Tuesday, January 12, 2010

Not a Bad Day's Work

The Federal Reserve trades government bonds -- and, more recently, other things -- primarily with a view to implementing policy. For example, it buys government bonds when it wants to expand the money supply and it sells them when it wants to contract the money supply. Its main goal is not to make a profit. But it acts with such skill that it usually does make a profit, and it's such a big operation that the profit is usually in the billions.

What happens to that profit? It goes back to the U.S. Treasury. And as the Post reports today, this year's profit is especially impressive: $45 billion, the highest amount in the bank's 96-year history.

Of course, part of the reason is that the Fed has been investing in riskier things over the last year. It's not just into humdrum U.S. government bonds anymore. So as would be true for any investor, higher risk can produce a better return. But it's still a higher risk, which might hurt the Fed (and therefore us) in future years. Still, a $45 billion return right now is pretty nice -- beats a sharp stick in the eye, as my father likes to say.

But why is Law Prof on the Loose caring about this? Faithful readers, this post is not really for you, but for that other, stranger part of my fan base, tax protestors. As you know, I am oddly fascinated with these unusual people who deny that any law actually requires payment of income tax. And recently, I have noticed that tax denial is increasingly linked to another set of strange beliefs, focused on the Federal Reserve. An increasing percentage of tax protestors also believe that there is something truly evil about the Fed -- that it's a cabal of bankers who secretly run our country (and the whole world, too) and are calling all the shots. And it's somehow responsible for the income tax -- income tax and the Fed were created at about the same time, and tax protestors somehow think that you couldn't have one without the other.

I'm not really expert on the Fed and I'm not in a position to say whether, on the whole, it is a good or a bad institution. But the tax deniers are into some truly ridiculous claims about it, the main one being that 100% of income tax revenues are used to pay interest on the national debt and therefore just go straight to the Fed. That is totally not true, as can be determined by just looking up the figures (unfortunately, looking things up is a skill many tax protestors lack): last time I checked, about 20% of income tax revenues got eaten up by debt payment, not 100% (it's probably more now, given how much extra borrowing the government is doing lately, but still a lot less than 100%), and besides, the Fed only owns a small percentage of U.S. debt anyway; most of it is in private hands.

Tax protestors also believe that the Fed is just a privately owned bank, that it charges interest on all U.S. currency, and that it is never audited. These myths are out of my realm, but a good web page on them can be found here.

Anyway, today's news story is primarily for the tax protestors. That Fed that you hate so much? It just handed $45 billion over to the U.S. Treasury. While Ben Bernanke, its CEO, pulled down a whopping salary of $199,000. Not a bad day's work.


Anonymous said...

You are correct that the tax protesters believe there are no laws requiring them to file returns or to pay income taxes. They are of course wrong. There most definitely are laws requiring filing and payment.

However, the laws requiring them top pay these taxes are case law, not statutory law. The case law decisions are readily demonstrable as linguistically and rationally false when compared to the language of the legislative text and intent.

There is no statutory text, in plain language meaning in and of itself, requiring filing or payment.

Anonymous said...
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Jon Siegel said...

Anonymous number 1, if you would like to see the statutory text that does exatly that, go here:


Jon Siegel said...

Sorry, the URL got cut off. Go to www.jsiegel.net, click on Personal Page, then on Taxes. The law is right there.

Anonymous said...

Professor Seigel, Anonymous 1 in reply:

My real intent was to refer to the fact that clever logical fallacies are used to falsely decide tax case law.

Before giving an example, with respect to section 1, you are only technically correct. It has statutory text imposing a tax, but there is no text preceding it enacting section 1 into law. The act containing the IRC (and thus section 1) only states that the IRC is as follows, but does not include text enacting the title into law (unlike preceding tax titles that include text specifically enacting the contained titles into law). The statutory text is there, but not as statutory law in rational textual terms. Of course, the legal establishment disagrees, asserting the contrary with forceful authority, but extra textually, using qualifications such as 'Congress would never have intended other than enactment into law . . . .'

A very good example of falsehood in case holdings is US v. Sullivan 274 US 259. This was the case that made filing mandatory, reversing the textually and rationally correct lower court holdings in Sullivan.

Associate Justice Oliver Weldell Holmes, in holding that moonshiner Sullivan must file a return, argues at 274 US 263-264 that, "It would be an extreme, if not an extravagant, application of the Fifth Amendment to say that it authorized a man to refuse to state the amount of his income because it had been made in crime."

This is Holmes at his best in his frequent and practiced application of the logical fallacy of the Straw Man when authoring holdings of the Court on Constitutional issues.

The Straw Man argument is textually true. But it is always extreme and extravagant to say the the text or intent of the Fifth Amendment authorizes something. It authorizes nothing at all.

The text and intent of the Amendment is not part of the Constitution as a grant of privilege to authorize persons, citizens, or taxpayers to refuse to be witnesses against themselves, even though the courts consistently say that it does.

It is there, by text and intent, to prohibit government from compelling persons to give testimony as witnesses that can be used them in any criminal case should the government decide to so use it. A tax return, signed under penalty of perjury, is the testimony of a witness with respect to the Fifth Amendment, compelled by government, that can and often is used against a person in any criminal case whenever the government choses.

With forceful and flowery rhetoric, Holmes utterly decimates and destroys the Straw Man "authorizes" argument, pretending to defeat, but in reality only deflecting, dodging, and disregarding the true "witness" argument raised and correctly upheld in the lower courts.

Such an argument would be quickly judged as sophomoric and false in a debating contest when tried by the losing side. In the Supreme Court, there is no outside referee, and Sullivan is the law of the land, and we are compelled to file. But the law is falsely decided nonetheless.