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Taxes in the Light of Social Credit

Written by Louis Even on Friday, 27 May 2016. Posted in A Sound and Efficient Financial System

— Would taxes still exist under a Social Credit financial system?

This question is asked within the context of the present financial system. To answer it and for the subject to be understood, we need to reason within the framework of Social Credit, that is to say, first in terms of reality and not in terms of money. Once the answer is given in terms of reality, then finance can be adapted to it, this being true of any other aspect of a Social Credit economy.

The present taxation method is corrupted in the same way as the present financial system. It contradicts economic reality. It steals the people. It serves as a means of centralization within the hands of financial empires and of the State. Speaking on this topic, Douglas declared, in a lecture given at Westminster in February of 1926:

«Modern taxation is legalized robbery, and it is none the less robbery because it is effected through the medium of a political democracy which is made an accessory by giving it an insignificant share in the loot. But I do not think robbery is its primary object. I think policy is, much more than mere gain, its objective. I think it is most significant that every effort is made by economists of the type turned out by the London School of Economics to instill into the Labour Party that it is possible to obtain some sort of a millennium by accelerating the process of stealing.» (Warning Democracy, p. 61, 1934 ed.)

Douglas later wrote:

«Present-day finance and taxation is merely an ingenious system for concentrating financial power.” (Social Credit, p. 105, 1937 ed.) And again in this same book: “The main tendency of the process (of taxation) is to concentrate the control of credit in a potential form in great organizations, and notably in the hands of the great banks and insurance companies.»

Douglas strongly condemns the present tax system. But this does not stop him from writing, in Warning Democracy:

«It is well understood that taxation in its present form is an unnecessary, inefficient and vexatious method of attaining the ends for which it is ostensibly designed. But while this is so, there is, of course, a sense in which, while private enterprise and public services exist side by side, taxation is inevitable. Public services require a provision both of goods and human service, and the mechanism by which these are transferred from private enterprise to the public service must in its essence be a form of taxation.»

— This quotation by Douglas, does it not contradict previous quotations?

Not at all, if you consider the words used by Douglas, as well as the arguments he makes.

What Douglas calls “legalized robbery” is the present taxation method, the one that takes money away from individuals to satisfy the demands and the ends of the financial system. Whereas the “form of taxation” which he considers inevitable is a mechanism, that does not take money away from the individuals, but that transfers, from the private sector to the public sector, the supplies and the work required to answer the public needs of the community. These words are not spoken in relation to some financial myth, but are spoken in relation to reality.

Would you mind shedding some light on this matter?

When the government has a road or part of a road built, does this hinder or lower in the least the production of milk, butter, vegetables, clothing, shoes or other consumer goods? On the contrary, is the production of consumer goods not activated because of the wages distributed to those working on the road?

But in today's system, the government taxes the taxpayers to pay the workers who are building the road. It takes away money that would otherwise have been used to buy consumer goods, in order to pay for the construction of the road.

This system is not in keeping with reality. If the country is capable of producing simultaneously both the private and public goods, then the financial system must supply the money to pay for both. There is no reason why the private sector's standard of living should be lowered to allow an increase in the public sector's standard of living, when the country's production can supply both.

Under a Social Credit system, money would be issued automatically to finance all production that is physically possible and required by the population, whether it be private or public production. This was explained previously, for the public sector, with the building of a bridge.

— Is it because of the way public works are now financed that Douglas calls taxes "legalized robbery"?

This is a patent case of theft that only madness could excuse. Following is an excerpt taken from the “Michael” journal published in 1964:

When the country's population is capable of supplying both private and public goods simultaneously, one would have to be an idiot or a thief to take away from individuals their claims upon private production under the pretext of allowing public production to be made.

But there are other situations where taxes are an unjustifiable although legalized plundering, among which:

— All of the purchasing power that is taken from individuals through taxes while products are waiting to be bought.

— All the money the government takes through taxes to take over functions that ought to be left to individuals, to families or to intermediate bodies. And on that score, the theft is increasing, as the government's intrusions are multiplied. The reason given by the government is always the same: the financial incapacity of individuals, of families and local public administrations. The government's actions should be directed at correcting this financial incapacity, the way a Social Credit system would.

More legalized robbery: Aside from the taxes, all the expenses the people have to pay for the collecting of taxes under one guise or another, without obtaining any service in return.

— But your last quotation of Douglas mentions a "form of taxation" to transfer, from the private sector to the public sector, a share of the country's pro­ductive capacity, and you added that money need not to be transferred. How do you explain this?

It must first be seen in terms of reality; its financial expression can take different forms. Let me explain:

For the building of the bridge — the example given of a public project — the decision was taken by the government, with the approval of the people's representatives, and this constitutes a transfer of part of the country's production capacity to the public sector.

The effect this will have upon the quantity of consumer goods that can be made might influence the population's standard of living.

Whether it be private or public goods, the population can only obtain what has been produced. If the citizens, through their representatives, request so many public goods from their government that the production of private goods is lessened, their private standard of living will be lowered accordingly, even if their enjoyment of public goods increases. It is not a question of finance, but a question of real wealth.

And how will this real situation be expressed financially? By a reduction of purchasing power, because we cannot buy things that do not exist. Under a Social Credit system, this lowering of purchasing power, would mathematically find its way into the adjusted and compensated price mechanism. This would be a "form of taxation" that would correspond to the transfer, from the private sector to the public sector, of a share of the country's productive capacity.

Any price increase ensuing from this price adjustment would be perfectly justified. It would neither be speculation nor exploitation, since all prices would be adjusted according to the ratio of consumption to production. The increase in the production of public goods would signify a reduction in the production of private goods. The public would always be aware of this; if it thought the load too heavy, it would request its government to curb its public-sector activities.

The “form of taxation" expounded above does not claim to be the only one possible. The main thing is that its financial aspect be the exact reflection of reality. As for the choice of methods, it is a question of feasibility that needs to take into account circumstances and experimentation, as long as principles are respected.

—Does this mean that under a Social Credit system, we would no longer have to pay anything to governments, nor to municipalities, nor to school boards nor to other public administrations, but that new money would be issued to cover their needs?

There are distinctions to be made. We said that new production must be financed by new credits, but we added that we must pay for these goods at the rate they are consumed. For example, if a school that was built with new credits is estimated to last twenty years or more, the population that uses it must pay one-twentieth of its price each year, the same as for the bridge previously mentioned.

This is no longer a tax that robs people, it is the payment of what we consume. It is as normal as paying for a suit at the tailor's or for bread at the baker's.

The same would apply to public services. They were instituted to provide services to individuals and to families more efficiently:

The aqueduct and garbage removal services are examples of this. If each family had to go and get water at a lake or a river, or pay to have some brought to them, this would cost them time and energy. The same applies to the removal of garbage to a distant dumping ground.

As for education, a mother seldom has the time, even though she may have the competence, to teach her own children. We can hardly expect every family to find and hire a private tutor to do so. But if 20, 30, 100 families decide to hire the personnel needed to teach their children, it will certainly cost each family a lot less for the same service.

Must we call "taxes" what each family will have to pay? Perhaps, because the term is commonly used; but in fact, it is no more a tax than the money paid to a doctor who treated a family member or to the shoemaker for a shoe repair.

— As regards taxes, what difference is there between what there now exists and what we can expect under a Social Credit system?

A huge difference. First of all, the country's developments would be financed by new credits, and not by taxes. Financially, we would only pay for their consumption; their wear and tear, not for their production. We would not drag public debts that are mathematically unpayable, plus its servicing to which a huge part of tax revenue is allocated.

We would not have to pay taxes to support government employees who fulfill functions that ought to be filled by individuals and by families. The financial incapacity of individuals and families that invites governments to do things in their stead, would be a thing of the past.

We would no longer have to supply with our taxes the ever increasing funds that are needed to maintain our government-run social security services. All citizens, as co-heirs and co-owners of a common capital, would find their unconditional economic security in the social dividend, combined with the adjustment of prices.

Since all that is physically possible would be financially possible, the public would be collectively able to pay for anything that the country can provide, public goods as well as private goods. The payment of public services would no longer be, as they are today, a burden and an obstacle to obtaining private goods.

Under a Social Credit system, all citizens would be treated as shareholders, entitled to a dividend on national production. They would also, as shareholders, be kept periodically informed of the nation’s bookkeeping which would be infinitely simpler, clearer, than the complexities of the present system. They could therefore intervene with their elected representatives, should they wish that their country's production concentrate its efforts to producing goods that answer the real needs of the people.

Moreover, the guaranteed income to each person, first at a level that guarantees the satisfaction of basic needs and later raised to the level warranted by a civilized society, would be the means that would allow the people to pass on their orders to the production system.

To get a proper perspective on a Social Credit world, we must look at everything from the standpoint of reality. The standard of living would no longer depend on the financial system but on the production which is available or that could soon be made available upon being ordered. Finance would intervene only to lubricate the production mechanism, on the producers' side, and to foster the freedom of choice on the consumers' side.

— How would the population pay for public services?

Different formulas will have to be determined according to the services offered and depending on whether they benefit the whole population or a given geographical area; it would be according to what proves to be most practical upon trial. But we must avoid what might cause people harm, which no financial objective can justify, under pretext of effectiveness.

Some public services can continue to be paid by those who use them, such as with the postal service where users pay by purchasing stamps. The same applies to expressways, although their financing under a Social Credit system would avoid long lasting repayments.

Other public services are used by all citizens, no matter what part of the country they live in. This is the case for most roads. This also applies to National Security, i.e. the protection of the country against a possible aggression, which requires up-keeping the necessary armed forces in order to carry out military operations and ward off any attack on the country. The same applies to the public administration of a police force needed to maintain public order. All individuals benefit equally from the above. The simplest way of paying for these services, would be to use national credits that would be recovered from the public by the adjusted-price mechanism.

But some public services are offered to only a part of the community, such as water and sewage, for they do not benefit country dwellers as they do city dwellers. It would then be unfair to ask everyone to contribute equally to a price adjustment that applies to the whole population.

Generally speaking, the people who benefit from a given service ought to be the ones who bear its cost. As for the best method for doing this, Douglas wrote:

«Now, just as there are two methods in theory by which the unearned increment of association, which we call public credit, can be distributed, these two methods being either a grant of ‘money’ or a general reduction of prices, and the choice between these two methods is one of practicability and not of principles, so there are two methods by which this transfer of goods and services from private to public use can be obtained, the direct and the indirect method, and it is curious that we have such a tendency to insist on the direct method, with its crudities, complications, and iniquities. It would be both simple and practical to abolish every tax in Great Britain, substituting therefore a simple sales tax on every description of article, and, apart from other considerations, such a policy would result in an economy of administration far in excess of anything conceivable within the limits of the existing financial system.» (Warning Democracy, p. 176, 1934 ed.)

Direct taxes are the amounts levied directly from individuals, like the income tax, the poll tax, the tax on successions, property taxes, etc.

Douglas gives preference to a sales tax that would affect prices. In a Social Credit system, this would combine with the adjustment of consumer prices. This method is perfectly suitable to the payment of public services that are offered to the whole community, as we have pointed out above.

— But this way of having everybody pay for public services, is it not unfair since it includes low income people and the large families that have to buy more because of their many children?

We need to remember that in today's system, prices are also the same for everyone, for the poor as for the rich.

We must not forget that under a Social Credit system, all individuals, whatever their age, are guaranteed an income through the social dividend linked to the individual and not to employment; each member of a family thus receives a dividend. And this dividend must be large enough, even when adding the prices of public services to the prices of consumer goods, so as to allow every individual to obtain what he needs to cover the bare necessities, in a country that can supply much more than the bare necessities to all. In fact, the hierarchy of needs requires that the country's production capacity first be used for the satisfaction of the necessities of life, for all.

Usually, if not always, the rich buys more than the poor; with the indirect method hereby proposed, the rich would be financing a greater share of the public services costs than the poor. It is only fair that the ones who benefit the most from the national wealth should pay the most.

A closer look will reveal that taxes that are included in prices are less dictatorial in character than the income tax or the property tax. This is a point that Douglas emphasized. If you wish to pay less taxes through prices, you can always choose to buy less, you can satisfy yourself with a lower standard of living. Whereas the income tax or the property tax hits you with a strict obligation, even if you do not draw any particular benefits from your income or from your property. 

The most unfair tax ever

Here is an opportunity to say a word on property tax, in particular those levied on the family dwelling, which is at the source of a multitude of evils.

The family dwelling is a home, not a money fountain: Why ask families for money that does not grow on their house's walls or roof?

This discourages ownership and leads us towards totalistic regimes such as communism.

Property tax causes families to live in anguish while waiting perhaps to be thrown onto the street following their incapacity to come up with the money they do not have. This even after having submitted themselves to hardships for months without succeeding to find the amount exacted from them by their municipality.

This form of taxation has been generalized in preference to others because it allows the taxing authority to punish those who do not pay, by putting their properties up for sale. This gives the collection of money more importance than is given to human beings.

It is our opinion that property tax is the most unfair tax ever, and the first one that should be gotten rid of.

In closing, let us repeat that, under a Social Credit system, there are no taxes, so to speak. There are payments for services rendered, public as well as private. And in any case, the country's population would be provided with the means of payment to cover the prices of all that is offered to consumers in answer to both their public and private needs. 


We will now end this study on a sound and efficient financial system, not because we have covered every aspect of the subject, but because we believe that we have set the reader — or better yet, the student — on the road to tackling, in the light of Social Credit, any economic problem that might arise and its many consequences.

To tackle those problems in the light of Social Credit means making a clean sweep of all the purely financial limitations.

With Social Credit, there are no purely financial problems for the setting in motion of the country's productive capacity or for distributing adequately the fruits of production, while leaving no one out.

And this can be done without the need to nationalize any enterprise; without having to look for an utopian way to make all standards of living equal; without revolutionizing the established methods of production and marketing; without suppressing the reward to those who, by their activities as entrepreneurs, as producers or retailers, set in motion the means of producing and of offering the goods and services to the population.

We might add that a financial system that reflects reality, such as Social Credit, would allow a country with greater production to share its wealth with countries that suffer from poverty.

The abolition of purely financial limitations opens the door to developments that would benefit everyone, benefits of a cultural as well as of a material nature, benefits that are lost owing to the defects of today's financial system.


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