Could It Happen Here?

In reaction to the levy on deposits proposed and rejected in Cyprus a Missouri Congressman has submitted a bill in the House that would prevent the Congress from taking such a step here:

The measure from Rep. Billy Long (R-Mo.) was inspired by the banking crisis in Cyprus, which sent shivers through the markets this week when it considered assessing a levy against all bank deposits to help pay for a bailout of its major banks.

On Tuesday, Cyprus’ parliament rejected the idea of taking money from depositors, which some say could result in a quicker collapse of its banks.

Long said Wednesday that his resolution, H.Res. 129, was introduced to ensure the United States never considers a levy on deposits.

“The government should not tax people’s private savings accounts, which they have already paid taxes on, especially for the purpose of funding more bailouts,” Long said. “I was shocked by the news that some countries might be considering these kinds of taxes, and I think Congress should say that this kind of tax won’t happen in America.”

In my view this is solely a bit of political posturing, a useless and unnecessary waste of time. That, unfortunately, makes it very consistent with much of what the Congress does.

Let’s assume, just for the sake of argument, that the Congress is bound by the Constitution. I realize that’s a stretch. The Congress’s powers of direct taxation are actually quite limited under the Constitution, in Article I, Section 9:

No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.

amended by the Sixteenth Amendment:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

The Congress may also levy customs duties, excise taxes, and fees. Customs duties refer to imported goods. Excise taxes are collected at the time of sale as are fees, as when you purchase a stamp at the Post Office. Taxes on bank deposits don’t fit comfortably under any of those categories. I also think that such a tax would run afoul of the “Takings Clause” of the Fifth Amendment:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

If, on the other hand, you hold to the view that the only limitation on the powers of the Congress are those of the imagination, the Congress could do anything it cared to, not only including a graduated levy on bank deposits but also ignoring prior laws against such actions. In either case the law would be meaningless.

24 comments… add one
  • TastyBits Link

    With the Wickard v. Filburn ruling, the use of one’s property is not a right.

    With the Kelo v. City of New London ruling, the ownership of one’s property is not a right.

    The way to do it in the US would be through the regulatory agencies. Assess the bank a fee based upon the deposits, and the bank can pass it along. Blaming the evil bankers is a bonus.

  • Really, you think the Constitution is a sufficient barrier….wow….

  • PD Shaw Link

    In reality what would happen is that once such legislation passed the House, Rand Paul would filibuster the bill by reading and commenting on all of his favorite Rush songs, long enough for every American to withdraw their savings and place it under a mattress.

  • jan Link

    In either case the law would be meaningless.

    Laws made by man, are also subject to be not followed, altogether broken, or totally changed by man. It all depends on who is in power, what their perspective and implementation is, and how willing the people are to follow their mandates and interpretations of the law.

    The Kelo Decision, cited by Tasty, is a perfect example of how legal interpretations can change, over time.

  • sam Link

    “With the Kelo v. City of New London ruling, the ownership of one’s property is not a right.”

    You don’t need a Kelo for that. A lot of, if not most of, the land for the Keystone Pipeline will be taken by imminent domain, or sold under the threat of. Of course, that’s “different”.

    See, Judge Upholds Eminent Domain for Pipeline in Texas

  • sam Link

    That’s “eminent domain”…

  • TastyBits Link

    @sam

    The Kelo case was about the limits of eminent domain. The city took property from one private owner and transferred it to another private owner. One of the justifications was that it would increase city revenue from taxes. Your city could take your house and transfer it to another owner because the new owner would make improvements that would increase the property taxes.

    The government usually had invoked eminent domain for land it needed for public works (schools, roads, etc.). Another taking would be for right-of-ways (power, telephone, gas, cable, etc. lines), but these are usually regulated. This is what the Keystone Pipeline is using. I am not comfortable with either of these two, but I think reasonable guidelines would prevent abuse.

    There are a lot of cases where Kelo is being used to transfer property, but they get little attention. Usually the owners do not have the resources to fight, and nobody really cares.

    I never thought I would see the day when foreign terrorists captured on foreign soil would be afforded the constitutional rights of an American citizen, and an American citizen would be denied his constitutional rights. This occurred within days of each other, and there was little notice of the connection. In order to be afforded the rights of citizenship, one must renounce one’s citizenship.

  • PD Shaw Link

    I don’t think Kelo is relevant to Dave’s argument here. He’s saying that if the government took property in the form of bank deposits, the Constitution would require the government to reimburse the value of the property. In other words, it would be a complete waste of time to take money that the government would have to reimburse (assuming that the deposits constitute private property within the meaning of the “Takings Clause”).

    Kelo didn’t allow government or its designees to avoid paying for the property it took. I think it was a situation where the homeowners valued their home more than its economic value, and they particularly resented losing their home for a private benefit. Land grabbers will tell you (and they are probably right) that holdouts want more than the market value of the land, knowing that the last piece of a multi-parcel development has very high value to the developer.

    Anyway, I agree with TastyBits’ last point, the government would have to do this through indirect means, such as imposing a fee on federally insured deposits. I just don’t think it would work unless it could be done spontaneously.

  • Icepick Link

    Rand Paul would filibuster the bill by reading and commenting on all of his favorite Rush songs

    Would he analyze them in alphabetical order, chronologically, or based on how much he liked them?Because I’m just dying to know what a US Senator thinks of “The Analog Kid” or “Red Barchetta”.

  • Icepick Link

    the Constitution would require the government to reimburse the value of the property. In other words, it would be a complete waste of time to take money that the government would have to reimburse (assuming that the deposits constitute private property within the meaning of the “Takings Clause”).

    Two thoughts:

    First, they could take the “cash” in exchange for bonds to be repaid on some absurdly long basis.

    Second, they could just call it an insurance premium to cover the safety of the rest of a depositor’s money in the bank. And we all know that the government has the constitutional authority to do that! They just call it a tax before the courts, state that someone HAS to buy the insurance or they will be taxed up and down their alimentary track with federal income tax penalties.

    Thank God for Chief Justice Roberts!

  • PD Shaw Link

    I think he’d start with “Anthem,” off of probably the only album ever dedicated to “the genius of Ayn Rand”:

    Live for yourself — there’s no one else
    More worth living for
    Begging hands and bleeding hearts will
    Only cry out for more

    Well, I know they’ve always told you
    Selfishness was wrong
    Yet it was for me, not you, I
    Came to write this song

  • I don’t think Kelo is relevant to Dave’s argument here. He’s saying that if the government took property in the form of bank deposits, the Constitution would require the government to reimburse the value of the property. In other words, it would be a complete waste of time to take money that the government would have to reimburse (assuming that the deposits constitute private property within the meaning of the “Takings Clause”).

    Assuming the Constitution is upheld in that regard and there isn’t some other way of getting around the issue as well.

    Kelo didn’t allow government or its designees to avoid paying for the property it took. I think it was a situation where the homeowners valued their home more than its economic value, and they particularly resented losing their home for a private benefit….

    …that in the end provided zero benefit to pretty much anyone private or public.

    FIFY.

  • From the Kelo decision…

    The City has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community, including–but by no means limited to–new jobs and increased tax revenue. As with other exercises in urban planning and development, the City is endeavoring to coordinate a variety of commercial, residential, and recreational uses of land, with the hope that they will form a whole greater than the sum of its parts.

    And what happened to that land….it is now barren. Nothing is there.

    So, the city government comes up with some half-assed scheme and the boobs sitting on the Supreme Court go along with it and say, “Okay, take that land.”

    In fact, it is almost surely the case that the city ended up losing money in its Fort Trumbull development plan.

    So much for the Supreme Court…maybe they need to rename it to the Compliant Court…

  • TastyBits Link

    My purpose in citing Kelo was to answer @Dave’s question: Could it happen here. Yes.

    Few will notice, and those who do will be dismissed as kooks.

  • Drew Link

    I know there are those who do not believe inflation is a serious issue right now, but the stealth Cyprus is occuring right under your noses right now. I’d be happy to pass along a John Mauldin piece through Dave for your inspection.

    But don’t lose sight, people, if you have $20MM and inflation is 5% after gross investment returns, and purchasing power down 8% after taxes you just lost $1.6MM this year. Keep doing tghe math.

    This is all by design and our govt and its officials should be prosecuted.

    If you think RE has stabilized, buy the biggest house you can and borrow the most you can at 3% or whatever. Its free money and the only hope you have. Helicopter Ben is should go to jail.

  • Drew Link

    I know there are those who do not believe inflation is a serious issue right now, but the stealth Cyprus is occuring right under your noses right now. I’d be happy to pass along a John Mauldin piece through Dave for your inspection.

    But don’t lose sight, people, if you have $20MM and inflation is 5% after gross investment returns, and purchasing power down 8% after taxes you just lost $1.6MM this year. Keep doing the math.

    This is all by design and our govt and its officials should be prosecuted. Savers hosed; borrowers, like government, bailed out.

    Helicopter Ben should go to jail.

  • jan Link

    I agree with Drew’s cautionary words. People tend to draw comfort from the largess of the United States’s economy, it’s world power standing and the fact that the dollar has international world currency status. However, all of these assets sit upon a propped up foundation, which is slowly eroding and consequently undermining what we continue to view as our strengths.

    The economy, as large as the infrastructure may be, is floundering under our current divisive political policies, weakening the culture and prohibiting any real means of needed long-term economical growth. Mobility, from being able to easily transit from poor to rich by one’s work ethic, is also shrinking under the taxing burdens of over-regulation. Even the populace’s desire for success and prosperity is being replaced by a more docile, unquestioning and costly dependency on government programs.

    As for the dollar, it is stagnate to slowly declining, with more countries showing signs of wanting to shed dollars for something more substantial and sustainable — that appears to be gold at the moment. And, inflation does seem to be the path of least resistance in paying off the mountain of debt we are allowing to grow annually, without any measurable means to make a dent in decreasing it. The supposed sequester has ironically been the only imposition placed on us so far to even address such a deficit/debt reduction adventure.

    Regarding being a world power, we’ve had Obama’s leading-from-behind style of governance, his dealings with ME instability expansion, lopsided military arrangements made with the Russians (i.e. SMART Treaty), cover-up and inaction in the Benghazi incident, having a cumulative effect of downgrading respect from other nations leading to an overall lessening of our world influence. In fact, Obama is seen in less favorable terms, abroad, than even Bush was during his last days in office.

    But, as long as we wrap our sliding fiscal problems into quantitative easing cotton, printing money to hold a Jello-like economy together, aided and abetted by adjusted UE stats, and a stock market that seems to have no structural basis, the fantasy of recovery will continue — until it is not — and then we will have the echoes of “What happened?” filling the airwaves.

  • jan Link

    From the NY Post:

    Think it can’t happen here? It already has.

    Here it is (in dollars to simplify): If a Cypriot put $1,000 in an island bank four years ago and left it there, today the saver would have a balance of $1,250. Take 10 percent off, and the saver is still up $125.

    If a US middle-class family put $1,000 in JPMorgan or Citibank four years ago, the balance today would be $1,010 — less bank fees, which means it’s probably closer to a $950 balance. That’s $9.3 trillion in US deposits getting nothing in return except the warm, fuzzy feeling of bolstering the banks’ balance sheets.

    This does not excuse the ECB action, but it puts into context what Ben Bernanke’s Zero Interest Rate Policy (ZIRP) has done for Americans. The Fed chief or the Obama administration would never be as blunt as their EU counterparts and call it a tax, but if Uncle Sam — through his policies — is reaching into the pockets of Americans . . . it’s a tax.

  • Drew Link

    Its worse, jan. The index has weightings. And so it depends on what you buy. Housing came down, depressing the measure. Oh, great, my asset values are declining. But look at medical care, food, fuels……..things people buy for day to day living. Its a mess.

    I know people probably think I’m a cynic, but they need to understand I know investment and finance – and have seen all the tricks – like the back of my hand. The issue isn’t really that complicated. There are too few rich to tax to solve the ficcal imbalances, and we just saw what could be extracted. Bupkus. And politicians don’t dare touch the middle class. So they borrow………but refuse spending reform. That leaves one avenue: inflate away the debt, and in the process screw everyone who played by the rules.

    steve has gone on and on about greedy bankers taking undo advantage. I wonder if he ever stops to consider that the government is in the process of the greatest fraud and wealth destruction in history.

    No need to answer.

  • I think there’s a qualitative difference between the situation here, the consequence of quantitative easing, and the levy that was proposed in Cyprus. The basic issue is consent.

    Here people are, essentially, paying the banks to hold their money for them. In Cyprus the proposed levy was to take place without any prior consent by account holders and, if the banks were closed temporarily as is my understanding was the case, possibly despite account holders’ objections

  • jan Link

    There are too few rich to tax to solve the fiscal imbalances, and we just saw what could be extracted. Bupkus. And politicians don’t dare touch the middle class.

    I know you said there was no need to answer, Drew, but I’m a woman, and having another chance to respond is an innate tendency with us.

    Yes, there are too few rich to exact the monies needed to make up revenue shortages — especially since the uber rich know all the tax shelter angles, applying them without conscience or fearing a cost to their politically correct reputations, when they are dems.

    However, the middle class is insidiously being screwed by the inflationary blow back happening when simply purchasing mere staples, as well as stagnating wages and low interest rates on savings. All those avenues and associated behaviors, which financial experts said were helpful in getting ahead, holding your own, securing one’s future and saving for retirement, are being impacted by this economy and those who run it.

    The ACA, IMO, will also have terrible consequences as people age and seek more medical care that we currently take for granted in this country — having timely Dr. appointments because of adequate staffing, above average care, and oftentimes, state-of-the-art facilities.

    We are leeching the good out of our country for short term gains, borrowing more than we should, and calmly cajoling people, who know no better, that all is right with the world.

    The basic issue is consent.

    Consent is a technicality, IMO. Yes, people in the US know that the banks are holding their money for almost nothing. But, what other avenues do they have? Whereas, in Cyprus, the banks are strong-arming their people, with threats of an open tax on savings. But, at least the people realize they are being strong-armed. Here, we are experiencing a soft and subtle blow to our earnings. But, it all has the same endpoint, here or in Cyprus — people being subjected to paying for the mistakes of their government — either voluntarily or involuntarily.

  • Icepick Link

    I’m laughing looking at the headlines today. Cyprus has decided to seize 40% of all bank deposits over 100,000 Euros. Who’s happy? Leftists, because they hate rich people and people that trade in major European bank stocks, because fuck Cyprus, the banking sector investors cannot POSSIBLY be allowed to lose money.

    It’s the perfect storm. I wonder if any Marxist has written a thesis on how Leftists and the investment class would get together to fuck over the proletariat for shits, grins and profits?

    Fuck the Revolution, bring on the Apocalypse.

  • Icepick Link

    Here people are, essentially, paying the banks to hold their money for them. In Cyprus the proposed levy was to take place without any prior consent by account holders and, if the banks were closed temporarily as is my understanding was the case, possibly despite account holders’ objections.

    I think this is a bit bogus. People use banks and such because it’s damned near impossible to do anything in this country otherwise. Cash a check and then drive around to all the people you need to pay bills to and pay THEM in cash? Not happening, not for the vast majority of people. Especially because the government and the corporations love tracking every last little transaction.

    There’s no more consent here for how the financial sector is being run than there is in Cyprus. Well, except for the billionaires. That’s the problem in Cyprus, they don’t have enough (native) billionaires on the island, or you can be goddamned certain The Big Haircut wouldn’t be coming. As it is a bunch of crooked Russians are about to get fucked in the ass to benefit a bunch of even more corrupt Eurocrats and their backers in the EU finance industry.

  • jan Link

    Thomas Sowell speaks to the “Can it happen here?” question:

    Does that mean that Americans’ money is safe in banks? Yes and no.

    The U.S. government is very unlikely to just seize money wholesale from people’s bank accounts, as is being done in Cyprus. But does that mean that your life savings are safe?

    No. There are more sophisticated ways for governments to take what you have put aside for yourself and use it for whatever the politicians feel like using it for. If they do it slowly but steadily, they can take a big chunk of what you have sacrificed for years to save, before you are even aware, much less alarmed.

    That is in fact already happening. When officials of the Federal Reserve System speak in vague and lofty terms about “quantitative easing,” what they are talking about is creating more money out of thin air, as the Federal Reserve is authorized to do — and has been doing in recent years, to the tune of tens of billions of dollars a month.

    When the federal government spends far beyond the tax revenues it has, it gets the extra money by selling bonds. The Federal Reserve has become the biggest buyer of these bonds, since it costs them nothing to create more money.

    This new money buys just as much as the money you sacrificed to save for years. More money in circulation, without a corresponding increase in output, means rising prices. Although the numbers in your bank book may remain the same, part of the purchasing power of your money is transferred to the government. Is that really different from what Cyprus has done?

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