This is an addendum to the two part piece of Credit. It also stands on its own.
Today there are both overt and covert taxes present in our systems of governance. The overt taxes are simple enough to understand. They are the taxes you pay every year, every week, every day as going about your usual operations. There is a covert tax on your wealth which is intricately linked to these overt taxation regulations. This covert tax is brought about by the unit of account, being currency, that is in use. We today, all of us, function under a secular systemic depreciating system, explained below.
Money, in theory, should not be subject to tax. The taxation architects would not take issue with this statement. It is the income, whether from business endeavours or investments, that taxes are overtly designed for and are attempting to cover. For example, if holding AUD, any interest earnings on those AUD are taxed yet there is not a tax for holding AUD. As detailed in other posts, the rate of increase of AUD, as measured by M3, has been 9-10% p.a. CAGR over the past 30 years. Some of these new dollars find their way into the prices of goods and investments, others find their way into the income streams that you earn from owned assets, and you are each time taxed for ‘earning’ these new units of currency. Gold unveils the overt taxation most clearly.
Gold on 12 December 1983, the day the Australian Dollar was floated, was around AUD 430 per troy ounce (XAU).
If you held $430 in cash AUD since that time, you will be subject to no taxation, yet your $430 has been diluted every single year to now represent, as the same ratio to credit in the economy, $22. Just think what $430 could buy you in 1984 verses today.
If instead you held your wealth in XAU, being a 1 troy ounce gold coin, simply a different unit of account of your wealth, today it would be worth, unsurprisingly, 1 troy ounce. Yet in AUD it is now worth northwards of $2,000. Taking spot as $2,000, a round number, you have a capital gain of $1,570. The Government offers you a 50% discount on this gain; as such, you have $785 additional taxable income. At a 32.5% marginal tax rate you are left with $1,745. Remember spot is $2,000. You, at the absolute best, now have 0.8725 troy ounces, after tax.
In both scenarios the Government has taxed your sitting, unmoving, stationary wealth. And you can not legally escape it. When the term secular (long term) systemic (in-built and inescapable) depreciation (loss of purchasing power) is used, this is precisely what it refers to. The system eats your wealth. It is one reason why the world is in a rush today. When gold was the unit of account, once you earned it, and saved it, it was untaxed. There was near zero systemic depreciation as the very system was linked to a stable supply, increasing roughly at 2-3% per annum from new gold mined.
We could return to this stability by capping growth of fiat credit, currency, to 2-3% per annum. Governments and individuals would then require to be prudent, as no one would be able to abuse the steady supply of new money.