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Archive for the month “May, 2015”

Funding the Government Without Taxes: Money for Contracts and the Torts for Free

Funding the Government Without Taxes: Money for Contracts and the Torts for Free

By Wald Branehart

The IRS regularly targets members of the Tea Party and other groups that favor limited government for harassment. This has an unacceptable, if not unconstitutional, chilling effect on freedom. Speak your mind or otherwise stand up for limiting, rather than expanding, the power of governments and BOOM! You figuratively have a bull’s-eye painted on you. Even if you can prove you paid your taxes (and did everything else according to the law), the IRS and other agencies can still make your life a living hell for a long time. And they’ll use their status as governmental entities to avoid accountability for wrongfully harassing you. It’s no wonder conservative talk shows are full of ads for folks who can help if you’re audited.

There are many people in favor of some type of simplification of the tax code. There are proposals for flat taxes and fair taxes and even national sales taxes, among others. But while simplification is a good idea, it doesn’t really address the real problem: the leverage taxes give governments over private citizens who want freedom and limited government. Because while fair taxes and flat taxes may be simpler taxes, at root they are still taxes – and are by their nature the opposite of freedom and limited government. Taxes are based on the premise that you do not own or have a right to your property, or at least some of it; governments ‘own’, in essence, whatever share their laws allow them to take. To increase their power governments always want to increase this share. And, of course, if you hide your property to reduce your taxes, you are legally a criminal and the government gets the go-ahead to destroy your life.

We need governments and must fund them. Without functioning governments there would be anarchy with everyone essentially his own judge, jury and prosecuting attorney, free to do whatever he wants to anyone else. All the benefits of interpersonal relationships including much of civilization would become impossible. It would be, as Thomas Hobbes described in Leviathan, a “state of nature” where “life is brutish and short.”

The trick is to figure out how to fund governments without giving them leverage over those they govern. This would require some kind of situation that would force people to fund the government, while not subjecting them to legal harassment if they didn’t.

There is such a system. As a play on the lyrics of the 1980’s Dire Straits song “Money for Nothing”, I call it Money for Contracts and the Torts for Free. Here’s how it works.

Whenever businesses enter into commercial contracts, they would remit an amount equal to a legally determined percentage of the value of each contract to federal, state and local governments to fund their operations. For example, a developer signs a contract with a contractor to build a building that will cost $6,000,000. The jurisdiction has a percentage rate of 7%. The parties would be liable for paying the government of that jurisdiction $420,000.

If a contracting party does not pay its share of the amount due to the government, the government will have no power to prosecute or otherwise use force in any way to collect the money. This would end the oppressiveness of governments regarding financing. However, the nonpaying party will not be able to sue the other party to enforce the contract and will have no recourse if the other party breaches it. For example, assume there are two parties to the aforementioned contract for a building. The parties agree that each party will pay half of the amount due the government, so each party has to pay $210,000. The party responsible for constructing the building pays his share but the other party, responsible for paying him the $6,000,000, does not. If the party constructing the building does so and the other party refuses to pay him, he can sue to get paid. But if the party constructing the building does not construct the building, the other party, not having paid his $210,000 to the government, cannot sue the other party for damages until he does pay it. The consequences of a breached contract can potentially be severe enough to bankrupt a business, so businessmen will pay to enforce them and governments will get a reliable stream of revenue.

Meanwhile, people will still be able to call the police, press criminal charges and sue civilly if they are physically attacked, defrauded, defamed, robbed, kidnapped, victimized by negligent behavior, their homes or businesses are broken into, their property is stolen, etc. This kind of protection everyone would get for free.

To better understand Money for Contracts and the Torts for Free, it is worthwhile to examine the nature of the two bodies of law that are relevant to it: contracts and torts.

Tort law is the oldest branch of the English common law. Developed in Great Britain between the Norman Invasion of 1066 and today, the English common law is the foundation for the legal systems governing countries with an English heritage including the United Kingdom, Ireland, Canada, the United States, Australia and New Zealand. Tort law prevents torts, which is the French word not for pastries, but for wrongs (and thus apropos because the Normans were French and brought tort law rules with them in 1066).

Almost all of the ways someone can initiate force against someone else are considered wrongs, or torts: battery, which means battering, or physically attacking, poisoning, etc. someone else; assault, meaning attempting to batter someone else; trespassing; false imprisonment; theft and destruction of someone else’s property; negligent behavior causing injury to someone else or their property; misrepresentation; and defamation. More severe torts are called crimes, which are based on torts. For example, the crime of homicide essentially means committing a battery resulting in the victim’s death. The crime of robbery is essentially theft under violent circumstances. Burglary is a certain type of trespass. Rape is a battery involving sexual penetration. Kidnapping is false imprisonment of someone plus moving him away from where he was captured. Arson is destruction of another’s property by using fire. Fraud is usually a theft through misrepresentation. Etc.

It is important to remember about torts that, notwithstanding defenses[1], they are actions that for the most part are automatically wrong for everyone all the time. By banning the initiation of force, tort law is the most basic body of law that protects individual rights to life, liberty, property and the pursuit of happiness.

But while tort law can prevent people from stealing things and bashing each others’ skulls in, it can’t compel someone to pave a street, deliver a shipment of books or food, draft a legal opinion, construct a building, or pay someone for doing any of these things. This is why contract law is necessary. A contract is a binding and legally enforceable promise voluntarily entered into by someone to do something for someone else. Most commonly, it involves one party obligated to provide a good or service to the other, and the other obligated to pay him for it. It’s also possible for both parties to be obligated to provide goods or services to each other. In any case, if someone enters into a contract and then doesn’t do what he promised, he can be sued for breaching the contract and be liable for compensating the other party for any injury caused by the breach.

Contracts allow people to reasonably rely on others, making division of labor and all of its benefits possible, including much of civilized living. Without contract law this wouldn’t be possible for the most part because there would be no legal way to hold others accountable for the promises they make. People would essentially be trapped in a very primitive standard of living, unable to depend on anyone for their needs but themselves.

In contrast with torts, contractual obligations are not automatic and don’t apply to everyone. Rather they are contract specific and apply only to the people who enter into them. This is why, while I consider tort law “automatic” law, I consider contract law “do it yourself” law. Tort law provides the basic social compact to respect individual rights and refrain from initiating force against others that everyone must follow. Above and beyond that, to do specific things that some people want done but others don’t, people can tailor the law to their specific needs and hold only certain people bound by it with contracts.

The logic of Money for Contracts and the Torts for Free should now be clear. As humans we need to live free from force. Therefore protection from torts should be free and automatic for everyone, with anyone able to dial 911 whenever they need to. However, if someone wants to use the government for something extra, like to compel someone to live up to his obligations under a custom-made contract to build a building, perform surgery, manufacture or distribute a particular product, etc., he should pay extra for it.

If people had to pay to protect themselves from torts the result would be a disastrous protection racket. Instead of being harassed by the IRS, everyone would be at risk of being attacked by street gangsters. Governments could perpetually shake down everyone as much as they like and if anyone refused to pay, suddenly thugs and goons could beat him senseless, steal his property, burn his house down – until he forked over whatever amount the government requested. But with an obligation to pay to enforce contracts, the consequences would be far less severe and there would be no protection racket. Instead of being beaten to a pulp, the deadbeat who didn’t pay his enforceability fee would merely be at risk of the other party’s breach. In addition the harm would be localized to the nonpaying party and those associated with him, and not a threat to society as a whole.

Money for Contracts and the Torts for Free would even satisfy the public policy objective of progressive taxation. It is rich and middle income people who run businesses, at least high value ones. It is they who, in doing so, make contracts and thus they, not the poor, who would be paying the fees to enforce them. The poor, in contrast, wouldn’t be paying anything and would have no burden to finance the government, so government financing would not impose any financial hardship on them.

As with a national sales tax, Money for Contracts and the Torts for Free would only be effective at ending the abuse of the existing tax system if there were no tax system. Otherwise, it could become an additional financial burden in addition to existing income taxes. Therefore before Money for Contracts and the Torts for Free could be implemented, there needs to be a total repeal of the current tax system. Repealing the 16th Amendment to the Constitution would be a good idea.

There are a number of operational details that can be worked out in the future. For example, the default rule, if the contract is silent and the parties didn’t decide otherwise, could be that the parties would split the obligation to pay the enforceability fee equally among the contracting parties as in the preceding example. Also one party might be able to waive its obligation to pay its share with the consent of the other party, who would then pay the whole amount due. The effect of amendments to contracts which would change the value of a contract and thus the amount due to governments would also have to be addressed. Also to be worked out are the rights of a nonpaying party who is sued by a paying party. He would have to have a constitutional right under due process of law to defend himself, but could he bring a counterclaim if appropriate against the party suing him? I would say no. Anyone has a right to defend his self if sued, but to countersue, pay the fee.

There are some unavoidable hazards. For example, the term “value of the contract” would of course be legally defined by statute, just as tax rates are today. This statute could become complicated like the current tax code and for the same reasons, as special interests would lobby for the changes to it that they want. Also, governments would still want the percentage rate to be as high as possible. The only cure for this is pressure from the electorate to prevent it from increasing, much the way people lobby for lower tax rates today. Regardless of the system used to fund the government, it is still the government you will be funding – and to do that, there never will be a substitute for eternal vigilance.

Regardless of these issues, however, I believe such a system would be vastly more preferable than the one we have today. Not only would it be unoppressive for reasons previously noted. It also probably would be far less costly to administer. Even if special interests succeed in making the law complex, it probably would never become as crazy as today’s tax code. But even if it did, the absence of the threat of prosecution and audits might collectively save businesses billions if not trillions of dollars, leading to far more wealth production and an explosively vigorous economy.

Obviously I don’t expect all of this to happen tomorrow. But what I hope to do is, between now and Election Day 2016, get as many freedom-loving people as possible thinking along these lines. Those who value limited government can escape the leverage of the IRS with a theory like Money for Contracts and the Torts for Free.

© by Wald Branehart 2015

[1] There are defenses to a tort claim, such as self defense and defense of others against someone who initiates an attack, or consent (i.e., you can’t sue someone for battery if they punch you in a boxing match or tackle you in a football game you voluntarily entered into), duress, emergencies, etc.

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But Don’t Businesses Need to be “Regulated”? Blog By: Wald Branehart

But Don’t Businesses Need to be “Regulated”?

Capitalism calls for a separation of state and the economy, without regulation of private sector businesses by government.  But don’t businesses need to be regulated by governments to protect people’s individual rights?

The answer is: no, they don’t.

But then, if businesses are not regulated, what would stop them from rampantly making dangerous products, defrauding consumers, breaching contracts and committing (and getting away with) other injurious actions?

The answer is: not regulations, but rather laws – properly formulated, to protect the individual rights of everyone.  As the foregoing makes clear, the fundamental distinction is one between the proper concept of laws, and the concept of regulations.

Properly constituted, laws are binding rules designed to protect individual rights.  Philosophically speaking, man has four basic rights: those to life, liberty, property and the pursuit of happiness.  A right to life means man can choose to live if he wants; he does not have an obligation to fall on his sword for anyone else if he does not want to.  A right to liberty means man has the freedom to take those actions that he must to live.  A right to property means he has control over the use and disposal of the material values he rightfully owns.  And the right to the pursuit of happiness means he can decide for himself which values will make him happy and then pursue them.

Because man has rights, he is entitled to be free from other people violating these rights by starting, or initiating, physical force against him. The most obvious form of force is direct physical agency like beating or shooting someone (a violation of the right to life), kidnapping or wrongly incarcerating him (a violation of the right to liberty), or stealing his property (a violation of the right to property). Credible threats to do such things to another person are also considered force, because they have the same effect as the actual acts themselves in that they cause someone to give up his rights and obey the force wielder; deception, such as through acts of fraud or defamation, is also a form of force.

To protect rights to life, liberty, property, and the pursuit of happiness, governments pass laws banning the initiation of physical force against other people.  Today all developed countries have similar laws that do this, banning negligence; assault and battery; homicide; false imprisonment; theft; fraud and misrepresentation; defamation; trespassing on others’ property; and breach of contract. Although there are differences from country to country, these rules form the basis for the codes that protect individual rights worldwide.  These laws may be civil laws, resulting in the awarding of monetary damages to compensate a victim upon a finding of liability of the accused; or for more severe offenses they may be criminal laws, resulting in fines, incarceration for significant periods, or even death to the accused upon a finding of guilt.

In contrast with proper laws, regulations (which are also called ‘laws’ by the left to package-deal them with proper laws, and are given the force of law by governments) do not protect individual rights. Rather, they order businesses to follow certain procedures when conducting their affairs that have nothing to do with violations of rights or force.  For example, some regulations may tell businesses how to value their assets when doing their accounting.  Other regulations may tell businesses how to design mechanical devices or what fuel mileage the cars they produce must get. Still others may order them to use certain materials when making clothing or specify procedures to be followed when making food products.  Still others may tell businesses how securities are to be bought and sold.  Today there are so many thousands of regulations on the state and federal levels of government controlling almost all aspects of commerce that virtually no business can follow them all to the letter.

Governments justify the passage of regulations on the ground that they are necessary to protect the “general welfare” or the “public interest” by specifying procedures that ban dangerous products and deceptive trade practices.  And to many people, this sounds credible and regulations seem like a good idea.  However, the truth is that regulations are not made by anyone who knows how to keep people safe other than by banning the initiation of physical force. There is no special governmental “know-how”, for example, that justifies bureaucrats coercively micromanaging others’ lives, regulating businesses or making products safer or better or whatever with “governmental oversight”.  Governments, for example, do not know how to build cars or trade securities or make food or clothing or anything else better than the private sector companies who make these things do.  For this reason, regulations do not make businesses more efficient or their products safer or of better quality.  All regulations do is cause businesses to spend inordinate amounts of time and money to comply, destroying their profitability and success thereby.

If regulations do not protect individual rights or make businesses’ products safer or otherwise better, then why are they passed – and why do they proliferate?  The truth is that regulations allow governments to either shake down and/or effectively take control of private businesses, forcing them to work to further governments’ objectives rather than those of the companies’ rightful owners. Governments do this by essentially playing “gotcha” with the companies they regulate, using the fact that, as mentioned earlier, regulations are too numerous for companies to completely comply with.  Any infraction can give governments leverage to levy fines or compel management to comply with whatever demands they wish to make.

In a free society there is no justification for regulations.  If a business negligently, knowingly, intentionally or recklessly acts in a way that violates others’ rights, it should be prosecuted and held accountable; it should not be ‘regulated’.  For example, if a car company creates or markets unsafe models that cause injury or death to others or their property, such as the Ford Pinto during the 1970’s, the solution is to convict and imprison the officers and engineers who knowingly approved the dangerous design and levy heavy fines against the company; it is not to start telling all car companies how to design their gas tanks or chassis or engine blocks or whatever.  (This is actually the job of liability insurance underwriters.)  If a CEO of a major corporation directs the accountants to “cook the books” by greatly overvaluing assets and causes the company’s bankruptcy, as was done at Enron Corporation, the solution is to prosecute the CEO and the accountants for fraud. It is not to start specifying how all companies are to conduct their accounting procedures (as the American Federal Government did with the Sarbanes-Oxley Act).

As for deterring future violations of rights by others, whether they be businesses or individuals, this will be accomplished by holding the violators of rights accountable for their actions.  In this manner inferior and dangerous business practices will be abandoned, and be replaced with safer and better ones over time.

In sum, businesses (like individuals) should be held accountable for violating others’ rights – but no they should not be ‘regulated’.

© 2009 by Wald Branehart

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