own their own means of production only where they produce, anyone can own any means of production anytime, anywhere.

            “But wait!” the communist may object. “Workers aren’t smart enough to play the market like those Wall Street villains! They may lose all their money or make dumb investments!” Yes, that is true. The same way a capitalist may buy the wrong equipment, exploit his laborers, never sell a widget, and also go out of business. Freedom means also being free to fall on your face.

            But realistically, with the modern advent of the mutual fund, even a dunce can invest wisely. In fact, many fund companies advise simply putting your money in and forgetting it so that the inexperienced people don’t make stupid trades and negate the benefits of professional management.  

            An employee is only being exploited, or in slavery, until they get paid once. After that, they are free to buy what they want. They choose whether to spend the money on iPods, plasma TVs, fancy cars, beer, and Starbucks, or the means of production: a mutual fund: their future. If equality and prosperity is truly the goal, and enabling the working class to own the means of production is the way to do it, Marx would probably agree that a modern free enterprise system is what works best.  

The following blog is adapted from Henry S. Brock's "Your Complete Guide to Money Happiness," because he  teaches the WHYTE phenomenon more cleanly than anyone, and nobody thinks of that in relation to multiple taxation.

The Amazing WYHTE Phenomenon- Your taxes are higher than you think.

What is Money?

Before money was invented as a medium of exchange, people traded or bartered their goods. Rice or vegetables were exchanged for meat or milk or honey.

            The initial forms of money were gold and silver; the value of coins increased with size and weight. The US dollar was backed by gold until we eliminated the gold standard in 1964, and since then our dollar has been backed by the taxing authority and borrowing capacity of our government. Even so, the US dollar is recognized throughout the world as the currency of stability and safety, which is one reason why so many people believe it is critical that our budget be balanced and that we have a strong and stable government.

            To define money as a medium of exchange is handy for economists, but it primarily focuses on the fact that money is more convenient than bartering. I prefer defining money as stored labor- that way we recognize that we have traded our labor for money. The more money we have saved, the more labor we have stored. In other words, money is past savings accumulated for future consumption or production.

            Why do I prefer this definition of money? Because it teaches respect for money. It recognizes that someone’s labor was expended in order to acquire money. It equates more directly the efforts we spend for money with the value of that money. Most people will spend money much more frivolously than labor: They’ll spend three hours working for enough money to by dinner at a restaurant, but they’d never consider spending one hour washing dishes at that same restaurant for that same dinner.

            Try translating your purchases into the hours it will take to acquire them. If you believe that you shouldn’t spend your labor for things of little worth, you will start to better respect your money- and use it more wisely.

            One of the great misconceptions about careers and financial success is that success is measured in dollars. In the business world, the score is kept in dollars. But that is a tremendous mistake.

            Why?  When you equate everything to dollars, you look only at the size of your paycheck, when what you should be looking at is your standard of living and your ability to achieve your life’s goals. When you keep score in dollars, your career measuring stick becomes how much money you are being paid instead of whether your career is helping you reach your life’s goals.  

            That raises an interesting question: is work taxable?

            Remember, money is “stored labor.”  The more money you have, the more you have stored of your lifetime accumulation of labor. That’s how most of us achieve our lifestyle. But whenever your work is traded for money, it must first be taxed. So every time you trade labor for money, and then money for lifestyle, some of it is siphoned off into taxes.    

The Amazing WYHTE Phenomenon

“The real price of everything,” writes Adam Smith in Wealth of Nations, “is the toil and trouble of acquiring it.” This is precisely the reasoning behind the WYHTE phenomenon.  I have never seen the WYHTE phenomenon discussed in any of my numerous college texts on finance.  I have never seen it discussed in any magazine, newspaper or professional journal.  And yet the WYHTE phenomenon impacts every one of us every day of our lives.  If you learn to make it work for you, it can be worth many, many tens of thousands of dollars to you over your lifetime.  If it works against you, it can make the difference between a nice standard of living and always living from paycheck to paycheck.

            W-Y-H-T-E stands for “What You Have To Earn.”

            So, how does it work?

            Assume you want to spend $1.00 and you are in a 25% tax bracket. What must you earn to spend that dollar?  Most people, including business owners and even some accountants, would say $1.25. But the answer is $1.33.  Why?

            If you earn one dollar, and one fourth goes to taxes, you have only 75 cents left to spend. If you earn $1.25, and one fourth goes to taxes, you have only 94 cents to spend.  But one-fourth of $1.33 going to taxes would be 33 cents, leaving you $1.00 to spend.

            What if you are in a 40% tax bracket and you want to spend $1.00?  You need to earn $1.67 before taxes in order to have $1.00 left over. As your tax bracket increases, so does the amount you must earn in order to have $1.00 to spend. Those in a 50% tax bracket, for instance, must earn $2.00 in order to have $1.00 left after taxes.

Because we have a graduated income tax system, as our income rises, our tax rate increases. Remember, the only relevant tax rate for financial decision making is your total marginal tax rate.  Your total tax bracket includes federal and state and FICA taxes (plus city and county taxes if they apply).  Your first dollars are perhaps taxed at a lower tax rate of 14 percent, but those first dollars are being used for the basic necessities of life: food, clothing, and shelter. When you make financial decisions, you are using your last dollars.  Whether that decision is to take the family out to dinner one night or to go on vacation, those last dollars are being taxed at your marginal tax rate, which might be 40 to 45 percent, or higher.

So, what does the WYHTE phenomenon mean to us?  Let’s look at an example:

My boy, Danny, comes to me one evening and says, “Dad, I need a new bicycle.”

I respond to him, “Danny, how much is it?”

“Well, Dad, its $100.”

“Sorry, Danny, it’s not worth it.”

“Dad, it is too worth $100!”

“I agree, Danny, it is worth $100”

“What do you mean, Dad? You just said it is worth $100, but then you said it wasn’t worth it.”

         “Danny, listen carefully.  The bicycle is worth $100, but it is not worth $200. And I have to earn $200 to buy you a $100 bicycle.”

A Dollar Isn’t a Dollar

It is important to decide how the WYHTE Phenomenon will fit in your life.  You may choose to take advantage of it in some ways and ignore it and let it work against you in other ways. Realize, however, that the opportunities to let it work for you are abundant. Consider the following, assuming you need to earn $2.00 for every discretionary dollar you want to spend:

            Taking the family to dinner:  You can pay $50 at restaurant A or $30 at restaurant B for a similar meal. So, you think that by going to restaurant B, you will save $20.  But actually, you had to earn $100 to go to restaurant A, while you had to earn $60 to go to restaurant B.  By going to restaurant B, you actually save $40.

            Going on a vacation:  Regularly, you plan your vacation one month or six weeks in advance. You order the necessary tickets and discover the vacation will cost $3,000. But, by planning even further in advance and doing a little extra telephoning, you get your tickets at a better discount and are able to go on the same vacation for $2,000.  To have gone on the vacation according to the original plan, you would have had to have earned $6,000.  By planning ahead, you only had to earn $4,000.  So once again, you were able to maintain the same standard of living while earning $2,000 less that year.

            Shopping the sales: Maybe you don’t believe it is worth your while to drive an extra few miles to buy a pair of shoes on sale. Suppose you buy a $100 pair of shoes for only $50.  You assume you saved $50. But, you had to earn $200 to buy the shoes at the regular price, and only $100 to buy them on sale, for a savings of $100. Are you beginning to see how these things can add up?

            You can think of your own examples of making the WYHTE phenomenon work for you or against you, but remember that it impacts every candy bar or lunch that you buy. Decide in which ways you simply aren’t going to worry about it. Maybe you won’t clip coupons or change your own oil.  Perhaps you could shop some sales or would enjoy planting your own garden.  The point is, if you don’t figure out how it is going to work for you, it is going to work against you.

            The WYHTE phenomenon explains why a farmer and a young district attorney can have a $40,000 difference in take-home income but the same outwardly observable standard of living. Living a mile away from town, the farmer grows his own garden, paints his own fence, makes his truck last 15 years, etc. By doing so, he is able to have the same standard of living on $20,000 a year as the young attorney who makes $60,000 in the county seat.

            Likewise, you might observe a young family with three, four or even five children, where the father is a bus driver and somehow they manage to make ends meet. Yet, another family with only one child and both spouses earning $80,000 a year is somehow just living paycheck to paycheck. The first family buys bulk and probably cooks from scratch, while the second family struggles.

            On occasion, a client will tell me, “Well, I don’t like the WYHTE phenomenon, so I don’t want to do that,” as though it is a recommendation within a financial plan. Whether you like it or not, the WYHTE phenomenon impacts every financial decision that we make-only when we know the truth are we free to make correct decisions.

The way our tax system works-since 1913

 In 1913, the states ratified a new constitutional amendment that would forever affect future generations of wage-earners.

            That amendment gave the US government the power to tax our income.

            Chief Justice John Marshall of the US Supreme Court had denounced such taxation almost a century earlier, claiming: “The power to tax involves the power to destroy.”  What did he mean? He meant that we are in bondage to the extent that we are taxed. What many people often do not realize is that we don’t work for ourselves.  We have a lien on our income, and we don’t work for ourselves until that lien is satisfied in full.

            That lien, simply put, is money owed to the IRS in taxes.

            People will often come into my office and insist that they are completely out of debt.  To prove their point, they will show me a balance sheet with no liabilities. Yet, I’ll observe they have a closely-held business interest in which their basis as almost nothing and has appreciated to $1 million or more. Or, they might have some highly appreciated stocks, bonds, mutual funds, real estate, investment portfolios, and IRA, a pension plan, or a 401(k) plan. And they either don’t understand or they forget that there is a lien on all of those assets. They don’t truly own those assets, nor can they do anything with those assets-consume them, spend them, or even pass them on to their heirs- until that lien is met.

The impact of taxes on the economy

Sometimes the media will attempt to console us by suggesting that we look at countries with tax rates much higher than ours to justify raising our tax rates. Yet, if you go to Copenhagen, Denmark, as I did a few years ago, you will discover that it is full of vacant, see-through buildings.  I am not talking about a mere occupancy problem.  I am talking about vacant! Why?

            The strength of an economy is based on economic incentive.  Unless there is economic incentive, economies do not grow. Lowering tax rates increases the economic incentive to work, invest and grow the economy. Ironically, this will actually raise government revenues. It was President John F. Kennedy who said, “it is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise revenues in the long run is to cut taxes now.”

            When people are stripped of the fruits of their labor, economic incentive is diminished and the economy freezes.

            Once I visited with a contractor who did small home remodeling jobs. As he expressed his work ethic and commitment to quality service, I thought of the small remodeling job I wanted at home.  Then it occurred to me that my wife and I had calculated that we couldn’t do it because of the increase in taxes I’d be paying that year as a result of a recent change in the tax law.

            Which provides more incentive to work hard- to remodel my home, or to pay taxes?  We were excited about the home remodeling, but paying more taxes didn’t provide the incentive.  Which is more economically efficient- for me to hire a worker, or to run my money through the government overhead and then have the government disburse it to him on welfare?

            Many have poked fun at President Ronald Reagan’s economics, suggesting that the well-off simply hoarded their increased earnings and there was no “trickle-down” to the general economy.  But in this case, the contractor was going to go without a job because we would have to pay increased taxes instead.

            When President Clinton proposed his national health care program and talked about businesses funding it, I remember asking my wife, “Julie, where are these dollars supposed to come from?  Our existing health insurance plan costs so much less than the tax would be. Which employee am I going to have to lay off in order to pay the payroll tax to provide health insurance to the rest of my employees? If congress is going to mandate that I provide insurance for my employees through this tax, I have to determine, which of my employees is expendable because I have to support all the others.”

            How have taxes become such a powerful influence over business affairs and personal lives?  It didn’t start out that way. Our definition of government has changed since 1913. We have steadily moved away from a government close to the people to a centralized government. That is one of the reasons we have a massive federal tax system today. Congress passes a law, and the public lets them do it.

            It all begins very innocently.  Perhaps the government assures us a new tax is just temporary-that they just want to pay for a new public works project. But, once the project is finished, does that tax get rescinded? No.

            From this temporary tax, perhaps the government moves on to a permanent property tax increase or even a value-added tax (VAT), like those found in most European countries. A VAT is like a national sales tax which is levied upon each point in the distribution chain: The manufacturer adds a tax when he sell his product to the jobber; then there’s an additional tax when the jobber sells it to the wholesaler, when the wholesaler sells it to the retailer, and again when the retailer sells it to you, the consumer.

            The most insidious thing about such a tax (and a reason that some politicians like it) is that it is hidden in the cost of goods- consumers don’t see it being taken out of their pockets, yet it forces up prices and inflation. It diminishes our ability- our right- to enjoy the fruits of our labor.

            But because of the WYHTE phenomenon, even these taxes are higher and impact you more than most people realize. Remember that you need to earn $2.00 to pay for a $1.00 candy bar?  Well, you need to earn $2.00 to pay $1.00 in taxes due to the double-taxation system of our tax code.

How Much Goes to Taxes?

How large, really, is the tax bite?  How much are we really paying?  Of course, we all pay differently, but add up some of the more common taxes, which include:

1)Federal Income Taxes: ranging from 14 to 36 percent, depending on income.

2)State Income Taxes:  Usually another 6 to 8 percent of income.

3)FICA and Medicare Taxes- Employee portion: 7.65 percent

4)FICA and Medicare Taxes-Employer portion: Same as above.  Did you realize that 15.3 percent of your income is going for this tax alone? What could you do with the money if your employer was allowed to pay it to you?

Now keeping in mind the WYHTE phenomenon, consider these taxes:

5)Sales taxes: 6 to 8 percent of purchases, though you spend money that has already been taxed once.

6)Gasoline Taxes: Average of 42 cents per gallon, though you spend money that has already been taxed once.

7) Property taxes: usually 1 to 1.2 percent of the assessed valuation of your home. Also levied on cars, boats etc… though you spend money that has already been taxed once.

8)Corporate Income Taxes: About five percent of every product or service you buy, though you spend money that has already been taxed once. This also affects any investments you choose to make, another double tax since you either purchased the investment with already taxed dollars, or you will be taxed when you sell.

9)Inflation (Yes, this is a tax! More on this later...): 3 to 5 percent of income, plus 30 to 50 percent of any returns on investments, even though you spend money that has already been taxed once.

10)Estate Taxes: A tax on passing property to your heirs at death. Starts at 37 percent on estates above $600,000 and goes up to 55 percent. (This doesn’t just hit the rich.  That includes home value, life insurance proceeds, investments, all assets. It adds up fast.) Another double tax because everything owned was purchased with after-tax dollars. In fact, estate taxes get hit 5 times. First taxation is when the dollar is earned, second is the inflation erosion, third is the business tax paid on investment, fourth level is the estate tax itself, and fifth is the sales tax when your heirs try to buy something with it.

11)Special Use Taxes, Fees, “Sin” taxes, etc: Too many to detail.

Add them all up.  No wonder it is determined that we work for the government until “Tax Freedom Day,” Which usually occurs around mid-May each year.

Just something to think about.