James Leroy Wilson's blog

Monday, October 01, 2007

Your Friendly Neighborhood Fed

I was recently notified of 10 Important Functions Performed by the Federal Reserve that You’ve Never Heard About.

Looking at the list, it appears that the constructive things the Fed does could just as well be done by a private, voluntary Association of banks - such as develop new technology or protect against retail payment fraud. Even should such an Association evolve into a de facto monopoly, in a true free market there are no legal barriers to start a non-associated, competing bank. So if the Association screws up in what it's supposed to do, individuals would be able to take their business elsewhere. But when the Fed screws up, what choice do we have?

Moreover, the Fed issues regulations, which are laws, and the Constitution authorizes only Congress to make federal laws. Therefore, such regulations - and other bureaucrat-made law in other federal agencies - should be considered unconstitutional.

The Fed also enforces laws Congress passes concerning banks. And what do these laws do, except distort the economy? An example is the Community Reinvestment Act of 1977, in which "banks are required to offer their services to underserved populations and small businesses." But the Fed's ratings and evaluations of bank compliance with this law distort the behavior of banks, and is "a possible cause of the subprime mortgage financial crisis, as it may have pushed banks to lend to customers that were not creditworthy."

If we are to have the Fed, we should go all the way and change the name of the country to United States of America, Inc. Acknowledge that the purpose of the federal government is to manage and protect a banking cartel, and all "extras" the government provides like war and welfare serve to keep the people frightened and dependent on the federal government, which means the banking cartel.

And then we could do one more thing: once the technology is in place, we should abolish all current taxes and implement the ATP Tax:
Every bank, brokerage, or other financial account established by a person, corporation or other taxable organization will pay 0.3% on ALL funds moving IN OR OUT of that account. The tax would be automatically transferred to a federal government tax collection account in the same institution. This will be true for stock, bond, options, and futures traders and investors; foreign citizens, companies and governments exchanging their currency for US dollars; a couple buying a new car (no more 6% sales tax, instead 0.3% APT tax); and, a teenager buying movie tickets with a credit card. The movement of funds is taxed and collected immediately without recording who or what was the source of funds or the recipient. This automated system would totally eliminate the need for filing tax returns and information returns, freeing individuals and businesses of enormous costs of tax compliance and greatly reducing the government's costs of collection and enforcement.
Sufficient revenue would be raised because
[m]ost of the revenues would be collected from the massive volume of stock and bond trades and foreign exchange transactions none of which are now taxed. One might be concerned that imposing taxes on these types of transactions would stifle economic activity in these critical areas, however, the tax is so small it would be dwarfed by the simple fluctuations in price that typically occur during the trading process. Although "day trading" and short term foreign exchange transactions will certainly decline, the reduction in these "hot money" transactions are only likely to reduce speculative market activity, thereby reducing the volatility of prices in these markets.
The way I see it, we should get rid of the Fed, Big Government, and centralization. But if we don't, it seems that the APT Tax would be the best system in preserving individual freedom (no more tax filing, compliance costs, or tax-related criminal prosecutions) while keeping taxes insignificantly low for the poor.

Of course, the people most interested in keeping the Fed, Big Government, and centralization don't have much concern for freedom or the poor anyway, so I doubt we'll see anything like the APT Tax.

2 comments:

  1. Bill Hermann8:05 PM PDT

    APT is indeed the answer. A tiny flat tax that gives the country and taxpayers all the positives of the Fair Tax without the significant negatives. I disagree with your thought that big gov't wouldn't like APT. Actually they could raise significant additional revenue by extremely small rate increases that no one would protest. Every 0.01% raises nearly $100 billion. In fact my libertarian lining friends object to APT because they think people would lose interest in the gov't and taxes. My only responnse is, just give us a chance. Actually the economic growth stimulated by such a tax would create large excesses in revenue without a rate hike.

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  2. I should clarify. The tax code as we have it is a means of social control. Losing that grip of social control is something supporters of Big Government would fear.

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