Welcome to Feudalism

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A man bends almost double under the weight of his burden. He struggles uphill on a muddy path, a massive basket of grain strapped to his scrawny back. He has made this trip dozens of times already today. He will do it again tomorrow.

The man once owned a donkey, but he was forced to sell it to pay a doctor. His children are too weak and undernourished to be of much help. So now he hauls his product uphill himself.

At the top of the hill lies the home of his lord and master, the owner of the land on which the man toils. It’s a splendid castle full of treasures, warmth and fine foods. The man has never set foot in it, and never will. But he is quite familiar with the granary where he and the other serfs bring one-half of everything they produce, which their lord sells for his own profit.

Such is the price of his existence.

And just as this man was forbidden to travel freely unless his obligations to his master were up to date, so it is for you, thanks to a recent act of Congress.

Welcome to Feudalism, 21st-Century Style

Traditionally, at the end of every year, we writers offer our predictions for the new year. The story I just told is obviously a metaphor, and you’d be forgiven for thinking I’m about to predict that we’re all about to become serfs in a modern version of feudalism, with money taking the place of grain, and various private and public institutions playing the role of our feudal masters.

But I’m not going to predict that. That’s because, if you’re like the vast majority of Americans, you’re already a serf in a vicious system of financial feudalism.

Case in point: As part of the omnibus budget bill passed earlier this month with much fanfare about “bipartisan comity,” you lost a crucial right, just like a feudal serf. From now on, if the IRS claims you owe them $50,000 or more, you lose your passport. No judge, no jury, no proof, no due process. They just say so and poof! your freedom to travel is gone.

That says a lot about the world in which we live.

America’s similarity to feudalism doesn’t stop there, however. A third to a half of the average American income goes to debt repayments of various kinds — quite close to the manorial dues traditionally owed by feudal serfs. Another chunk of our earnings vanishes in the form of higher prices for goods and services, thanks to rigged markets where big corporations extract economic rent through custom-made regulations and limited competition.

On the flip side, gross income from the broad financial sector of the U.S. economy has grown from under 5% of GDP in the 1950s to nearly 25% today. At the turn of the 20th century, the overall value of the financial sector was roughly the same as the nation’s annual output. Now it is four times that. Over 30% of all U.S. corporate profits come from purely financial activities.

There are a lot of complicating factors, of course, but in my view, the basic message is clear. We’ve gone from being an economy that produces primarily goods and services to one that uses debt and rigged markets to draw wealth upwards, where it is concentrated in fewer and fewer hands.

Just like feudalism.

Tithing to the King

And then there’s income tax.

As you know, I like to tell the unvarnished truth, and when it comes to tax, the reality is that we Americans pay a lot less than we used to. At one time, the highest marginal tax rate was over 90%. Now it’s 39.6%. But the flip side is that the overall burden of tax is shifting from high-income earners and the corporate sector to the middle class. Whereas enforcement of tax at the top is tempered by the IRS’ reluctance to tangle with skilled corporate tax lawyers, nowadays the IRS is relentless in its pursuit of the rest of us.

So every year, it seems, Congress allows the IRS to become a little more like a feudal bailiff, the official who collected the lord’s dues from his serfs. For example, penalties for incorrect tax filings are set to double in 2016. And now, if the IRS says you owe more than $50,000 in taxes — not that you actually owe them, just that they say so — you lose your right to travel freely.

Escape From Feudalism 

In the feudal system, the only opinions that mattered were those of the aristocracy. Nobody paid any attention to the serfs (unless they revolted, in which case they got plenty of unwanted attention).

Things are the little different today. It’s an established fact that politicians pay far more attention to the wishes of donors than to those of average voters like you and me.

I predict that 2016 is going to be the year when those of us who are not yet aware of our status as financial serfs in a crooked society will realize the seriousness of the situation. And that may mean you truly come to understand why I continually focus on opportunities to change that … whether offshore or onshore.

Kind regards,
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Ted Bauman
Offshore and Asset Protection Editor