The federal government and income taxes.

[GoldandSilverEagles]

Lousy title for a thread, but "Does the federal gov't need the Income tax?" wouldn't fit...lol

I found the following very thought provoking for people who prefers to 'think for themselves'.

Hmmmm....I'm likely posting this in the wrong forum, but it will be fun to see what the 'motley crew' come up with. lol

***I could get much more in-depth below, however, I can make my point just as well from a generalized POV.

From, "How to get the irs out of your life."

"...What matters here is to understand that taxation is not to provide for revenue; the government prints all the *money* it needs, and makes a deal to borrow it from the Fed. Your "fair share" under such system is nil."

When I first read that it didn't make complete sense, under the presumption that no *healthy* government can possibly continue to borrow from the fed without ***eventually*** being required to pay off it's loans. Then I realized this bit of accounting logic doesn't necessarily apply with the fed gov't. Look at the national debt which is currently 11.2 Trillion as of 30 April 2009, as it continues to rise! And the feds are **expected*** to pay this off, along with the interest? ROTFLMAO!!!!! Yeah, when pigs fly!
(excluding Pink Floyd's pigs of course)

Actually a "conspiracy theory" comes to mind (yep, one of those! lol) ....'Income taxes'... what better way to STEAL the wealth from the productive people of this great country!

[Quixote]

... "Does the federal gov't need the Income tax?" ...

"...What matters here is to understand that taxation is not to provide for revenue; the government prints all the *money* it needs, and makes a deal to borrow it from the Fed. Your "fair share" under such system is nil."

When I first read that it didn't make complete sense, under the presumption that no *healthy* government can possibly continue to borrow from the fed without ***eventually*** being required to pay off it's loans.

Which is why the government needs to tax. What a nice short thread.

[mutter]

the income tax is because of the Fed. Res System scam
Never was about raising any revenue to provide for gov. services.
to keep the value of the FRN stable some of it has to be removed.
the national debt is a joke it cant be paid, never will be paid. the federal gov has been insovent for decades. heck even the head accountant went around for over a year giving lectures about our insolventcy.

[The Operative]

From, "How to get the irs out of your life."

"...What matters here is to understand that taxation is not to provide for revenue; the government prints all the *money* it needs, and makes a deal to borrow it from the Fed. Your "fair share" under such system is nil."

When I first read that it didn't make complete sense,...

It doesn't make sense because it is complete nonsense. The power to regulate the money supply (or the total amount of money available in an economy) is a power granted to the legislative branch which has delegated that power to the Federal Reserve with some oversight. The government cannot simply print all the money it needs. That is a sure fire recipe for runaway inflation (i.e. Zimbabwe). The Fed attempts to control the money supply through interest rate adjustments and open market operations in order to maintain an adequate supply of money to encourage growth yet keep inflation at a decent level. This is a balancing act, the details of which are much too broad a topic to cover in an online forum.

As I have said before, the government does not borrow from the Federal Reserve. The government borrows money by issuing government securities. These are T-Bills, T-Notes and T-Bonds. These securities are sold at auction on the steps of the New York Federal Reserve district bank. Anyone may buy these securities, even you.

Treasury or government securities are issued with maturity dates and the government will not redeem them until their maturity date. So, if a person purchases a five-year T-Note at auction, they cannot get the money they loaned to the government until the maturity date. However, they may sell the T-Note to someone else on the open market. The open market (aka secondary market) is also where the Federal Reserve purchases the Treasury securities that it owns. The Federal Reserve uses open market operations to affect a key interest rate and to make adjustments to the money supply. Again, this is too broad a topic to cover adequately in an online forum.

... under the presumption that no *healthy* government can possibly continue to borrow from the fed without ***eventually*** being required to pay off it's loans. Then I realized this bit of accounting logic doesn't necessarily apply with the fed gov't. Look at the national debt which is currently 11.2 Trillion as of 30 April 2009, as it continues to rise! And the feds are **expected*** to pay this off, along with the interest? ROTFLMAO!!!!! Yeah, when pigs fly!
(excluding Pink Floyd's pigs of course)

Actually a "conspiracy theory" comes to mind (yep, one of those! lol) ....'Income taxes'... what better way to STEAL the wealth from the productive people of this great country!

I agree that a 'healthy' government cannot continue to borrow money. However, a large portion of the $11.2 trillion is held by intra-governmental agencies. Also, as I mentioned, the government isn't borrowing from the Fed. A good money and banking course at a decent college or university might cover the basics of this topic.

[The Operative]

Mutter,

The income tax was enacted BEFORE the Federal Reserve was created.

[mutter]

Mutter,

The income tax was enacted BEFORE the Federal Reserve was created.

now I am confused the 16th was done after the Fed res system was setup. Yes?
give me a quick time line would you. cos the only one i remeber is the one during the civil war. When did the Gov resinstate an income tax?
too many cobwebs from years of TP non sense. that and all the freaking tequla I drank last night.

[The Operative]

Mutter,

The income tax was enacted BEFORE the Federal Reserve was created.

now I am confused the 16th was done after the Fed res system was setup. Yes?
give me a quick time line would you. cos the only one i remeber is the one during the civil war. When did the Gov resinstate an income tax?
too many cobwebs from years of TP non sense. that and all the freaking tequla I drank last night.

The 16th amendment was sent to the states for ratification (meaning it had passed Congress) in 1909. The 16th amendment was ratified on February 3, 1913. The Federal Reserve Act was enacted on December 23, 1913.

[Demosthenes]

Mutter,

The income tax was enacted BEFORE the Federal Reserve was created.

now I am confused the 16th was done after the Fed res system was setup. Yes?
give me a quick time line would you. cos the only one i remeber is the one during the civil war. When did the Gov resinstate an income tax?
too many cobwebs from years of TP non sense. that and all the freaking tequla I drank last night.

The first income tax was enacted in 1862. The federal reserve was created in 1913.

If you want to know why the 16th Amendment was ratified, go read the article archives from 1909 to 1913 on the NY Times website. You'll find lots of stories about the desire to replace the tariff system and the huge deficit that needed to be reduced by bringing in additional revenues in the form of income taxes. These deficits predated the federal reserve.

Here's an example for you:

http://www.cheatingfrenzy.com/nytimes1909.pdf

[mutter]

Mutter,

The income tax was enacted BEFORE the Federal Reserve was created.

now I am confused the 16th was done after the Fed res system was setup. Yes?
give me a quick time line would you. cos the only one i remeber is the one during the civil war. When did the Gov resinstate an income tax?
too many cobwebs from years of TP non sense. that and all the freaking tequla I drank last night.

The 16th amendment was sent to the states for ratification (meaning it had passed Congress) in 1909. The 16th amendment was ratified on February 3, 1913. The Federal Reserve Act was enacted on December 23, 1913.

That makes sense cos they had to have the ability to take currency out of the system before they put it into the system

[Judge Roy Bean]

the income tax is because of the Fed. Res System scam
Never was about raising any revenue to provide for gov. services.

The Fed boogeyman thing never seems to die, and frankly I think it's because they really don't care about their image among crackpots, let alone the general public.

Let me give you the short and simple: The Fed is to money as a dairy co-op is to milk, and imbalances in supply and demand, especially geographic in nature, create costly (wasteful) inefficiencies. Despite our whiz-bang point-and-click and plastic-driven lives, money is still fundamentally a physical thing and a Balkinization of banking would be a disaster.

[mutter]

Also, the Federal Reserve Bank branches provide other functions besides the buying and selling of Treasuries. Perhaps even more important than that is that they act as the clearinghouses for checks written by businesses and individuals, as well as wires and automatic drafts.

Without the Fed Reserve Bank branches fulfilling this function, our economy would probably come to a swift, ugly, grinding halt. Which is why nitwits that blather about getting rid of the Fed are generally talking out of a body orifice that is a good deal south of their mouth.

And there is also their responsibility for providing physical cash and coin to banks. That's pretty darned important too.

the issue is that its a private bank. sorta. I dont understand why congress didnt assign this duty to the treasury. Why initiate a corporation to do it. In other words why is it outsorced. this is what causes the suspicion of it.

[mutter]

the income tax is because of the Fed. Res System scam
Never was about raising any revenue to provide for gov. services.

The Fed boogeyman thing never seems to die, and frankly I think it's because they really don't care about their image among crackpots, let alone the general public.

Let me give you the short and simple: The Fed is to money as a dairy co-op is to milk, and imbalances in supply and demand, especially geographic in nature, create costly (wasteful) inefficiencies. Despite our whiz-bang point-and-click and plastic-driven lives, money is still fundamentally a physical thing and a Balkinization of banking would be a disaster.

I agree especially during a recession. it doesnt change the fact that when you have a fiat currency you need to pull some of it out of the system to keep the value up. i do know that much for sure. the fed hasnt done a very good job. if they had we wouldnt have credit drying up. Maybe i should blame congress as they are the ones who allowed CDO's and other voodoo currency creation schemes to be legal. how anyone in their right mind thought it was a good idea to take a debt instrument a negative and voodoo it into a positive CDO was a good idea is beyond me. on its face it reaks of stupidity and greed

[Judge Roy Bean]

...
Maybe i should blame congress as they are the ones who allowed CDO's and other voodoo currency creation schemes to be legal. how anyone in their right mind thought it was a good idea to take a debt instrument a negative and voodoo it into a positive CDO was a good idea is beyond me. on its face it reaks of stupidity and greed

Bingo. On that I heartily agree.

[Duke2Earl]

In its plain vanilla incarnation, debt securitization is a good idea for everyone. In its most simple form debt securitization allows banks and other big lenders to sell off those debts and thus free up more money that they can lend. For example, many corporations borrow money by issuing bonds. Someone like a bank could package together a lot of these bonds into a securitized debt obligation and sell them on the open market. The buyer of the the new securitized (or collateralized) obligation can and should "look through" the new package and assess whether the underlying borrowers can be expected to repay. This is all good for everyone because, as above, the intial bank lender has freed up their money to make new loans. And the buyer of the obligation has diversified their risk because if one of the borrowers defaults they still can collect from the others.

Where this went off the rails in the poison CDO's is that the intial lenders made loans to people that could not in any rational world be expected to repay. They did this stupid thing for two reasons...1. they didn't care because they were going to sell the debt so they didn't care if the borrowers defaulted and 2. because "everyone" stupidly believed that the value of real estate was always going to go up so that even if the borrowers defaulted the real estate could be sold to make everyone whole. Then once the crummy loans were included in the newly created CDO, by various slights of hand, insufficient information was available for the buyers to assess whether the underlying borrowers were good credit risks. But they finessed this critial issue by buying a credit default swap... that is an insurance policy that the underlying borrowers would pay. The insane folks selling these credit default swaps were AIG. In real life, 2 related things happened at once. The underlying borrowers started defaulting and the value of real estate tanked. The people that bought the CDO's came after AIG to make good on the credit default swaps and of course they couldn't do so and were going to go under. So the government had to step in or all hell was going to break out mainly because if AIG defaulted almost all of the big banks would have gone under as well.

And the other thing is that once this had happened, nobody would buy any debt securitization at all, even ones backed by good credit risks. So the banks couldn't sell off debt to get more money to lend... and we ended up with the credit crunch... where the banks don't have enough to lend to keep the economy going.

Please understand that the above is an oversimplification of but one aspect to the mess the financial sector has gotten itself into but it gives the main idea. And yes, the perversion of debt securitization that got us into this fix was fueled and caused by stupidity and greed.

[Judge Roy Bean]

Duke2Earl provides an excellent trailer for the disaster movie.

There are plenty of sub-plots and a cast of thousands.

One important facet of the debacle - in addition to the millions of loans that were made to people who could be expected to fail, there was a machine in place to grind them through with minimal difficulty - special servicers. For several years, especially while property values were climbing or holding, foreclosure was quick, painless and if you did it right, could even be profitable enough to keep the cashflows going to the trustees of subprime pools; (hey, who cared where cash comes from - five high-profit REO sales could make up for a lot more than the five monthly mortgage payments, and if you lost some on a few, you could make it up on others).

Also, as I've pointed out regularly, every foreclosure generated an opportunity for another new loan for an originator somewhere. This emboldened the likes of Countrywide, Ameriquest, New Century, etc., who felt "the need for speed."

In the process, a lot of collateral damage was done to people who got caught up in those servicing machines, and in some cases, were victims of manufactured defaults.

Complicit in all of this were (and still are) the ratings agencies; there's supposed to be a notion of transparency in assessing the value of investments (as Duke2Earl pointed out). In the incestuous world of Wall Street, banks (having been allowed to venture into investment banking) loaded their balance sheets with what they were led to believe were appropriately-rated securities and the CDO's and CDS's that went along with them. Earnings shot through the roof, but the powers that be start getting nervous that their houses of cards would be discovered. Along comes the FASB requirement to actually put a value on those "unique" assets (mark-to-market). Wham, suddenly we're insolvent - on paper - even with insurance because the insurers aren't solvent and the firms holding swaps were vapor-trading.

What it boils down to is this: The real value of anything is what you can sell it for - unless, of course you're well connected and can get Washington to buy it off you. All you need is a few trillion (yes, trillion) dollars (a few hundred billion at a time) to cover your collective a**es, and unless you get your way, everybody goes down with the ship.

The new yacht business has gone to he**.

[SteveSy]

As I have said before, the government does not borrow from the Federal Reserve. The government borrows money by issuing government securities. These are T-Bills, T-Notes and T-Bonds. These securities are sold at auction on the steps of the New York Federal Reserve district bank. Anyone may buy these securities, even you.

Hmmmm, that's a little slick. No the the government doesn't borrow directly from the FED BUT, the FED purchases securities which is the same thing.

I agree that a 'healthy' government cannot continue to borrow money. However, a large portion of the $11.2 trillion is held by intra-governmental agencies. Also, as I mentioned, the government isn't borrowing from the Fed. A good money and banking course at a decent college or university might cover the basics of this topic.

Some clarification is needed. While that is true its misleading. The government still has 6.9 trillion outstanding in public debt as of April 09, a number so enormous that the government can not pay it back. This number doesn't include all the new spending the government just did, including the Omnibus bill nor the Stimulus package. It also doesn't include the new wave of funding for TARP 2. No the government doesn't borrow directly from the FED but like I said the FED buys securities which is the same thing. An important point about this is that the FED doesn't give the government anything when it buys the securities, it simply puts a number in to the computer and magically the government has been credited the money. The reality is the FED just printed X dollars out of thin air.

The government's actual debt if calculated like the government requires of all companies of any significant size is around 50+ trillion. Yes a large portion of that is promises the government doesn't have to keep but if it doesn't keep them the economy will be in shambles because the GDP is heavily subsidized by government spending. So we are at the tipping point, if we borrow more we risk massive inflation and economic collapse because no one will buy our bonds, and if we don't spend GDP goes in the crapper because it is only what it is due to the facade (debt) the government has financed it with.

[SteveSy]

Mutter,

The income tax was enacted BEFORE the Federal Reserve was created.

Which income tax? The civil war one of 1864 that only lasted 3 years? The FED was created on December 13th 1913, the 1913 act was passed in to law in October of the same year.

[SteveSy]

The reality is the FED just printed X dollars out of thin air.

No, they print money out of special paper made from scrap denim, green ink, black ink, a plastic strip (imbedded in the bill), plus a watermark and a color shifting hologram and other colored inks.

Sorry, that type of "money" is actually a tiny fraction of the money in circulation. I know you were being facetious.

[SteveSy]

Where this went off the rails in the poison CDO's is that the intial lenders made loans to people that could not in any rational world be expected to repay. They did this stupid thing for two reasons...1. they didn't care because they were going to sell the debt so they didn't care if the borrowers defaulted and 2. because "everyone" stupidly believed that the value of real estate was always going to go up so that even if the borrowers defaulted the real estate could be sold to make everyone whole. Then once the crummy loans were included in the newly created CDO, by various slights of hand, insufficient information was available for the buyers to assess whether the underlying borrowers were good credit risks.

No one knew what these were made up of and I don't really think anyone could, they counted on the AAA rating to assess risk. Moody and Fitch are the real shysters. They were paid to give AAA ratings to crap.Had they not done that the bubble would have never happened, no one would have bought the crap and thus no one would have been lending the money.

But they finessed this critial issue by buying a credit default swap... that is an insurance policy that the underlying borrowers would pay. The insane folks selling these credit default swaps were AIG. In real life, 2 related things happened at once. The underlying borrowers started defaulting and the value of real estate tanked. The people that bought the CDO's came after AIG to make good on the credit default swaps and of course they couldn't do so and were going to go under. So the government had to step in or all hell was going to break out mainly because if AIG defaulted almost all of the big banks would have gone under as well.

I watched the congressional hearings on this. AIG was fine, what happened is their rating was lowered which required them to cough up massive amounts of capital to cover all the swaps. This caused AIG to collapse. Congress then funneled money through AIG, with the insistence of the FED, to various other entities like foreign banks. AIG now getting the massive funding had its rating increased which made the capital requirement no longer exist. Congress could have just guaranteed the swaps, put out nothing, and AIG would have made it fine. From my understanding the actual swaps have not had any impact whatsoever on AIG.

[jg]

the issue is that its a private bank. sorta. I dont understand why congress didnt assign this duty to the treasury. Why initiate a corporation to do it. In other words why is it outsorced. this is what causes the suspicion of it.

The reason, I believe, is to remove the ability to directly manipulate the money supply from the politicians in office. By making the Federal Reserve an independent organization from the Treasury Department the whims and wishes of the current administration are not their primary concerns.

From http://www.thisnation.com/question/033.html :

The Federal Reserve System is made up of a Board of Governors and twelve regional Federal Reserve Banks located in major cities throughout the country. There are seven members that sit on the Board of Governors. Each member must be nominated by the President of the United States and confirmed by the Senate. Members are appointed to serve 14-year nonrenewable terms. The President also nominates members of the Board to serve as Chair and Vice Chair for four-year renewable terms. These appointments must also be confirmed by the Senate.

It is independent since their decisions do not have to be ratified by the President or by Congress. So, the Federal Reserve can, at least in theory, do what is needed even if it is not popular in the short term.