Simple Liberty  



The American Income Tax

Chapter 22

The Illusion of Income

Written by Darrell Anderson.

The fatal tendency of mankind to leave off thinking about a thing when it is no longer doubtful is the cause of half their errors.

John Stuart Mill, On Liberty

With respect to income taxation and human exchange systems, the presumption that the amounts reported are profits, gain, or income, and that the cost basis of labor is zero, is predicated upon an incorrect understanding of human exchange and the symbolic use of currency. In a complex society, people cannot produce everything they want. To avoid violence and encourage voluntary cooperation people exchange with one another. People exchange wealth for wealth. In a barter society those exchanges are direct and there is no profit or gain because with respect to the enjoined parties the subjective values assigned to those tangible commodities are equivalent.

In our modern society people often exchange wealth for currency and then later complete the exchange process by exchanging that currency for wealth. The end result is the same as in a direct barter society. Introducing currency only delays the final exchanges. The result is still the same in that there is no profit or gain but only exchanges of tangible objects consisting of equivalent subjective values. Currency therefore is only a temporary token symbol representing an unfinished exchange of wealth. That is, possessing currency is not a presumed or undisputed indication of profits or gain, but is a token symbol representing unfinished exchanges. Therefore the idea that the cost basis of labor is zero becomes meaningless and without foundation. That does not mean there cannot be a profit or gain from any exchange, only that assigning a cost basis of zero to labor is meaningless and without foundation.

There are several challenges to such flawed ideas.

One, is that people are attempting to describe a complex system using a reductionist approach. Describing a complex system in such a manner is challenging because through the process of reduction, one eliminates or ignores one or more elements of a system. Because all elements of a complex system play a role in understanding how a system functions, reductionism always fails to adequately describe a complex system.

Two, people are trying to take a static snapshot of a dynamic system. A static snapshot purposely rigs understanding by requiring people to view a process at only one point in time. All complex systems are time-dependent. In the field of logic, purposely limiting the number of options or boundaries is called creating a false dilemma.

Three, all humans are bound by the dimension of time. Time is not a true dimension because unlike the three dimensions of space — height, width, and depth — time is unidirectional rather than bidirectional. Regardless, most people today accept the concept that time is a dimension of existence. The very existence of the dimension of time implies that humans are members of a continuously changing complex system. A dynamic system. Humans have not yet learned to traverse the dimension of time. Humans have not yet learned to travel backward in time, or to travel in a parallel universe of time, or to move across multiple universes at one point along the time domain. Trying to understand a complex system while ignoring the time domain will always result in a flawed understanding of a system.

Nonetheless, humans do possess an ability to reflect upon the past and anticipate the future. Indeed, the very act of maintaining a bookkeeping or accounting system is nothing more than attempting to create an illusion of traversing the domain of time. Such records attempt to record the past, take a snapshot of the present, and anticipate the future. The concepts of income and the cost basis of labor being zero rig the game by ignoring how humans must exist within the boundaries and limitations of the time domain. These examples ignore the past and future.

Four, such simpleton examples conveniently ignore the fact that what occurs is an exchange. The simpleton examples above rig the game to create an illusion of gain when, in fact, only an exchange occurs. Generally, the property of currency is exchanged for knowledge and time.

Because humans are locked into accepting the unidirectional effects of time, and because no human has yet discovered immortality, every act every human makes is a decision about how to use the precious and scarce resource of time. Each human possesses only a certain number of heartbeats, so many ticks of the clock. When that last heartbeat occurs, life as we understand stops. There is much speculation about what might occur beyond that last heartbeat, but the only certain observation is that our present form of existence stops. Thus, every decision humans make about their lives is fundamentally based in the concept of time. The fundamental unit of exchange therefore is not token symbols of exchange commonly called currency, but time. Every exchange in which humans participate is fundamentally rooted in the concept of time. The dimension of time is what creates human subjective and personal perspective of value.

Proponents of these flawed concepts argue that the amount paid is called compensation. They hardly realize how correct they are. There are two fundamental definitions for the term compensation. Compensation may be defined as 1) that which is given in exchange for something of equivalent value or 2) that which is given to replace that which was lost.

When there is an exchange of equivalent value there is no gain. The second definition recognizes that what is being provided is compensation for the loss of time. So many heartbeats, so many ticks of the clock that cannot be restored. The dimension of time treats every human exactly the same. Many people have recognized that in neither event is there a gain, yet proponents of these flawed ideas insist upon ignoring such fundamental thinking.

Five, these flawed ideas ignore that the exchanges occur within the time domain. No exchange is a simple static snapshot event. Each exchange is rooted in past production and anticipation of future consumption. The illusion of gain appears only by ignoring the past and future. This is one of the fundamental flaws of the modern income tax system. That approach attempts to convert a dynamic system into a static system by arbitrarily selecting a moment in time to create an illusion of gain.

Proponents of these flawed ideas ignore that another party necessarily must exist to consummate any exchange and they pretend that exchange is unidirectional.

The past includes all expenses and costs that enabled a person to reach the present moment in the time domain. One cannot skillfully cut hair without adequate training and experience. Also included is the requirement to daily sustain life through food, clothing, and shelter. Humans also require some nominal creature comforts to sustain a healthy state of mind. No human can ignore those costs and expenses and expect to live a wholesome life.

Because of the nature of human life, most humans seldom maintain a record of these routine past expenses and costs. Nor can humans predict with certainty what those costs and expenses will be tomorrow. Instead they attempt to approximate those past and anticipated expenses and costs through a base rate of exchange. Often people refer to this base rate as a wage or a fee.

When people contract with others to cut hair or mow lawns, an exchange takes place. In exchange for cutting hair or mowing a lawn a person receives a token symbol of exchange. Those token symbols represent past events in terms of skills obtained and expenses to sustain life in a reasonably comfortable manner, but also represents future events in sustaining those skills and further sustaining life. Those token symbols do not directly sustain life, but merely serve as temporary placeholders or claim checks to obtain those things people need and desire to sustain life.

There is no gain. There is only exchange.

This observation exposes another fundamental flaw about the income tax system. Income tax system proponents incorrectly presume that all exchange is based upon token symbols of exchange. That is not how humans exchange. Token symbols are merely secondary elements of the exchange system. The subjective value of the things people want determines the exchange value of those token symbols — those token symbols do not determine the exchange value of the things people want. Those token symbols are mere intermediate mediums of exchange.

Token symbols of exchange are property, but represent useful forms of property not yet in possession — future wealth. When those token symbols are exchanged for those other forms of property, there is once again no gain but only exchange. The illusion of gain appears only when people willfully ignore the time domain. The illusion of gain appears only because people have not yet consummated their exchanges.

Six, to further cloud the process of exchange and create an illusion of gain, proponents establish that when they deceive people into thinking about the dynamic process of exchange as a static event, that one can ignore the past and future costs and expenses such that they then create an illusion of zero basis in their exchanges. Through this illusion proponents create an illusion of gain.

Proponents argue that one can deduct the various costs of sustaining a business, but incredibly argue that no costs associated with labor can be deducted. Human labor is one of the three fundamental elements of production. Without sustaining human labor, capital and land would be meaningless to humans because humans would cease to exist. Sustaining the ability to labor includes eating, clothing, shelter, education, and other creature comforts. These basics of life all are necessary costs to sustain labor in any meaningful manner. To argue otherwise is simply to step through the Looking Glass into Wonderland.

Consider for a moment a human exchange system where token symbols of exchange are no longer used and people exchange with one another directly — barter. In such a system humans directly exchange wealth for wealth. In such a system how is gain measured or how is gain created? There only can be a gain or profit if compared to an arbitrary standard — that token symbol of exchange that no longer exists.

Just as important, consider that same exchange system with any form of taxation. Two people exchange corn for eggs. A third person appears and demands that a portion of that corn and eggs be surrendered to the third person. When considering how humans actually exchange — without the mental interference that currencies introduce, the concept of taxation appears as theft under the color of law.

Only people who feed off the process of taxation possess the absurd need to create an illusion of gain. By creating this illusion they then can proceed with promoting an illusion of excess. Through that illusion of excess proponents can toy with human emotions to encourage jealousy. Through that illusion the peoples then create arguments to coercively share and redistribute. Thus begins the process of mass propaganda, deception, behavior modification, and miseducation.

The current income tax system is inherently destructive and inherently increases social disorder. The income tax system benefits only the parasitical few rather than creating a system of mutual and reciprocating benefit for all.


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Next: Chapter 23 — Raising Revenues Without Coercion

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