How Legitimate is the U.S. Government?

Bureaucrats, Working for the 'Beast,' Live in a Bubble, Totally Disconnected from Your Everyday Concerns; Washington Doesn't Work for You

Death of the Empire (DOTE)
May 13, 2011

DOTE readers already know my well-substantiated view of what goes on in our Imperial Capital. Forget about it! Those making a dishonest living in Washington live in a bubble, totally disconnected from your everyday concerns. In the words of George Carlin, they don't give a f*ck about you.

Corruption is rife Inside The Beltway. Corporate and other special interests dominate everything Congress does. America is a Democracy in name only. Thus does the Empire decline.

A recent story in the Huffington Post beautifully illustrates all these points. The story is Swiped: Banks, Merchants and Why Washington Doesn't Work for You by Zach Carter and Ryan Grim. At issue are so-called swipe fees, the fees merchants must pay to process credit and debit card transactions. The fight pits the Big Banks against the Major Retailers.

The fees [paid by a single merchant] are a tiny fraction of Wall Street’s swipe fee windfall; banks take in a combined $48 billion a year from these “interchange” fees on debit and credit cards, according to analysts at The Nilson Report. That money comes out of the pockets of consumers as well as merchants, as stores pass on whatever costs they can to their customers.

Major retailers — the Walmarts, Home Depots and the Targets of the world — complain that card fees are one of their biggest annual expenses, and they’ve entered into a Capitol Hill battle royale against card companies to roll back the lucrative fee regime. Last year’s financial reform bill ordered the Federal Reserve to crack down on debit card swipe fees, a $16 billion pool of money from which $8 billion flows to just 10 banks. As a concession to Wall Street, credit card fees were left unscathed.

The article is very long and contains lots of damning detail. Armies of lobbyists have been enlisted.

The swipe fee spat is generating huge business for K Street: A full 118 ex-government officials and aides are currently registered to lobby on behalf of banks in the fee fight, according to data compiled for this story by the Sunlight Foundation, a nonpartisan research group. Retailers have signed up at least 124 revolving-door lobbyists.

Bribes are being passed out like candy at Halloween.

Money flows freely around the fee battle. Political action committees organized by members of the Electronic Payments Coalition, a cadre of banking trade groups, dumped more than $500,000 into campaign coffers during January and February alone, according to data compiled by the nonpartisan Sunlight Foundation. During those same months, PACs for Walmart and Home Depot gave a total of $75,000 to 26 senators, along with $45,000 to political parties, while Target dropped an additional $54,000.

The bottom line? Just study the graphic and read this concluding text.

The swipe fee debate, as mundane as it may appear, is emblematic of how Washington works today — and helps explain why Congress hasn’t passed an appropriations bill in years, can’t write an annual budget, is flirting with defaulting on the country’s debt and effectively gave up on job-creation efforts in the midst of a brutal economic downturn.

There are, to be sure, a variety of reasons that Congress is zombified, but one of the least understood explanations is also one of the simplest: The city is too busy refereeing disputes between major corporate interest groups.

As swipe fees dominate the Congressional agenda, a handful of other intra-corporate contests consume most of what remains on the Congressional calendar: a squabble over a jet engine, industry tussling over health-care spoils and the never-ending fight over the corporate tax code.

The endless meetings and evenings devoted to arbitrating duels between big businesses destroy time and energy that could otherwise be spent on higher priorities.

In America today, over 13 million people are out of work and millions more are underemployed. One out of every seven is living on food stamps. One out of every five American children lives in poverty.

Yet the most consuming issue in Washington — according to members of Congress, Hill staffers, lobbyists and Treasury officials — is determining how to slice up the $16 billion debit-card swipe fee pie for corporations.

If you want all the gruesome details, read the entire Huffington Post report, which contains illustrative videos of our elected representatives "in action", nifty graphics and more detail than you will ever need.

Bonus Video — a small sampling of the bullsh*t:

The U.S. Government Must Go!

By Michael S. Rozeff, LewRockwell.com
April 4, 2011

A chorus of U.S. and international officials keeps chanting that "Gaddafi must go" because, they keep repeating, he has lost legitimacy.

Let’s turn the tables. How legitimate is the U.S. government? I’m not talking about the popularity of particular persons like Obama, Bush I, Bush II, or Clinton. Changing faces, political parties, and administrations in Washington is a lost cause. I’m talking about national government itself. Should Washington be dismantled? Has Washington lost legitimacy as a government? If so, as a remedy, as a guide to action, as an objective to work toward, the U.S. government must go!

There are many valid ways to criticize the U.S. government. Any small government or anarchist perspective gives rise to a critique. Any adherent of constitutionality has another critique. For example, Lysander Spooner’s critique is devastating. Anyone who looks to the government’s effectiveness in serving the public will have yet another perspective. Anyone who restricts attention to economic and monetary matters will find plenty to criticize. Anyone who focuses on rights and liberties will be able to make important criticisms.

Here my perspective is to question the legitimacy of the U.S. government. Legitimacy is the perspective being used loudly by many world leaders against Gaddafi. I wonder, can we camp on their grounds and turn their own ideas against them?

World heads of state do not usually shine the light of legitimacy on one another, much less on themselves. Oh no, they are very quiet and reserved in that area. They don’t want people questioning their legitimacy, so they don’t raise the idea. Libya is atypical. Some leaders are using the rhetoric of legitimacy against Gaddafi. They believe that they can confine its use to him. They believe that they can restrict illegitimacy to instances of outright violence and ignore hidden violence. This serves their purposes.

In the post-Soviet era, criticisms by world leaders of the U.S. tend to be restrained, muted and timid. The world’s states are essentially in cahoots with one another. Many are beholden to the U.S. or tied in via relations of one kind and another. They cannot be too critical. Many have their own domestic problems and don’t want to stir up nests of hornets.

We are not so confined. If we use Obama’s criterion that violence against one’s people is a sign of government illegitimacy, then how many world governments are themselves legitimate? They all use violence and the threat of violence to maintain themselves. The fact that the threats of violence are effective and prevent outright blood on the streets doesn’t remove the presence of violence as the government’s means of controlling its citizens. Once we look under the hood at the motor of government, we find violence. At what point does such violence mean that the government’s leaders or the government itself – its very form – have lost legitimacy?

We Americans have a strong basis for questioning the legitimacy of the U.S. government. It is our right. We live here. It is de facto our government. We have to bear the consequences of what it does to us. We are the ones who, in many theories of government, supposedly give our consent. We experience the threat of violence if we disobey the government’s laws. We have a tradition of freedom and self-government that supports questioning our government’s legitimacy. Most of this applies to other peoples throughout the world.

So, to begin with, what do Americans think of their national government? Let’s look at those polls that ask Americans whether or not the country is going in the right direction or the wrong direction. I am assuming that Americans make a connection between their government and the country’s direction. This assumption is warranted because the national government is the largest single factor in the economy and on the economy. The most important media focus is Washington and politics. We constantly hear about the economic and other policies coming out of Washington.

Let’s look first at the polls with the longest histories. The Pew Research Center poll dates from January 1997. The very first poll found that 58% of the people were dissatisfied with the way things were going. Today, that reads 73%. The average over all of its 85 polls for the percent satisfied is 34.35%, for those dissatisfied is 59.12%, and for those unsure is 6.49%. (These do not add to 100% precisely due to rounding error.) This high level of dissatisfaction is not due to a few outliers. Americans are consistently dissatisfied in poll after poll.

The NBC News/Wall Street Journal Poll goes back to early December of 1995. This has four possible answers: satisfied, dissatisfied, mixed, and unsure. Over its 122 polls, the averages are 37.06%, 48.98%, 10.86%, and 3.09%. These results are like those in the Pew poll. The satisfied contingent is in the 34-37% range.

The Gallup Poll goes back to 1994. There are 179 polls. Those satisfied with the way things are going average 39.78%. The dissatisfied average 57.70%.

There are numerous other polls with shorter track records. They show the same thing. For example, in the Time Poll of August, 2010, 57% said the country was on the wrong track and 34% said it was on the right track. From 2004 to the present, the satisfied number got to 51% once. That was its maximum. The rest of the time it stayed between 28% and 46%. The CBS News Poll is another example of a poll that shows the same thing. Those who think the country is seriously off on the wrong track have ranged from 48% to 89% since 2006. The average is 66.4%.

In a macro sense, these polls tell much of the story. We have a period of almost 20 years in which things are not going right and a large majority says they are not going right. This does not by itself prove that the national government is illegitimate or should be scrapped, but it is a building block in my argument. Why? The government uses violence to collect revenues and spend. It uses violence to control the economy. People are unhappy, generally speaking, with the results.

Let’s look more deeply into a few specific areas that illustrate the lack of legitimacy of the U.S. government.

One of the criteria of an illegitimate government is that it acts violently against its own people. Obama used this criterion against Gaddafi. One measure of this is the number of people or the percentage of the population in prison. The statistics on this from 2006 show that the U.S. has imprisoned over 1 percent of its adult population. It has the largest number of inmates (2.5 million) in the world. Although the U.S. has only 5% of the world’s population, it has 25% of the world’s prisoners in its jails and penitentiaries. The U.S. has 739 people per 100,000 of population "serving time, awaiting trial or otherwise detained."

Jailing Americans is a high growth industry. In the year 1880 in America, there were about 61 persons in jail per 100,000 (see Table 3-3 here). This had grown to 133 as of 1980, and then it shot up sharply when the War on Drugs and fixed prison terms for drug offenses were instituted. The incarceration rate and the number of persons incarcerated has grown very steeply since 1980:

It is implausible that Americans commit more violent crimes than any other people. It is implausible that American policing is that much more efficient at catching criminals and convicting them. It’s far more plausible that the War on Drugs and sentencing play a huge role in creating crimes and criminals that then fill the jails.

This is evidence that U.S. government violence against Americans is a real phenomenon of large and extremely serious scope. It is doubtful that Gaddafi’s violence has been more serious or pervasive.

Another criterion of an illegitimate government is that it debauches the currency. There is absolutely no question that the U.S. government has instituted an unconstitutional currency of fiat dollars in place of gold and silver money. There is no question that it has done this through an unconstitutional central bank, and there is no question that this central bank has debauched the currency. There is also no question that the government has violently seized a monopoly on currency issue and prevented its own citizens from using monetary alternatives. The seizure by the U.S. government of the people’s gold in 1933 exemplifies this violence.

For much of its history, 1,000 U.S. dollars were convertible into just over 48 ounces of gold (at a rate of $20.67 per ounce). Today, 1,000 U.S. dollars can buy about 0.71 ounces of gold (at $1,400 per ounce.) This is not because anything special has happened to gold to make its price rise as compared with other goods and services. It is because the government has printed paper dollars in tremendous amounts, creating an excess supply that has driven the value of each paper unit down from 48 ounces of gold to 0.71 ounces of gold.

World leaders challenged Robert Mugabe’s legitimacy in 2008 due to election thuggery. They did not link his legitimacy to his hyperinflation, despite the fact that it impoverished the nation. That is because they too use inflation and think of it as a legitimate tool of government. But Mugabe does lack legitimacy for having wrecked Zimbabwe’s economy with inflation, and, by the same token, the U.S. government should be held to like account for creating Great Depressions, for stealing the savings of those on fixed incomes, and for expropriating and redistributing wealth through the insidious but nonetheless violent means of inflation.

I am aware that a few low-level ignorant economists in the Federal Reserve have taken to sniping at Ron Paul. One of them argued that inflation is neutral, or that it raises all prices, including wages and rents. This argument is shallow and false. It misses the Austrian point entirely. But if inflation is neutral, why then does hyperinflation ruin an economy? And if inflation is neutral, why does anyone, including the Federal Reserve, even pay attention to inflation or to money supplies? Why would some of the Fed’s governors be worried about reversing its latest inflation (quantitative easing)? Why would Bernanke be crowing over the success of this round of inflation?

Accompanying inflation has been another sign of government illegitimacy, namely, a monstrously excessive government debt. This signifies both a tremendous amount of past wasted expenditures and future hardship. Every issue of government debt signifies that taxes in the future must be raised to service that debt. This increases the hidden economic violence imposed on the population. There is no good reason to distinguish between the outright clubbing of people physically and the ill effects on people’s lives of taxation.

Another source of illegitimacy of the U.S. government is its vast expansion of power. This has simultaneously violated the Constitution and extinguished the rights of Americans. It has got to the point where a President who is sworn to uphold the Constitution refers to it as a scrap of paper.

Another President, Barack Obama, has enunciated his right to assassinate American citizens without due process of law. Furthermore, a federal judge dismissed a case brought by the ACLU to prevent such assassinations. At present, we have a situation in which due processes of law that go back to the time of Jesus and before cannot be maintained by legal means in the courts of the United States! A government that claims the right to assassinate has, by Obama’s own criterion of legitimacy, relinquished its own claim to legitimacy.

U.S. government acts that have undermined its claim to legitimacy are particularly prominent in military forays and in going to war. There is no good reason having anything to do with the public safety, security, or welfare of Americans why the U.S. government invaded Iraq and Afghanistan, why it bombed Yugoslavia, why it is now bombing Libya, why it went to war over Kuwait, why it sends bombs into Pakistan, and why it sent military forces into Haiti for years on end during the Clinton administration. None of these countries threatened America or attacked it.

The U.S. government has repeatedly betrayed the public trust. Candidates have repeatedly made promises that they dramatically reversed once in office. They have lied and covered up. They have fabricated international incidents. They have used the fog of the U.N. and NATO to cover their actions. Presidents have gone to war without obtaining Congressional declarations. Of course, Congress has participated by funding these wars. One administration after another has honed the fine art of propaganda and misinformation.

The U.S. government is acting in numerous other ways to curtail domestic freedoms, and these actions can only be construed as violence of the U.S. government against its own people. Travel within the U.S. and across its borders has become an exercise in assault, delay, intimidation, and stupidity, with wholesale use of unreasonable searches and seizures. The invasions of privacy, financial and other, are worthy of any police state. The U.S. has resorted to renditions, kidnappings, torture, and indefinite detentions. The FBI has resorted to creating conspiracies and crimes.

My point is not to document all the ways in which the U.S. government uses violence against Americans. It is not to document all the sources of illegitimacy. It is to point out that every libertarian critique of the U.S. government, that may have been couched in terms of its going against the Constitution or suppressing freedoms or employing aggression, is also a critique of the legitimacy of the U.S. government. We can use the same grounds of illegitimacy that world leaders occasionally use to criticize certain behaviors of other world leaders like Gaddafi and Mugabe. We can use those grounds to criticize governments like the U.S. government that portray themselves as legitimate. They portray themselves as paragons of democracy or freedom, but beneath this surface, the signs of their illegitimacy are everywhere.

Why has a largely dissatisfied public not changed the government’s policies in 20 years? Why, in fact, have things gone even more wrong and led to even more dissatisfaction? There are many reasons and they go back many years. What’s important for our purpose is not these reasons, which have to do with the institutionalized structures that are set firmly in place, but the fact that the people at large no longer control the government, even when they vote.

The fact is that the government is now a corporativist institution that is largely unaccountable and that has insulated itself from accountability by means of payoffs, wealth transfers, political party duopoly, redistricting, the income tax, lobbies, and by control of education, media, science, and intellectuals. The very fact that government lies beyond popular control and reform explains why people have become cynical about reform or have given up hope of reform. But what is far more important is that it shows once again that the government lacks legitimacy. A legitimate government should depend on consent. It should be under control by the public. It should be responsive to them, not in the hands of special interests. And the fact that the government cannot be reformed without an almost unimaginable degree of change in American thought and society is the reason why this illegitimacy means that the entire government structure must go. Changing faces and parties in Washington is ineffective.

The U.S. government must go. We the People have a genuine right to say this and make it happen. In my opinion, the U.S. government is so profusely and deeply illegitimate in so many institutionalized ways and the people are so tied up with it that meaningful reform of a gradual nature is impossible. I think we need to make serious and deep change happen. It is my very firm belief that it must be done non-violently if it is to produce a long-lasting free country. We should not spurn or discourage important actions that genuinely reduce the size and scope of the national government, both now and in the future, and do not plant the seeds of its future expansion. Actions that significantly reduce government violence against its citizens are worthy. But if the goal of serious, broad, and deep change is kept in mind, then success at one or more of such actions should stimulate even further efforts, not cause them to abate.

One change that needs to occur is in the hearts and minds of Americans. From that will flow peaceful changes in government. At present, most Americans are wedded to conflict, violence, and political means. They are wedded to power struggles and to wealth appropriations and transfers via government. However, the use of violent means to achieve a reduction in government violence is not going to succeed. It perpetuates the game of violence.

We know that about 60 percent of Americans are dissatisfied and think that the country is going in the wrong direction. They are not anti-state, they are not anti-war, and they are not pro-market. That is, they don’t yet see what the solutions are. They do not see that the militarism must be brought to a close, that the Empire must be terminated, that State powers must be drastically shrunk, that the State is the problem, not the answer. They do not appreciate the virtues of liberty. The anti-federalist and libertarian heritage is unknown to them and buried under centuries of mis-education in the "virtues" of government and big government. They are bombarded with violent solutions from Left and Right.

The amount of re-education and awakening that must be done is very large. We need free speech to accomplish it. No one should fear using free speech to the maximum. Fear no evil. Fear no Goliath. Do not fear telling others openly "The U.S. government must go!" It must go using peaceful means, not the bombs and rockets that the U.S., Britain, and France are using in Libya, but it must go. It must go because it is doing violence to the American people at an increasing rate, with prospects for enhancing such violence. It must go because this violence de-legitimizes the government. The government’s violence is a major source of the dissatisfaction in the country, since people cannot get ahead in such an environment. The national government must be taken apart and dismantled because this is what is right. Anything less than this as a goal will not succeed. Anything less will saddle the U.S. indefinitely with a government like some of those in Europe. Worse, it poses a substantial threat of turning into a totalitarian nightmare. We will simply drag on at far less than our potential as human beings. Many of us will leave. Anything less will relegate the American dream of self-governing peoples living in liberty to a quaint fairy tale.

The new frontier and the great society were not bad slogans as such slogans go, but in the hands of the government they were dreams made reality by government service, taxation, wars, and government solutions to social problems. These involve violence and slavery in disguised and not-so-disguised forms. They involve illegitimate government, using the very criteria of those in government who are its strongest advocates. If we are to have big social dreams, let these dreams be made reality by and in freedom and peace, not in slavery and violence.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire: Liberty vs. Domination and the free e-book The U.S. Constitution and Money: Corruption and Decline.

When Government Becomes a Predator

By Monty Pelerin, American Thinker
April 5, 2011

Honest US citizens are being turned into prey by the IRS, the victims a hunt for tax evaders. It is the natural, if lamentable, product of the urge to power our Founders warned us against.

More than two centuries ago, George Washington stated:

Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.

Over the years, General Washington’s prescience has been demonstrated as government usurped and abused power. The myth that government serves the people should be shattered by now. Increasingly, government behaves as the master, not as the intended servant.

Oppression abounds, but nowhere is the raw abuse of power and coercion more possible and evident than in the Internal Revenue Service. They are the most dangerous member of the government gang. Now they have another tool to bully and expropriate wealth from innocents — US citizens living abroad.

Early in his presidency, Barack Obama pledged to add 800 new IRS agents to punish tax evaders with overseas accounts. In an effort, presumably designed to curtail and punish tax evasion on the part of wealthy Americans, legislation aimed at criminals now threatens the income and savings of the law-abiding.

Background

The Bank Secrecy Act became law in 1970 and implemented the Foreign Bank Accounts Report (FBAR) to monitor money laundering. The FBAR law required that US persons owning or having signing authority over foreign bank accounts report this information to the US Treasury Department. It was not much enforced for the obvious reason that a criminal does not willingly divulge incriminating information. During the first three decades of FBAR, there was widespread ignorance and disregard for the law.

In 2003, the Treasury Department handed over enforcement to the IRS. In 2004 non-willful non-compliance increased to a $10,000 fine per account per annum. Willful non-compliance allows criminal charges, a prison sentence, and fines of $100,000 or 50% of bank account’s contents, whichever is more (see Shepherd, p. 10).

The IRS has implemented two Voluntary Disclosure Programs I (2009) and II (2011), in which they waive criminal charges provided that all back taxes and penalties have been paid, along with an FBAR penalty of 20% (in 2009) or 25% (in 2011) of the account’s highest balance over the last six years. The penalty is lower (12.5%) for balances under $75,000. Persons who were unknowingly US citizens face a 5% penalty (see FAQ 52).

In 2010, Congress passed FATCA (Foreign Account Tax Compliance Act) which forces foreign banks to report on American clients, even if doing so would violate the banking and privacy laws of their country. Implementation of FACTA will be coerced by withholding 30% of US income from banks not in compliance.

The arrogance and brutality of the legislation is apparent. The penalties are severe and disproportionate. Economic blackmail of foreign banks is disgraceful. All of these actions will have repercussions, probably not intended.

US Citizens Abroad

US citizens living abroad must open a foreign bank account because commerce is done in the local currency. All who do are potentially in violation of the FBAR law. Most were unaware of the FBAR requirements; but now that the IRS has rattled its FBAR saber, taxpayers abroad are in a quandary.

Wealthier citizens spend thousands of dollars on accountants and tax lawyers to try to put themselves into compliance with the least financial damage. The average citizen not in compliance has limited options. His choices include:

1. Do Nothing
   The IRS doesn’t know about you, so continuing to keep a low profile and ignore the law might be the best route. This option may become impossible once FACTA comes into force.


2. File FBAR Forms
   IRS FAQ 17 of the 2011 Voluntary Disclosure Program states that filers who have complied with all taxes and filing requirements except FBAR should not enter the program but simply file the delinquent forms by August 31, 2011 with a letter of explanation. They promise that no penalties will apply to such persons. But given the severe threats of punishment issued to anyone failing to comply, many wonder whether the IRS will accept the excuse of ignorance of the FBAR requirement.


3. Enter 2011 Voluntary Disclosure Program
   Some US citizens who entered the 2009 Voluntary Disclosure Program and were otherwise in compliance with US tax laws, found that the IRS intended to apply to them the full 20% penalty (see, e.g., here and here).


4. Renounce Citizenship
   Many US citizens living overseas have lives fully integrated into their new country. They comply with the local tax laws and often possess dual citizenship. Compliance with US tax laws and FBAR are a nuisance and liability that they may be able to live without.

Renunciation of citizenship is not riskless. Such a decision will set citizens free from future liability, but may subject them to IRS penalties for prior non-compliance. In addition, for covered expatriates, those having two million in assets or $145,000 in average annual tax liability over the last five years, an exit tax is also required.

To appreciate the uncertainty and duress faced by US citizens living abroad, a couple of hypothetical situations are useful. International tax lawyer Phil Hodgen partly inspired the following hypothetical cases:

Hypothetical Case 1: Jim lives in a foreign country and has dutifully filed a US income tax return each year, but was unaware of FBAR filing retirements. Jim operates eight accounts: four retirement accounts (which he reported on his annual tax returns), two trading accounts, a checking account and a high interest savings account. The highest balance in these accounts is $1,000,000 over the last six years. His current balance is $800,000 after the market dip.

Jim doesn’t know what to do. After great worry, he enters the Voluntary Disclosure Program. The IRS assesses Jim a $250,000 FBAR penalty. In order to pay the penalty, Jim must withdraw funds from his retirement accounts forcing an additional tax liability of $100,000 on the income. Jim is no longer able to retire because his $800,000 has been reduced to $450,000, solely as a result of IRS capriciousness.

Hypothetical case 2: Nancy is a teacher and mother of three, married to a citizen of the foreign country where she has lived for fifteen years. She dutifully filed her taxes in the US, but never knew about FBAR. A friend entered the Voluntary Disclosure Program and was assessed $14,000. She contemplates the renunciation of American citizen, because her foreign husband owns a successful business and Nancy is a signer on business accounts. She fears exposing her husband’s business to the IRS and also fears that upon her death, the IRS will seek its pound of flesh from her estate. She renounces citizenship, though it breaks her heart.

Abuse Of the Law

FBAR was initially a harmless and little known embarrassment for the United States. It began as an ineffective attempt to stop money laundering. Like so many other laws (RICO, Homeland Security, etc.), it began with what some believed noble purposes, only to morph into a tyranny imposed upon law-abiding citizens. It is now a tool capable of arbitrary and oppressive expropriation the wealth of millions of US citizens living abroad.

An insolvent government is a dangerous government. It is akin to a wounded and cornered animal. When conditions become really difficult, it is likely to do anything to survive. Arbitrariness in the interpretation of any law is dangerous to freedom, but especially so when government’s primary concern is survival rather than justice.

There are many reasons to be critical of FBAR. The following two will illustrate:

1. Excessive fines: Ayn Rand said “The severity of the punishment must match the gravity of the crime.”This basic principle of human rights, enshrined in the Eighth Amendment, forbids excessive fines. It is immoral for the IRS to intimidate innocent citizens. Any law so uncertain that it could result in a loss of 50% of your wealth, depending upon the whims of the IRS, is not a law. It is government-sanctioned extortion.


2. Guilt Presumed: The Fourth Amendment protects (or was supposed to) citizens against arbitrary fishing expeditions by government. Probable cause is required. The FBAR requirements circumvent this Fourth Amendment right, in effect saying: “You will volunteer to open the door to your house and let us look inside.If you don’t, we will fine and/or imprison you.” The IRS demands bank information based on a presumption of guilt even though holding funds in a foreign bank account is no crime.

Unintended Consequences

The term unintended consequences, a convenient euphemism for stupid policy or law, is appropriate. Some of the foreseeable outcomes are the following:

1. An avalanche of US persons will renounce their citizenship. In July 2010, the State Department implemented a $450 fee for making a renunciation before a consular officer, presumably to exact additional income and possibly (highly unlikely) deter some from making the decision.


2. Foreign banks and investors may decide doing business with the US is not worth the trouble of compliance with FACTA, particularly as the US economy collapses and the global economy shifts to the East.


3. US Citizens abroad already find it challenging to open bank accounts both in US and in their countries of residence. This annoyance makes it more difficult for American companies and their employees to engage in foreign missions, business and trade.


4. US citizens are already shunned from positions in foreign companies which do not want their banking details revealed to the United States Treasury Department.

Conclusion

The Bank Secrecy Act, passed in 1970, is an example of law designed for one purpose being expanded to be used against innocent citizens. Regardless of its good intentions, it is now a tyranny used to extort wealth from otherwise legal, law-abiding US citizens living abroad.

It represents a classic case of how government usurps freedom. What level of morality must government have to think they are entitled to shake-down hard-working citizens?

Monty Pelerin has never lived abroad or had a foreign bank account. He has friends who do and hopes that exposing this State plunder will cause it to cease in this and other parts of our lives.