Socialism Destroys Slowly

Monty Pelerin / EconomicNoise.com

As this country slowly sinks into the abyss of Socialism, all types of changes are beginning to appear.

Reader Ken in Tyler comments on the difficulties of investing:

The difficulty I have with the concept of “investing” these days is that the methods available have been so distorted along with the entire financial market, that there seems no avenue available wherein the risk can be accurately determined. So the traditional method of balancing risk with potential return is no longer valid.

• - Bank savings, or CD’s? Real returns are negative.
• - IRA’s? Increasing rates of taxation eliminate any advantage of deferred taxation and the government will soon likely “nationalize” the accounts anyway, leaving individuals with the same meaningless IOU’s that are piled up in the Social Security Trust Fund.
• - Stocks? Inflated, distorted, and increasingly dominated by alg0-driven computer trading that relies on public perception or rather deception.
• - Metals? Grossly manipulated by a few paper traders to the benefit of the government who wish to disguise the current state of the economy from the sheeple and maintain “public confidence”.
• - Offshore? Big Brother’s arm is reaching ever further to penalize, tax, seize or criminalize such activity.
• - Land? Because of “property taxes” you never own land, just rent it from the government with seizure of assets resulting from any taxes not paid. And if the land has been in your family for generations, it is likely now deemed to be much more valuable (in inflated FRN’s) so eventually the inheritance tax will prevent you from keeping it.

One by one our government is establishing ways to confiscate and control all real assets with the ultimate result that all citizens are reduced to being equally poor and dependent on the dole in one form or another.

As noted, both control and confiscation are at work. These are necessary by-products of Socialism.

Control is a prerequisite of Socialism. In order to achieve conformity, an orientation toward society and away from the individual is necessary. This control is generally advanced by regulatory edict.

The effects on investing and wealth creation reflect Lady Thatcher’s limit (running out of other people’s money), a condition eventually reached by all social welfare states. Conventional taxation is limited while the spending appetite of the political class is infinite. Eventually these two forces collide.

The history of the US tax code reflects this conflict. The country was founded and survived without an income tax until 1913, arguably a period of its greatest growth and wealth creation. When the income tax was applied, promises were made that it would never apply to most citizens and never become a burden to the wealthy. Anyone looking at how the US income tax levels and code mushroomed sees both the forces of plunder and the needs of Socialism at work.

At some point, tax rates reach levels that they negatively impact the incentives to work. At high levels of taxation, these disincentives threaten the well-being of the economy itself. It is the ever-increasing demands of Socialism that threaten the host upon which it depends. The golden goose begins to weaken, yet the need for more funding continues to grow.

The US has reached the point where Socialism’s perceived needs have outgrown the ability of conventional taxation to supply them. Higher income tax rates are likely to be counterproductive, slowing the economy. So, alternative sources of revenue are sought. Only the imaginations of the political class and their consciences restrict where they go from here.

At these desperate stages, “confiscatory” actions come into play. Taxation at higher levels than ever intended, broadening the base of what qualifies as taxable and movements toward actually confiscation of private wealth all characterize what is just beginning. James Quinn describes one aspect of the predatory US tax laws:

… the US government is making it increasingly difficult to get out of Dodge, and those that have not already done so may well have left it too late. The government does not want its citizens living overseas, nor do they want its citizens having assets overseas. Currently there are some 6 million Americans living overseas, and they have assets and incomes that are difficult for the US government to control and tax, and the US government does not like that.

The US is the only country in the world (except for Eritrea) that has citizenship based taxation. No matter where you live, and no matter where you draw your income, the US taxes it. Every other country has residence based taxation – you are taxed only if you reside in the country or earn income in the country. For instance, if you are a Canadian working in the US, you will have no Canadian tax obligations, unless you have income from Canada. If you are an American working in Canada, you are liable for US tax on your Canadian income. If you are an “accidental American” – and there are potentially millions of these around the world – born to an American citizen overseas, or born to a foreign citizen who was travelling through the US at the time of the birth – you are a US citizen, and may not know it. The US does not care – and will happily seek you out and punish you for failing to file and pay US taxes. No leeway is given.

Does anyone believe that such claims are consistent with a pretense of freedom and liberty?

The Thatcher Point has been reached in the US, at least with respect to its existing tax code. Conventional tax sources have been exhausted. Desperation drives government to seek other sources of money. What Ken described above reflects the actions of a cornered and wounded animal (government) desperate to survive. Modern government was built on its ability to deliver an increasing supply of “free goods.” Without an ever-increasing supply of funds, this Ponzi scheme is over. The Emperor will be exposed.

The US has a decision to make. It must turn its back on Socialism or it must accept the increasingly totalitarian form of government that advanced states of Socialism requires. The population does not see this choice. Most are naive regarding history and economics. Few have ever lived under advanced Socialism.

As a result most citizens think that a lifestyle choice is being provided to them. At the individual level, this choice is seen as one between a comfortable life without too much effort or a wealthy life if you try hard and succeed. This trade-off is the great lie of Socialism. The US, with its now over-hyped “can-do” attitude, still believes that “fairness” and rising living standards are compatible. Up to a point that is true, but that point has been passed. The ideologues driving our government either don’t recognize the incompatibility of the two objectives or are unwilling to admit it.

As our economy continues to languish and perhaps even retrogress, the tensions between those who want others to support them and those who want to keep what they earn will continue to grow.

http://www.economicnoise.com/2013/01/11/socialism-destroys-slowly/