Jeffrey S. Ryan: Disinformation on taxes
April 24, 2010
The current Tea Party phenomenon has many antecedents. Listening to the complaints of various Tea Party supporters reveals no unifying philosophy. So any generalization would be both unfair and inaccurate.
What is worrying are the people who base their anger on ignorance and disinformation. We’ve been here before. There are many echoes of the extremism of the 1990s, fostered by the militia movement, the tax protesters, and other anti-government groups.
That is why it was troubling to read JT Coyote’s “opinion” piece about the IRS and the Federal Reserve (“What do your IRS taxes pay for?” SDN, April 14). Mr. Coyote’s op-ed contained little opinion. Rather, Mr. Coyote served up “factual” statements that are patently false. Such disinformation encourages acceptance of conspiracy theories by the uninformed.
Mr. Coyote’s “facts” provide a multiplicity of targets. First, Mr. Coyote seems not to realize that the Internal Revenue Service is a division of the Treasury Department. It has no relationship with the Federal Reserve. The money collected by the IRS goes into the general revenue fund of the United States Treasury, not to the Fed. His statement that whenever Congress enacts a law, the Treasury Department and the Federal Reserve immediately “create” new money to fund the congressional action is so staggering that one can only be gobsmacked. If the Fed simply generated new money out of thin air, the nation would collapse. Currency backed by nothing is worth nothing. Congressional actions must be provided for in the annual budget, which is funded by real money the government receives from taxes and other sources. The Fed doesn’t conjure up unsupported currency.
Mr. Coyote informs us that the Treasury Department sells Federal Reserve Notes to the Fed, the Fed pays Treasury about four cents for each note. This is true. But he fails to state that when the Fed buys these notes, it must post Treasury securities, equal in value to the eventual face value of the notes it is purchasing, as collateral. Like anyone else who buys Treasury securities, the Fed earns interest on these securities. But the Fed is required by law to return virtually all of the interest it received from the securities back to the Treasury. All the Fed keeps is its operating expenses. The truth is that the Fed returns about 97 percent of the interest it made back to the Treasury. If you or I buy Treasury securities, we get to keep all the interest the securities yield. But the Fed has to give almost all its money back to the Treasury.
Mr. Coyote resurrects the long-disproved canard that the Fed hasn’t been audited. In fact, the Fed has been audited ever since its creation, by private auditors, by Congress, and by the Government Accountability Office. It’s frankly embarrassing to see it trotted out again.
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Lastly, Mr. Coyote interprets the Constitution in a manner devoid of logic. Citing a provision contained in the original Constitution, he maintains that the federal government is forbidden to impose an income tax. Mr. Coyote, that’s why the Constitution was later amended to authorize income taxes. If an amendment can’t negate or modify the original Constitution, then it follows that blacks could still be discriminated against and women would still be forbidden to vote.
Demonstrably false claims can nonetheless influence ill-informed people to accept dangerous myths. Some of these people may feel compelled to take violent action. Or have we already forgotten Oklahoma City?