TAX RELIEF — NOW!
Did you know:
...43.5 cents out of every dollar you earn is spent by government?
...there are 151 taxes on a loaf of bread, 87 taxes on a dozen eggs, 116 taxes on a new suit, and over 600 taxes on a house?
...government's take from the average American family last year was $9,607 in direct and hidden taxes?
...there are more people getting checks from Uncle Sam than working in private industry?
...the federal government has so many welfare and subsidy programs it can't even count them all?
TAX TARGET: WASHINGTON shows you how billions upon billions of your tax dollars are wasted by Washington every year.
It proves that the federal budget could be trimmed $100 billion a year, without hurting a single important program.
It reveals the only way to halt sky-rocketing taxes and spending. The part you must play in bringing the monstrous federal bureaucracy under control.
When I began my campaign fifteen years ago for Proposition 13 — property tax reduction by law — not too many people believed it could be done.
The politicians, the free-spending bureaucrats, the layers and layers of entrenched public workers in California barely noticed us. Most of them stifled a yawn, poured another cup of coffee, and went right on doing what they did best: taxing us into the poorhouse.
Even many folks who wanted tax relief — who needed it desperately, to keep a roof over their heads and food in their stomachs — weren't convinced it would ever happen. But they knew they had to try.
Thousands upon thousands of them distributed petitions, collected signatures, sent us the few dollars they could scrape together. Steadily, gradually, then faster and faster, the momentum grew.
By the time they were done, alarmed and angry taxpayers in California had collected over 1.5 million signatures on our petitions. The major hurdle had been cleared: Proposition 13 would be on the ballot in June 1978. Every tax-paying Californian would have a chance to vote on it.
Suddenly, the big-spenders noticed us. They opened wide their war chests and financed a million-dollar campaign against Proposition 13. Every government employee, every teacher, every policeman, every fire man, every city clerk was told his job would go out the window if Proposition 13 passed.
It was all a bunch of barnyard compost, of course. And the people knew it. On election day, June 6,1978, over four million Californians — two voters out of every three — said, "I've had enough. Stop taxing me to death!"
Proposition 13 put the brakes on taxes in California. It made a reduction in property taxes mandatory, by Constitutional Amendment. The people finally had a chance to speak, and their message was heard in every town, every village, every city in this country — from Sacramento, California to Washington, D.C.
We've won a major battle, but not the war. Now, it's time to take on the most wasteful taxocrats in history: the spendaholics in Washington.
In the following pages, Gary Allen confirms your worst fears about how your tax dollars are wasted by the bloated bureaucracy on the Potomac. He shows you how billions and billions of dollars, taken from you by government, go down the federal drain every year.
Tax Target: Washington is a book every American needs to read. It will make your blood boil. But isn't it about time you got angry at what's being done, in your name and with your money?
I urge you to read every word of every chapter in this book. Get your friends and neighbors to read it, too!
Then, demand a halt. If the politicians won't change the policies, then it's time to change the politicians! Only you can do it. And I urge you to start now.
November 1978
HOWARD JARVIS
Los Angeles, California
CHAPTER 1 - THE WASHINGTON SPENDATHON [BACK TO TOP]
Americans are becoming fed up with inflation, taxes, and the mounting encroachment of Big Brother in their lives. The nation's illicit love affair with Big Government is evaporating faster than water on an Arabian sidewalk after a spring shower. One measurement is the discovery by a pollster that the public now has a higher regard for garbage collecters than for politicians. Imagine how Joe and Jane Citizen would rate bureaucrats!
Lou Harris, who does polls for many candidates, has said, "Public aversion to big government has now reached flood-tide proportions. When asked what was the 'biggest threat to the country,' 10% of the public selected 'big business,' 15% big labor,' 32% 'big government,' and 32% volunteered 'all three.'
A majority of Americans — over 75% — feel that "the trouble with government is that the elected officials have lost control over the bureaucrats, who really run things." The number who believe this, says Harris, has risen eleven points over the past three years. Harris found that 62% of the American people believe that the trouble with most "Liberal" Americans is that they think problems can be solved by throwing money at them, and that is dead wrong. An even larger majority, 81%, feels that "the trouble with your getting special benefits and handouts from the government these days is that you will have to pay for them four or five times over in higher taxes." Sound like you? And, by a seventy-seven to fourteen margin, the public feels that "a candidate who says he can give the unemployed government jobs and not increase federal spending just isn't being honest."
Even though much of the anti-government rhetoric coming from candidates each election year is about as sincere as the pretty speeches of a shipboard Don Juan, Americans should take heart from the fact that even some former worshippers at the altar of Big Government are awakening to the ravages of the bureaucratic Frankenstein. One of the most eloquent flip-flops we have read in recent months was by Phil Tracy in the radical chic Village Voice for April 19, 1976. Consider:
This story grew from the feeling that nothing in Washington functions any longer.... That the means of government have gradually replaced the ends. That Washington no longer carries on in order to serve the rest of the country but now exists primarily to serve itself.... Nobody, particularly liberals, any longer believes that the policies they advocate or the programs they propose will accomplish much more than the hiring of more government bureaucrats. They don't believe their own solutions....
Tracy points out that Washington is all but drowning in information. "But there is very little knowledge. And no wisdom whatsoever.... Are the farmers in the Midwest angry? A hearing will be held. A bill drawn. Hire some of their people to do a big study for the Ag Department."
The charades go on, but the people are beginning to realize that government has no real solutions. That it is, in fact, a large part of the problem!
Even more encouraging than the succinct analysis Tracy brings to his dissection of Washington is his approach to solving the problems created by Washington. He actually believes that we must again begin relying on individuals to solve the problems we face! Listen:
You see, the dirty little secret Washington is hiding from us is that we can't pay people to be compassionate for us. We either do it ourselves, as individuals, or we don't do it at all.
You can bet that, if even the Village Voice has gotten the message we have been sending, it will not be long until that message is fully understood in Washington. In the long war which government has been waging on its own citizens, Americans are beginning to fight back. And it's high time, isn't it? Let's look at just what our tax-mad bureaucrats have given us.
Perhaps the best barometer of gargantuan government is the explosion of government spending. The proverbial drunken sailor on a binge seems like Scrooge when compared to the Washington bureaucracy. The $125 billion spent ten years ago by the federal government was at the time properly considered enormous, but it sure seems puny when contrasted to current budget extravaganzas. Spending this year will go sailing past the half-trillion mark — with about as much fanfare as another Elizabeth Taylor wedding. This is a jump of nearly $50 billion over last year! It is obvious that the bureaucrats in Washington believe the sky is the limit. It is also obvious that if this mad spendathon is not stopped — and soon — the politicians in Washington will bankrupt us, or have us swimming in baskets full of paper money that won't buy a Big Mac with fries.
In the federal swimming pool, billions of dollars are tossed around like so many drops of water. But let's take a look at what a billion dollars really is. It is an amount so astronomical that it almost seems meaningless. In our dreams we can picture ourselves as millionaires. But a billion dollars — a thousand million — is simply a mind blower. (It doesn't seem to mean much to the politicians in Washington either!)
Consider: One billion seconds ago, the first atomic bomb had not exploded; one billion minutes ago, Jesus was still on earth. Or, to put it in a monetary perspective, if you spent one million dollars at the rate of $1,000 a day, it would take two years and nine months to spend it all. But at $1,000 a day, it would take 2,739 years to exhaust one billion dollars. Now, our government manages to blow almost $1.5 billion every day, rain or shine, including Sundays, holidays, and the day of the Super Bowl game.
The budget used to increase by a billion or two every year; then it escalated to an increase of five billion dollars per year; then ten billion, twenty billion, thirty, and now fifty billion dollars a year.
It took 174 years — from 1788 to 1962 — to reach outlays of one hundred billion dollars by our federal government. It took only nine years to add the second hundred billion dollars. And just four years to pile on the third. Now we are adding a hundred billion in just the Fiscal 1977 and 1978 Budgets. If this is not stopped we will be adding seventy-five billion dollars a year to federal spending within a year or two, and within four or five years we will pile on one hundred billion in a single year.
The federal budget is so out of control that it grows by leaps and bounds whether there is a Democrat or Republican in the White House. All our Presidents pay lip service to controlling spending. Even Lyndon Johnson, the man who was so poor he had to borrow his fare to Washington (and then retired after years of government service with a fortune conservatively estimated at $14 million), once proclaimed: "We must tighten our belts; we must adopt an austere program." It turned out to be austerity for us, not for the politicians buying votes with our dollars.
The spending madness seemed to horrify candidate Richard Nixon. He denounced it as reckless, even called it "dangerous fiscal madness." Campaigner Nixon promised us tax-burdened serfs: "I say it's time to quit pouring billions of dollars into programs that have failed...."
When Richard Nixon wrested the Presidency from the Democrats in 1968, federal spending, hyped by the "guns and butter" programs during the height of the Vietnam War, was $183 billion. After eight years of Elephantiasis, spending in Washington had exploded to a gargantuan $423 billion. That's $240 billion in eight years, or an average increase of $30 billion a year.
Of course it is standard Republican procedure, especially in fund-raising letters to the party faithful (and gullible), to blame all of this increase on the "Democrat-controlled Congress." This is not without a large grain of truth. But, when the G.O.P. finally gets into the White House, it often tries to outdo the Democrats in coming up with "creative," "progressive" solutions to problems.
The Department of Health, Education and Welfare was born under Ike, and all those wonderful new agencies like the Consumer Product Safety Commission, the Occupational Safety and Health Administration, the Environmental Protection Agency, and the Federal Energy Administration were born or matured under Nixon and Ford.
What political hullabaloo there has been over federal spending has amounted to a demagogue's delight. When the Republicans are out of office, they wail like banshees over "wasteful government spending." When it is one of their boys sitting grandly in the Oval Office, scores of billions are added to yesterday's bloated, wasteful budget to make it this year's bare-bones budget.
When the Democrats sit in the White House, there is usually no hypocritical palaver about cutting the budget. They talk about "stimulating the economy" and "getting things moving again." And off we go into the wild blue yonder of budget-busting spending programs.
The rhetorical game goes something like this: The Republicans would like to keep the increase in spending down to forty billion dollars or so per year. The Democrats say it must be pumped up by sixty billion dollars. The Democrats denounce the Republicans as heartless skinflints, while the G.O.P. responds with charges of reckless financial madness. Occasionally it may even be necessary for the President to veto a congressional spending appropriation to maintain the facade. "Victory" for both sides means holding the increase at fifty billion dollars instead of sixty.
Every year we fight the Battle of the Budget. And every year the budget wins.
There are three primary frauds used as rationalizations to explain why the federal budget is out of control. The number one rationalization for ever-escalating budgets is that they are now largely "uncontrollable." In "Budget In Brief" for the 1979 Fiscal Year, it is reported that the so-called "uncontrollables" comprise about 75% of proposed non-defense out lays. In his State of the Union message, President Carter said that nearly 90% of the increase he was proposing over Fiscal 1978 was "unavoidable under existing law."
Why does the budget escalate inexorably every year? Obviously the Congress each year passes new spending appropriations. But there is a more insidious mechanism for inflating the budget. Every year those who are aghast at spiralling expenditures are coolly informed that a significant amount of the increase is "uncontrollable." From where do these "uncontrollable" increases come?
Let us assume that one morning a United States Senator rises in the great hall of the upper house and pleads the case of homeless dogs. Hardly an eye is left dry as the Senator demands that every True Liberal rally to the cause of hobo Bowzers, Blackies, Rovers, and Spots. The cost of federal Canine Care, he explains, will be a paltry one billion dollars... the first year. The Senators say to themselves, well, it's a worthy cause and one billion dollars is a small enough sum when considered against what it cost to put a dog into orbit. So why not? Thus a new spending bill is passed. But, the hooker is that while the price tag the first year is (a nominal) one billion dollars, the Canine Care Bill, like most other legislation, contains a built-in escalator for subsequent years. The cost the second year is three billion dollars, and eight billion the third year, and so on until dogs are running away from home to live lavishly in the federal kennel.
Now, everybody is happy except the bewildered taxpayer, who does not understand how he has been bamboozled. The Legislative Branch, which passed the bill because of the "comparatively low" first-year appropriation, now wraps itself in the pure, white garb of the do-gooder ... and then it ducks. In succeeding years the Executive Branch can claim that it is submitting a bare-bones Budget, but that there are many increases in appropriations (now including Canine Care) which are mandated by law.
In a study of the growth of so-called "uncontrollable" federal expenditures, Nancy Teeters, a senior specialist in budget economics at the Library of Congress, says "although these programs are called uncontrollable, all programs are controllable if legislation to change their nature is enacted." Obviously! If any President or any Congress really wanted to control the "uncontrollables," the solution is simple: Introduce legislation to repeal escalator features of laws passed by previous Congresses. How many times has your Congressman done that this year?
As long as the public is led to believe that it is impossible to stop increases in spending because they are uncontrollable," federal spending will continue to soar like a helium-filled balloon. This is nonsense. These welfare laws were not written in stone by the fiery finger of Jehovah, they were created and passed by politicians anxious to buy votes. Spending could be brought under control if Congress had the courage to go back, amend the laws, and stop the open-ended escalation. But less than 10% of our Congressmen and Senators favor such a course. Most expect to stay in office by providing ever-expanding bread and circuses.
The second fraud used to justify yearly increases in federal spending is that it stimulates the economy and produces increased prosperity. Common sense tells us that this is poppycock. If federal spending brought prosperity to the economy, we would all be flying our own Lear jets by now. Common sense also tells us that taking money away from taxpayer A to give to special interest B does not create anything. It just transfers wealth from politically impotent A to politically influential B. It's called robbing Peter to pay off Paul. Money is drained from people who would spend it on new homes, cars, education for their children, medical care, or a thousand other things. They will also save or invest some of their money — which means it is then invested to create new jobs. When the government takes the money, chances are it is wasted. Certainly it will not be spent as desired by the person who earned it.
For many years, England has attempted to spend itself into prosperity. It has been such a disastrous flop that even some who have championed such activities now see the error of their ways. James Callaghan, socialist Prime Minister of Britain, recently stated:
We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candor that that option no longer exists and that insofar as it ever did exist, it worked by injecting inflation into the economy. And each time that happened, the average level of unemployment has risen. Higher inflation followed by higher unemployment. That is the history of the last 20 years. And each time we did this the twin evils of unemployment and inflation have hit hardest those kast able to stand them — our own people, the poor, the old and the sick.
He almost sounds like Howard Jarvis, doesn't he? Listen to what else he said:
You know that we have not been creating sufficient new wealth as fast as we have been distributing it. It is from a healthy and expanding manufacturing industry that we shall be able in due course to resume the growth and improvement ofoursocial services and also create the jobs which are necessary if we are to reach our employment targets.
The spendocrat Congressmen who try to hide their records from the angry folks back home claim that the fault for ever-rising federal budgets is with defense spending. This argument is not only foolhardy, it is false. The principal justification for the existence of government is to protect its citizens from aggression. If our government cannot protect and defend us, then all debates about what role government may be permitted in society are meaningless. National defense now takes only 29% of the federal budget. "Social services" take 58% — exactly double that amount. Each year national defense has been decreased as a percentage of the budget and the Gross National Product. Meanwhile, the socialist slush fund of the Department of Health, Education and Welfare was raised a staggering 21.4% in 1975 alone.
In 1952, we spent 13.5% of our GNP for defense. Since 1959, the level of defense spending has fallen from 8.9% of the GNP to 5.9%. Other federal spending, meanwhile, ballooned dramatically from 11.6% to 16% of the GNP. If you listen to "Liberals," you might think that millions of Americans go barefoot and die of starvation because our resources are being poured into the gluttonous maw of the mighty military-industrial complex. Actually, only 5.3% of our labor force is involved in defense work — down from 8% a decade ago. The military now uses only 3% of the goods and services of the economy — half that used ten years ago.
It is not the defense spending segment of the budget which has exploded. It is the social welfare portion. Keep in mind, defense is the principal reason for the existence of government. Our Founding Fathers in the Constitution tried to prevent the creation of a government whose chief activity was to rob hard-working Peters to give the money to politically influential Pauls. But today, robbing Peter to pay Paul programs are our number one spending items.
These are called "transfer payments." Transfer payments to persons are defined by the Bureau of Economic Analysis as "income payments to persons, generally in monetary form, for which they do not render current service." According to the U.S. News & World Report of November 28, 1977, last year these transfer payments from Washington totalled an incredible $249 billion — double what we are spending on defense. The news-weekly added, "the income-support payments account for 53 cents of every dollar the Government spends. This spending represents a five-year increase of 106%, or an increase of over 20% per year."
These transfer payments from workers to non-workers represents 17% of all personal income. At least 55 million people are sharing the booty! The big four welfare programs which have made enormous jumps in the past five years are Medicaid (115%), Aid to Families with Dependent Children (60%), Food Stamps (184%), and Supplemental Security Income (179%). The news magazine informs us that there are 178 additional federal programs involved in transferring income to those who did not earn it. It adds: "Person for person, direct and indirect payments equaled $1,150 per American in 1977, compared with $582 in 1972." Which translates into $1,150 per person in taxes, or $4,600 for a typical family of four.
Most of these programs are under the jurisdiction of HEW, the infamous Department of Health, Education and Welfare. HEW started out spending a mere $5.4 billion back in 1954, and this fiscal year will spend over $180 billion with no end in sight. This represents a jump of $25 billion over last year. And next year's jump will be tens of billions more.
The very astute Senator Jesse Helms is one of many Americans concerned about all of this. He pointed out recently on the Senate floor that "there are now 72.5 million Americans supported by some kind of government program.... Who ends up footing the bill for all this? The obvious answer: The 71.9 million Americans who are currently employed by the private sector." In other words, said Senator Helms, "more people are riding the wagon than pulling it."
The tough Tarheel Senator added, "It is going to get worse as long as we in Congress continue to vote for more programs that cost more tax dollars and make more Americans beholden to the federal government, and not their own initiative, for livelihood."
This is why it is so difficult to cut back government spending. Every program has its own constituency. The recipients scream like wounded Banshees when their own handout is threatened. The collectivists in government have been very clever. They have created a slot at the trough for almost 72 million people. The politicians know that while people resent handouts to others, they fear losing their own. That's human nature, don't you know. So it is much easier to stop a program before it becomes law than to stop it once it has a constituency hooked on receiving government (taxpayer-financed) checks from the Santa Clauses in Washington.
This political fact of life allows a clever politician to go around during his campaign making all kinds of loud noises about economy in government, while at the same time making all kinds of promises to special-interest groups. Generalized opposition to Big Government does not mean much when it comes to specific issues. As Colorado Senator Gary Hart puts it: "Every Colorado delegation that comes to see me has two messages — one, cut government spending; two, get more federal money for our interest." Most politicians don't object to doling out dollars to special-interest groups because every recipient of a federal goodie is not only a potential vote at the ballot box, but a potential financial contributor. And campaign contributions, as the old political pros like to say, are the mother's milk of politics.
This is the politicians' side of the federal spending coin. The other side is that of the recipients, the beneficiaries of federal giveaway policies. Don't get the impression that government's robbing Peter to pay Paul policies are welfare recipients, deserving or not. There are also many welfare programs for the rich and for giant corporations who want to forego the rigors of competition. These very special special interests don't get a $123.50 Social Security check from the government. They get millions of dollars worth of fat government contracts, subsidies, protective tariffs, or special legislation penalizing competitors.
The flaw in our political system, writes economist William F. Rickenbacker, is that it permits special in terests to gain private benefits at the expense of the taxpayer. Rickenbacker observes:
This comes about because of the lobbying pressures that are exerted against legislators. A special-interest group knows very well how much it stands to gain from a new law or program in its favor, and it will campaign hard for it, spending time in the legislature's corridors, buying lunches for lawmakers, contributing to their campaign funds, paying for political announcements on television and in the papers, making it seem there's a vast public enthusiasm for the new project.
But where's the opposition? This new project will have to be paid for. Why don't the taxpayers as a group make a similar effort to stop the lawmakers from transferring money from the taxpayers' pockets into the pockets of the special-interest group?
Rickenbacker then answers his own question:
Because the taxpayers as a group can hardly feel it. The $600 million maritime subsidy, for example, costs only a couple of pennies a day for the general taxpayer, all hundred million of us. But it means about $15,000 a year to each member of the special interest maritime groups! So a few thousand members of the maritime trades can actually put a hundred million taxpayers over the barrel and shake the money out of them. Each individual taxpayer feels that a given program may cost only a few dollars a year, to him personally, and so it's not worth his time or money to fight against it.
And so, piecemeal, program by program, the special interests gain at the expense of the public interest, and the size of government, of spending, of taxes, grows and grows. The taxpayers as a group almost never have the chance to vote on the total size of government spending.
So, some politicians smilingly surrender to the arm twisting by special interests, while others do so grudgingly. The latter know that they are helping to carry the country along the road to bankruptcy, but rationalize they can do no good for the country if they can't get re-elected. After all, as they say in the cloak rooms, losers don't legislate. If prostitution is the world's oldest profession, being a politician has to be the second oldest.
According to the Tax Foundation, a non-profit research group, spending by all levels of government is multiplying like rabbits. Total government spending for fiscal 1977 was $715.7 billion, which worked out to $9,607 for each of the nation's 74.5 million households. This was an 11% increase over fiscal 1976.
In 1960, government spent $151.3 billion, or $2,865 for each household. In fifteen years, therefore, per-family spending more than tripled. During the same period, prices doubled, so spending by government is growing half again as fast as the Consumer Price Index.
This raises the question: Have our democratic systems built within them the seeds of their own destruction? Are we intent on proving true historian Alexander de Tocqueville's doleful conclusion of 200 years ago?
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largess from the public treasury. From that moment on, the majority always votes for the candidate promising the most benefits from the public treasury, with the result that a democracy collapses over loose fiscal policy always followed by a dictatorship.
Think about that logic. Isn't that exactly what is happening? Every organization and special interest group is organized to rip off the taxpayer. We have socialism for the poor and socialism for the rich, all paid for by the broad, unorganized middle class. Not only does the middle class not have lobbies and trade associations putting pressure on Congressmen for them, most people have no idea how their own Congressman votes. This allows Congressmen to preach fiscal sanity at home and vote just the opposite in Washington. An observation by a federal judge more than one hundred years ago seems even more true today: "No man's life, liberty or property are safe while the Legislature is in session."
Where are we headed from here if we keep sending the same kind of legislators to Washington as we have been?
You see, this scenario is not new. It has all happened before. No, not in America, because our Founding Fathers built protections into the Constitution to prevent it. But, one by one, those protections have given way to the demand for more and more government services, which produce more and more government spending. The spendathon madness has happened many times in Europe. One of the most recent is Germany of the early '20s. That one resulted in Hitler coming to power in the wake of economic chaos. The same policies being pursued by our government today wound up destroying the Roman Empire. There, a republic was replaced by the rule of the Caesars.
Wait a minute. It has happened in America. Remember when New York City almost went belly-up in 1973, after years of runaway spending? Uncle Sam stepped in and bailed out the Gotham spendthrifts. When our federal government follows Fun City into bankruptcy, who will bail us out?
CHAPTER 2 - THE TAX MAN COMETH [BACK TO TOP]
It may shock you to be told that Washington's monumental spending spree has to be paid for. But this economic fact of life is as certain as the tide — and as inevitable as taxes. There are three, and only three, ways in which the government can finance its spending. The government must either tax for the money, borrow it, or print it. There are no other alternatives. In this chapter we will look just at the tax situation. The other two forms of covering federal squandering will be discussed in subsequent chapters.
Nobody likes taxes. I don't, and I'm sure you don't. It's only a politician who has been described as a person who never met a tax he didn't hike. Practically everybody thinks he pays too much. The truth is that if the average American had any conception of how much he really pays, there would be a revolt against Big Brother that would have the majority of our Congressmen seeking new jobs — and hundreds of thousands of bureaucrats clogging the unemployment lines.
It was, of course, a politician who defined taxation as the art of plucking a goose to secure the maximum amount of feathers with the mimimum amount of squawking. And make no mistake about it, Mr. and Mrs. Taxpayer, it is you who are being plucked.
Little wonder that a recent Gallup Poll indicates that a majority of Americans believe they are being taxed to the breaking point. Finally, a nearly naked goose is beginning to squawk.
The most accurate way to compute the total tax burden is probably to consider government spending as a percentage of total individual income. According to Wesley Hillendahl, director of Business Research for the Bank of Hawaii: "Following the Great Depression, when combined government spending rose to between 20% and 23% of personal income, World War II briefly required a level of government spending amounting to more than 62% of personal income, accompanied by acute inflation of prices. By 1947, government spending returned to about 23%. Subsequently, over the years, government spending has gradually taken an increasing share of personal income. Spending reached 35.8% in 1960, and 41.8% in 1970. Presently, government absorbs 43.5% of personal income, twice the share of 40 years ago."
Right now you are probably saying to yourself that you are not in a 40% tax bracket. If you are typical, you are paying around 20% in income taxes. But those are just the direct taxes you pay. Mr. Average American does not realize that most of the taxes he pays are hidden in the cost of goods and services.
Commentator Paul Harvey puts it this way: "Only people pay taxes." His point is that while demagogues and the economically ignorant scream for ever more and more taxes to be paid by giant corporations, the truth is that all such taxes are passed on to consumers in the prices charged.
Another five billion dollars in taxes on the steel in dustry, for example, means an additional five billion dollars passed on in higher prices to the myriad of industries that use steel in the manufacture of their products. These industries, in turn, pass on the increase to you, the consumer.
Did you know, for example, that the price of a loaf of bread contains 151 separate, hidden, indirect taxes? When you buy bread you are paying a part of the combined taxes of the farmer, the miller, the trucker, the baker, and the supermarket. Obviously these people all have to recover the taxes they must pay, and they do so in the prices they charge for their goods and services. If they could not pass along these costs to you, they would sooner or later go out of business.
There are 100 taxes on an egg! 116 taxes on a man's suit! 150 taxes on a woman's hat! 600 taxes on a house! Even a quart of milk has 87 taxes on it! These taxes accumulate like compound interest, with each additional tax added to each preceding tax. You absorb every single one of them when, as a consumer, you buy the finished product. Up to half the price you pay for a new car, a dozen eggs, or any other product may be nothing more than the taxes already added to it by others, for government.
To look at it another way: If it were not for these direct and indirect taxes, the oil companies could sell us gasoline at just over twenty cents a gallon and still make a profit. Government is the reason gasoline costs seventy cents at the pump. U.S. News & World Report confirms that personal income tax....
is not a full measure of the impact that taxes have on the family budget. Plenty of taxes levied on business are passed on to the consumer in the form of higher prices: excises on freight and fuels, property and income taxes imposed on just about every profitable corporation. There is simply no way to gauge the effect on the average householder of these "hidden" imposts.
So the American who thinks he is only in a 20% tax bracket is being conned. The boys in Washington do everything they can to hide the cost of government from those who pay the freight. The connors live in mortal fear that the conees will figure out that government services are not the bargain they might think.
How much do you think you paid in taxes last year? Well, think again. The Tax Foundation reported in its most recent issue of Facts and Figures on Government Finance that "Government expenditures for 1977 are projected at $9,607 per U.S. household." This is the average of all taxes collected by all government (federal, state, and local) from you and me. If you don't remember writing out a check for that amount, or having it deducted from your weekly paycheck, welcome to the club. You're beginning to realize how you are being plucked!
The Tax Foundation also confirms that "the good old days" actually were pretty good, at least when it comes to how much money bureaucratic leeches drained from working Americans. Back in 1940, total government expenditures per family came to a lowly $308 per year. By 1950 they had climbed to $1,650 — still a pretty af fordable sum. By 1960 they were approaching $5,000 per year; in 1970 they passed the almost incredible total of $7,500 per family per year. And by the time you read this, government will spend over $10,000 per family per year. And one way or another, every cent of that amount comes from your pocket.
That's a lot of hamburgers and Cokes, or pizzas and beer. In fact, it's a lot of anything! It's the new car you couldn't afford to buy. The down payment on a home you couldn't afford to make. It's braces for your nine-year old — or two years of college for your high-school graduate. It's money you won't be able to save for your retirement. You won't be able to spend it at all, because government has already done it for you.
It's almost enough to make a snowman's blood boil, isn't it? When you realize that the median family in come for 1978 is expected to be just over fourteen thousand dollars, that government outlay of $10,000 per household takes on terrifying proportions.
Using the Hillendahl figures, which allow for indirect taxation, the average worker toils from January first to June 6th for Big Brother. The historically minded will recall that June 6th was D-Day, when the Allied forces invaded Normandy. That should help you remember that June sixth is now T-Day — tax freedom day. You work from January first until June sixth to keep the country's spendaholics in green booze.
Representative Philip Crane (R.-Ill.) observed recently that back in the Middle Ages a serf, whom we regard as the next thing to a slave, was required to turn over about 30% of the fruit of his labor to the lord of the manor. Now that Americans are taxed almost 50% of our incomes, Congressman Crane says we'd have to reduce government spending to reach a position equal to that of a medieval serf!
Whether you know it or not, taxes are the biggest item in your family budget. In 1977, on a per capita basis, the American family paid more in taxes that it did for food, shelter and clothing combined. And taxes are rising faster than any part of our budget!
In 1976, the Consumer Price Index showed the following increases in prices: food, up 3.1%; clothing, an added 3.3%; housing jumped 5.5%; new cars were up 6.3%; and gasoline and motor oil rose 4.1%. During that same year, taxes soared an incredible 17.6%! Is it any wonder that more than four million Californians voted for Proposition 13? And taxpayers from every other state, who know their backs are against the wall, asked how they could do the same thing? As Stanley Modic commented in Industry Week: "If boycotts are in order, perhaps we should begin with the prime cause of our inflation, taxes."
America is rapidly being turned into a taxocracy in which a person toils directly or indirectly almost six months a year for government. As Professor Wisdumb says in the comic strips: "In just fifty years we've gone from a chicken in every pot to a hand in every pocket." And the percentage of the chicken pie consumed by the gluttons on the Potomac continues to rise.
This year the Washington machine will be gobbling our dreams of personal success and achievement at the rate of $1.5 billion a day, spending at the rate of more than $12,000 per second. This year's jump of $50 billion in federal spending is going to add $750 in direct and hidden taxes on your family. If the government gets any more generous with its "free goodies" from Washington, we'll all be broke.
From the politician's point of view, the name of the game is to convince the voters that they are receiving more money from the government than they are paying in taxes. Human nature being what it is, people are happy if they think they are getting something that somebody else must pay for. It's when voters realize they are giving someone else the fruits of their own labor that they turn nasty. Too often, your "free lunch" paid for by someone else is good; the "free lunch" for your neighbor paid for by you is bad. In reality, there is no such thing as a "free lunch." And until the majority of voters face up to this somewhat unpleasant fact of life, it will be impossible to control the runaway growth of government.
Let us do something which politicians hate. Let's get down to basics. Let's discuss some principles — principles which can be ignored, but not repealed. Most of us would not sneak into our neighbor's bedroom in the middle of the night and rifle his wallet. That is stealing. Everybody recognizes that it is stealing. It is immoral and illegal. Not even the most wild-eyed ofour "Liberal" spenders advocates outright burglary.
But what is patently wrong on a one-on-one basis suddenly becomes praiseworthy when a politician promises to get the tax collector to do the stealing. Now, all of a sudden, this is not theft, it is democracy. Let the politicians and the tax collectors do the burglarizing and suddenly it's commendable!
The truth is that any economic gain you receive which someone else is forced to pay for is theft. It is a violation of the Biblical commandments against theft and against coveting.
Where does the process of using politicians to steal ultimately lead? Well, obviously no one is going to take the plundering of the fruits of his labors lying down. He will organize his friends to get a set of politicians to rip-off someone else in return. Soon, everybody is trying to "get their share" — that is, getting something from someone else, through the use of politicians. Naturally, the politicians love this process. They are only too happy to win votes through subsidies — to farms and factories, kiddies and grandpops, railroads and real estate developments, highways and hospitals, the list is virtually endless.
Everybody wants to steal more than is being stolen from him. But, for almost all of us, this is impossible. To understand why, let us imagine that there are 100 of us lined up in a circle. We are all picking the pocket of the person in front of us and whoever is behind us in line is picking our pocket. Everybody is trying to steal more than is being stolen from him.
But in a crowd like this, there will inevitably be some big bullies who will overwhelm the weaker ones. So some of the poeple must go to the middle of the circle to supervise the thievery. These theft organizers (let's call them government bureaucrats) have to be supported, too. So it is virtually impossible to come out ahead in the ring-around-the-rosey stealing game.
In real life, one out of five wage earners in America works for government. Naturally, he must be supported by the other four. Then there are the big-time manipulators who get the multi-million dollar government contracts and subsidies. They know how to skim off the cream — and a lot of the milk. It doesn't leave much for you and me! In fact, it is impossible for anyone in the middle class to come out ahead in the taxation vs. government benefits ball game. You've got a better chance buying a used car from a guy named Tricky Dick.
Why do the voters allow it to continue? Politicians, if nothing else, are sly. They do everything possible to camouflage the impact of their spending. They are past masters at devising a myriad of schemes to hide from the taxpayer the real cost of government.
Besides trying to pull the wool over the eyes of the taxpaying sheep they are shearing, the politicians stand ready with a number of phony solutions to propose whenever the bleating becomes too loud. The idea is to cater to the general feeling of every taxpayer that he pays too much in taxes while others do not pay enough. Senator Russell Long, Chairman of the powerful Senate Finance Committee, has remarked that most of the time tax reform means: "Don't tax you, don't tax me. Tax the fellow behind that tree." The name of the game is pin the tax tail on some other donkey.
This is one of the great games politicians play. Let people think the rich will pay for what you get. Every body says, "What the heck, the rich can afford it. It is all right to steal from them. After all, the rich steal from the middle class, don't they?" How can you steal from me? I have nothing left to steal. The truth is that both the rich and the middle class are tax slaves.
The cry of "soak the rich" has incredible demagogic appeal. Reality, however, is something else. Internal Revenue Service figures for 1975 show that the top half of the taxpaying public paid nearly 93% of the income tax bill for the country.
But who are the "rich" who are to be soaked? The top 10% of the taxpayers in income? If so, for 1975 you are talking about taxpayers with an income of $23,420 or more. This tenth of the taxpaying public paid almost half of the total tax bill for 1975. Five years earlier, the top tenth had paid 45% of the taxes.
Or perhaps you'd prefer to broaden the definition a little and take in the top quarter. The fourth of the population with the highest incomes — $15,898 and up in 1975 — paid nearly three-quarters of the federal income tax load. That was up, by the way, from slightly more than two-thirds of the tax load just five years earlier.
Do we continue to shift the load of paying for government until the upper quarter is paying four-fifths of the bills? Nine-tenths? The works?
Naturally, the populist orators do not want their listeners to think in terms of soaking the "rich" $15,898-a-year man. The millionaire is supposed to be the one who gets it, the sly got-rocks who is presently slipping unscathed through the IRS net.
Well, even that fairy tale doesn't hold up when IRS statistics are examined.
It turns out that the number of income millionaires — those earning a million or more in 1975 — was only 1,149. While people up in that earning bracket have access to better tax men and tax shelters than the rest of us, they obviously left a lot of their money behind in the net as they went through.
The average taxpayer in this top thousand-plus paid out $1,011,317 in income taxes in 1975. That's a heavy levy per person. But there are so few of such persons that altogether their taxes totaled just over a billion dollars. At current rates of spending, their taxes will run the federal government about one day! Even confiscating their entire income would pay the federal bills for less than a week. The other 360 days somebody else foots the bill. And mostly that somebody else is you and me.
Next to "soaking the rich," another most popular fable which the politicians use to try to confuse the tax suckers is the idea that the corporations will pick up the tab for the handouts most people want. As we've already pointed out, all the taxes which corporations pay are passed on to the consumer. They have to be. Otherwise, the company would go out of business.
It is ironic that with taxation gobbling up almost fifty cents on each dollar spent, the "Liberal" Establishment and its army of media flacks keep chanting about the "huge profits" being made by business. Yet profits, which are vital to industrial growth and job creation, are about 10% of the sum which goes to taxes.
The effects of government taxation as it ripples through the economy are very complicated. Irwin Schiff sums up the situation in his book, The Biggest Con, in this fashion:
America is being poisoned by a tax system that (1) penalizes economic efficiency and destroys incentive while subsidizing inefficiency and encouraging unemployment, (2) diverts the nation's supply of capital to less efficient areas, (3) destroys jobs, (4) increases substantially the difficulty of the older workers to find employment, (5) promotes greater concentrations of economic power, (6) compels those entering business to make Uncle Sam a "silent partner" who puts up no capital yet demands more than half the profits, and (7) contributes directly to a lowering of public morality while increasing the influence of organized crime....
We are fast approaching the point where the problem will become irreversible. As a widely circulated study by the Ford Motor Company shows, there are already more people dependent on government for a livelihood than there are productive workers in private industry paying taxes.
Where will it end? In 1974, Roy Ash, then Federal Budget Director, estimated that by the year 2000, cornbined federal-state-local budget outlays would account for 80% of personal income. How hard would you work if government took 80% of everything you earned? What about your neighbor? Think he'll keep his nose to the grindstone then? But if you won't work and he won't — who will?
The war of the unproductive against the productive has no limit. The vast majority ofthe 16.8 million people who are employed by the government will fight like wildcats to preserve their jobs. Most of the 61.3 million other people drawing government checks will vociferously resist any move which they feel might jeopardize their welfare check, subsidy or whatever. Most of the millions of teenagers who have been given the vote have little to lose, and thus will opt for supporting more government spending programs.
All we have to do is look at England to see where this insanity will wind up. Great Britain, once energetic and productive, isn't so great anymore. It has been reduced to a general state of ugliness, envy, and whining, with its most capable and productive citizens fleeing in droves. The island country would have gone belly up years ago had it not been for life-saving infusions of loans from the United States. If you check the taxation tables, you will see that America is trailing behind England by about ten to fifteen years. For example, England hit the 45% tax take of total income in 1965. This is the position we are in today.
Another factor which is not encouraging is a poll taken in England which showed 82% favored reductions in taxes. Yet the same people turn around and vote for politicians who promise more "benefits" and thus inevitably higher taxes. "There is no such thing as a free lunch." That truism should be carved on every school and public building in America. But even in unmerry old England, people still like to think that the ham sandwich won't be paid for by charging more for the ale.
This is where we are headed, unless a change is made—and fast. The standard of living will continue to decline. There will be stagnation in the economy. And politicians will promise to "get things moving again." Their formula will be to hike federal spending—which will just make things worse.
We demand more from government and government demands more from business but, says Walter Hansen, chairman of Pete, Marwick, Mitchell & Co., we fail to see that, "The closer the effective tax rate approaches 100%, the closer it is that tax revenues, production, and job creation approach zero."
We are being enslaved with our own money. If the spending orgy isn't stopped, if we do nothing, we shall inevitably have nothing.
Are we doomed to be tax slaves? Is there no way out? If the situation is to get better, we Americans are going to have to stop kidding ourselves. We will have to face the real world — not the one of pleasant delusions that is so often projected by politicians.
The first reality is that there is no such thing as a free lunch. The second is that we must think in terms of cutting taxes and spending, not just shifting the burden to someone else. Government expenditures always rise to meet whatever income is available. Or more! The government's voracious appetite for money can never be satisfied. The only way to cut government waste and extravagance is to cut government income. It's been done in California, and now it's time to do it on the federal level.
Supertaxing, superspending, supergovernment will only be stopped when members of the House of Representatives (where all spending bills begin) vote to stop it. This is the only tax reform that will work. The Congressmen who are busy buying votes with your money are not going to solve the problem. They need to be retired to other pastures. But few will go voluntarily — they know the grass isn't greener elsewhere. Most of them have never had a job as financially and egotistically rewarding as being a Congressman. That means you are going to have to go to work in your Congressional district, campaigning for effective tax reform.
CHAPTER 3 - DEBT, HERE IS THY STING [BACK TO TOP]
As we said at the beginning of Chapter Two, there are only three ways the Money Moochers in Washington can cover their spending sprees. They must either take the money away from the people in the form of taxes, borrow the amount necessary to make up the shortfall, or they can cause more money to be printed. Let's look briefly at method two: the government's borrowing policies.
The redistribution by Congress of other people's earnings makes the recipients happy. But paying high taxes makes people unhappy. They will tolerate heavy taxes only so long as they cling to the fiction that they are getting more from the government than they are putting in. The politicians do not dare raise taxes further (except in the case of Social Security, which we shall discuss in a later chapter). The last thing they want to do is pour more fuel on taxpayer rebellion fires that are already burning.
To perpetuate the fiction that people get more from the government than they pay for, the politicians regularly spend billions more than they collect in taxes. The difference between what the government spends and what it collects during a fiscal year is the deficit. The National Debt is the total of all deficits piled up over the years.
Because the debt and its effects are hidden from the average taxpayer, running a deficit helps the politicians with their hoax that people are receiving more from the government than they pay in taxes. In the long run, however, this is the most expensive kind of federal spending, as we shall see.
Our politicians have turned the United States into a giant debtocracy. Under the Washington spendathon, debt is rising faster than corn in Kansas. Consider: In eight years Harry Truman increased the national debt $4.5 billion; two terms of Dwight Eisenhower added $16 billion of red ink; eight years of the Kennedy-Johnson Administrations piled on $55 billion; the Nixon-Ford years quadrupled that total. And now, in just two years, President Jimmy Carter has added nearly $100 billion to the National Debt.
Do you detect a trend here?
Richard Nixon originally campaigned as Mr. Frugal. As a candidate he proclaimed:
For five years this (Johnson) Administration has refused to keep federal spending within federal means.
The total deficit run up in the budgets of the Johnson-Humphrey years will amount to more than $55 billion. This massive deficit has wracked and dislocated the economy....
There is nothing the matter with the engine of free enterprise that cannot be corrected by placing a prudent and sober engineer at the throttle.
As it turned out, a $55 billion deficit made LBJ look like the Penny Pincher of the Pedernales. Not that the talk did not continue for a while. When introducing his first budget, the Sultan of San Clemente promised "to balance the federal budget so you can balance the family budget." These noble words were not, unfortunately, backed with equally noble deeds.
Eight Nixon-Ford budgets added an incredible $247 billion to the national debt! It took the government from 1787 to 1945 — 158 years and two World Wars — to increase the debt as much as Presidents Nixon and Ford did in only eight. Incredibly, these red ink fiascos were run up by the party which always runs for office claiming fiscal integrity. That is akin to honoring Wiley Coyote for his efforts on behalf of endangered Road Runners!
The supposedly prudent pachyderms always wail that they couldn't help it. Congress was run by Liberal Democrats. True. But both Nixon and Ford came under great fire from conservative Congressmen in their own party for introducing budgets with huge, planned deficits. Ford used the veto occasionally to keep the spending-deficit situation from going completely beserk, but on the whole there was little leadership from the White House to control federal spending and thereby limit the exploding federal debt.
Of course, nobody more sophisticated than Baby Snooks expects leaner budgets from the Democrats. It is true that Jimmy Carter campaigned on the promise to balance the federal budget. But that promise went out the window a lot faster than Peter Bourne — and the smell was not nearly as sweet as the good Doctor's funny cigarettes.
The debt Mr. Carter will place on us this year is more red ink than was accumulated from the founding of the country through the middle of World War II. While the Peanut Politico promised to balance the federal budget, this year he will miss the mark by $1 billion per week.
Jimmy's first two trips to bat in the budget derby led to homeruns for the enemy, as he racked up over $100 billion in deficits. His chances of reducing these $50-billion-a-year deficits to zero in the next two years are about as good as Brother Billy's quest for the presidency of the Women's Christian Temperence Union.
These monstrous deficits have been piled up despite the fact that we are now employing in the marketplace the highest percentage of our population (41%) in American history — and both individual and corporate taxes are at an all-time high. But even with more taxpayers paying more taxes than ever before, government expenditures exceed tax revenue by over $50 billion dollars.
By the end of 1978, U.S. News & World Report estimates, the federal debt will be $785 billion — over three-quarters of a trillion dollars. More than half of this will have been accumulated since 1970. Project this out over another decade and where do you think we will be? And, USN&WR says that by 1982 the debt will hit one trillion dollars. The interest alone on that much debt will be $75 billion or more! Surely this madness cannot continue for long.
One of the incredible things about all this is that the public is so numbed that very few believe anything can be done about all this fiscal insanity. There was more furor over a $4 billion Eisenhower deficit than there is about the Man with the Pepsodent Smile shoving us up to the trillion-dollar mark. This is apparently because the vast majority of our citizens, including the majority of Congressmen, have no idea of what this means and what the consequences will be. People say to them selves, "Well, we're still here so I guess the deficits are not as harmful as some people have claimed."
The consequences are real, predictable, and very, very certain. We'll discuss some of them shortly. But first, some more bad news. For the deficits are actually worse than these figures reveal.
In 1974, the nation's largest accounting firm, Arthur Anderson & Co., did a study of the federal government's accounting methods. After completing the study, they urged the government to do just like corporations do — use an accrual system which more accurately matches assets with liabilities. According to Anderson & Co., if the money manipulators in Washington used standard accounting procedures — required by law for all large corporations — and included real federal liabilities in calculating the federal shortfall, a much different picture would emerge. Many items are "off budget" and do not show on the books. But these obligations are just as real as the money you owe Master Charge.
The year 1974 was Nixon's best. He only ran a deficit of $3.5 billion. At least that is all that showed on the books. According to honest and realistic accounting methods, Anderson & Co. said the true deficit for that year was a blockbuster $95 billion. Moreover, Anderson & Co. figured that the government's total assets in 1974 were $329 billion. Not a paltry amount, I'm sure you'll agree. But federal liabilities were over $1.1 trillion! That's a difference of $811 billion! It's enough to make an embezzeler look like a church deacon by comparison.
A second study, done for fiscal 1976, revealed another bad year for the government. Under the accrual method of accounting, the government had an operating deficit of $85.2 billion. Using its customary cash accounting method, the government reported a deficit of only $65.6 billion.
This kind of honest accounting would highlight for our legislators, particularly the free spenders, the unfunded liabilities they have obligated you and me to pay. A bill proposing Truth in Government Accounting was submitted by Congressman Philip M. Crane. The Crane Bill was about as popular with his colleagues as a Salvation Army Band at a Hugh Hefner party. Will it surprise you to learn that Arthur Anderson has not been asked to do any more studies of federal accounting pro cedures? Yes, the whiz kids in Washington know exactly what they are doing. In fact, during a recent Senate debate on federal budgetary practices, Sen. Warren Magnuson turned to his colleagues and said, "I suppose the SEC would put us in jail if we were a corporation."
Bad economics can mean good politics — that is, reelection at the polls — when the public does not understand what is happening. The politician's motto is: "Get the vote today — who cares about tomorrow?" A Congressman can vote for benefits which will not be paid for decades hence. He takes the bows as a noble humanitar ian and collects the votes from grateful constituents. By the time the bill comes due, the public servant will be long gone. It is sort of a "Fly now and pay later" proposition, as we shall see when we discuss Social Security.
One of the great hypocricies of all time is the so-called "Legal Debt Limit." Every time the red ink budget pushes up against the laughable "temporary ceiling," Congress goes through a lot of soul-searching, desk pounding, fervent debate, and pious promises. Then it always — but always — votes to raise the legal debt limit. If Congress ever refused to raise the debt ceiling, the federal paychecks would come to a grinding halt. You can imagine how likely the politicians are to let that happen.
The federal legal limit is a hoax, a fraud. It's a joke but you're not laughing about it, are you?
You may remember when our political benefactors were telling us that the National Debt was nothing to be concerned about. After all, they said, "We owe it to ourselves." You don't hear that one very often anymore, do you? This is because interest on the National Debt is now the third-largest item in the federal budget, exceeded only by social welfare and defense. In 1965 the payment due for money borrowed in the past was just over ten billion dollars. By 1976 the single-year tab had escalated to $44.6 billion — greater than the total annual sales of General Motors. By 1982, says U.S. News & World Report, the annual interest on money the politicians have wasted in past years will be an unbelievable $65 billion. A chart of the increasing cost to the tax payer of the National Debt looks like a rocket taking off for Mars. Yet only the naive believe it will ever be paid. It will merrily compound until either the debt overwhelms us or our currency becomes worthless.
If you divide up the admitted national debt on a per capita basis, it means you owe yourself $3,511 for the government's debt. That works out to about $14,044 for the typical family of four. This is double the per capita debt of just a dozen years ago. Your share of the true national debt, of course, is much, much higher. Do you really think you just owe it to yourself? Then why do international bankers, Arabian oil sheiks, and the big investment houses on Wall Street keep collecting it? Anyone send you your share lately?
The old chestnut that "we owe it to ourselves" is a cruel hoax, of course. Foreigners hold many billions of that debt. Rather than keep the billions of dollars that have piled up in foreign central banks as a result of our adverse trade balances, our government has over the years convinced foreign governments to convert their dollars into U.S. bonds. Arab governments, for example, have purchased more than $17 billion in short-term federal notes in the past six months. Congressional spokesmen now say that more than one-fourth of federal short-term securities are held by foreign governments or foreign corporations. In the case of another Mideast war, foreign holders of U.S. securities might well exert catastrophic influence over our money market as a lever on foreign policy, creating a financial panic by dumping their notes. If they do, God help us!
Our friends in Washington would like us to believe that the national debt is sustained by millions of little people buying their Savings Bonds and, as the TV commercials say, "taking stock in America." Of course, when you buy stock in a private company, you are purchasing part ownership. When you buy a government bond, you are taking over part of the debt. Historically, when well-meaning, patriotic souls have held their bonds to maturity, they have actually lost real purchasing power.
Individuals own only about 12% of the debt. The bulk of the debt is owned by the federal government itself through Social Security and other government trust funds. But it is strictly a paper proposition. The government has spent the money and replaced it with an I.O.U. If you could operate the same way, you could live very high on the proverbial hog. But don't try it: The very same thing our government does manipulating money is a crime for anyone else!
There is another major consequence of the spendocrats swilling down a fifth of Old Deficit every day. As we said before, there are only two ways the government can obtain money to support its deficits. It either has to borrow the cash or print it. Both have terrible consequences for the economy and the taxpayers. If the government borrows money out of the economy to give away to welfreeloaders, then that money cannot be used as capital. Just as a farmer is more productive when he uses a tractor than when he tills the soil by hand, so workers are more productive when capital is invested in better plants and equipment. The surest way to higher wages is more production. In the modern world, productivity is chiefly increased by new equipment and improved technology. Thus, bleeding off capital by government holds down wages and prevents the creation of jobs.
If the money goes to social-welfare programs instead of capital goods, most of it evaporates in instant consumption. Senator William Proxmire, Chairman of the Senate Committee on Banking, Housing and Urban Affairs, has pointed out that for every $10 billion drained from capital supplies by federal borrowing, there will not be private capital for approximately five hundred thousand new housing starts. That causes a direct loss of one million jobs and an indirect loss of two million more. The more money the government has to borrow, the more jobs that are destroyed or never come into being. Money that is loaned to the U.S. Government cannot be loaned to the Amalgamated Widgets Corporation to create more and better widgets. And our own standard of living, instead of going up, starts to drop. You and I are caught between the taxation rock and the inflation hard place.
In the next thrilling chapter, we will discuss the government's deficits as a cause of inflation. But while we are dealing with debt, we should mention that inflation is a major cause of personal debt, as families struggle in vain to preserve their standard of living. Private debt a decade ago was $961.3 billion. Now it is $2.5 trillion. Federal, state, and local debt is another trillion dollars (using the government's dishonest $700 billion national debt figure). At the rate that private and public debt is escalating, it will hit an astounding $6 trillion in 1985.
The implications of this are frightening. As Richard Russell, author of the highly respected Dow Theory Letter, said in his December 1977 issue:
What worries me is that at this point the U.S. has simply used up its capital. Everything, and I mean everything, is awash in debt. The cities and municipalities, the citizens, the corporations, the banks, all of it is "loaned out."
Debt, where is thy sting? If we don't force about 300 Congressmen and Senators to change the way they vote — or change themf or someone who will vote to protect us — we will find out the hard way.
CHAPTER 4 - THE GREAT INFLATION ROBBERY [BACK TO TOP]
Of all the problems facing the country, more people are more concerned about inflation than any other. Worry over the exploding cost of living surpasses even the fear of crime. Every time you go to buy something it seems the price has taken another jump. Families are discovering that there is more and more month left at the end of the paycheck.
The cause is very simple: When the government spends more money than it is willing to tax its citizens, it must either borrow or print the money which it uses to make up the deficits. Financing deficits is the very heart of the inflation problem.
Politicians put the blame for inflation on everyone but themselves. Republicans blame greedy labor unions; Democrats decry greedy businessmen. Actually, both are victims of the politicians and bureaucrats. The latter naturally want to shift the fault to someone else, lest the public unceremoniously retire them to growing petunias. Some politicians even have the nerve to blame consumers for inflation. The current scapegoat is Arab oil sheiks. Nobody likes them. This pin-the-tail on some other donkey ploy is one of the greatest con jobs in the history of bunco scams. And that takes some doing. P.T. Barnum never got away with the kind of hoax that politicians do with their inflation-fraud rhetoric.
The key to this shell game is that the vast majority of our citizens do not understand the real definition of inflation. In a recent CBS Special ("INFLATION: How Much, How Long?"), commentator John Hart began by defining inflation. He said defining inflation is the only easy aspect of the problem. "Inflation," quoth Hart, "is a period of rising prices." To the man on the street, who has relied on the media for what he knows of economics, that definition might seem self-evident. Unfortunately, it is wrong. Who says so? Every honest economist says so, and so does your dictionary. Webster's New World Dictionary, for example, defines inflation as "an increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined."
Read that carefully. Inflation is an increase in the supply of paper money which causes prices to rise.
If only CBS had the Hart to tell us the real truth. The mass media helps the politicians to cover their crime by using the term "inflation" as a synonym for the rising cost of living. Walter Cronkite will tell you that inflation was 2% last month because food, clothing, and steel went up in price. The public responds as planned by getting angry at those who produce food, clothing and steel. This is a fraud and a hoax. Though related, the cost of living index and inflation are two different things. Who increases the money supply? Butchers, bakers, and candlestick makers? Certainly not. The supply of money is controlled by the federal government and its Federal Reserve System. It is carefully controlled. So that we never have inflation unless the government wants to have inflation and acts to create it. As economist John Kamin observes:
Government started inflation through deficit financing and removal of all currency backing. Not one in one thousand knows what's happening. The talk about interest, labor, capital spending, housing starts, etc., is smoke screen, the trappings of inflation. The heart of the matter is deterioration of the currency unit.
When more and more paper dollars are created out of thin air by Washington, the value of all money drops. As dollars drop in value, the Japanese want more of them for their television sets; Germans want more of them for automobiles; Arabs want more for oil. Domestic producers insist on receiving more dollars for their goods. Workers demand more pay. We see the symptoms — higher prices for products, services, and wages — and are told we've seen the cause!
Higher prices are a result of inflation, not the cause. Blaming the wage-price spiral for causing inflation is probably the biggest of the Big Lies that politicians and bureaucrats have used to camouflage their own actions. If the blame for inflation can be placed on unions, or business, or the Arabs, or anyone except the policy-makers in Washington, then those who created the problems in the first place will be safe. In fact, they will probably be shouting the loudest and longest that we should now trust them to come up with the solutions!
If only the Carters and Cronkites would tell the truth. But their hoax serves their commitment to ever bigger government. The government inflates the money supply to meet its deficits, and that bids up prices and causes the cost of living to rise. Food, clothing, and steel go up because the value of the currency goes down. The producers are not to blame, as the Cronkites and Carterites would have us believe. They are among the victims of the government's legalized counterfeiting. Business can't print new money. Nor can unions. Or the Arabs. Nor can anyone except the government in Washington. The government has created these enormous amounts of new money, all unbacked by gold or silver, in two ways. The first is through expansion of bank credit by way of the Federal Reserve System. The second is through the enormous budgetary deficits, which are largely backed by bonds sold to the Federal Reserve System itself or to commercial banks. In both cases these bonds are "monetized" (i.e., turned into new money) and pumped into the economy.
Congressman Bud Schuster (R.-Pa.) explains how the National Debt causes inflation:
When the Government spends more than it takes in, it has to find the difference somewhere to pay the bills. The Treasury does the only thing it can do, since the President and Congress made financial commitments in excess of their means. Treasury tries to borrow the money.
When the deficit is so big that the Treasury can't sell enough government bonds or notes to the American people without causing interest rates to rise too high, the Treasury raises the money it needs to pay the Government's bills in a very unique way. The Treasury Department sells its bonds or notes to the Federal Reserve System, which is the...agency that controls the supply of money in America. And get this — the Federal Reserve literally prints up more money on the government printing presses and pays it to the Treasury in exchange for the bonds which the Treasury printed up. The Treasury then takes this new money and pays the Government's debts...
What we have is a money system under which the greater the government's debt, the more money the government releases to spend! How would you like to operate your household on such a basis? Wouldn't it be great to go down to Sears & Sawbuck, charge everything that catches your fancy, and then return home and print up the money to pay the bills? You can try this, of course. But if you're caught, the outfit that legally counterfeits the money will put you away in the crowbar motel.
You thought you were carrying money around in your pocket? Actually, it is the unsecured and unredeemable debt of the government. We have switched from money to debt as a medium of exchange! And the politicians keep printing more and more of this debt-money, as they seek to buy the votes for their own reelections. Look at the money in your wallet. On the bills it says Federal Reserve Note. A note is an instrument of debt. If we paid off the National Debt, technically we would have no circulating currency, because all Federal Reserve notes would have to be withdrawn!
Writing in Dividing The Wealth about the effects of this increase in currency, economist Howard Kershner observes: "When government adds to the supply of money, causing prices to rise, it is in reality confiscating a part of the wealth of its thrifty citizens. Those who have bank accounts, mortgages, bonds, life insurance, annuities or pensions lose a part of the results of their thrift."
That $120 billion dollars in new money which the Carter Administration has sluiced into the economy took on a value only by subtracting from the value of all the other money already in circulation. When the government prints dollars to cover its deficits, the introduction of that currency in the economy lowers the value of all the dollars already in circulation.
You can see why the politicians want to keep the public confused about inflation. You can see why the politicians look for scapegoats for the consequences of their flooding the economy with funny money. The $60 billion dollars which the 1979 Budget is likely to run in the red will gradually be turned into new green-ink money, which will also compete for goods and services.
As we have said, the "Liberal" media and the politicians have tried to cover for what is happening by creating a "guilt triangle" pitting business, labor, and private consumers against one another in a donnybrook over which is to blame for "inflation." It is all absurd, because none of those three groups has the ability to inflate the money supply. Only government can do it, and government is increasing rather than decreasing the deficit spending which really causes inflation.
Changes in supply and demand can also affect the price of a particular item, of course. But you cannot have every price leaping upward unless the government is increasing the money supply. This is not just economic theory. It is physics. You can't fill a quart jug with a pint of water. The media and the politicians wring their hands over the "wage-price" spiral on which they blame inflation. This is like saying that wet streets cause rain or that a falling thermometer causes a freeze.
Let us make the cause of the "wage-price spiral" perfectly clear. First, let us deal with wages. Let us suppose that you, prolific parent that you are, have ten children. On Saturday morning you line them up in your kitchen and assign each a chore. You have on a plate ten cookies, and to each you promise a cookie upon completion of his assigned task. The next week you begin the same routine, but one of your more obstreperous kidlets (the one that reminds you so much of your mother-in-law) announces that she will not work unless she is paid two cookies. Upon which the rest of the moppet brigade (all rather like your wife's side of the family, really) demand that their cookie salaries be doubled.
Alas, you are forced to inform them that you only have ten cookies and therefore there is no way you can raise their wages to twenty cookies unless your wife increases the cookie supply by baking more cookies. Without more baking, you can only give some of your gang more cookies if you give others less cookies. You cannot have a general rise in cookie wages in your mini-economy unless you bake more cookies.
The same is true in the maxi-economy as the mini-economy. You can't pay workers more money unless there is more money available with which to pay them.
Now for prices. Imagine that you are at an auction. As with the other people there, you have a certain amount of money in your wallet with which to bid on the things you want. Suddenly a man from government bursts into the room carrying a bushel basket full of newly printed money and proclaims the good news that, without ever passing Go, you are all going to be richer by two hundred dollars! Your rejoicing, however, is short-lived. You thought you could buy more goods with the additional greenbacks. But the money the man from Uncle gave you did not increase the amount of goods that are available to be auctioned. Supply and demand have not changed, so you and the other people at the auction now use your new money to bid against each other for the goods that are for sale. The net result is that the merchandise is bid up to heights that otherwise would not have been possible.
In the real economy, as at our auction, you cannot have a general rise in prices without an increase in the money supply. If new supplies of money are not printed, only an increase in production (a delivery at the auction of more goods) will result in your wages buying more of everything.
Does the above analogy of an auction apply to the real world? Yes! Our economy is simply a vast auction with millions of bids being made every day in a situation where prices are constantly fluctuating, not only be cause of normal changes in supply and demand, but because of ever-increasing distortions caused by the money printers in Washington.
You will recall that Mr. Webster informed us that inflation (an increase in the money supply) could be caused by either a rapid increase in the supply of paper money or gold. The world's supply of gold has increased only in miniscule amounts, but the supply of our paper money has been inflated (increased) by the proverbial leaps and bounds.
With the great increase in paper money, is it any surprise that the cost of living has been jumping like a nudist who sits on a hot stove? Remember the 5¢ Coke? Today it is 30¢. Remember going to the movies for a quarter? Recall the nickel bus ride which is now 50¢, or the dime magazine which now sells for a dollar? Gone are the days. Gone not with the wind, but with the printing press.
For years Administrations have been telling Americans that the worst of inflation (by which they mean the rising cost of living) is nearly over. Everything will be just peachy the day after tomorrow. But mañana never comes. The Nixon gang used to proclaim that "inflation" would soon be down to an acceptable 4%. It never did. Now the Carterites are talking about slowing the rise in the cost of living to an "acceptable" 6% or 7%.
During the past few years Federal Reserve Board Chairman Arthur Burns attempted to keep the growth of the money base at between 6% and 8%. This is now considered "conservative" and "cautious." Yet at an increase of 7.3% per year, the money supply will double in only a decade! But Arthur Burns is now out — removed, we are told, by Jimmy Carter because he would not expand (inflate) the money supply at a faster clip! Congressman James Collins points out:
With the Carter Administration and the liberal congressional Democrats constantly increasing the size of the federal debt, there is no way we can avoid increased inflation. If this year's budget deficit is indicative of President Carter's future budgets, our national debt will double to $1.5 trillion in nine years. It is impossible for prices to remain stable or for business to expand when government is the biggest spender and the biggest business in the nation.
Keep in mind that the government is going deeper in the red to the tune of over $1 billion every week. That billion will turn up as brand new money as the government spends it into the economy and it is re-spent by the recipients. Like at our imaginary auction, it will bid up the prices of goods and labor. There is a period called "lag time" before the new money pushes up your grocery bill. This lag time can be anywhere from six months to two years, so that a 8.75% increase in the money supply in 1978, for example, would not automatically mean an 8.75% increase in the cost of living during the same year. But, the damage is done and will eventually be paid for by you in everything you buy. It can only be offset by increases in national productivity. However, the same politicians who run up the deficits are also guilty of passing all kinds of laws creating giant bureaucracies which tie up the productive segments of our society in miles of red tape.
As Dr. Burns warned, the "mild" 7% inflation of 1977 has already given way to double-digit inflation. We have a very unstable situation which Dr. Gary North refers to as "the economics of addiction." Here is how it works:
In the 1930s a British Fabian Socialist named John Maynard Keynes sold President Franklin Roosevelt on the idea that he could get the economy out of the depression by deficit spending. The new money pumped into the economy would be spent and put idle capacity and unemployed people back to work. The theory was that in bad times the government would stimulate the economy with a shot of inflation, and in boom times it would tighten the supply of money and credit to cool things down. The theory was adopted lock, stock, and red ink by the academic community.
Needless to say, the politicians loved the theory, since it allowed them to play Santa Claus. In practice, how ever, the Keynesian perpetual-motion machine, which promised perpetual prosperity via the printing press, has been a disaster. It is the reason a nickel cup of coffee now costs a quarter. Now, we are at the point where we get the worst of all possible worlds, the inflationary boom followed by the inflationary recession. A new word has even been coined to describe our current dilemma — stagflation.
As Dr. North points out, the situation in our economy is analogous to that of the heroin addict. At first, a little shot makes him feel good. But, the fix soon wears off and he needs another injection of junk, just like the economy needs another injection of junk money. The stronger the addiction, the bigger the shot desired. Soon the addict demands bigger and more frequent injections, or he starts going through withdrawal symptoms.
The same thing holds true with the economy. Bigger deficits must be run up, to keep the economy from sinking into recession. For example, in 1954 President Eisenhower got the country out of a recession by running a $4 billion deficit. It took about $150 billion in deficits to get out of the 1974-75 recession.
It used to be years between recessions. Now, we hardly crawl out of one recession when we find ourselves sliding into another. By the early '80s, we can expect the government to have to run a half-trillion-dollar a year budget to get us out of a recession. That is a Big Fix, in more ways than one!
Clearly, the situation is out of control. Uncle Sam has a green monkey on his back and a lot of needle tracks on his arm. It should be obvious that if the Keynesian theory of spending ourselves into prosperity really worked, we would all own a Rolls Royce and a yacht by now. P.T. Barnum turned out to be right again. We've been played for suckers. The politicians' promise to give us something for nothing has turned out to be a perpetual debt machine which is now destroying the buying power of all our earnings and savings.
The dollar is dying. Today's ten cent mini-dollar will become the nickel micro-dollar a few years hence. Then it will become the one cent sub-micro-mini dollar. In a few years almost all of us may be millionaires. Somehow earning three-hundred thousand dollars a year loses a lot of its glamor, when you realize Big Macs will probably cost $25 each!
Arthur Burns, Chairman of the Federal Reserve Board until relieved by Jimmy Carter, told the House Banking Committee last year: "If we go the Latin American way, which is the way we seem to be going, then we will have interest rates on Latin American standards, that is, substantially higher."
What is the Latin American way? Leonard Greenwood described it in the Los Angeles Times in May 1974:
Brazil has suffered from inflation most of this century. Early in the 1960s it reached almost 100% a year and it was one of the factors that caused the military to take power in 1964. Since then tough monetary policies have brought inflation down each year, and fiscal devices such as annual salary increases and monetary correction on savings and investments have helped Brazilians to live with rising prices.
This is how Greenwood described what happened to bring Brazil to its knees. As you read it, ask yourself if the same tune is now being played in the United States:
In the last months of President Emilio Garrastazu Medici's government, prices were artificially controlled for political purposes. Medici had promised to keep inflation down to 12%. As the year went on, it became obvious this was unrealistic, but in a vain attempt to meet the target the prices that producers, wholesalers and retailers were allowed to charge were rigidly controlled.
The immediate result was a series of shortages as producers stockpiled to get better prices later, or the production of some items was stopped when they could not be made at the controlled price.
This caused food shortages that have still not been solved. Long lines formed at supermarkets to wait for meat, beans, onions and cooking oil.
Arthur Burns warned last year that "if past experience is any guide, the future of our country is in jeopardy. No country has been able to maintain wide spread economic prosperity once inflation got out of hand." But recession is a greater liability to politicians than inflation, which they can blame on someone else. Therefore, there is an irresistible temptation to try to spend our way out of the economic downslide — that is, to fight declining production with more inflation.
Let's look at the consequences of this money mania on you and your family.
First of all, inflation is a tax — a particularly vicious tax which is especially hard on the old and the poor. As economist Milton Friedman notes, inflation is the one form of taxation that can be imposed without legislation. Politicians are among the principal beneficiaries of inflation because they can buy votes without raising taxes. You pay this sneaky tax every day at the grocery, hardware store, and the supermarket, not on April 15th. The inflation tax diverts the wrath of disgruntled tax. payers away from politicians. People get mad at the hardware store owner and the grocer.
Since the average American pays the equivalent of 44% of his income in direct and indirect taxes, when you add on the inflation tax of 7% to 10%, over half of our income goes to taxes!
Many people will point out that as the cost of living goes up, most people's pay goes up along with it. True. But, the dice are loaded in the inflation flim-flam. We have a graduated income tax. During the past few years, three-fourths of all typical wage hikes have been swallowed up by inflation. The rest has been taken by the tax men because a pay increase usually shoves the recipient into a higher tax bracket.
You are probably painfully aware that the standard of living for the average working American is going down, while his taxes are going up, up, up. We middle class Americans are the biggest victims. We are being hit with a combination of the progressive income tax and purposely created inflation. As Walter H. Campbell, consulting editor of Industry Week, explains in an article, "Fewer Poor Before Tax; More After":
Federal income, most state income, and estate taxes have "progressive" rate schedules. As the dollar amounts to be taxed increase, higher and higher rates of tax apply.
Example: The worker with a $5,000 taxable income pays $810 in federal income taxes, or about 16%. When inflation doubles that taxable income, his tax moves up to $1,820, or more than 18%. When it doubles again, his tax jumps to $4,380, or about 22%.
The barely comfortable are pushed up into tax brackets intended for the affluent. The affluent, if their incomes keep pace with inflation, are shoved into brackets intended for the very rich.
The result: We have fewer poor before taxes; and more poor after taxes.
Inflation takes a bigger bite in practically all of the taxes we pay. The housewife is acutely aware of the bigger sales tax she pays as prices rise. Real property is reassessed and requires a heavier tax. So does personal property. That rampaging tax increase does not show up in your cost-of-living index, because the Consumer Price Index blithely ignores direct taxes.
As Mr. Carter's deficit greenbacks hit the financial fan, we will gradually all be shoved ever closer to the top tax brackets — now 70%. The only winners in the inflation game are the politicians. This is why the War on Inflation from Washington will always be a "no-win" war, until the complexion of Congress is drastically changed.
This year the taxpayers will have to fork over an incredible $55 billion just in interest on the national debt. Fifty billion dollars is the equivalent of the entire budget when Harry Truman was in the White House!
The middle class is being squeezed out of existence by the taxation-inflation syndrome. Four million Americans are holding down two jobs to pay for the extravagances of our politicians. Nearly half of the wives in the country are forced to work in order to make ends meet. The typical family starting out today cannot afford to buy a home, while many older Americans, retired on fixed incomes, are being driven out of the homes they bought and paid for years ago!
Not all the effects of inflation are monetary. Henry Hazlitt, one of America's foremost economists, tells us that the massive deficits our politicians are creating quite literally breed crime:
During every great inflation there is a striking decline in both public and private morality.
The chain of causation, from inflation to corruption to crime, is direct. In a free enterprise system, with an honest and stable money, there is dominantly a close link between effort and productivity, on the one hand, and economic reward on the other. Inflation severs this link. Reward comes to depend less and less on effort and production, and more and more on successful gambling and luck. For some, gambling finally comes to seem too chancy, and corruption or crime a surer path to quick reward.
Retired persons, widows, and others on fixed income may be decimated by inflation, but they suffer in relative silence. It is the unemployed in our inner cities who are being agitated in their displeasure to hurl Molotov cocktails. If it comes to a choice between these voting blocs, the aged or the urban minorities, which voting bloc do you think will win? (The elderly will probably be consoled, however, with promises of another increase in government benefits — which will only add more fuel to the fires of inflation.)
Millions upon millions of Americans are depending upon pension and retirement programs which are going to be worthless if something is not done soon. The magnitude of the problem is spelled out by the Wall Street Journal of November 11, 1977:
Ten of the top 100 corporations on the Fortune 500 have unfunded liabilitics equal to a third or more of their net worth, and total uncovered benefits for all corporations exceed $50 billion. What has not yet dawned on corporate America is that its unfunded pension liabilities are only a part of this problem, and a relatively small part at that. Fifty billion dollars is peanuts compared with the other unfunded pension-fund liabilities that corporate America must also meet out of future earnings.
There is now $4.1 trillion in unfunded Social Security liabilities, almost $1 trillion in unfunded federal government pensions, and a few hundred billion in unfunded state and local pension funds. Where is it to come from if not from business earnings?
Federal, state and local governments are going to pay off all these promises, and they are going to do it by taxing away the output of productive enterprise. Nor is this something that is going to happen in the next century. Observe the Congress piling on Social Security tax rates. The future is now!
Then, the Journal goes on to say that, as bad as things look now, they could get a lot, lot worse:
As far as we know, there are only two possible solutions. One, which obviously is our second choice, is a Russian-type revolution somewhere down the line. The new American Bolsheviks would of course repudiate all these liabilities incurred by their predecessors. Our first choice would be to have the DJIA rise to about 2000. That is, the value of the assets in the pension-fund portfolio climbs so high that everyone is in the black.
The solution seems simple enough: Stop adding to the burdens of the capital stock, through taxation and regulation that invite it to produce less; then, begin stripping away the burdens previously imposed, thereby encouraging it to produce more.
Notice that even the staid old Wall Street Journal says that a revolution may sweep America if the economy is not freed from the hands of the politicians! We can win this revolution now, through the ballot box. If we don't use ballots now, as the Journal warns, some one else will be using bullets later.
The government has decimated the savings and investments of thrifty Americans. If the Dow Jones Averages is adjusted for inflation, there have been no real profits in the stock market since 1955. The Dow would have to triple before it would put investors in the black as far as purchasing power is concerned. And then they would still have to pay 50% capital gains tax. Get the feeling the game is rigged against you?
People who have entrusted their savings to banks, savings and loans, insurance policies or bonds have, almost literally, been raped. Let's assume that you are earning 6% on your savings. You will have to pay income tax on that interest, reducing your real net to 4% or 5%. But, the increase in the cost of living is at least double that! The value of your savings is systematically being wiped out.
So many thrifty, responsible people were being pushed to the walls — and sometimes through the walls and into the streets, as their homes had to be sold to pay skyrocketing property taxes — that the tax revolt was launched in California. More than four million Americans took the law into their own hands — legally and constitutionally — and said to the spendocrats, "No more. You must cut taxes ... now!" The same thing can be done to Washington. The Money Monster our politicians have created can be chained down — as our Founding Fathers meant it to be. The purpose of this book is to show you why — and how.
CHAPTER 5 - THE WELFARE WONDERLAND [BACK TO TOP]
She used at least 15 aliases (one account says 80) and her trail of addresses snaked through fourteen states as she made a career of collecting welfare payments and food stamps. Over five years she pocketed at least $300,000. One estimate put her total take from all operations at almost $1 million. Once she applied for aid as the mother of seven pre-school children (two sets of twins and one of triplets). Her application was approved without question. When she finally came to the attention of authorities, she owned three automobiles and four buildings in Southside Chicago.
Meet Linda Taylor, "the welfare queen," whose high-living ways while exploiting every loophole in the "welfare mess" brought the need for "welfare reform" to public view again.
But cleaning up "the welfare mess," an ever-recurring political promise, is one of those faithfully parroted choruses of our times. It seems heavy in intent but is invariably slim in results. It's not that nothing can be done; the problem is that too many bureaucrats are afraid they may be swept out if any house cleaning does occur! They hold onto their empires harder than a bulldog gripping the postman's pants.
A Texas woman bilked the Medicaid program out of $100,000 by creating a fake clinic. One man in Michigan was charged with taking the Michigan Department of Social Services for a cool million dollars. In California, a band of ex-social workers was discovered running a school instructing others in the fine art of welfare cheating! Their take was 20% to 50% of their students' illicit gains.
In Alameda County, California, eight well-to-do women tested the dole system by posing as welfare mothers; all eight received aid and then tried to expose the unusually lax policies in the county.
In 1978, Medicare spokesmen informed the nation's taxpayers that their funds are being used, among other things, to pay $5,600 for a sex change operation for a San Diego man who had lived and dressed as a woman for the past three years. Thomas M. Tierney, Director of Health, Education and Welfare's Medicare Bureau, said a new policy extends Medicare coverage to "gender reassignment surgery," officially for "sex change," as long as the candidates "have at least one year's experience living as a member of the opposite sex."
Grand Jury and Supreme Court reports from New York City indicate that over a two-year period a billion dollars was wasted in Medicaid money in the Big Apple. Only one out of every 200 applicants was ever checked, nursing homes billed the city to care for dead patients, pharmacists short-changed impoverished clients, and dentists extracted thousands of teeth unnecessarily. More than a thousand dead New Yorkers were receiving welfare checks each month. As a tribute to the toughness of even the dearly departed in New York, it should be noted that every check was cashed, too!
If you shivered through the winter of 1977-78, with West Virginia coal miners striking the companies that could have helped alleviate the situation, you'll want to know that your tax monies provided $4.4 million per month in food stamps for the strikers. The combined outlay in welfare costs to help the strikers was $547 per striker, per month. With this kind of support, a strike can last a long time.
Across the nation, an increasingly work-shy younger generation has learned how to live off combined federal and state welfare, unemployment benefits, and "relief' for a year or more at a crack, by exploiting a system whose proponents now admit it is unmanageable.
Caspar W. Weinberger, chief of the bloated Department of Health, Education and Welfare during the Nixon era, came out of the experience a little shell-shocked. He learned that, even with the best intentions of cleaning it up, the "welfare mess" has become a monster of grotesque dimensions. It is, indeed, Dr. Frankenstein's creation run wild, a behemoth whose every movement saps more strength from our increasingly tax-bled nation. Said Weinberger on leaving Washington:
After five and a half years in various posts in Washington, I come away with a deep concern that if the enormous growth of our pervasive Federal government continues, it may take from us our personal freedom at the same time it shatters the foundations of our economic system.
...More than half the budget is spent for Federal domestic social programs. These programs, consisting mainly of uncoordinated, spasmodic responses to a variety of needs, real and fancied, are threatening to bring us into national insolvency. They are also an increasing intrusion into the lives and affairs of all of us. The whole human resource field is under the lash of Federal law: doctors, hospitals, teachers, college presidents, students, volunteer agencies, city halls and state capitols — all are subject to this or that control from Washington.
When the Founding Fathers put the phrase, "to promote the general welfare," in the Constitution, they were talking about the common good, such as defense, a post office, court systems, etc. They weren't talking about providing perpetual welfare by robbing hard-working Peters to provide for unproductive Pauls.
With social spending programs now accounting for 58% of the federal budget, the dimensions of the largesse have taken on mind-boggling proportions. The sum total of federal, state, and local bureaucrats involved in administering an annual outpouring of more than $440 billion in "relief' and social spending of all kinds now numbers 331,000. They shuffle through the paperwork that sends 23,400,000 citizens some kind of benefits regularly.
On May 1, 1978, a report disclosed that the federal part of this action is $248 billion per year to administer 182 "benefit programs" — or, phrased a different way, 69 cents of every tax dollar collected by the federal government as tax receipts in the last fiscal year went to indirect or direct "benefits" — such as those which dispensed so much easy money to Ms. Taylor. Some $60 billion per year goes to direct cash-assistance programs.
In twelve years, the Aid to Families with Dependent Children program has grown from $1.7 billion to $9.9 billion; Medicaid has swollen from $3.3 billion to $15 billion; and the Food Stamp rip-off has skyrocketed from a "modest" $35 million to $5.3 billion today, or a 16,000% jump!
The AFDC figures are doubly interesting because, while its grants quintupled between 1961 and 1969, the total child population increased by only a third. The AFDC growth can largely be traced to "absentee fathers" (estimated 590,000 in 1961 vs. 1,482,000 in 1973). Six out of seven paid no support whatsoever for their children. Many of them abandoned their families because the AFDC program actually made it lucrative to do so. Love 'em and leave 'em...to the taxpayers, that is.
A study by the Joint Economic Committee recently pointed out that, if an unemployed father deserted his family, the average gain, expressed in cash and food benefits, varied from $1,004 for a one-child family to $1,318 for a three-toddler unit. That is, the family had a raise in buying power if the father fled ... or appeared to. If there is any question why there are so many claims for AFDC payments, and a spiraling number of absentee fathers, one need look no further than the irresponsible actions of our Big Brother spendthrifts.
With billions being spread around like confetti at a wedding, the possibilities and potentials for cheating increase at a rate almost as fast as the amount of funds available to be spent.
There was, for example, $655 million worth of absolutely unnecessary surgery performed in fiscal year 1977 by physicians in the Medicaid scam. The program's projected net losses for 1977, through funds mishandling, was set at $2.6 billion; Medicare was not far behind with a $2.2 billion projected loss.
The much-maligned AFDC program in 1977 was but a piker alongside the phony claims and exorbitant fees charged by the Medicaid-Medicare rip-off specialists; a mere $699 million was lost through poor AFDC management. The Income Security and Supplemental Security Income programs came up with a projected com bined loss through mishandling of $1.2 billion.
In fact, the investigators admitted, the projected yearly net loss from the well-intentioned effort to create more jobs, and to rescue Americans from some definition of "poverty," now comes to $15 billion a year. This is more than the gross national products of most states and many foreign countries! These are not my figures; they come directly from the federal investigators responsible for auditing the programs. Do you still believe that federal spending can't be cut — and cut drastically?
A few months ago, Ralph K. Winter, professor of law at Yale University, calculated that the increase in social welfare spending by local, state, and federal governments between 1960 and 1971, if given directly to poor people in America, would have provided the average family with an annual income of $19,000! Why did they in fact actually receive less than half that amount? Because the bureaucrats kept the rest to run the programs!
Writing in the American Enterprise Institute's Regulation, Professor Winter reported: "We can, in fact, eliminate poverty, reduce taxes and inflation, and limit the size of government by giving only some of the money already devoted to social welfare directly to the poor and leaving the rest with the taxpayer." But that, of course, would leave the bureaucratic middlemen out of the picture. And you can be sure they're not about to support any sensible procedure that might abolish their departments. Why, some of them might have to go to work if that happened!
When President Carter took office in January 1976, he knew his administration faced huge problems with the "welfare mess." So many workers had gone on the dole during the recession of 1974-75 that 31 states had run out of unemployment funds. An outraged populace expected the new administration to do "something." The word from the White House was "streamline."
Shortly thereafter, the game plan was announced: Welfare programs in 1977 would cost "only" $2.8 billion more than the structure left over from the Nixon-Ford era (when Republicans had vowed to "do something"). Even the $2.8 billion was a jump from Carter's promise to have a welfare program no bigger than the one in effect in 1976, but by 1977, nobody thought a $2.8 billion overrun was exorbitant.
Digging by Capitol Hill welfare experts who looked closely at "reform" proposals to put as many as 50 million Americans on welfare found the "streamlining" would cost, not $2.8 billion more, but $15 billion more. Such notables as former U.S. Welfare Commissioner Robert Carlson charged that HEW played statistical games to downplay the projected splurge in welfare spending.
In truth, the Carter Administration is not any closer to cleaning up "the welfare mess" than was any of its predecessors. But it won't admit it.
All of this massive spending is in the good name of "eliminating poverty" and "creating jobs." There is virtually no effort to get taxpayers out of the squeeze Big Brother has put them in.
The Tax Foundation reported in 1977 that the average American earns $15,000 a year, is married, and is the father of two children. In 1977, he paid $3,975 in federal taxes — $ 1,459 in individual income tax, $878 in Social Security, and $1,635 in indirect federal taxes. A third of the overall amount, or $1,288, went to social programs, with $934 to national defense. On top of that, of course, our average Joe paid $365 for health expenditures and $353 in interest on the national debt.
Joe probably believes that this weekly debit from his paycheck is filtering down through the waves of advisers, social workers, counselors, caseworkers, urban renewal experts, planners, consultants, grantwriters, budget-drafters, and assorted other hangers-on to "the poor."
And some of it is, by golly. But the hard fact is that the cost of getting it where it is supposed to go is geometrically multiplied when it is done through Washington. The Association of Life Underwriters estimated in early 1977 that for every dollar reaching the needy, the cost of channeling it through churches is 8 cents; through charitable organizations, 27 cents — and to get one dollar through the government, it costs $3.00!
Nowhere has the largesse of welfare been more generous than New York City, the first "federalized" metropolis in America. Some $4 billion in welfare funds are targeted for New York City annually.
The Big Apple is the city where one out of every eight people survives on the dole — call it "welfare," "relief," or what-have-you. The city is positively papered with food stamps. Apparently it is also riddled with disease, if the large numbers of applicants for Medicaid mean anything.
A study by the Rand Corporation two years ago showed that a majority of New York's "welfare families" received cash, goods, and services that lifted 80% to 90% of them above the "poverty line" — whatever that really is. The Rand researchers found the average family on welfare in 1974 received the equivalent of $6,595 in cash, goods and services — or $1,595 above the then-established $5,000 "poverty level."
So varied are the programs available, and so generous are the administrators in New York City, that a typical welfare recipient is paid more than twice as much in benefits as the same person would get in Cleveland, and almost three times what he would get in Houston.
The federally financed Rand study helped answer the one important question about New York City welfare: Why do so many people work to get on the city's welfare rolls, but so few work to get off them? The answer is, you live better — and easier — on welfare!
Los Angeles was a step behind New York in jumping on the give-away bandwagon, but by 1977 it had surpassed Gotham, when more than a million Angelenos (or one in seven) were welfare recipients. Hovering near the 1-in-8 ratio are St. Louis, Baltimore, Washington, D.C., and Philadelphia.
The history of the welfare mess is not encouraging to those taxpayers hoping for some relief. Aid to Families with Dependent Children was enacted in 1935 as the first of the big welfare programs (excluding Social Security). Supplemental Security Income was enacted in 1972 to aid the aged, blind and disabled, and is the only major program providing direct cash assistance. Medicaid, food stamps, and housing subsidies are specific-need programs which are so broad and so costly they are virtually separate welfare programs in and of themselves.
The benefit levels under AFDC swing violently, from a low of $60 per month in Mississippi to a high of $497 per month in Hawaii. A recent study of five major welfare programs showed that benefits ranged from $370 per "poor" individual in Wyoming to more than $3,000 in Hawaii. In the Northeast, benefits are three times those available in the South.
In 23 states, the red tape involved in Aid to Families with Dependent Children actually encourages families to break up, because such states deny AFDC payments to poor families with unemployed fathers living at home. And the regulations even reward unemployment — should a poor mother earn just enough to lose her AFDC eligibility, she also may lose her eligibility for Medicaid, which may be worth anywhere from hundreds to thousands of dollars per year for her family.
If the head of an AFDC household does return to work, benefits to the family are not normally ended as soon as the job starts; they are phased out. Last year it was reported that in Michigan an AFDC family of four with a mother employed at $7,000 a year continued to draw more than $1,200 in cash benefits, plus Medicaid and $300 worth of food stamps each month. But a two-parent family of four in the same state, with a father working at the same wage, received no assistance!
And as for food stamps, this other well-intentioned program has been so susceptible to fraud and abuse it is even more out of control! The food stamp operation costs between $5 and $6 billion each year, with one out of every eleven Americans now getting stamps. Such problems as theft, illegal trafficking, counterfeiting, and fraudulent uses cost millions of dollars a year. The U.S. Department of Agriculture, which administers the program, has had to devote a quarter of its criminal investigative efforts into sorting through the mess.
Last year, U.S.D.A. reported that 83,016 people falsified applications for food stamps in 1976. A majority of the abuses involve purchases other than food with the stamps, reselling stamps for cash, and the like. "With food stamps you can buy anything out in the street, from booze to a prostitute to drugs," said an agent of the Ramsey County Welfare Fraud Unit in St. Paul, Min nesota.
A Grand Jury in Atlanta earlier this year confirmed that food stamps had been used to buy heroin, cocaine, and marijuana; thousands of dollars worth of beer and whiskey; televisions, stereos, records, and tapes; a fun time at a local massage parlor; and even a brand-new Cadillac! No one in law enforcement seemed the least bit surprised at the abuses that were uncovered. No one in the welfare agencies seemed to care. And the leader of the local "welfare rights" organization screamed that she was sick and tired of seeing "poor people" picked upon by the Establishment. "It's time we were treated with a little respect," she demanded.
A Secret Service official said $306,049 in bogus food stamps were seized in 1976, but that there is no real way to tell how many are in circulation because the Federal Reserve spot-checks only 2% of collected stamps once every six business days.
Clearly, a huge portion of the food stamp give-away results in fraud and worse. Error is another factor. U.S.D.A. spokesman reported early this year that "some kind of error" is involved in from 20% to 30% of all food stamp cases. In 1977 alone, these errors resulted in $590 million in benefits for people who either were ineligible or who received overpayments.
In 1965, when the food stamp program was in diapers, $35.1 million was targeted so that 442,359 persons who fell into specific "poverty" categories could receive reductions in their overall food bills by presenting the coupons. Caseloads exploded so rapidly that by 1977 the tab was around $6 billion, with 18 million Americans on the receiving end. Either Americans had gotten poorer, or the definition of poverty had changed, or the program was not working.
Poorer? Hardly. By 1976, federal officials pointed out that 6% of the current recipients of food stamps (1,140,000 families) had family incomes above $9,000. Some 3% (570,000 families) had incomes above $12,000. That was the year Senator Jesse Helms pointed out that "57% of those eligible are above the federal government's official poverty line."
How on earth is that possible? The eligibility formula is so loosely structured, and so susceptible of manipulation, that four-member families with incomes up to $12,000 qualify for the stamps. Involved in the formula are deductions of expenses for income taxes, retirement, Social Security, union dues, medical costs, child care, private school tuition, car payments, and up to a half of housing costs. Under this formula, it actually helps to own an expensive home with high mortgage payments!
If there are really not that many Americans truly in need of food stamps, can we really believe that unemployment — that other big bugaboo of the welfare state — is as bad as the generous dispensers of tax monies make out?
Since 1977, the federal government's Comprehensive Employment and Training Act (CETA) has spent more than $8 billion in an effort to help the nation's un employed. Indeed, more than 750,000 people have been added to the public payroll in what amounts to make-work jobs.
But CETA is also loaded with fraud, theft and embezzlement. Newspaper accounts of criminal abuse in CETA have uncovered scandals from Maine to Miami, from New York to Honolulu. In fact, it is a rare CETA program where someone's hand has not been found raiding the goodie jar. Yet Congress recently approved a staggering $46 billion in additional funds for the program! Honesty may be mighty scarce at CETA — but apparently the welfare votes are mighty plentiful.
Columnist Paul Harvey, researching the unemployment" quagmire last year, found that money taken from productive Americans and given to the unproductive now totals $200 billion a year. It is one reason, he said, why the number of American men who actually can work, but don't want to, has jumped 71% in nine years — and why "help wanted" lineage in newspapers increased during 27 out of the 28 months that he checked them.
A recent survey by Fordham University revealed that millions of young Americans would rather take welfare or other government handouts than do honest, if menial, work. "Our study revealed that the younger the person, the more likely he or she is to feel they would rather take government assistance or welfare than work at a menial job," the survey reported. "We think this attitude toward work is, in part, tied to the general affluence in our society. Today a person does not need to work in order to survive." The report concluded that between a quarter and a third of those who are not working are unemployed because they choose to be.
These individuals only want "meaningful" work, or work which gives them pleasure, and in their scale of values, being on the federal take while available jobs go begging is not immoral or unethical.
There are now welfare dynasties in America — families that have spent decades on welfare and the dole. Of the 3.4 million American families on welfare in 1975, more than 35% had been on the take five years or longer, and some 71,326 had been on relief for 20 years or more.
As Professor Nathan Glazer of Harvard University notes:
We have legitimized a level of welfare support...which, on the whole, is greater than the support...from the low-wage labor market. A lot of humanitarians say that reducing welfare means more suffering for some people. I suppose that's true. But I think it's also true that if we make welfare harder to get, a lot of people will do other things — go to work, for example.
Amen!
In 1976, the average New York City taxpayer paid $159 to support the city's welfare system. The average Chicagoan was taxed $170, the average Detroiter kicked in $222. But in Houston, Texas, the average citizen was taxed a mere $15.93 to support welfare there.
The Good Life simply isn't available for welfare users in the Lone Star state. While in many states, as we have seen, welfare pays better than working, not so in Texas. There the top payment a family of four can expect is $140 a month.
Before you throw your hands up in horror at those heartless Texans, consider this: Texas' unemployment remains less than the national average. More importantly, while New York City welfare-drawers stay on the dole an average of 34 months, Texans do so for 11. And unlike anywhere else, 40% of Texans leave welfare to take a job.
Many Texans also have a sense of humor about the frustration of dealing with Big Brother. The City of Hondo, Texas, was seeking $700,000 in federal aid for a new civic center. But it was advised that its miniscule 3% unemployment rate disqualified it for such funds. Well-managed cities without major problems are not allowed on the gravy train — even though they help pay for it.
Mayor Woodrow Glasscock, Jr., needed to raise Hondo's unemployment rate to 6%, to bring it within the federal requirements. Rather than encourage any one to quit ajob, however, or laying off any city workers, he advertised for: "bums, loafers, and ne'er-do-wells; you're welcome in Hondo..." As of this writing, we don't know if enough bums arrived in Hondo to meet the wishes of Uncle Sam.
Please excuse me for that moment of levity. By and large, it's hard to maintain any sense of humor, when the terrible toll of the present welfare system is considered. We share the anguish and the outrage of one mother in Boston, who sent the following letter to Human Events magazine a few weeks ago:
Recently I read an editorial about poor people. I became so enraged that I almost wept. It was the kind of dribble that is perpetuating the myth of poverty in this country.
I know that thousands, maybe hundreds of thousands, of poor people read it too, but with rapt expressions on their faces. Why should they even attempt to overcome something that gets such good press?
It is common knowledge that self-pity is a destroying thing. How is it that pity somehow becomes noble when it comes from somebo