Posted by: mystressm | May 13, 2007

The Government’s Secret Tax

Paying tax makes me mad. There is income tax, property tax, sales tax and services tax. There’s duty tax, estate tax, and tax on tax.

But what really makes me annoyed is the secret “extra” tax that the government squeezes out of us.

The Official Tax
Sometime in June Canadians will celebrate “Tax Freedom Day”. Every dime that Canadian citizens earn up until that day is given to the government in the form of taxes. This day, which is recalculated yearly, is the first day that hard-working Canadians get to keep all of the money in their paychecks.

Each year, the finish line is quietly pushed back a few days.

This year, it will arrive sometime in the last week of June – just about at the halfway mark of the year.

With half of every citizen’s salary pouring into the government’s coffers – you would think that they have enough.

They don’t.

How do they do it?

Most people have the misconception that currency has value. It doesn’t.

Currency is a convenient form of representation of value. This representation is utilized in our society as a convenient storage of value that we use as a measure for exchanging like-value for all our goods and services.

For instance – it would be difficult for a strawberry picker to trade directly with their landlord for accommodation. There are few landlords that would like hundreds of pounds of strawberries delivered to their doorstep every month. It is much easier to use money to exchange “value”.

The setup

Money needs five characteristics. It needs to be durable (which is why wheat isn’t good money – it can rot), divisible (why paintings aren’t good money), convenient (so much for lead), consistent (why real estate doesn’t work), and is difficult to obtain (which is why paper doesn’t make the cut – too easy to counterfeit).

Originally our currency was based on gold. Every dollar that the government printed was backed by gold in a vault.

This meant that you could legally take each piece of currency paper to the bank and exchange it for a piece of gold.

All citizens are trained to view each piece of currency paper like a piece of gold.

This represented a startling opportunistic prospect for the government. Why not just print the paper? Why be constrained by the gold?

In the 1970’s, our government went off the gold standard. Our government gave itself the liberty to print as much currency paper as it wanted.

The Scam
By printing money – the government reduces our purchasing power.

And raises its own purchasing power.

It takes a while for the economy to react to the magical appearance of newly printed money. This new money to “flows” like a wave through the country’s population. Not all people are affected equally.

Entities closest to the source of the “flow” get the advantage – the government being the obvious winner.

The biggest losers? Savers. Pensioners. People on fixed income. Anyone in a long-term contract. They are the ones that are furthest ones out from the flow source. They are the payees.

The tax tip
The throttle is not quite firmly pressed to the floor on those printing presses. Yet.

But the government is getting desperate. It needs more stuff. Votes. Handouts. It needs to deflate some of its debt (our government bonds).

So put on your seatbelts. We are about to enter a period of exceptionally high inflation. The purchasing value of those dollars in our bank accounts is about to shrink.

The government wants more tips.

Advertisements

Responses

  1. Has any government in or of Canada ever defined the value of the Canadian dollar? What is the Government of Canada’s current definition for the value of the Canadian dollar?

    A “Federal Reserve Note” is not a U.S.A. dollar. In 1973, Public Law 93-110 defined the U.S.A. dollar as consisting of 1/42.2222 fine troy ounces of gold.

  2. Hi David:
    I don’t believe that the Canadian dollar is defined relative to anything at all.
    The market determines the value of the Canadian dollar. It is a free-floating fiat currency, which is not pegged to any other currency or metal.
    The government tries to influence the relative value of the currency (relative to other currencies) by raising and lowering interest rates and manufacturing more dollars (sort of like pressing on the economic gas or the brakes)
    I am not sure that your (US)”Federal Reserve Note” quote is still current. I think that the Bretton Woods Accord that was signed sometime in the 1970’s might have superseded it. I believe at that point, the US completely left the gold standard.
    MyStressM


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: