FT218: “The withholding tax is the greatest sin government ever perpetrated against the people.” —Old Pithy

Posted by PITHOCRATES - April 18th, 2014

Fundamental Truth

The tariff was the funding source for most of government for about a century.

Once upon a time there was no federal income tax.  No estate tax.  No gift tax.  No payroll tax.  No capital gains tax.  And no corporate tax.  Taxes we take for granted today didn’t exist a century or so ago.  The country was a lot leaner back then.  People kept most of their money.  And took care of their families.

The federal government used to fund everything thing they did with tariffs.  A tax on imports.  Paid in ports.  As ships unloaded their goods.  Far away from most people.  And few people complained.  Our first excise tax was a different story.  A 7 cent per gallon of whiskey incited the Whiskey Rebellion.  After fighting the Revolutionary War to escape the oppressive taxation policies of Great Britain the people were in no mood for a new tax.  The whiskey tax lasted for about a decade.  Then they repealed it.

This left tariffs as the funding source for most of government for about a century.  But even that grew controversial.  And began the divisions between North and South.  The North protected its industry with protective tariffs on iron products, textiles (wool and cotton) and agricultural goods.  Shipped from the more industrialized Britain.  Which Britain responded to with tariffs of their own.  On cotton and other agricultural products grown in the South.  So the more the North protected their industries the more difficult it made for the South to export their raw goods.

In 1913 the progressives reintroduced the income tax and taxed the rich at 1%.

This wasn’t the only difference of opinion the North and South had.  And their differences resulted in war.  The North was able to win the American Civil War with its expansive industry.  But the war devastated the country.  Especially the South.  Which lost about 8.6% of her population.  To get an idea of what an 8.6% population decline is consider this.  That percentage of the current U.S. population is approximately 27 million.  So the losses the South suffered were similar to what the Soviets lost on the Eastern Front during World War II.

The South may have lost more of its population.  But the North suffered nearly the same number of war dead.  She just had a larger population to begin with.  To run all of that industry that won the war.  America’s first modern war was a costly one.  And one that President Lincoln had to turn to a new source of revenue.  The federal income tax.  Which taxed the rich.  At 3%.  Then it taxed the super rich at 5%.  But after they paid down the war debt they repealed America’s first income tax.

Then came the progressives.  And their taxes.  In 1913 they reintroduced an income tax.  Taxing the rich at 1%.  And the super rich at 6%.  To fund an expanding federal government.  Then came World War I.  To fund the war they increased the tax rate on the rich to 15%.  And the super rich at 77%.  The top marginal rate fell during the Twenties.   But FDR raised it back up during the Great Depression.  Until it reached 94%.  Where for every dollar they earned in and above the top income bracket they got to keep only 6 cents.

Few would be able to write a check on tax day to pay their full tax bill.

Then came all the other taxes.  And they just kept coming. Our tax bill grew to staggering amounts.  Which posed a problem for the taxing authorities.  As people just didn’t keep that kind of money around.  They worked.  They raised their families.  And what little they had left they put into the bank for their retirement.  Making it very difficult for them to pay their tax bill when it came.  Especially when it was 30% or more of their entire income.  So what to do?

The Founding Fathers created a nation out of a tax rebellion.  And then when that nation levied its first excise tax they got a little rebellion of their own.  Being opposed to taxes is part of the American DNA.  So the taxing authorities had to somehow hide the large amount of taxes we were paying.  That is, they had to reduce the transparency of these taxes.  For if you don’t know what you’re paying in taxes you really can’t get mad at paying high taxes.

Enter the withholding tax.  The greatest sin government ever perpetrated against the people.  For it takes our money before we ever get it.  Conditioning us to accept ‘net’ pay as the norm.  And making ‘gross’ pay some meaningless payroll jargon.  Because you can’t spend ‘gross’ pay.  You can only spend ‘net’ pay.  Which is the only pay people care about.  Making it not only easier to hide the soaring amount of taxes people were paying.  But because it’s so easy to hide what we’re paying they could raise those taxes to confiscatory heights.  Because we never have that money in our hands.  We never see it.  It goes from our employer to the taxing authorities.  Which is the only way they could collect these soaring amounts.  For few would be able to write a check on tax day to pay their full tax bill.  As people just don’t keep that kind of money around.

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Saint-Domingue Slave Rebellion, Great Migration and 1967 Detroit Race Riot

Posted by PITHOCRATES - July 23rd, 2013

History 101

The Brutal Slave Rebellion on Saint-Domingue created Haiti and opened the Door to the American West

Haiti was born from a slave rebellion.  Inspired by the French Revolution, which was inspired by the American Revolution, the slaves on Saint-Domingue could taste the liberty in the air.  The slaves outnumbered the whites on the island.  And when they rose in rebellion in 1791 their white overlords were powerless to stop them.  The slaves massacred the white planters.  Those lucky enough to survive fled the island.  The French tried to reestablish control.  Then they went to war again against the British.  Which complicated matters.  And led to a British invasion of Saint-Domingue.

Toussaint Louverture, a former slave, and educated, eventually led the now former slaves to victory.  And won the peace.  He invited the planters back.  Replaced slave-labor with paid-labor.  Reestablished trade with Great Britain.  And the new United States.  While the French did away with slavery in their colonial possessions.  For a while.  During the convulsions going on in France following the French Revolution there were many changes in government.  And the government in 1802 lent a sympathetic ear to the former white planters who wanted their plantations back.  And their slaves.  Napoléon Bonaparte, interested in reestablishing New France in North America, sent a military force to take back Saint-Domingue.  Who captured and sent Toussaint Louverture back to France.  But things did not go well for the French.

Jean-Jacques Dessalines continued the fight in Louverture’s place.  A determined enemy, and Yellow Fever, were too much for the French.  They pulled out their remaining soldiers.  Gave up on Saint-Domingue.  And on New France in North America.  Causing another exodus from the island.  And if you ever wonder why New Orleans is so French this is why.  A lot of those fleeing Haiti settled in New Orleans.  Doubling the city’s population.  Needing money to continue the war against Great Britain Napoléon offered to sell the Louisiana Territory, the thick center part of the United States between Texas and Canada, to Thomas Jefferson.  And did.  So the brutal slave rebellion on Saint-Domingue not only created Haiti.  It gave the Americans the Mississippi River and its tributaries.  The Mississippi Valley.  The Great Plains.  And opened the door to the West.

The Great Migration brought some 6 Million Blacks from the Rural South to Northern Factories

But that brutal slave rebellion did something else.  It made the southern planters nervous.  Over half of the 40,000 white colonists were killed during that slave rebellion.  A fact that weighed heavily on the minds of the highly outnumbered white planter class in the South.  Who lived in fear of a similar slave rebellion happening in the United States.  Which lead to a more oppressive control over their slaves.  So they could snuff out any rebellion at the first sign of trouble.  And there was a reversal of policy.  The Founding Fathers had shelved the issue of slavery for 20 years to get the South to join the new nation.  Believing that the institution of slavery would die out on its own.  And in the following two decades some slave owners were freeing a slave or two.  But that all stopped following the revolution in Saint-Domingue.  When the life of a slave went from bad to worse.  For the last thing the white planter class needed was a Toussaint Louverture in their midst.

By the time of the American Civil War the slave population had grown much larger.  Which added another element to the Civil War.  Especially for the South.  The North was fighting for a noble purpose.  To free the slaves.  And fulfilling the declaration that all men were created equal in the Declaration of Independence.  But what then?  What happens after the North wins the Civil War?  And they free the slaves?  Where are the slaves going to go?  Back to Africa?  Even the ones who have no idea what or where Africa was?  Having been born and raised in the United States?  No.  They weren’t.  They were going to remain in the South.  Nothing would change in the North.  But life in the South would be changed into something that just didn’t exist.  A biracial society.  Worse, this was going to be a biracial society where the majority was once brutally oppressed by the minority.  Thanks in large part to the slave rebellion on Saint-Domingue.

With this backdrop the odds for a peaceful reconstruction were slim.  The South did not adjust well to the new reality.  There were fears.  Anger.  And the old prejudices.  While in the North life went on as it always did.  Predominantly white.  And industrializing.  Creating more and more factory jobs.  That drew immigrants to the industrial north.  As it drew southern blacks.  Leading up to the Great Migration.  From 1910-1930.  Pausing during the Great Depression and World War II.  And picking up again from 1940-1970.  When some 6 million blacks left the rural south.  And headed to the jobs in the big cities in the Northeast.  The Midwest.  And the West.  Working and living in the big cities.  Like Detroit.

The 1967 Detroit Race Riot accelerated the White Flight from the City which decimated the Tax Base

Detroit dominated following the post-war period.  It was an economic powerhouse.  Thanks to a booming automotive industry.  And a war-torn Europe and Asia.  Whose industrial capacity suffered greatly from Allied bombing.  Leaving the motor city the auto capital of the world.  And making Detroit one of the richest cities in the nation.  With their population peaking in 1950.  As people came to the city for those manufacturing jobs.  But the housing did not keep up with the growth in population.  Blacks and immigrants often faced discrimination.  Getting the worst jobs.  And the worst housing.  Things that changed in the Sixties.  Thanks in large part to a shift of the auto industry out of Detroit.

Following World War II Packard, Hudson, and Studebaker went out of business.  And the Big Three went on a building spree.  In the suburbs.  And a lot of white Detroiters followed them.  Relieving the housing pressure a little.  Allowing a black middle class to grow.  But the suburbs kept growing.  As businesses moved their jobs to the suburbs that were a little more business friendly.  With sprawling spaces for new factories.  And a brand new interstate highway system to easily ship material and parts from one to another.  The same interstate highway system that converged four expressways in the city of Detroit.  Destroying a lot of neighborhoods.  Which were predominantly black.

Many of those displaced people moved to the 12th Street area.  An area that become twice as crowded as the city average.  Unemployment was rising.  As was crime.  Including prostitution.  Where white johns were coming to the neighborhood to solicit black prostitutes.  A big complaint of the black community.  So the police cracked down on prostitution.  And a black prostitute ended up dead.  The people blamed the cops.  The cops blamed a pimp.  Tensions were rising.  Then on July 23, 1967, the police raided a blind pig.  An unlicensed after-hours bar.  On the corner of 12th Street and Clairmount.  Where a party of some 80 people were celebrating the return of two soldiers just back home from the Vietnam War.  The cops arrested them all.  While they were waiting for the paddy wagon to take them away a crowd formed outside.  Someone threw a bottle at a cop.  And thus began the 1967 Detroit race riot.  Which only accelerated the white flight from Detroit.  Caused an exodus of jobs, too.  As businesses fled the city.  Which just decimated the tax base.  Accelerating the urban decay.  Soon the black middle class followed the whites.  In pursuit of those jobs.  And to escape the dying city.  Which it did in 2013.  Die.  Figuratively.  By filing the largest municipal bankruptcy in U.S. history.

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LESSONS LEARNED #15: “Most people would rather hear a pleasant lie than an unpleasant truth.” -Old Pithy.

Posted by PITHOCRATES - May 27th, 2010

NO ONE LIKES bad news.  That’s why when someone says, “I’ve got good news and bad news, which do you want to hear first?” most people want to hear the bad news first.  Get the sting over.  Then hear the good news to help get over the sting of the bad.

People are so adverse to bad news they’ll even look for ways to ignore it as long as they can.  They’ll believe lies if the lies keep their pleasant little world pleasant.  Almost to any cost.  In 1944, the Germans were beaten.  There was a chance some soldiers would be home before Christmas.  So when some scattered reports came of movements on the German front towards the Eifel Region just east of the Ardennes, SHAEF (Supreme Headquarters Allied Expeditionary Force) discounted them.  Explained them away as nothing.  Because the Germans didn’t launch winter offensives.

Until 1944, that is.  The Schnee Eifel battle, at the beginning of the center prong of a 3-prong attack, was the greatest American defeat in 1944/1945 Europe.  But this was only one of many battles known as the Battle of the Bulge.  This German winter offensive through the Ardennes was the biggest American battle of World War II.  And bloodiest.  In all, the Germans killed about 20,000 American soldiers.  Some after they surrendered.  Kampfgruppe Peiper spearheaded the Sixth SS Panzer Division.  Joachim Peiper would eventually lead this force through the Baugnez crossroads near Malmedy.  And into infamy.  The Malmedy Massacre wasn’t the only war crime, though.  There were others.

In the movie Patton, General Patton predicted this German offensive.  And there was some truth in that.  Third Army DID predict this.  But it was his chief of intelligence, Colonel Oscar Koch, who figured this out.  Patton’s battlefield successes were the result of strong intelligence.  And Colonel Koch gave him some of the best intelligence available on the Western Front.  In November 1944, he gathered the intelligence, analyzed it and predicted a time and place.  Of course, SHAEF discounted his findings.  They were sure the Germans were beaten.  Besides, the Germans didn’t launch winter offensives.

THE BATTLE OF the Bulge was only a small part of World War II, the biggest and meanest war in the history of mankind.  Nations mobilized their military, economic, industrial, and scientific forces to wage total war.  Civilians died, too.  En masse.  Whether by bombing of enemy cities or by organized genocide in occupied lands, civilians felt the horrors of war as they never had before.

So how did such a horrific war come to be?  It’s complicated.  Did it have to be as bad as it was?  No.  At least, France could have stopped Hitler earlier.  Before his military buildup.  But to understand this story, you have to go back in time. 

THE GREAT WAR, World War I, was the culmination of a series of disputes over European power and control of the Balkans.

The Crimean War of 1853–1856, the Austro-Sardinian War of 1859 and the Austro-Prussian War of 1866 stirred the pot up in the Balkans.  The Franco-Prussian War of 1870-1871 established a new unified Germany as the dominant power of Europe as Great Britain and France were in decline (and ceded the Loraine-Alsace region from France to Germany).  And the Russo-Turkish War of 1877–1878 exploited the Balkan tempest.

Weaker nations formed treaties with stronger nations.  Entangling treaties.  Imperial interests in the Balkans of both the great and not so great powers further fermented the Balkan tempest.  Minority rule of the majority led to nationalist rebellion.  To quench this rebellion, the Austro-Hungarian Empire annexed Serbia.

This is a very cursory history but you get the picture.  There was a lot of anger.  And a lot of wrongs to right.  And territory to regain.  Or to simply gain.  And then on Sunday, the 28th of June 1914, Archduke Franz Ferdinand of Austria visited Sarajevo.  There a Yugoslav nationalist, Gavrilo Princip, assassinated him.  And then all of those entangling treaties kicked in and a world was at war.

IT WAS THE bloodiest and costliest war to date.  No one thought it would be, though.  You see, they learned a lot from the Prussians during the Franco-Prussian War of 1870-1871.  Which was swift and conclusive.  Unfortunately, they learned little from the American Civil War (1861-1865).  For 4 bloody years the Americans demonstrated warfare where technology was ahead of military tactics.  And World War I was to look more like the American Civil War than the Franco-Prussian War of 1870-1871.  Long.  And bloody.  A war of attrition where you don’t necessarily win a decisive battle.  The other side just runs out of soldiers to kill.

World War I (1914 to 1918) saw horrific killing fields.  Artillery bombardments that would last for days.  Attacks through barbed wire into raking machine-gun fire.  Poison gas.  The death toll was staggering.  Great Britain and her Imperial forces lost over a million killed, over 2 million maimed and wounded.  France lost slightly more killed and almost twice in maimed and wounded.  Civilians were not untouched by war, either.  Blockade starved civilian populations.

The War devastated and impoverished these two countries.  They won the war, but only barely.  The entry of America was just too much.  More soldiers and material.  The killing could go on indefinitely.  So all sides sued for peace.  With the Americans on the Allied side, though, they were in a position to dictate the terms of the peace.  And boy did they.

THE TREATY OF VERSAILLES was punitive.  In the run up to war, there were really no innocents.  But to the victors go the spoils.  Official blame for the war fell on Germany.  She lost territory (France got back the Loraine-Alsace region) and all her colonies.  And she had to pay reparations.  The Germans were pissed. 

The Allies hoped to mitigate their war losses by German tribute.  But it was too much.  Even a member of the British delegation at Versailles, economist John Maynard Keynes, thought so.  In an effort to restore Great Britain and France as the dominant European powers, the allies probably went too far.  The economic burdens on Germany were too great.  Then hyper-inflation met Great Depression.  Angry socialists, communists and nationalists tore the nation asunder.  Until a uniter came along.  Adolf Hitler.

HITLER ROSE TO power legally.  Then he consolidated his power ruthlessly.  He renounced the Versailles Treaty.  And did a lot of things that showed his ultimate intentions.  Including writing a book years earlier about his ultimate intentions.  Mein Kampf.  Which was pretty detailed.  To anyone who read it. 

One of his first provocative acts was to place a negligible military force into the Rhineland in 1936.  The German High Command was a little skittish about this idea for they did not believe they had sufficient strength to successfully fight off a French response.  The French had superior numbers in military power.  But they were financially weak.  They had poured a fortune into the line of fortresses known as the Maginot Line.  They could not afford all out war with Germany, too, and they thought a military conflict in the Rhineland may lead to that.  And after going through the horrors of the Great War, they had no desire to do it again.  Whether it was a question of could or would is still debated.  But had they, one wonders how such action would have altered the course of history.

Hitler continued in a string of actions, explaining away each as harmless with no higher purpose.  Great Britain and France were growing uneasy but accepted his statements.  They wanted to believe.  They would do just about anything to avoid a return to war.  Even give away another sovereign nation’s land.

THE SUDETENLAND WAS an area along the Czechoslovakia side of their border with Germany with German inhabitants.  Hitler wanted to reincorporate them into the German state.  He promised this would be his last territorial acquisition.  And, at Munich in September of 1938, Great Britain and France took him at his word.  With Czechoslovakia not even present at this conference, they concluded the pact that ceded the Sudetenland to Germany.  All’s well that ends well.

British Prime Minister Neville Chamberlain returned to London with a copy of the Munich Pact.  He would give a speech declaring they got “peace for our time.”  But they didn’t.  Hitler soon took the rest of Czechoslovakia.  With his two flanks protected, Hitler invaded Poland in 1939 and launched the world into war.  Again.  Only this time, it would be worse.

IT IS HARD to blame France and Great Britain’s reluctance to return to war with Germany after the devastation of World War I.  And those who do usually do so with the advantage of hindsight.  However, we know what the costs added up to in stopping Adolf Hitler in 1945.  And few would say that all out war with Germany in 1936 would have cost more.

Here’s the ugly truth.  The truth can be ugly.  And we hide from it at our own peril.

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