Category: Taxation

What does the Biden Administration and the Venezuelan Dictatorship Have in Common?

What does Venezuela’s desire to adopt a totally cashless society and the Biden administration’s plan to require banks to report all transactions over $600 to the IRS have in common?  They are both about establishing government control over our finances and diminishing personal privacy.

The Biden administration believes that requiring banks to report all transactions over $600 to the government would reduce income tax evasion.  However, the IRS can already gather all the financial information it may need for an audit without adding this cumbersome requirement.  If instituted, the compliance costs to report all transactions over $600 will be enormous and the reporting process will be a bureaucratic nightmare.

In addition to the compliance costs, which would drive up the fees charged by banking institutions, the privacy implications are alarming.  The IRS would have access to information about any banking transaction exceeding $600.  If you’re withdrawing a few thousand dollars to purchase a used car, the government will know about it.  If you received a thousand dollars in wedding gifts, the government will know about it (and try to tax it).  If you spend $600 to attend a protest event, the government will know about it.  Even if you move money from one account to another, not only will the government know about it, it would also likely trigger an IRS audit. There is no telling what the government will ultimately do with the information they collect about individual spending, saving, and earning habits.

It is all but certain the reporting of transactions over $600 will be reported electronically.  Not only will the government have unconstrained access to most people’s financial activities, but so will hackers and other nefarious actors.  Considering the increasing number of data breeches against supposedly secure credit card transaction and personal information, it is inevitable that individual financial data will be leaked.  This data provides a treasure trove of information that may be used by criminals.  Under this proposal, not only will bureaucrats in Washington have access to your private information, but so will criminals in China, Russia, and the rest of Eastern Europe. 

This idea seems to always turn up like a bad penny anytime Democrats engage in a federal spending binge.  In 2010, as part of the so-called Affordable Care Act, Democrats wanted small business owners to submit a 1099 form to any vendor with whom they spent $600 or more in a calendar year.  This would have meant, for example, that a company which ordered a few cases of printer paper and pencils from Staples would have to send them a 1099 form at the end of the year.  Companies whose employees stayed at a Sheraton Hotel on a business trip would have had to send Sheraton a 1099 form (for each separate location).  The list goes on and on.

Had a few sane legislators not noticed this insertion into a massive spending bill, and had not small business owners lobbied against this, every small business owner would have been saddled with huge paperwork requirements and thousands of dollars in additional accounting costs.  The costs to comply with the proposed dictates would have dwarfed the small amount of additional taxes collected by the IRS as a result of these requirements.

Democrats seem to have a fixation with the $600 number.  That was their preference in 2010, and it has appeared again this year.  They believe that infringing upon the financial privacy of Americans is a small price to pay in order to fund their vote-buying programs.  They also totally ignore the costs of maintaining compliance, and the fact that such costs will be passed down to all users of banking services.  If inflation wasn’t already bad enough with gasoline prices more than a dollar per gallon expensive than it was a year ago, this bill will surely send inflation spiraling out of control.

What does this have to do with Venezuela?  Ever since the Venezuelans elected a socialist government, which shortly became a dictatorship, inflation has skyrocketed.  Even their currency could not keep up with the rate of inflation.  Before Hugo Chávez became president, the Venezuelan bolivar typically traded at 3 to 4 bolivars to one United States dollar.  Even after several currency reevaluations, it now takes 4,146,022 bolivars to purchase a single U.S. dollar.

Venezuela can not print currency fast enough to keep up with their rate of inflation.  Their largest denomination bank note, 50,000 bolivars, is now only worth a couple of cents in United States currency.  Bank notes are often obsolete even before they enter circulation.  Because of the huge inflation rate, bank notes are rarely used in commerce, and coins have completely disappeared from circulation.

In light of this, Venezuelan dictator Nicolas Maduro has announced plans to abolish physical cash and go to an entirely cashless society.  In a cashless society, all transactions are electronically recorded and available to the government upon request.  This allows the government to track the finances and transactions of specific individuals and to limit the places in which money may be spent.  If, for example, an opposition party is attempting to raise funds to challenge the incumbent government, the dictatorship could prevent any funds from being used for this purpose.  It will be impossible to purchase books, artwork, newspapers, or anything else not approved by the government.  Electronic records of all financial transactions is the secret police force’s best friend.

Will the proposed reporting requirements in the United States be as intrusive as those used by Venezuela?  Not immediately.  However, we must remember the Patriot Act was ostensibly created to thwart international terrorists.  Yet, its use of secret warrants and indictments has been employed more often to prosecute crimes within the United States, rather than foreign terrorists.  The Internal Revenue Service has been used, not only to collect taxes, but to target political organizations opposing the incumbent administration.  And while the FBI has not yet become as much of a political secret police force as Venezuela’s Servicio Bolivariano de Inteligencia Nacional, it has many times exceeded its authority to achieve political aims.  Granting the government another excuse to spy upon its citizens’ economic transactions does not bode well for the future of liberty.

Will those determined to evade United States taxation be thwarted by the bank reporting requirements?  For the most part, no.  Those with large resources will begin conducting transactions using unregulated cyber currencies, tangible metals (silver and gold), and sophisticated barter systems.  They will remove themselves from the United States fiat currency system.  In fact, the bank reporting requirements may result in a reduction to tax collection by driving many economic transactions underground.

The real victims of the proposed reporting requirements will likely be middle-class wage earners and small-business owners.  The government will use the data collected to harass (often innocent) citizens through intrusive audits and civil forfeiture provisions.  Even citizens who innocently moved money from one account to another may find themselves bullied by zealous IRS agents or local police forces hungry for the proceeds of civil forfeiture. 

And all this damage is being done so the Democratic administration can attempt to buy votes by dramatically expanding social and spending programs.  It’s hardly a good bargain.

Elizabeth Warren’s Attack on Success

If anything is a glaring example of pandering, misguided, authoritarian, collectivist tendencies, it is Sen. Elizabeth Warren’s proposal to institute a “wealth tax” against individuals with large assets.  Not only is her proposal likely an unconstitutional violation of the Constitution’s prohibition against direct taxation, it is a policy designed to penalize success in order to grant Washington the power to redistribute earned wealth to those who haven’t earned it.  In essence, Warren is proposing the seizing of assets from some in order to pay off the political constituencies she prefers.

For generations, economists have suggested that the economy functions best when people save their money, and invest it in areas that help the economy grow.  As an economy grows, overall wealth increases, benefiting all.  This does not mean that equal outcomes ensue, or even that equal outcomes are desirable.  Instead, it means that the producers and investors help grow the economy, producing goods and services valued and used by people of all economic circumstances.  One needs only look at some of the products created, many of which did not even exist twenty or thirty years ago, to see the value of allowing producers to earn, keep, and invest their funds.  Cell phones, pharmaceuticals that cure disease, and personal computers are among the products that were unobtainable a generation ago, but now owned by rich and poor alike.  Although there is obviously inequality in incomes, the fruits of a vibrant economy are made available to all.  The wealth tax, instead of encouraging savings and investments, instead instigates the squandering of money.

Warren, and others of her ilk, believe that the economy is “rigged,” and that only intervention by a select group of bureaucrats and technocrats, using money seized by producers, will allow the attainment of her goal of income equality and equal outcomes for all.  Instead of recognizing the value producers and investors have on the economy, Warren advocates a lowest-common denominator form of economic “equality” in which one’s skills, abilities, and contribution to the economy are ignored and unrewarded, while those who do not offer goods and services needed by the economy are unjustly compensated.  She is under the mistaken assumption that wealth is a fixed-size pie, in which one’s success denies others the opportunity to achieve success.  Warren ignores, or is ignorant of, the fact that wealth can, and is, created and can grow.

As with other politicians with socialist tendencies, Warren ignores the failures of other nations that have imposed wealth taxes.  In the last 27 years, the number of nations instituting wealth taxes has decreased from twelve to four.  It is also worth noting that although Warren claims the wealth tax will only affect the “richest of the rich,” nations with a wealth tax have always quickly lowered the wealth standard to include those with middle-class incomes.  Like the income tax, which was originally levied only on the super-wealthy, any wealth tax will eventually (and quickly) be expanded to affect almost all wage earners.  Once government gets a taste of additional tax revenues, its hunger for more taxes to fund politicians’ pet proposals inevitably increases.

Even if one ignores the inherent immorality of seizing one’s earned assets (which were already taxed when they were initially earned), one can not ignore the huge and intrusive bureaucracy that must be established to ensure compliance with the wealth tax.  The wealth tax is not limited to assets in financial institutions which can easily be traced; it also is levied against any fixed assets or property owned by the citizenry.  Will tax authorities be given the power to break into people’s homes to ensure that they are properly declaring the value of their furniture, artworks, clothing, vehicles, etc.?  Will people who invest in tangible goods be penalized, while people who squander their money on consumable products and experiences (such as opulent food, entertainment, and travel) be spared the burden of the wealth tax?  How is it fair that those who prefer tangible property over experiences should be burdened by additional taxes?

In practice, any imposition of a wealth tax will likely lead to the conversion of assets to easily hidden and transferable assets like precious metals and jewels.  In fact, the institution of a wealth tax will likely cause the creation of a parallel, underground economy, in which gold and silver are used for untraceable transactions.  This will place a burden on the national currency system, causing an outflow of assets that must be replaced by the printing of additional currency.  This, in itself, will create inflationary pressures that could be as significant as the hyper-inflation experienced by Weimar Germany in the 1920’s and ‘30’s or more recently, Venezuela.  Capital used for investments will diminish, resulting in a stagnant or collapsing economy.

Finally, Warren’s proposal includes a caveat that attacks even the appearance of individual liberty and self-determination.  If a person subject to the wealth tax decides that he or she wishes to relocate to a nation that actually values productivity and success, that individual will be subject to a confiscatory tax that seizes 40% of their total assets before they can move.  Not since the fall of the Berlin Wall have we seen any nation erect such substantial barriers to prevent its citizenry from seeking out greener pastures or freely moving wherever they wish.  Warren is proposing the imposition of an economic prison that will extort wealth from producers and limit the ability of producers to engage in self-determination.  In essence, Warren is advancing the creation of an economic despotism that replaces free-enterprise and rewards for success with a centralized, socialized, command economy dictated by a small group of selected “elites.”  Not only is her proposal immoral and unconstitutional, it repudiates the values of individual liberty upon which our nation was founded.