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Last Thursday, congressional Republicans unveiled their tax reform legislation. On the same day, President Trump nominated current Federal Reserve Board Governor Jerome Powell to succeed Janet Yellen as Federal Reserve chair. While the tax plan dominated the headlines, the Powell appointment will have much greater long-term impact. Federal Reserve policies affect every aspect of the economy, including whether the Republican tax plan will produce long-term economic growth.

President Obama made history by appointing the first female Fed chair. President Trump is also making history: If confirmed, Powell would be the first former investment banker to serve as chairman of the Federal Reserve. Powell’s background suggests he will continue Janet Yellen’s Wall Street-friendly low interest rates and easy money policies.

Powell is an outspoken opponent of the Audit the Fed legislation. In 2015, Powell delivered an address at Catholic University devoted to attacking Audit the Fed. Like most Fed apologists, Powell claims the audit would compromise the Fed’s independence and allow Congress to control monetary policy. However, like all who make this claim, Powell cannot point to anything in the text of the audit bill giving Congress any power over the Federal Reserve. Powell’s concerns about protecting the Fed’s independence are misplaced, as the Fed has never been free of political influence. The Fed has a long history of bowing to presidential pressure to tailor monetary policy to help advance the president’s political and policy agenda.

The Republican tax cut plan has some positive elements, such as increasing the standard deduction, creating a new family tax credit, eliminating the death tax, reducing the corporate tax rate, and lowering taxes on small businesses. It also has some flaws, such as the “millionaire surcharge” imposed on upper-income taxpayers. This provision reflects a belief that upper-income taxpayers only “deserve” a tax break if reducing their taxes serves the interest of government by increasing economic growth.

The worst part of the tax plan is that it adopts the chained consumer price index (chained CPI). Chained CPI is a way of measuring CPI that understates inflation’s effects on our standard of living. It does this by assuming inflation has not reduced Americans’ standard of living if, for example, people can buy hamburgers when they can no longer afford steak. This so-called full substitution ignores the fact that if individuals viewed hamburgers as a full substitute for steak they would have bought hamburgers before Fed-created inflation made steak unaffordable.

Chained CPI increases the inflation tax. The inflation tax may be the worst of all taxes because it is hidden and regressive. The inflation tax is not even a tax on real wages. Instead it is a tax on the illusionary gains in income caused by inflation. The use of chained CPI to adjust tax brackets pushes individuals into higher tax brackets over time.

Politicians love the inflation tax because it allows them to increase taxes without having to vote for higher rates. Instead, the Fed does the dirty work. Since their creation in 1913, the Federal Reserve and the income tax have both enabled the growth of the welfare-warfare state and the erosion of our freedom and economic well-being. The key to restoring our liberty and prosperity, as well as avoiding a major economic crisis, is reversing the great mistakes of 1913 by repealing the 16th Amendment and auditing and ending the Federal Reserve.

(Republished from The Ron Paul Institute by permission of author or representative)
• Category: Ideology • Tags: Republicans, Taxes 
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  1. animalogic says: • Website

    “The Republican tax cut plan has some positive elements, such as increasing the standard deduction, creating a new family tax credit, eliminating the death tax, reducing the corporate tax rate, and lowering taxes on small businesses.”
    There speaks a so called “libertarian”.
    Eliminating the “death tax” is positive ? Ignoring the fact that only a microscopic percentage of people pay it, an Estate tax, properly focused is one of the best means of lessening the chances of entrenching a ruling Aristocracy. Sure, in democratic America that horse has long bolted, however that should be no reason to throw out the last vestiges….
    And reducing the corporate tax rate is positive ? Corporations already pay actual taxes at a historically low percentage of the total tax receipts of the Federal why not reduce it more ? Because we all know how successful “trickle down” has been….
    Nor does Paul mention how the bulk of the 90% receives little or no tax relief (if their position is not actually worsened).
    Imagine a tax plan that focused entirely on relief for the 90%: I wonder whether they’d spend that money into the economy, increasing the profits of those same corporations… But, hell no: that would be socialism….

    • Replies: @jtgw
    , @Reg Cæsar
  2. We can dispense with auditing the Fed and go straight to ending it. Only question is, have you figured out how things will work once it is gone?

    • Replies: @jtgw
  3. jtgw says:

    Why do you write “so called ‘libertarian’”? Are you saying his arguments are not libertarian? Or are you just trying to say that you don’t like libertarian arguments?

    Do you have evidence that the estate tax prevents the rise of an aristocracy? And if you were somehow able to demonstrate that, can you demonstrate that the existence of an aristocracy is a bad thing for liberty? Do you recognize that unbridled democracy is actually very dangerous for personal liberty?

    Has it occurred to you that maybe the low effective corporate tax rate is caused by the very high official rate? That high official tax rates provide strong incentives for corporations to seek out and exploit loopholes to avoid paying the full tax, with the result that the government ends up collecting less revenue than it would have done with a lower tax rate? Do you realize this phenomenon has been recognized for decades as the Laffer curve?

    You probably think the Nordic economies are the best example of how to organize our own country. You might be interested to know that corporate tax rates are much lower in Denmark than in the US. You might be also interested to know that Nordic tax regimes rely much more heavily on regressive taxes like the VAT than the US tax regime, which relies much more on taxing the rich exclusively through income tax.

    You might finally be interested to know that there are good reasons why a welfare state would want to tax the poor and middle class more than the rich. For example, the rich are more mobile, so taxes that target them specifically will simply drive them overseas, depriving the government of revenue and depriving the economy of needed investment. Also, it is the rich who invest and create jobs, not the middle class and certainly not the poor. The more taxes are extracted from the rich, the less wealth is left over for investment and the fewer jobs are created for the middle and working class.

    However, none of this is to say that the current Nordic model is stable in the long-term. They already had to shift from a tax-the-rich system in the 1990s, when their economies were crashing and they realized they needed their rich citizens to come home. As their current system continues to squeeze the working and middle classes, it will be increasingly difficult to persuade those classes that they’re getting a good deal for their tax money.

    Finally, don’t even start to think that Paul does not care about the plight of the 99%. Why do you think he’s so concerned about inflation? Inflating the money supply is the primary way the rich and well-connected steal wealth from the poor and middle for themselves. Who gets the new money first? The banks and the big established corporations that the banks lend to. As the money spreads through the economy, however, its purchasing power is diluted as prices rise in response. The last people to get the money, usually in the form of wages and salaries, see almost no benefit, since the prices of all goods have risen and eroded any gain in value from the rise in wages. The minimum wage since 1979 has lost in purchasing power as much as it has gained in nominal value.

  4. jtgw says:
    @The Alarmist

    What is really needed is a complete ban on fractional reserve banking. Central banking only arose as a response to the problems caused by allowing banks to lend out more than they held in reserve. However, it only centralizes this problem and ensures the harms of inflation are imposed on all parts of the economy.

  5. @animalogic

    Corporations already pay actual taxes at a historically low percentage of the total tax receipts of the Federal why not reduce it more ?

    So why don’t we raise them to the corporate tax rates of, say, Canada? Or Ireland? Or Holland?

  6. @jtgw

    You might finally be interested to know that there are good reasons why a welfare state would want to tax the poor and middle class more than the rich.

    The middle classes of the major welfare states are willing to pay the taxes necessary to prop them up. (Relative homogeneity helps here– you’re supporting someone who looks, thinks, and acts like you.)

    Middle-class Americans are not. (Heterogeneity more clearly exposes the winners and the losers, and the gaps are bigger as well.)

    …they realized they needed their rich citizens to come home.

    For rich– actually, high-earning, regardless of net worth– Americans, “home” is the entire universe, according to the IRS. The rich in Europe simply leave the jurisdiction for awhile. Monaco is nicer in the winter, anyway.

  7. @jtgw

    Although I disagree about the estate tax and very few other tax breaks (not all aristocrats are good enough to be kept or pleased), I agree about everything else. I find it hilarious when socialists mention the Nordic countries, who actually practice fascist corporatism economics. I may add that the reason they had to moderate the tax-the-rich model was because automation was doing away with the full employment necessary for the “high income taxes and low corporate taxes and deregulation” near-utopia they had reached in the 70s and 80s to work; and that the model also works (or worked, rather) due to the small homogeneous populations these countries have (plus, Norway has tons of oil). Nowadays, I don’t know if they should fully switch to VAT, as not everyone will eventually afford to be a consumer if production is not encouraged by low prices; hope they can keep the balance. Specially considering that those societies are now being filled with non-homogeneous, poorer populations that both produce less and consume more (and in the form of refugee welfare checks, no less).

    Plus, that guy speaks as if corporations, and entrepreneurs really, could possibly be only rich wealthy people. He thinks it’s still 1850s London, as all Marxists do.

    Furthermore, I agree with Ron Paul about the new Fed pick (the media did not cover it because they were pleased, and showing pleasure at something Trump does is forbidden to them) and the inflation tax. However, I’d prefer the system to revert to US Treasury handling things instead of bankers, instead of no system; and I believe that at least for the moment Trump will positively influence the Fed – rates are slowly going up, if anything. Then again, since Bannon left I’ve realized Trump at best will be a Nixon-like moderate in regards to the economy.

    • Replies: @jtgw
  8. MarkinLA says:

    The worst part of the tax plan is that it adopts the chained consumer price index (chained CPI). Chained CPI is a way of measuring CPI that understates inflation’s effects on our standard of living.

    This is what happens when you base benefit payouts on COLAs instead of having the guts to vote for increases every year. You have to fudge the numbers down somehow.

    • Replies: @TomSchmidt
  9. @jtgw

    You might finally be interested to know that there are good reasons why a welfare state would want to tax the poor and middle class more than the rich.

    We don’t actually tax “the rich.” We tax HENRYs, high earning, not rich yet people. That is what an income tax does: the “rich couple”earning 250k in NYC face a marginal rate higher than the poor couple earning 80k in St. Louis. Except, with cost of housing, they might be equal in after-tax income.

    Assuming you don’t object to all taxes, what do you think of a wealth-based tax, set at, maybe, 2% of wealth tangible net worth annually? Well, since USA wealth is about 85 trillion, you’d need 4% of wealth annually to run the FedGov.

    Since it’s rather hard to assess that tax, why not a tax on land, a Georgist tax? It’s unavoidable, and would cut out the mulcting rackets of tax accountants.

    • Replies: @jtgw
  10. @MarkinLA

    Of course, they don’t use the Chained CPI to calculate the increases in the SS wage base. That has gone up about 3.4% annually since 1999, a cumulative increase of 75%. Meanwhile the CPI calculator fromJanuary 2000to September 2017 shows a cumulative increase of 46%. That’s a difference of $23000 more dollars subject to tax, for a net yield to the government of $2852 more per taxpayer at the maximum rate this year.

    They’re trying to do something about cutting SS payments without having to cut. The Republican tax plan does screw the blue state HENRYs. But it will really affect the older, poorer, white working class dependent on social security whose payments will drop in comparison to actual inflation.

  11. jtgw says:

    Well, all I’ve got to say about high taxes on the rich is that they don’t solve the problem of an exploitative and parasitic overclass; they simply create a new parasitic class, consisting of those who benefit from and live off the tax proceeds, e.g. federal bureaucrats.

    Good point about the Nordic system beings essentially fascist and corporatist. I would not say their systems ever “worked,” at least not without being clear about what we’re comparing them to and what we mean by “work.” If we’re saying that a welfare states “works” better with an ethnically homogeneous population than with an ethnically diverse population where one ethnic group lives at the expense of another, then I take it you mean the former is more politically feasible than the latter. As you say, people are more likely to tolerate taxing and spending if it appears to benefit people like them. If by “work” you mean delivering a higher standard of living than would exist without the welfare state, that’s where I disagree.

    VAT, of course, directly punishes consumers. I suppose the rise in automation had something to do with the collapse in employment, but I think maybe you haven’t quite got the causality. What would cause employers to automate while there were still employable workers around? If the government makes human labor artificially expensive, this will cause employers to prefer to employ a robot rather than a human being. So the ultimate cause is the deleterious effect of government on the labor market, not automation itself.

  12. jtgw says:

    I do object to all taxes, but I can concede that some taxes are less economically harmful than others. Tax policy gets worse to the extent people try to use it as a tool for manipulating the economy or society, rather than simply for collecting revenue while minimizing the economic and social impact. Punishing the rich for being rich is really, really bad policy; likewise, taxing land because of some belief that property owners don’t actually own their land and therefore owe “society” (i.e. the government) rent is also wrongheaded. But I think Milton Friedman wasn’t totally crazy for preferring a property tax to an income tax. I recall he cautioned that the tax must be on the value of the land itself, and not on any improvements. And the idea is not that far off from the kind of fee that property-owning members of a libertarian covenant community could be expected to pay.

    • Replies: @TomSchmidt
  13. @jtgw

    Well, the interesting thing to me about a property tax is it’s essentially unavoidable. California depends on income taxes, while Texas on property taxes. Except: it’s easy to avoid “income” taxes through any number of legal means, but property (at least land) is unavoidable.

    How this works in effect for both states is obvious from this. If illegal aliens get paid in cash, they’re not paying any income taxes. They are still consuming public services. If they are living in a house for which they are paying rent, they must at least pay for the property taxes on the property as a part of the rent. So, in states where taxation falls on income, for one example, those earning under the table or via other means (carried interest, for example) will not pay their share of societal costs while reaping societal benefits. In states like Texas, illegal aliens cannot avoid paying for their share of government taxation unless they squat on public land. I suspect this is what drives more and more wage-earning middle class whites out of California, and turns it into a state of very wealthy whites and Asians at the top, and very many poorer Latinos at the bottom, with a much smaller middle.

    Fundamentally, income taxation appears more and more to be a weapon used by the wealthy to prevent the striving, near-wealthy from climbing the wealth pole. That the income tax invites division and class warfare only makes it worse.

    • Replies: @jtgw
    , @Jim Bob Lassiter
  14. jtgw says:

    I see your point, though I think the bigger picture involving asking whether funding public services is more important than just privatizing those services. But I get the impression Texas is a much more private-property-based society than California, so you might be onto something there. Sticking to a property tax probably limits how much you can collect in revenue and therefore limits how many services you can provide.

    That the elite use policies ostensibly meant to provide for the poor to enrich themselves should, of course, not be surprising to anyone.

  15. Rurik says:

    flaws, such as the “millionaire surcharge” imposed on upper-income taxpayers.

    Dr. Paul,

    With (tones of respect), I see today on the Drudge Report headlines this story:

    Gates, Bezos, Buffett richer than poorest half of USA…

    the only reason I bring this up is because I saw recently where Senator Rand Paul seemed to dislike the progressive tax on the wealthiest Americans.

    I suspect that he is slightly out of touch with his constituents on this, and I fear repercussions for that. Most Americans feel the one percent did not earn all their wealth playing by the rules the rest of us play by. There is a feeling that billionaires are able to ‘game’ the system.

    I hope your son is recovering well. He is one of our best hopes for the future of this republic, and I wish the both of you God speed on your efforts to fix some of the things so terribly wrong with this nation, including perhaps most of all ending the Fed.


    ~ R

    • Replies: @jtgw
  16. jtgw says:

    It’s true that many of the rich did not earn their wealth but then trying to confiscate the wealth of the rich is not the right response either morally or practically. Morally because just because some of the rich do not deserve to keep their wealth does not mean none of them deserve their wealth; practically because, as with gun control laws that end up only harming law-abiding citizens and leaving criminals with their weapons, laws to tax the rich more heavily only motivate the rich to hide their wealth rather than invest it openly. Unfortunately, you are right that this is politically difficult because most people believe the government works by magic, such that if you just pass a law to transfer wealth from the rich to the poor, all that wealth will be transferred with no adverse effects. There is little appreciation that laws are enforced by human beings with the same failings and foibles as the rest of humanity.

    The other problem is the way that an accurate analysis of class struggle and exploitation is marred by Marxist fallacies and just plain envy. E.g. the obsession with “inequality” means people think the rich are exploitative just by being richer than other people, which means they don’t look at the actual exploitation of taxpayers by the parasitic bureaucracy and the assorted welfare dependents, which don’t just include ghetto trash but also include businessmen and farmers living off subsidies or bankers living off Fed loans. I mean, the whole system really is a fulfillment of Bastiat’s warning that socialists want “everyone to live at the expense of everyone else.”

    There are ways to actually fight exploitation, though. Inflation, for instance, is the most insidious means by which the exploiters redistribute wealth to themselves. The empire and the warfare state is also to blame; our huge military budget consumes vast amounts of capital and motivates borrowing and further inflation.

    You might be interested in this:

    • Replies: @Rurik
    , @Rurik
  17. Rurik says:

    Hey jtgw,

    this is politically difficult because most people believe the government works by magic, such that if you just pass a law to transfer wealth from the rich to the poor, all that wealth will be transferred with no adverse effects.

    I’m the last person who wants to transfer the wealth of the rich to the poor. Hardly. I’m just sick of the working poor having to bear the brunt of the pain of taxes.

    If you’re making 30k a year, and uncle Sam takes 2k from you, that one or two thousand dollars is a massive and punitive theft of the effort of your sweat and labor. We all need a certain amount to survive, we need shelter and food and often transportation. If you’re a working class schmo, driving every morning to a job of mind-numbing drudgery, because as with the S&L mass looting of the economy, or the subsequent 2008 mass-looting of the economy, your prospects simply aren’t that lucrative in the job market, especially as the PTB have been in and out-sourcing the better paying jobs – and then you need to replace the transmission in your old beater, and it’s going to cost you $1300.00 to do so, then having to hand over that money to the tax man instead of fixing your car- is draconian.

    ~ so

    what I’m saying is that as long as they’re going to hit the working poor with sledge hammer taxes, even as they lavish that lucre on the lazy and shiftless, illegal and wealthy (Goldman Sachs gets federal subsidies to build their new luxurious digs, Big Oil gets subsidies, Big Tobacco gets subsidies, Hollywood, etc…) It seems to me that if all this lucre is so necessary that they have to gut the working class, then I’d simply hit the big boyz, (over ten million a year, for instance, hard, and the billionaires) harder. Not to hand it to the poor, (except in extreme cases) but to fund whatever bullshit the fecal government seems to need funded.

    If there were no taxes on the middle and working class, then I’d have no problem with zero taxes on the uber-wealthy. But! As long as the waitress has to pay, and the bus driver, and the janitor and the plumber, then I’d just hit the billionaire much harder, because for one, he’s far away from survival level, and he doesn’t feel the pain they do, and secondly, because once you have a few million, making more becomes relatively simple compared to the people at substance levels.

    Personally, I’d fund the entire fecal government with tariffs. Nothing else. For one, it would require the fecal government to be a tiny, tiny fraction of the size and scope of what it is today, and secondly, it would help the American worker as opposed to the third world’s workers, for whom I harbor no malice, but being an American, I’d prefer that we don’t equalize our respective standard of living with the starving third world.

    Also wealth (and its cousin- power) are, in some ways, a zero sum game. If a few guys have all the wealth, then that’s going to make it more difficult for the others. It’s not about punishing AT&T, it’s about busting up monopolies so that the uber-wealthy and powerful don’t use that wealth and power to corrupt the system, (as we all know they do) and then shut out the little guys.

    Inflation, for instance, is the most insidious means by which the exploiters redistribute wealth to themselves.

    I could not possible agree more. We MUST end the Fed!

    I don’t think we’re too far apart ideologically, I just feel that if the working poor and middle class must be taxed at punitive rates, then I hardly am going to cry tears for the investment class paying more in Capital Gains- that they didn’t have to sweat and labor and get up at five in the morning and suffer petty supervisors and work jobs that rob them of their dignity – that they’re then taxed on – so that the investment class can cry about 15% on their dividends and sheer profits.

    I’m not against the rich, I’m against the corrupt, and the tax system that taxes the poor to keep them poor, and therefore stuck in a position that keeps them serving the rich, because if they don’t, then they starve.

    End all w0rking and middle class taxes! Start taxing people once they have covered survival expenses. Like at 50k, say. And then start taxing them if you must, once they can afford the necessities.

    I just find it beyond despicable that guys like Romney pay a smaller rate than guys and gals that bust their arse for a living, only to have uncle Sam tell them to cough up their children’s college savings, if any.

    It’s a rotten system, and if any should pay into it, it’s the uber-wealthy who benefit most from it. IMHO

  18. Rurik says:


    not since reading Lysander Spooner have I remembered feeling such an affinity for another person’s views

    Thank you. That was great stuff!

    • Replies: @jtgw
  19. jtgw says:

    After I posted that link I discovered that Unz shared it here. It comes with hyperlinks!

  20. Tony says:

    ” Since their creation in 1913, the Federal Reserve and the income tax have both enabled the growth of the welfare-warfare state and the erosion of our freedom and economic well-being.”

    Yo Paulie, you can blame FDR for starting a lot of that too. On a side note, I hope your son gets justice for what happened to him. Assaulting a member of congress isnt taken too lightly.

  21. map says:

    The chained CPI is nothing new.

    This is the CPI-UX1 that emerged in the 70’s and 80’s when inflation was massive.

  22. @TomSchmidt

    Your observations sound good in theory. Reality is very often different though when it comes to illegal aliens (or even many legal ones for that matter) and the property taxes collected on the housing they use.

    If you’ve got eight underclass immigrants living asshole to belly button, shift sleeping etc. in a housing unit that you and I would consider fit for only three occupants max, the per capita property taxes collected from this scenario are chump change in the grand scheme of things. In some cases, you can also throw in deteriorating tax values of the entire neighborhood if enough of this type of scenario is visible. Put four of those eight in public school on WIC, welfare, Medicaid, ESL services and free lunches and the tax eater math gets even worse

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