Tuesday 12-29-15

Jefferson’s view on Taxation

Did you know for the first 140 years of the America  (1776-1916) there was virtually no direct taxation on American citizens? In 1802 when Thomas Jefferson took office he eliminated all direct taxation on US citizens. Tax free America. This was Jefferson’s vision and I have quotes from him to back it up.
There were times in US history, like war, when it came back temporarily but the federal government was established to protect citizens against the burden of government. There were some excise taxes and duties on foreign imports but government was kept to a minimum and each person was free and responsible for their own life. This was the vision on the founding fathers for establishing the United States of America.
During the tax free time in America, citizens rich, poor and middle class of the United States grew richer and there was no social state, which was seen by the founding fathers as the road to serfdom. The whole world envied the US and tried to immigrate. If you want to read even more on the history of taxation in the United States including Jefferson’s views on taxation the US Treasury has an article.

Jefferson on taxes: they are wrong

Jefferson’s view on taxes were clear, they were wrong.  I think it is better to look at people’s original words so I have put together some quotes by Jefferson on the issue. Jefferson believed large debt and direct taxes were a curse and something to be avoided as it was the source of oppression.  Jefferson was one of the founding fathers whose vision of the United States was one of freedom for people to live their lives without the excess burden of government.

And the forehorse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.

Thomas Jefferson in his state of the Union wrote about the “the freedom of labor from taxation”. He felt government should protect its citizens from internal taxation.
Thomas Jefferson believed in times of war when a nation was fighting for its survive with enemies at the gate it could raise capital, but it should be paid off as soon as possible and with least burden to its citizens.

I can not but hope that Congress in reviewing their resources will find means to meet the intermediate interest of this additional debt without recurring to new taxes, and applying to this object only the ordinary progression of our revenue. Its extraordinary increase in times of foreign war will be the proper and sufficient fund for any measures of safety or precaution which that state of things may render necessary in our neutral position.

Jefferson continued to write addressing the Nation:

Direct taxation was to be avoided, this could be done by  avoiding expense that are not necessary. when merely by avoiding false objects of expense we are able, without a direct tax, without internal taxes, and without borrowing to make large and effectual payments toward the discharge of our public debt and the emancipation of our posterity from that mortal canker, it is an encouragement, fellow citizens, of the highest order to proceed as we have begun in substituting economy for taxation, and in pursuing what is useful for a nation placed as we are, rather than what is practiced by others under different circumstances.

Jefferson even did not like the idea of accumulating wealth for a treasury for times of war in case it happened.

…but sound principles will not justify our taxing the industry of our fellow citizens to accumulate treasure for wars to happen we know not when, and which might not, perhaps, happen but from the temptations offered by that treasure.

Jefferson recommend no internal taxes on the citizens of the United States:

there is reasonable ground of confidence that we may now safely dispense with all the internal taxes.

Jefferson Vs Hamilton on the role of government

When I was in high school and first read about the Hamilton and Jeffersonian views of America, I thought only hippies and people who did not understand economics would side with Jefferson. Clearly we needed a strong central bank, treasury and debt to finance the government, centralised financial markets. Jeffersonian views of a libertarian America seemed too radical for me. I was 16 years old in high school when I thought that. Now that I have studied economics and lived in the world for at least 30 years, I realize the opposite.  The government that governs least governs best. If the freedom and prosperity of the citizens are to be protected no or low taxes and debt are clearly the way to go.
Economically speaking it is a question of who can spend your money better, you or the government? Why did Jeffersonian America prosper and not fall apart without taxation? The reason is what Jefferson wrote was correct.

Jefferson’s letters and original writings on taxes in the USA

1787 to James Madison about the issue of taxes:

…the fundamental principle, that the people are not to be taxed

Jefferson’s letter to John Jay in 1789 (August 27th):

The embarrassments of the government, for want of money, are extreme.

What does this seem like to you? If you can find Jefferson quotes to the contrary please let me know. Why does the current President not understand this?
Jefferson when on to write to John Taylor in 1789:

I wish it were possible to obtain a single amendment to our constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its constitution; I mean an additional article, taking from the federal government the power of borrowing.

In 1799 Jefferson when on to Edmund Pendelton about:

the disgusting particularities of the direct tax.

In 1801 to John Dickerson Thomas Jefferson wrote on taxes:

You will perhaps have been alarmed, as some have been, at the proposition to abolish the whole of the internal taxes. But it is perfectly safe. They are under a million of dollars, and we can economize the government two or three millions a year.

Hand written by Thomas Jefferson

My view’s on Taxation

• As an economist I think a tax on consumption, is the least offensive as it does not discourage investment and savings and productive effort.
• I  pay taxes in the EU and the US as I am a dual citizen, I do not like it. I think it is unfair. I agree with Jefferson. The absence of direct taxes made the US great.
• ‘No country was every taxed into prosperity’ – Ronald Reagan
• Government wastes more money than any private person or company ever could.
• Taxation is a violation of your life, if you work more than 1/2 (aggregate all the taxes including sales and loss of productivity indirectly related to taxes etc) your life for your neighbors wife this is unfair. This is what taxes are, working for your neighbor’s wife. How do you feel about that?

Thomas Jefferson was not a saint, but he was enlighten.

http://political-economy.com/thomas-jefferson-on-taxes/

Debt distress level at highest since recession

Higher interest rates are about to hit companies - just when many are ill prepared to handle them.
The Federal Reserve this month took interest rates up for the first time in nearly a decade - ending the days of free money. It might take a few years for higher rates to hit companies - as they look to refinance debt. But the troubling part is many companies aren't in great shape to eat the higher costs.
The number of companies with the lowest credit ratings and negative outlooks jumped to 195 in December, the highest level since March 2010, says Standard & Poor's. The biggest culprit for the jump in these so-called "weakest links" is the oil and gas sector, which accounts for 34 of them. But financial companies are close behind, representing 33 of the weakest links, says S&P.
The bond markets are starting to factor in the dangerous combination of rising interest rates as well as profit weakness in several sectors. The U.S. distress ratio - a measure of the amount of risk the market has priced into bonds - hit 20.1% in November, which is the highest level since hitting 23.5% in September 2009, says S&P. That's an onerous indicator since September 2009 takes investors back to the last recession.
The largest percentage of the distressed debt - 37% - is concentrated in the oil and gas sector. The sector is getting hammered by falling commodity prices. But metals, mining and steel is hurting too, with a 72% distress ratio. Time will tell if the debt market can handle this shock.

http://www.usatoday.com/story/money/markets/2015/12/28/debt-distress-level-recession/77882786/