Money in Motion: How Governments Create Perpetual Income

March 22, 2012 by  Filed under: Taxes 

The biggest misconception out there is that governments tax “things” or stuff. In Canada, just like in other countries world wide, we have personal and corporate taxes, payroll taxes, excise taxes, liquor taxes, income taxes, gas taxes, [INHALE] sales taxes, estate taxes, and on and on the list grows. Bottom line here seems to be that if we can name it, we can tax it.

But for the purposes of this demonstration, let’s simplify. Significantly.

At one of my mastermind meetings, I took a twenty-dollar bill out of my wallet to demonstrate how the movement of money generates taxes. I turned to the woman on my left and purchased her services. She charged a sales tax, so in addition to that $20 service, I had to fork over another $2.40.

She then turned to the woman on her left and purchased here services. We had six women in our group, so this one bill had essentially been used to purchase six different consulting services.

Once our goofy little transactions had been completed, we each then proceeded to do some accounting.

First, as I mentioned at the beginning, there were taxes to be paid just to move that $20 bill along. In British Columbia, the current standard is 12%. So right from the get-go, each of us was “out of pocket” an additional $2.40. True, that $2.40 went to the person from whom we acquired the service, but in reality, that person providing the service also wears the hat of a tax collector. So that extra $2.40 had to be set aside for taxes in each transaction.

Time for some simple mathematics here. Six times $2.40 means that outside of that $20 moving through six businesses, an additional $14.40 had already been generated for tax collection.

Then comes the income tax part.

Each of us who made a sale immediately owed a portion of that sale to the government for income tax.

For the purposes of this article, I’m going to keep it extraordinarily simple and exclude all other write-offs, such as rent, utilities, tax cuts and so on. So instead of spouting, say, a 40% income tax rate, let’s reduce it to only 10%.

At 10% for income tax, each of us had to set aside $2.00 for the tax man. For all six people, that means $12.00 had been set aside.

One $20 bill in six transactions has generated:

  • $14.40 in sales tax, paid on top of the sale
  • $12.00 in income tax, extracted from the proceeds of the sale

The movement of this one singular $20 bill six times has generated, in this very simplistic example, $26.40 in taxes for the government.

But what it really boils down to is that “things” are NOT taxed. What is really taxed is the movement of money. If you have a $20 bill in your pocket that is 20 years old, stop and imagine for a moment the number of transactions this piece of paper has seen in its two decades. Consider how long it stays in your wallet. A week? Maybe two? If a $20 bill sees even just 10 transactions in a year, assuming a taxation rate of 15% (which it’s not, it’s more like 50%), it will have generated $30 for the government in taxes in one year. And $600 in twenty years. All extracted from a simple $20. (And where does the additional $580 come from? Debt, of course. And who fills the gap? Banks, of course.)

Again, the $20 bill has generated 3,000% more than it’s original value for the government. A nice little return, I’d say!

These so-called debates, about whether we centralize or decentralize the taxation system is really, in my mind, a distraction. It is a distraction created by the banks and the politicians to:

  1. Create the illusion that we have some input in the system
  2. Continue the illusion that items are taxed, and not the movement of money

Don’t get lost in that little distraction. You should be getting mad about the fact that the government generates more in taxes than there is actually money in circulation. And when this money is used for bank bailouts (not a Canadian issue) or industrial bailouts (yep, it happens here too) and not funnelled back into social services like, oh, education and health, there is something extremely wrong with the system.

No, I don’t know how to fix it. But I do know that it begins by telling people that it is the movement of money, not the taxation of stuff, that is problematic.

Britt Santowski is an independent debt counsellor in British Columbia, Canada, serving the Greater Victoria Region and Vancouver Island. Independent debt counsellors work directly for their clients, not the lenders. Ethical debt counsellors will not qualify you through online forms; they help you. And the first consultation is typically free. For more information on debt relief, please visit http://amatteroflifeanddebt.com

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