I hear a lot about income disparity, the widening gap between rich and poor, the loss of the middle class, and the notion that wealth redistribution is a right and proper function of government. There are grandiose notions about eliminating poverty and world hunger, spouted by the super-rich and leaders of organizations like the International Monetary Fund.
But my extensive research into American history, economics, and current events tells me that everything in our system works to shift wealth upward, with those of lesser fortunes or opportunities supporting the overhead.
“You’re wrong!” scream the media-educated, who remind me that one percent of the population pays 99% or the taxes, or similar statistics. Well, let’s look at that. Where do federal revenues come from? According to a Google search, 47% of federal revenues come from individual income taxes; 34% come from payroll taxes; 9% from corporate income taxes; 6% from “other”; 3% from excise taxes; and 1% from estate and gift taxes. This does not count individual state revenues, which come generally from income tax (in those states which have them), property, and sales taxes. Then there are local revenues, which usually come from property and sales taxes.
So which taxes do the wealthy pay 99% of? I would have to assume--if the statistic is accurate--the media-informed are citing only income taxes.
Before the income tax was instituted in 1913, most federal revenues came from tariffs and excise taxes. Protective tariffs were a source of constant friction between Southern and Northern, Democrat and Republican interests, until the income tax was instituted. The Northern industrialists liked tariffs, but the Southern agricultural interests, who had to pay higher prices for imported goods, didn’t. Part of Abraham Lincoln’s Republican platform in the election of 1860 was advocacy for higher tariffs, and some people claim that was the primary reason for Southern secession. He also supported railroad expansion, and his administration--and subsequent ones--gave huge land grants and subsidies to the railroad companies. After all, Honest Abe had been a corporate railroad attorney before running for office.
So how does taxation shift wealth upward? It reduces disposable income, which isn’t a problem if you’re swimming in money, but if you can barely pay the rent, taxation represents a significant investment, even if you don’t pay income tax. If you work at all, you’re paying payroll taxes. If you rent or own a home, you are paying property taxes, either directly or indirectly. You pay sales tax on food, utilities, gas—if you have a car—and everything else you buy. You pay excise taxes on any luxury items (such as alcohol, cigarettes, hotels, air fare, as well as utilities). You are paying for licenses, fees, and car tags. And, you are paying for mandated insurance on your car.
This becomes a significant tax bite, especially if your income is low. When individuals are supporting up to four levels of government (city, county, state, and federal), the amount from so many taxpayers necessarily dwarfs the super-rich contributions to the nation’s cumulative tax burden.
How is that money spent? War is always expensive, if you’re a government, but it’s a boon if you’re a banker or government contractor. Even in the rare times of peace, federal contractors and federal employees and retirees may be the richest groups of people in the US.
Among federal employees, this includes not only elected officials and their staffs, but the top people in the 134—more or less--federal agencies that have been created since the Constitution was ratified. While state and local governments may differ in the details and the scale, they are essentially set up like the federal government, complete with bureaucracies, government contracts and contractors, and decisions based on favoring the few at the expense of the many.
Other methods for shifting wealth upward include the stock market, the Federal Reserve, and debt, and they are all interrelated. The significance of the debt-backed dollar cannot be under-estimated, as it effectively saps the wealth of individuals through promotion of national and individual debt, with interest on national debt now at about six percent of national revenues.
What is the debt-backed dollar? In short, the Federal Reserve Act of 1913 empowered a banking cartel to create money out of nothing to fund Congressional appropriations. Government spending is financed through the sale of treasury bonds to individuals, corporations, the Fed, foreign, state, and local governments. It is, in effect, a Ponzi scheme, with the upshot that Congress must spend future money to create money, with the help of the Fed’s magic wand. The Federal Reserve Act, then, put Congress in the debt creation business, so Congress is compelled to spend money to stay afloat. As of February, 2018, national debt was $20,493,027,951,424 and growing.
However, the money paid to the Fed in interest on this national debt increases the tax burden and reduces the disposable income of people who support it. Personal debt adds to the wealth of the bankers through interest payments and an economic hold over their assets, as evidenced by mortgages or car loans.
So, who besides the bankers benefit from this largesse? Government contractors and the stock market are major beneficiaries. The stock market has provided for government back-ups since the London Stock Exchange was blessed by Queen Elizabeth I in 1571. The British government became increasingly dependent on the stock market to finance its wars, notably the Seven Years’ War, between 1756 and 1763, and later the Napoleonic Wars, but taxation played a major role, too. In fact, a careful reading of Adam Smith’s famous tome, Wealth of Nations, published in 1776, shows it to be a study into the various methods of taxation that governments had used or could use to pay debt from “the late war,” that ended in 1763.
Some of the largest corporations depend heavily on government contracts to ensure their profitability. That the banks, stock market, and federal government have been closely aligned since the nation was founded shows in the creation of the first central bank in 1791, brainstorm of Alexander Hamilton as Treasury Secretary. The New York Stock Exchange was conceived in 1792 under a buttonwood tree and formalized by the so-called “Buttonwood Agreement,” by 24 stock brokers who agreed to trade only among themselves, thereby eliminating auctioneers and other individuals from their clique.
The first securities traded on the NYSE were Revolutionary War bonds, shares of the First Bank of the United States (the first central bank), the Bank of North America, and the Bank of New York. The Bank of New York, founded by Alexander Hamilton, provided the first loan to the newly created United States in 1789, to pay the salaries of George Washington and the US Congress. The banks, stock market, and federal government have enjoyed a co-dependent relationship ever since.
That the United States was created as an economic engine shows in its history and its Constitution. Not only is the Constitution an economic document that gives the federal government control over all “economic narrows” in and between states, such as navigable rivers and postal roads, but it gives the government the implied right to perform any act not specifically prohibited, such as the first central bank.
Script for the First Bank of the United States—the first central bank—set the precedent for wild stock speculation when it was first offered July 4, 1791. Many congressmen were purchasers of this script (rights to bid on subsequent stock). The price soared, then crashed, and Treasury Secretary Hamilton propped up the price with public money to buy government securities.
They say war “stimulates the economy,” but it also bankrupts governments, while profiteers get rich. The so-called “robber barons” of the 19th century, like John D. Rockefeller and J. P. Morgan, paid substitutes to fight the Civil War for them, while they exploited the war to generate millions in sales and profits, financed the government, manufacturers, railroads, banks, the stock market, and other investors. Rockefeller learned early it was easier to make money by lending it than working for it. As a result, his family has been a dominant force in the banking industry, as well as the oil industry, for generations.
The best example of the trickle-up effect of modern economics shows in the burgeoning debt of third world countries, such as Ecuador. I just finished reading a book entitled Savages, by Joe Kane, published in 1995. The author describes his work with the indigenous Amazonian cultures endangered by the oil boom and exploration, the Huaorani, known as a fierce group of nomadic hunter-gatherers who had never been conquered, until the country’s government sold mineral rights out from under them. Kane notes that in 1970, before the oil boom started, Ecuador’s national debt stood at $300 million. Twenty years later--after the oil companies had removed 1.5 billion barrels of crude, about half the estimated reserves--national debt had climbed to over $12 billion. As of 2016, the national debt of Ecuador was $35.5 billion
How did this happen? The method for impoverishing a people is well described in Confessions of an Economic Hit Man, by John Perkins, in which foreign investors promise governments economic booms in exchange for certain favors, like oil concessions. The only caveat is that the foreigner (in this case, Americans) provide, at the country’s government’s expense, the engineering, equipment, major personnel, and other ancillary services. Meanwhile, the International Monetary Fund devalues the country's currency on a regular basis, raising the price of food and other necessities for the local populations. .
Foreign investors are deadly for “emerging economies,” because they have no investment other than money, often other people’s money, that they manage for maximum profits. The stock market supports this worldwide exploitation by providing a layer of shells between the dirty work and the innocent-appearing reports and dividend statements. Americans and other first-world inhabitants thus become distanced from their retirement portfolios, and how their money is being used to support the predators. As author Kane suggests in his book, who, really, are the “savages”?