US Public Policy .com

Balance of Power

Winning the Middle Class Struggle against Tax Oppression

Warning of Perpetual Debt

"I place economy among the first and most important virtues and public debt as the greatest dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt. If we can prevent the government from wasting the labor of the people, under the pretense of caring for them they will be happy." Thomas Jefferson

Introduction

BALANCE of POWER is the culmination of decades of research, analysis, life experiences, and observations of the author: John T Koraska, MSgt, USAF, and Retired – Age 71. It is a reasoned roadmap through a maze of articles published on this website, debtism.com and the Tyler Morning Telegraph. It is my best work ever and very likely my last effort to warn this nation of the overwhelming challenges facing this great country. Armed with the truth, it is my stubborn belief that no challenge is equal to the collective strength, will, and character of the American worker. The USA emerged from the last “Great Depression” and will survive the turbulent times ahead.

Personally I wish to thank my fellow citizens for the opportunities afforded me. At taxpayer expense I have been privileged to travel the world and to enjoy in retirement, a life of leisure. I have observed up close and personal, the majesty of planet earth. I have also seen the result of the battles between greed and justice and deeply saddened that greed is most often the victor.

During the course of these studies I have come to learn that each level of new knowledge leads to new thresholds of understanding that provide deeper insights into the next level of knowledge. This rational development may simply be a maturing circle in a search of truth. I wish that had occurred to me fifty years ago. Hell, I might have accomplished something worthwhile with my life.

Winning the Middle Class Struggle for Tax Justice

Federal tax and welfare laws have created significant obstacles to achieving the American Dream by millions of hard-working Americans. The law has become so hopelessly complex and complicated that legislators cannot comprehend what they, themselves have enacted into legal mandates. The majority of your congressmen and senators have to pay professionals to prepare their individual tax returns. Tarnish Spreads on the ‘American Dream’

Failure of US domestic and foreign policies have compromised the future of this great nation and created resentment and anxiety at home and abroad. The supreme power of the US military and its unwelcome intrusion and/or invasion of other nations has created global resentment. The supreme power of the US government is producing middle class debt slaves, welfare dependency, and untenable national liabilities.

Specifically, laws that tilt the scales of justice toward profits over wages or between owners and employees are examined. Workers must earn incomes that provide as a minimum, a living wage with a cushion for savings, to meet future needs such as retirement. Companies must earn profits with a cushion for investments to enhance their own development. Both must be held accountable to themselves for success or failure and when the latter occurs or appears inevitable, work harder or try again. Government interference should be reduced to an absolute minimum.

A healthy competition between profits and wages operates best when treated with equal balance and respect. Contented employees are a company’s best assets. A worker’s best security is a good paying job. Society functions best when Freedom of Choice is held in high esteem. A Nation prospers when resources are managed prudently. It is doomed to failure when defective law supplants justice and natural talent and resources are wasted. Tax policy bias of profits and capital gains over wages and interest income should be corrected.

This segment is addressed primarily to American youth and the silent majority. They are the ones often called upon to do the dirty work, pay the taxes, and fight the wars; but whose voices are seldom acknowledged, heard, or even appreciated by their elders or the ruling elite. To those aware of the economic challenges facing the nation, little explanation is necessary. To those who stubbornly refuse to learn, explanation is near impossible.

Government interference between owners and employees has created most of the problems, herein being addressed. The government should be confined to doing its primary job of protecting the homeland. Troops should be brought home from abroad and maybe our own borders could be defended. Homeland Security is a joke. What is the Department of Defense, chopped liver? Or, is it the Department of “Offense”?

US Consumption fed by Debt

The US population represents less than 5% of the earth’s inhabitants; but consumes 20% of its resources. The economic engine of the US is propelled by consumption. Mass marketing induces consumers to buy things they don’t need with money they don’t have. Consumption is fueled by the creation of new money and debt, which substitute for the shortages of cash and savings.

The Federal Reserve banking system creates the new money and government tax policy rewards the debt. Widgets are manufactured in factories owned by foreign governments and international corporations that have no national allegiance. The factories are often manned by cheap labor that barely survives on slave wages.

Demise of Dollar Hegemony

The public is generally unaware that much of the luxury enjoyed by Americans has been significantly increased by the role the $US dollar played in international commerce since WWII. As the dominant currency used to denominate global trade, the dollar allowed the US to export an infinite supply of $100 dollar bills that cost 6 cents to produce. Even today, the US imports, in return for a $100 bill, more than a barrel of crude and Americans mistakenly believe they are being ripped off by OPEC.   

The increasing US dependency on foreign countries to finance domestic consumption is putting strains on global trade, finance, and the USD. Foreign governments and centrals banks are sending strong signals that international trade and finance arrangements are unsatisfactory. The central banks of many countries are increasingly moving away from the dollar toward the Euro, commodities and precious metals.  

 The US dollar is now at its lowest value - measured with a trade-weighted index that blends the currencies of the top US trading partners - since the era of fixed exchange rates ended in the early 1970s. Public finance in the United States is in crisis and it appears that political leaders and the Federal Reserve banking system are virtually powerless to do anything about it.

There are sensible policy changes that could be pursued that might postpone and reduce the pain of an inevitable catastrophic economic downturn; but, they will not be pursued. Just the threat of a US recession scares hell out of everybody. Even a modest US recession - dampening the US perpetual consumption and debt machine – will impact global trade.

Why the Middle Class must unite!

 Demand that Congress STOP this Hemorrhage of Debt!!

Grave concerns of US debt are also being expressed at home. The accumulated national debt total of government (federal, state, local) and federal social insurance commitments (net present value), business, banks, institutions and citizens possibly exceeds the national net worth of the country. Truth of American Debt   

“The federal government’s liabilities and unfunded commitments, which include military and civilian retirement benefits and promised Social Security and Medicare payments, are growing rapidly. Simply put, our nation’s financial condition and long-term fiscal imbalance is on an imprudent and unsustainable course.”  Government Accounting Office (GAO) FISCAL YEAR 2005 U.S. GOVERNMENT FINANCIAL STATEMENTS www.gao.gov/cgi-bin/getrpt?GAO-06-406T

The National Debt has increased $3.3 Trillion, a 58.9% since 2000. US government explicit and implicit Social Obligations and commitments have increased almost $30 Trillion, an amazing 202.5%. The rapid increase in National Debt, while alarming is controllable, and may be cured by relatively painless adjustments in tax and welfare policies. The dramatic increase in Social Insurance Obligations is out of control and can only be cured by major surgery on tax and welfare laws that have transmitted the debt disease throughout the country. Any delay of significant reforms will only increase the risks of severe economic and social damages.   

Unsustainable levels of debt threaten US national security. The threats are real and if not brought under control a Legacy of Perpetual Debt is certain. A few minor changes with significant economic impact can alter the course being traveled toward a Legacy of Perpetual Prosperity. It will take years to work through this mess. Well conceived policies developed now can alleviate much of the suffering and spread this nation’s resources more equitably based on merit and need.

Tax Oppression of Middle-Class Wage Earners

The Federal Insurance Contributions Act (FICA) is tax fraud. It is not Insurance which is a contract and it is not a Contribution because it is not voluntary. The Social Security Act of 1935 states that it is an income tax on employee wages and an excise tax on employers; to be paid in addition to other taxes. Social Security Act of 1935

Elected officials over the past century seem to have forgotten the two foremost responsibilities of the federal government are to provide for the defense of the United States and to promote the general welfare. The distinction between the words “provide” and “promote” seemed to have been ignored during the era of the “New Deal”.  

This is the same graph with a minus (-) sign inserted to illustrate that the US Treasury is liable for exactly this same amount:

Repeal Business Wage Expense Deductions of FIT & FICA Taxes

 IRS Business Wage Expense Tax Deduction

IRS Publication 535 (2004), Business Expenses
http://www.irs.gov/publications/p535/ch06.html
IRS QUOTE:  6. Taxes... 

 Employment Taxes:
If you have employees, you must withhold various taxes from your employees' pay. Most employers must withhold their employees' share of social security and Medicare taxes along with state and federal income taxes. You may also need to pay certain employment taxes from your own funds. These include your share of social security and Medicare taxes as an employer, along with unemployment taxes.

You should treat the taxes you withhold from your employees' pay as wages on your tax return. You can deduct the employment taxes you must pay from your own funds as taxes. You pay your employee $18,000 a year. However, after you withhold various taxes, your employee receives $14,500. You also pay an additional $1,500 in employment taxes. You should deduct the full $18,000 as wages. You can deduct the $1,500 you pay from your own funds as taxes.  UNQUOTE

Change the above IRS Wage Expense Tax Rule to read like this:

Employment Taxes:

If you have employees, you must withhold Federal Income Tax (FITW) and Federal Insurance Contributions Act (FICA) income taxes from employees’ pay. You cannot deduct 

These taxes as business wage expenses and you cannot deduct the employers’ FICA taxes as wage expenses.

You should treat the FIT and FICA taxes withheld from employees’ pay as individual income taxes not wages. You should treat employer paid FICA taxes as an additional tax on business income that is not deductible.

When implemented, the IRS tax rule change will immediately convert FICA/OASI trust fund cash flow deficits Chart 1 into surpluses Chart 2

Only two laws are required to be changed to transform Social Security OASI Trust fund from a ledger of debt to a real Trust fund with real assets.  
 

Change the law that requires Social Security surpluses may only be “invested in special-issue Treasury bonds to read: “Social Security surpluses may only be invested in marketable financial assets, with no more than 30% investment in marketable US Treasury securities.

SSA response to the question, above, is even more disingenuous than the previous answer.

They fail to explain that the special-issue Treasury bonds “investments are offset dollar for dollar with US government liabilities that can only be redeemed by tax revenues or debt issues sold to the public that they will be required to pay real Interest on.

Also, there are no FICA/OASI surpluses to invest. See The Whole Truth about Social Security

With “real world” accounting, the OASI Trust Fund has been operating with cash-flow deficits for decades. SSA continues to maintain the OASI trust fund will build surpluses until 2017.

No one should take comfort in the fact that the so called trust fund assets is a ledger of debt that will continues to grow until laws are changed.  

The real issue is the unreliability of government accounting. Congress and the administration should be held accountable for this shell game.

The response to the above question is even more disheartening than answers to the previous ones. NOTE: With just two changes: (1) the IRS tax rule that allows business to deduct FIT and FICA taxes as wages; and  (2) the law which provides OASI surpluses may only be invested in government special debt instruments, the above Answer can be converted to a positive forecast of Social Security sustainability. No large infusion of additional revenue will be required.    

There is no valid reason that the Social Security retirement program cannot be converted to an equity-based entitlement program whereby participants are insured to get a safe return on their investment, an asset that may be passed on to heirs. To do that, the phony Old Age & Survivors Insurance (OASI) Trust Fund, loaded with IOU’s would need to be replaced with a real Trust Fund, with real assets one that comprises sound economic principles of compounding asset value instead of compounding government debt. To accomplish this, only one simple change in law is needed:

Replace Corporate Income Tax with National Business Receipts Tax

Corporations prefer debt to equity financing because the IRS tax code allows business to be rewarded by government rather than have profits reduced by fair tax laws. While dividends must be paid or shares repurchased with after-tax profits, interest payments on every dollar borrowed is tax deductible. Wage, tax, and interest business expense deductions from gross profits unfairly shift the burden of taxes from corporations onto the shoulders of employees and the federal government. The practice encourages debt as a substantial means of business finance instead of capital formation.  Results are unsustainable levels of government debt and the creation of debt slaves among employees.