By Nancy Thorner – 

In what turned out to be perfect timing, tax expert, Heartland Institute Policy Advisor, and author Daniel J. Pilla was the featured speaker on April 27 at the Heartland Institute on the same day Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn were sent out by President Trump to reveal his tax plan at a White House press conference briefing. Watch Pilla’s presentation at Heartland here.)

Director Cohn called the Trump’s tax reform package the most significant tax reform legislation since 1986, and one of the greatest tax cuts in American history – while fully anticipating attacks “from the left and right” over the plan, whose aim, he said, was to “create jobs and economic growth.”

Speaker Background: Dan Pilla – ‘Premiere Expert on IRS Procedures’

For over three decades, Daniel J. Pilla has been the nation’s leader in taxpayers’ rights defense and IRS abuse prevention and cure. Widely regarded as one of the country’s premiere experts in IRS procedures, he has helped countless thousands of citizens solve personal and business tax problems they thought might never be solved. Pilla has seen every type of tax problem and believes “there is no such thing as a hopeless tax problem.” See here for Pilla’s comprehensive site, the Tax Freedom Institute, which is dedicated to “Understanding Your Taxpayer Rights and Solving Your Tax Problems.”

Pilla is the author of 14 books, dozens of research reports and hundreds of articles. His work is regularly featured on radio and television as well as in major newspapers, leading magazines and trade publications nation-wide. Dan is also a frequent guest on major talk radio programs where he is heard by millions of people each year. His fast-paced interviews provide hard hitting answers to even the toughest questions, as is demonstrated in this YouTube video of Pilla delivering his very entertaining and passionate lecture to Heartland members and friends.

Pilla on Trump’s Tax Plan

Pilla initially questioned whether Trump’s tax plan could be considered radical tax reform, as Heartland Director of Communications Jim Lakely posited in his introduction. Pilla said it wasn’t “radical,” and explained how tax reform has never been a problem in the action sense of the word. He explained his opinion by presenting examples of several attempts at tax reform since 1986, the high mark of the Reagan Revolution.

In the 1990s, he said, there were four major tax reforms in three years. From 2001 to 2015, there were 5,900 tax law changes made to the Internal Revenue code – and this only led to massive confusion. Pilla called the tax code “hideous” – citing its complexity as the reason for so much cheating, even labeling tax complexity as the number-one problem for tax payers. Pilla spoke about a 1998 law which maintained that the IRS must submit to Congress a report on tax law complexity. Only two reports were submitted, both before 2002, indicating that the required report is too difficult for the IRS to produce.

Trump Tax Reform Proposals Pilla Likes

Pilla suggested that several of Trump’s proposed tax reforms are, if not “radical,” a great improvement – which would improve compliance, eliminate complexity for taxpayers, and encourage economic growth.

  • Repeal of the Alternative Minimum Tax, in which government can tax an individual at a higher rate if government decides you haven’t paid enough tax in your initial filing. This “second system” kicks in, and then the taxpayer is obliged to pay the higher result of filing, basically, twice.
  • Repeal of estate and gift tax, which was a part of the Bush tax law (as long as you died in 2010), but was part of 10-year plan and has been phased out. Pilla spoke of the tax as fiscally insignificant and immoral. Less than one-half of one percent of federal revenue is generated by this tax, yet its audit rate is the highest of all other taxes. The immoral premise is that you have no right to pass along to your heirs what is left of your estate after you have already paid all of its taxes.
  • Repeal of a 3.8 percent capital gains surtax (a tax levied on top of another tax) that was to pay for free healthcare. Pilla noted the economic law that what you tax more, you get less of – i.e. high capital gains taxes curtail individuals from selling assets, which spurs economic activity. People hold on to their assets rather than pay the capital gains surtax.

Other Positive Elements of Trump’s Tax Plan

Pilla also spoke highly of these other aspects of the Trump tax plan:

  • Reducing the current seven income tax brackets to just three: 35% on high side; 10% on low side.
  • Eliminating standard deductions, except for mortgage and charitable contributions.
  • Reducing corporate tax to 15 percent. Pilla noted that United States now has the highest corporate income tax in the industrialized world (a top marginal rate of 39 percent). He also explained that corporations don’t pay taxes. Who pays? People do: the owners of the company (stockholders), employees making do with fewer workers, and consumers who pay more for the good being produced. Job-creating small businesses that account for their owners’ personal incomes would likewise benefit by having their top tax rate go from 39.6 percent to the proposed corporate tax rate of 15 percent. Pilla’s suggestion: Reduce the corporate tax rate to ZERO PERCENT.

Several times Pilla reminded his audience that what was presented by Trump’s financial team was only a thumbnail sketch of Trump’s tax plan, only the first volley, so expounding in length about Trump’s tax plan today might not matter much in a few weeks. For him, he said, it would be like tilting at windmills, trying to guess what the final plan will look like.

The Folly of ‘Revenue Neutral’ Tax Cuts

Pilla signaled that the Democrat Party – and some Republicans are of the same ilk – would be a significant hurdle to getting Trump’s tax plan enacted by insisting that any tax plan be “revenue neutral.” That would nullify all the benefits of tax cuts, and only end up shifting the tax burden. It is unfortunate that over time the federal government has come to believe that it owns all of our money and too many people have accepted the idea that government has the right to tell us how much of our money we can keep.

What happened, Pilla said, to providing for the “General Welfare” as set forth under Article 1, Section 8, Clause 1: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States”? Whereas the General Welfare clause should place limits on government spending, the contemporary view is that Congress’s power to provide for the “General Welfare” is a power to spend for virtually anything that Congress itself views as helpful.

Pilla suggested a novel idea for many legislators: cutting spending across board by 3 percent from our bloated federal government to pay for tax cuts, which would amount to just 3 cents on every dollar the government spends.

Pilla was not pleased that the complexity of the IRS tax code – already cited as the No. 1 tax problem for tax payers by the IRS itself – has not been addressed by a single talking head, nor does Trump’s tax plan address the issue. The Pilla solution: If the problem is not addressed, “bulldoze the tax code and start over again.” 

The IRS in Crisis

Although many individuals try to comply with the tax code, they find it too complicated to do so. The IRS should be offering assistance to those who wish to comply, he said, and enforcing the law against only those who are genuinely resisting compliance. A lot of innocent tax payers in the formal category only receive lip service from the IRS.

Cited by Pilla: The IRS fields more than 100,000 phone calls a year from Americans with questions about complying – many who simply want to set up a schedule for paying their taxes or inquire about refund – but they can’t get through to anyone at the IRS who can help. Millions more choose to walk in to IRS offices and receive help with tax problems. How ironic that the IRS has closed 300 offices – and those remaining open were informed not to answer questions during the tax season. What a dismal message the IRS is sending tax payers when in trying to pay their taxes they can’t get through.

Pilla noted that 42 percent of the IRS budget goes for enforcement, while less that 20 percent is spent on tax-payer assistance. This doesn’t make sense, because 98 percent of tax payment made to the IRS are “voluntary” payments complying with the tax code. In contrast, only 2 percent of taxes collected are the result of enforcement action.

Did the adoption of a Taxpayer Bill of Rights by the Internal Revenue Service on June 10, 2014 become a much-anticipated cornerstone document to provide the nation’s taxpayers with a better understanding of their rights?

What about the law to appoint an IRS Commissioner? Given the way the IRS tax code was treated during the past two years under IRS Commissioner John Koskinen who condoned Lois Lerner’s Tea Party Scandal? Instead of firing Koskinen, Trump kept him on, despite the ire of many Republicans who wanted Koskinen impeached. An IRS commissioner can be removed at the will of a president. Dan Pilla said Trump should have taken such action.

Q&A with Dan Pilla

On the incomprehensible U.S. Tax Code: A tax code that contains four million words is a good sign that corruption will exist, and it does!

On a “tax holiday” for overseas profits, which is part of Trump’s tax proposal: A tax holiday could only be a good thing in its impact. Some $3 trillion is parked off shore and could be brought back by American companies. This money represents capital to expand.

On getting rid of the income tax: The taxes on income levied by the federal government brings in 98 percent of federal revenue. Eliminate the income tax and instead impose a national consumption or sales tax.


Tuesday, December 03, 2013

ThBy Nancy Thorner – 

CNS News reported in October of this year that according to the U.S. Treasury the government’s federal debt had jumped by $409 billion. This equals approximately $3,546 for each of the Census Bureau’s estimated 114,663,000 U.S. households, and makes October’s spending the largest one-month jump in debt in this nation’s history.

What is troubling is that Congress is not currently restrained by a debt limit. Since October 17 when Congress enacted the Continuing Resolution (CR) with a deal that ended the government shutdown and pushed the debt ceiling level to February 7, 2014, no set dollar amount exists to restrict spending.

With nothing to stop legislators from piling even more spending and debt on taxpayers before February 7, 2014, it is folly to believe that legislators will restrain their spending, nor have they done so. Noted was how an additional $409 billion of debt was accrued through the end of October. While on October 17 the debt subjected to limit stood at $16,699,396,000,000, just $25 million shy of the legal limit of $16,699,421,095,673.60, by October 31 the debt now subject to limit had grown to $17,108,378,000,000.

Troubling is that even with this nation’s credit card maxed out (along with taxpayers’ wallets), Washington aims to continue its spending spree.  Instead of addressing future debt by controlling the growth in entitlement spending and enforcing lower levels of spending, the budget conference committee is considering an option that could increase spending by up to an additional $100 billion; that is, if a compromise deal can be fashioned to bust the sequestration spending caps by up to $100 billion.

An increase in user fees (really a disguised tax increase) would be employed to offset mandatory spending with necessary revenue.  Although gimmicks are nothing new in Washington, D.C., raising user fees to pay for more spending is what has helped fuel our now $17.2 trillion national debt.

State Government:
Not only is the federal government at a tipping point financially, but Illinois has already reached its tipping point.  Consider this Statement of Position from Illinois Treasurer, Dan Rutherford:
Troubling numbers:
  •   Illinois taxpayers’ debt from borrowing = $44.3 billion
  •   Illinois taxpayers’ unpaid bills = $8 billion
  •   Illinois’ unfunded pension and retiree health care liabilities = $140

Each Illinois family shoulders this debt = over $40,000 per household Moody’s rates Illinois as the worst credit risk of all the states in the nation, which raises the cost of borrowing money, which, in turn, adds billions of dollar in the repayment of bond issuances.

The following dreary picture of Illinois was painted by Reboot Illinois on November 18:
All of Illinois’ neighboring states were in the top half of Chief Executive Magazine’s 2012 list of best states for business.  Illinois was rated third worst.  The state’s unemployment rate, consistently the highest in the region, is evidence of that ranking’s accuracy [Since 2008, Illinois has lost the third most jobs by state in the country].  Businesses in Illinois suffer under some of the highest workers compensation insurance rates in the country, and in 2011 they saw their income tax rate jump from 4.8 percent to 7 percent — a 46 percent increase [Illinois’ Corporate tax rank is now 45th in the nation].

Later on today Illinois legislators will address in a one-day special session a pension reform deal crafted by the Illinois House and the Senate.  Numerous reports about the bill leave much to be desired, making today’s exercise seemingly geared to convince the pubic that legislators are finally taking the state’s $100 billion pension shortfall seriously.

According to a report by Ted Dabrowski, Vice President of Policy at the Illinois Policy Institute, House speaker Mike Madigan’s latest proposal is just the next in a long line of disastrous pension maneuvers and does nothing more than delay real reform and keep Illinois in a chronic state of  crisis.

In typical Illinois fashion, little advance information was shared with the media, the public, and legislators about a bill so critical to the financial well-being of this state.  Just what might be the language of a bill that is being kept under wraps until only hours before legislators cast their votes?

Local Government:

In addition to federal and state tax obligations, there are also local taxing bodies that make financial demands.  Significant is that Illinois has more “local” governments than any other state in the country, 6,963, which is one-thousand more than any other state when factoring in state population.  As it is, Illinois residents pay the second-highest-owner-occupied property tax rates in the country, and their state is the third most corrupt.

Having so many units of government at the local level put taxpayers on the hook for unnecessary layers of government that duplicate services and cause taxes to soar.  It is not uncommon for Illinois residents (61% of them do) to live under the burden of three levels of local government (municipal, township or county government), resulting in a huge outlay of funds allocated for salaries.

Lake County in northern Illinois, Thorner’s home county, ranks No. 1 for the Midwest region on Forbes’ list of U.S. counties with the highest property taxes, the average being $6,052.

Thorner also lives under a township government, that of Shields, in addition to her Village of Lake Bluff.  In Shields Township a whole department exists to handle the scattered township roads and bridges whose trucks criss-cross the same area when snow plowing far fewer mile, than do municipal trucks.

Also adding to the tax burden at the local level are the high number of school districts in Illinois, 911 in all.  Two hundred of them are single school districts. These single districts (Lake Bluff Elementary School District 65 is a single district) cost more per student to educate than do multi-school districts.

Federal, state, and local tax liability has become a burden to many.  Often asked is how much is too much to pay in taxes?   Although little can be done to fight taxation at the state and federal levels, citizens have more of a say at the local level.  Unfortunately many officials are opposed to doing away with the positions they hold, either elected or appointed, even if they hold positions that duplicate work done by others.

And so our tax burden continues to grow to keep the hungry beast that is government fed, with many legislators indifferent about the way taxpayers’ money is wasted and spent as long as it suits their own political interests to be re-elected, thereby ensuring that they will continue to enjoy all the attractive perks they have grown so accustomed to receiving over the years.

Tuesday, December 03, 2013 at 01:27 PM | Permalink


Thorner: Retail tax touted by author as income tax replacement

Th-1By Nancy Thorner –

Taxes loom large in the minds of the American people. How much is too much in taxes to pay? Would those who pay no income tax be better off, having more skin in the game, if a different sort of tax required them to divvy up financially to help support running the government?

Author Dan Pilla’s booklet, Ten Principles of Federal Tax Policy, as discussed at a Heartland Institute Author Event on Thursday, November 14th, was written by Pilla to pull back the covers to show how our present Federal Income Tax system falls far short of what should be the template for a federal tax policy that is fair, efficient, and easily understood.

See Part 1: Author says Federal Income tax unfair; ignores sound economic policies

Pilla’s ten principles can be applied to all tax systems at any level of government, but because income taxes collect by far the most revenue and affects the most people in the U.S., it is the income tax that most often violates what Pilla considers sound tax policy as set forth in his booklet, Ten Principles of Federal Tax Policy. Download for free at Print copies are available at a cost and can be ordered online at or call 312-377-4000.

Pilla’s comments, directed at seven of his ten principles of Federal tax policy, follow:
1.  Simplicity  –  Citizens have a fundamental right to know what tax laws require, and compliance should be easy and inexpensive.
A tax code must be such so that people are able to understand the law.  The scope of our present tax law contains four million words.  It is so vast that not even the IRS knows what is going on.  Being that the tax code is so broad, it’s impossible for the administration to do its job.  There are 140 individual tax penalties in the current tax code.  Difficulty in understanding the tax code breeds non-compliance by the public.  Many individuals are subject to tax penalties (punished) based on lacking an understanding of the tax code.
2.  Noninvasiveness – A minimally invasive tax code encourages voluntary compliance and reduces the need for enforcement.  so many burdens.
3.  Efficiency – The total cost of collecting taxes can be reduced by lowering the number of collection points
Some have called the IRS the most efficient agency funded by government.  How could this be so?   Operational costs in the federal budget total $2 billion a year. There are 93,000 employees, soon to be 100,000 with Obamacare.  The IRS collects $2.4 to $2.5 trillion in taxes every year, but four out of every five dollars are not collected by the IRS.  98% of individuals “voluntarily” pay what they owe to the IRS, while only 2% of IRS revenue is received through IRS enforcement.  A broad-based retail tax is needed to reduce the 250 million collection ports to 50 (number of states).  It is not uncommon for businesses to be required to file 5 different tax forms.
4.  Stability –  The tax code should be stable and reliable from year to year and generation to generation.
Don’t individuals and businesses have the right to know that the language today is the same as the law will be tomorrow and will likewise serve us in the future?  How is it that numerous tax preparers can arrive at different amounts owed by the same taxpayer and with such a variance of the amounts owed?  From 2001 – 2008 over 3,250 tax change regulations were put in place.  Changing laws with such frequency breeds confusion and results in the the assessment of penalties by the IRS, which leads to zero stability. The federal income tax affects every area of our lives and the most personal ones such as marriage, children, home ownership, personal investment, charitable giving, etc., giving rise to such questions as whether or not to save money or whether or not to get married.
5.  Visibility – The cost of government should be readily apparent to taxpayers.
It is important for the American people to know what the tax is on a product or a service to foster understanding about the cost of government.  Government costs money, but many times the taxes we pay are invisible. This results in the American people having no idea of what their tax liability is.  For people not having skin in the game — and there are entire segments of the population who meet this qualification — it doesn’t matter what government costs.  One example of this lack of understanding as noted by DanPilla:  An individual, having received an income tax refund of $1,000, never realized that his W2 form showed he had paid $5,000 in wage withholding taxes.  Not looking at the top line of his pay check, the individual didn’t see the hidden Social Security tax that had been taken directly out his pay check, having noted only the bottom line which showed his take home pay.
6.  Neutrality – Taxes should not fall more heavily on one industry or class of individuals than on others.
7.  Economic Growth –  Taxes should not impede the investment and consumption decisions that make economic growth possible. 
Any tax system must not burden the engine of growth.  Although no tax system is a panacea and all taxes result in income distribution, to be considered is where the least amount of damage will be done so economic growth can be encouraged and not stymied.  Our Founding Fathers expressly rejected the idea of imposing direct taxes as a means of funding the economy on income, savings, and investments, but instead favored an indirect tax on consumption. The following sound economic principles must be kept front and center in all discussions regarding taxation:  1)  What you tax you get less of, and 2) what you subsidize you get more of.  The economy can’t grow when the engine of growth is heavily taxed.  For every dollar paid in taxes, businesses have a least one less dollar available for other things.
8.  Broad-Based – Broad tax bases allow rates to be kept low, which in turn encourages voluntary compliance.
This nation is doing the opposite with its federal income tax system where fewer and fewer people are paying into the system.  According to Treasury data:  Tax payers in the top 20% of the income distribution pay 70.6% of all federal taxes, while taxpayers in the bottom 20% pay 0.4 percent.  More than half of federal taxes are paid by taxpayers in the top 10 percent of the income distribution.  Described by Pilla was the “Disney World Syndrome. This syndrome happens when people elect not to pay income taxes, or perhaps mortgage payments, but elect instead to have fun with the money.
9.  Equality – The tax system should treat people equally and fairly.
There is a push for equality across the board except when it come to the federal income tax, but does government have the right to steal from people what they earn and distribute to someone else?  This “stealing” is done on the basis of success standards, reflected by ones social and economic standing, through the fixed arbitrary income rates designated in the Internal Revenue Code.
10.  Constitutionally – Taxes must be imposed solely to fund clearly defined constitutional functions. 
Since the 1930’s Congress has used the federal tax laws for purposes other than raising revenue.  According to Article 1, Section 8 of our Constitution, it authorizes the federal government to 1) pay our debts,  2) provide a national defense, and  3) provide for the “general” welfare of the nation.  General welfare has become the point of contention.  The original intent of providing for the “general welfare” was that the provision had to benefit the nation as a whole and not one business or industry over another.  The Founders were adamant that the taxing authority granted in the Constitution be used only to benefit the nation as a whole, not individual inhabitants or individuals classes of citizens at the expense of others   Our present tax system has evolved into a great transfer system of wealth.   There is no legal or moral authority in a free society that justifies using the power of government to take from some what they have legally and peacefully acquired and give to others who have not earned it.
What might be the best tax model for this nation?  Democrats are fond of saying that all elections are local.  They are local, but they are also personal.  Democrats are able to convey a message to voters that asks them individually to consider what’s in it for me when casting their ballot.  By handing out free things to different classifications or groups of Americans, Democrat party loyalty is bought and thus established.
Republicans must convince the American people why liberty is a better idea than socialism?  Republicans in the past have been inapt in presenting cogent explanations.  To be explained by Republicans:  Why the freedom to make personal decisions wins every time over government control?  How doing for self enriches lives?
It is unrealistic to expect Congress to be up to the task of changing this nation’s tax system unless it is stumbled upon accidentally.  Granted, changing the tax system would also have to depend on what is politically doable.  All considered,  little will happen unless this nation’s tax burden becomes so unbearable that a majority of the American people start to suffer.

Mr. Pilla presented the three tax policy options open to this nation, reminding those assembled how the luxury tax flopped:

1.  Current Federal tax policy.
2.  Flat tax option.
3.  Sales Tax option.
According to Mr. Pilla, we have only one chance to get it right.  Pilla considers the value added tax a bad idea, while  regressive taxes fall more heavily on the poor than the rich.  Regarding a sales tax, Pilla rates it as neither progressive or regressive but proportional to what people buy.  As such all Americans would have some skin in the game, with a dawning realization that what government freely gives isn’t free.
There have been three presidential commissions on taxes — 1995, 1996, and in 2005 under President George W. Bush.  Each report insisted that a sound tax system must be mindful of the profoundly negative consequences taxes can have on the economy, yet none went beyond the paper they were printed on.

The clock is ticking.  Hopefully politics won’t impede the way forward until such a time when this nation can no longer be rescued from it self-imposed downfall, precipitated by an all-powerful, reckless government whose goal it is to please what has become a nation of greedy, government-dependent Americans.
The next Heartland Author Series will be held on Thursday, December 12,  from 11:30 a.m. to 1:00 p.m.  Michael J. Lotus will speak on America 3.0:  Rebooting American Prosperity in the 21st Century–Why America’s Greatest Days Are Yet to Come.  Call 312/377-4000 or visit
Published, November 19, 2013, Illinois Review

Part 1:  Author says Federal Income tax unfair; ignores sound economic policies


Wednesday, November 20, 2013 at 09:30 AM | Permalink


By Ed Ingold and Nancy Thorner – Posted initially at Illinois Review on Tuesday, October 16 –

Governor Romney’s tax plan is to cut the maximum tax rates by at least 20% across the board, while remaining revenue neutral in the short term. This will be achieved by reducing the type and amount of deductions which can be applied to reduce the tax liability. The Democrats were quick to point out that “the math doesn’t work.” The same criticism was echoed by the liberal media. But does the liberal “catch phrase” really have any merit, or is it just another way to malign Romney through dumping on his tax policy?

In that Congressional budget-scoring rules are conservative about anticipated growth from tax cuts because economists disagree over how much they spur the economy, using history as a guide will prove otherwise. The best predictor of the future is to look at the bipartisan tax cut track record and notice that no tax cut has ever reduced tax revenue. Over the past 50 years four presidents have cut taxes and seen an average tax revenue increase of $675 trillion a year.: The Kennedy Tax Cut of 1963 (Source: Heritage Foundation); The Reagan Tax cut on 1981 (Source: Heritage Foundation); the Clinton Tax cut of 1997 (Source: Forbes); and the Bush Tax cut of 2003 (Source: The Washington Times).

First of all, nobody pays the maximum tax rate. After deductions, the effective rate is much lower. For middle income taxpayers, the effective rate is on the order of 10% to 12%. The maximum rate for corporations is 35%, which with additional state and local taxes ups taxes to an incredible 40.9%, the highest in the civilized world. That said, the effective corporate tax rate is closer to 22.5%, still high by international standards.

Since the problem is bigger than most people can grasp — and there are so many diverse interests and situations — it’s best to start with one aspect, corporate taxes, and go from there. The Romney-Ryan ticket proposes to reduce the statutory corporate tax rate from the current 35% to 25% ( ).

How does the math work? How can you remain revenue neutral by simply cutting deductions? Simple. Deductions already lower the effective tax rate to less than what the Romney-Ryan ticket proposes, so there is wiggle room. As to which deductions to limit, that is a matter for the President and Congress to decide, which will require a bi-partisan approach. As noted earlier on, it’s happened before with presidents Jack Kennedy, Ronald Reagen, Bill Clinton and George W. Bush. You set goals, not quotas, and work out the means to accomplish those goals together.

The same approach will work as we go down the line for all individuals regardless of income levels. The goal is to be revenue neutral, and progressive, meaning that wealthier individuals will continue to pay more than those of lesser financial means. If the top 10% of the earners pay 80% of the taxes presently, that ratio will continue.

Why then reduce the tax rates, the maximum amount owed to the government? In simplest terms, lowering the tax rate dramatically increases the incentive to succeed. The incentive is there because you get to keep more of your earnings in excess of the deductions. That leaves more money to invest in growth, hire more workers, and because you make more, the government’s revenue increases too. Everybody gets a bigger piece of pie, because the pie is growing.

Without confidence in the future, people put the money they don’t need to live on into the safest place, rather than using that money to make loans, grow their businesses and hire people. At present, equity (stocks) give more return than debt (bonds), so the market flourishes. It flourishes not because the economy is healing, but because it is sick. The stock market is near an all time high because of inflation, created, in part, by unrestricted printing of money by the Fed. Given that interest rates are at an historic low, it is only natural that many investors look to the stock market as the wise choice for their hard earned money, rather than investing in bonds or mortgages.

The market is fundamentally a commodity, like oil, gold and corn. If money is worth less, commodities cost more. Since we tend to measure wealth by the stock index, all looks good. But it’s an illusion brought on by deflation of the currency, and encouraged by those who work at the pleasure of the government.

Since debt instruments are suffering, there is no money to lend to individuals who wish to buy houses (or a market in which to sell them), corporations to expand, or consumers to buy the things they want and need. States and cities suffer because the rate of return on their bonds is too low to attract buyers, despite the tax deductions. The situation is only compounded when the same governments refuse to clamp down on runaway pension and benefit packages for public employees, raising the risk of defaulting or seeking bankruptcy protection. Who would have imagined cities going bankrupt and defaulting on their obligations to bondholders and their own employees? The current administration hopes to improve this situation by legislating and regulating against risk taking. This is doomed to failure, because without risk, there are no gains. That applies to heroes, explorers and corporations alike.

Anything which reduces risk and investment will eventually diminish wealth for everyone. To tax “the rich” for what they own, rather than what they make, and to discourage investment, is like forcing a farmer to use his seed corn to feed the family. You eat well for a while, but starvation is just over the horizon.