From: Tim May <tcmay@got.net>
Date: Sun, 26 Oct 1997 01:21:05 +0800
To: cypherpunks@Algebra.COM
Subject: The Coming Tax Holocaust
In-Reply-To: <v03102800b07742497420@[207.167.93.63]>
Message-ID: <v03102800b077d1c68910@[207.167.93.63]>
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At 4:22 AM -0700 10/25/97, Adam Back wrote:

>Absolutely.  I recall trying to explain to someone who was prone to
>spending money he didn't have:
>
>- if you spend it before you've got it, you'll get to spend less,
>  because of the interest you pay in the mean time
>
>- where as if you spend it some time after you've got it, you'll be able
>  to spend more because you will accumulate interest prior to spending.

This is exactly the "discipline" problem I was talking about. To too many
people, money burns a hole in their pocket: if they've got cash in their
pocket or in their checking account, it's something to be spent. If they've
got multiple credit cards, they see the credit limit as "free cash." So too
many of them are maxed out, or close to be maxed out, on credit cards.

Those of us who think of money as something to be invested, as an engine
for investment growth, have quite the opposite view. Credit card debt is
the worst kind of debt (well, almost the worst....owing money to bookies
and sharks is probably worse).

I also see a lot of fools around me buying lottery tickets and other
state-sponsored gambling ventures. The odds on winning are criminal (these
operations _would_ be criminal if not being run by the state!).  Statistics
show that many of these frequent gamblers--often low-income persons--spend
about $100 a month, on average, in bets.

(Had they instead invested this $100 a month in tech stocks, as I did,
they'd have quite an impressive fund now.)



>Spending every penny before you've got it and then looking around for
>someone else to pay the bills is a socialist tendency.  The nanny
>welfare state.  Legalised theft from those that have worked to those
>who have not.

This is, by the way, why spreading strong, unbreakable, un-GAKked, un-GMRed
crypto is so important. We who have saved need to put our assets beyond the
reach of those who have failed to save...sometimes an Armalite is not
enough, despite what John Young said this morning.

The official U.S. "national debt" (money already spent but not in
possession of the government when spent, hence borrowed from "the future")
is around $5.5 trillion ($5.5 x 10^12). There are 250 million Americans,
but a more important figure is that there are about 100 million taxpayers.
(The rest being children, prisoners, disabled persons, bums, winos, welfare
recipients, drifters, more prisoners, more panhandlers, more on the dole,
etc.).

This means that each and every taxpayer, on average, has a $55,000 share of
this debt, which presumably must be someday paid back.

(There are theories about how this is not actually that much of a debt,
blah blah. I disagree. This debt is much more than the savings or
investments of average taxpayers, meaning, they "owe" more than their
"worth.")

In any case, the story is much worse than this. Because the government has
committed itself legally to cover certain debts and to cover the costs of
certain other obligations, notably pension funds, student loans, and
various financial ventures (savings and loan bailouts, for example), the
actual debt is much higher than the offically reported national debt. The
national debt, for example, does not include the Social Security or
Medicare deficits--the U.S. has been taking in SS and such taxes and
immediately spending them, placing an "I.O.U." into the treasury. These
I.O.U.s will of course have to be redeemed someday, in the sense that the
Baby Boomers, all 60 million of us, are going to start retiring in around
2010 and will be expecting to get their Social Security and Medicare (etc.)
checks. This will correspond to a time when fewer young workers are
available....

The name for this "overhang" is "unfunded liabilities." How large is this
debt? Estimates vary, and official estimates are hard to come by. The
number I have seen reported by reputable actuaries and accounties is, get
this, $20 trillion.

$20 trillion (and growing every year) to cover the promises made, the loans
insured (which are not expected to be repaid by the original borrower), the
pension funds backed by the government, the Social Security and Medicare
systems, the benefits for tens of millions of veterans, the child care
programs, and so on.

Meaning every taxpayer has a $200,000 obligation hanging over him.

This is the situation we have gotten ourselves into.

Some experts have calculated the tax implications of this overhang of
unfunded liabilities. It looks like the average 20-year-old of today,
meaning, many readers of this list, will be expected to pay 50-60% of their
paychecks in 15 years just to service the debt of this overhang.

(I've seen estimates that the tax rate in 2010-2020 will have to climb to
80%, as otherwise there just isn't the funding and the government will
default. This makes certain assumptions about income levels, interest
rates, etc. But the general trends are clear.)

The tax cuts of the past year should not confuse anyone. Nor should the
"national debt is declining" crap confuse anyone. The national debt is not
in fact going down...the last year or so has seen a reduction in the _rate
of increase_, and the budget is close to being "balanced," courtesy of the
recent economic surge. That is, the national debt will, temporarily, remain
at about $5.5 trillion, instead of going to $5.7 T, then $6T, then $6.3T,
etc., as it had been trending toward.

But the overhang remains, and must be paid eventually. (If not paid off,
the interest portion consumes ever-greater portions of spending.)

And the $20 trillion (estimated) overhang of unfunded liabilities will
start to hit hard when these liabilities come due.

So, we as individuals must find ways to protect ourselves from the Coming
Tax Holocaust.

But that's another set of articles.

--Tim May

The Feds have shown their hand: they want a ban on domestic cryptography
---------:---------:---------:---------:---------:---------:---------:----
Timothy C. May              | Crypto Anarchy: encryption, digital money,
ComSec 3DES:   408-728-0152 | anonymous networks, digital pseudonyms, zero
W.A.S.T.E.: Corralitos, CA  | knowledge, reputations, information markets,
Higher Power: 2^2,976,221   | black markets, collapse of governments.
"National borders aren't even speed bumps on the information superhighway."