WEBVTT NOTE Taxpayers in Revolt: A Look Back to See the Future 1 00:00:00.000 --> 00:00:10.640 I have a very uplifting speech for you about taxpayer revolts, and what I want to talk 2 00:00:10.640 --> 00:00:17.200 about today is a guy named Jimmy John Leotard, and maybe you don't know Jimmy John, but 3 00:00:17.200 --> 00:00:25.400 he started the Jimmy Johns sub-chain, maybe you've seen him around, and he's moving from 4 00:00:25.400 --> 00:00:26.880 Illinois to Florida. 5 00:00:26.880 --> 00:00:34.360 He's going to be a fellow Floridian and his company's headquarters may soon follow. 6 00:00:34.360 --> 00:00:43.200 And what he said was about the Illinois government was that all they do is stick it to us, he 7 00:00:43.200 --> 00:00:44.200 says. 8 00:00:44.200 --> 00:00:51.600 They are increasing the personal income tax in Illinois from 3% to 5% and the corporate 9 00:00:51.600 --> 00:00:57.920 Income Tax from 7.3% to 9.5%. 10 00:00:57.920 --> 00:01:01.120 He said, I could absorb this and adapt. 11 00:01:01.120 --> 00:01:03.200 He told his local paper that. 12 00:01:03.200 --> 00:01:08.640 But it doesn't feel good in my soul to make that happen. 13 00:01:08.640 --> 00:01:12.320 So where his sub-business eventually finds its home 14 00:01:12.320 --> 00:01:13.560 is kind of up in the air. 15 00:01:13.560 --> 00:01:16.400 But Jimmy John's kids have already started school 16 00:01:16.400 --> 00:01:18.480 here in the great state of Florida. 17 00:01:18.480 --> 00:01:22.880 He says my family and I are out of here. 18 00:01:22.880 --> 00:01:30.680 So while Jimmy John seeks friendlier tax climates, 19 00:01:30.680 --> 00:01:35.960 there's talk of municipal and state government defaults. 20 00:01:35.960 --> 00:01:37.600 And of course, this was all the rage 21 00:01:37.600 --> 00:01:42.680 since Meredith Whitney went on 60 Minutes, where she said 22 00:01:42.680 --> 00:01:46.840 there would be 50 to 100 municipal defaults this year. 23 00:01:46.840 --> 00:01:54.600 she said it will be as big a meltdown as the real estate crash 24 00:01:54.600 --> 00:02:00.080 and it's hard to know what kind of financial shape that many muni debt issuers are in 25 00:02:00.080 --> 00:02:03.020 because muni bond issuers 26 00:02:03.020 --> 00:02:07.400 don't give financial statements they're not very quick to update the financial 27 00:02:07.400 --> 00:02:08.720 information 28 00:02:08.720 --> 00:02:13.040 that you need to know to gauge the value of of your investments in these muni 29 00:02:13.040 --> 00:02:14.320 bonds 30 00:02:14.320 --> 00:02:21.240 And there's plenty of concerned sons who probably forwarded the story from The Wall 31 00:02:21.240 --> 00:02:29.120 Street Journal to their muni-bond-holding mothers, I know at least one, that mentioned 32 00:02:29.120 --> 00:02:30.720 Helen Kirkpatrick. 33 00:02:30.720 --> 00:02:38.800 She was a retired journalist who was stunned when her broker called her to offer her fifty 34 00:02:38.800 --> 00:02:46.520 $0.50 on the dollar for her Maryland health and higher education bonds, $0.50 on the dollar. 35 00:02:46.520 --> 00:02:54.400 This came out completely out of the blue. Kirkpatrick had constantly sought out information 36 00:02:54.400 --> 00:03:00.280 about the bonds that she had bought a decade ago, but she could find nothing to miss. You 37 00:03:00.280 --> 00:03:08.440 could get no information. So these bond issuers don't disclose financial information very 38 00:03:08.440 --> 00:03:09.440 very readily. 39 00:03:09.440 --> 00:03:15.400 In fact, specialists in municipal disclosure did an extensive study. 40 00:03:15.400 --> 00:03:25.220 They studied 17,000 of these bond issues, and they found that 56% filed financial statements. 41 00:03:25.220 --> 00:03:32.880 Only 56% or more than 56% did not file financial statements in any one year. 42 00:03:32.880 --> 00:03:36.900 Now, no private company could get away with this, right? 43 00:03:36.900 --> 00:03:42.180 Municipal bondholders or bond issuers are able to do this. 44 00:03:42.180 --> 00:03:50.140 More than a third of the borrowers skipped three or more years of giving financial information 45 00:03:50.140 --> 00:03:58.820 and that number grew to 40% in 2009 when credit was mounted obviously. 46 00:03:58.820 --> 00:04:03.940 And another 30% filed extraordinarily late in 2009. 47 00:04:03.940 --> 00:04:16.180 So what this means in total is that two to three trillion dollars worth of muni debt obligations 48 00:04:16.180 --> 00:04:28.100 are from entities that have given out insignificant or insufficient ongoing disclosure information. 49 00:04:28.100 --> 00:04:38.100 Now, California State Treasurer Bill Locklear says the idea of states going bankrupt is nonsense. 50 00:04:38.100 --> 00:04:46.240 He says it's a cynical proposal intended to incite a panic in response to a phony crisis. 51 00:04:46.240 --> 00:04:52.700 He says killer bees, space aliens, now it's the invasion of the bankrupt states, he says. 52 00:04:52.700 --> 00:04:59.620 Well, I'm a little surprised if you followed the events in California that Mr. Locklear 53 00:04:59.620 --> 00:05:06.900 would be so cocky because it wasn't just 2009 when the state of California had to issue 54 00:05:06.900 --> 00:05:14.300 IOUs because they ran out of money, so they issued IOUs to pay taxpayers, vendors and 55 00:05:14.300 --> 00:05:15.940 local governments. 56 00:05:15.940 --> 00:05:24.180 Now, Mr. Locklear has a big plan for this year to write the ship in California. 57 00:05:24.180 --> 00:05:29.580 They're going to refrain from issuing any general obligation debt in the first half 58 00:05:29.580 --> 00:05:34.420 of the year, and that's going to bring down their borrowing costs and make everything 59 00:05:34.420 --> 00:05:35.420 all better. 60 00:05:35.420 --> 00:05:40.460 Well, that doesn't sound like a great trick, except California hasn't been able to do that 61 00:05:40.460 --> 00:05:43.340 since 1988. 62 00:05:43.340 --> 00:05:49.920 So if that doesn't work out and it probably won't work out, then Mr. Locklear admits 63 00:05:49.920 --> 00:05:53.940 that issuing IOUs is what he'll have to do. 64 00:05:53.940 --> 00:05:59.260 He says it's a possibility, it's not something he wants to do, it's at the bottom of the 65 00:05:59.260 --> 00:06:02.540 list, but it is on the list. 66 00:06:02.540 --> 00:06:09.780 Now Nicole Gelinas at the Manhattan Institute also thinks the idea of states going bankrupt 67 00:06:09.780 --> 00:06:19.660 is nonsense because she says states pile up debt indirectly, issuing bonds through thousands 68 00:06:19.660 --> 00:06:22.220 of separate legal entities. 69 00:06:22.220 --> 00:06:31.100 She writes that New York State, for instance, doesn't owe $78.4 billion worth of debt. 70 00:06:31.100 --> 00:06:38.200 It only owes $3.5 billion worth of general obligation debt. 71 00:06:38.200 --> 00:06:45.180 Who Loves the Rest, she writes, the MTA, the Dormitory Authority, the Tribunal Bridge and 72 00:06:45.180 --> 00:06:48.040 Tunnel Authority, and so on. 73 00:06:48.040 --> 00:06:53.840 She says, legally each is not a government, but a public benefit corporation. 74 00:06:53.840 --> 00:06:59.560 Each has its own board, its own rules, its own contractual agreements with creditors 75 00:06:59.560 --> 00:07:02.380 from bondholders to unions. 76 00:07:02.380 --> 00:07:06.720 Each of these agreements offer creditors different protections, she writes. 77 00:07:06.720 --> 00:07:12.420 So if you're a New Yorker and there may be some New Yorkers in this crowd, in this case 78 00:07:12.420 --> 00:07:18.420 you're supposed to sleep better at night, secure in the knowledge that dozens of government 79 00:07:18.420 --> 00:07:22.080 entities owe this debt instead of just one. 80 00:07:22.080 --> 00:07:23.920 Should make you feel a lot better. 81 00:07:23.920 --> 00:07:29.920 Meanwhile, any one of these public benefit corporations could go default out of the blue 82 00:07:29.920 --> 00:07:41.560 Because, let's face it, nobody's going to get a heads up if the dormitory authority runs out of money someday and can't pay their bondholders. 83 00:07:41.560 --> 00:07:51.760 But the main argument against states not being able to file bankruptcy is that they're sovereign entities and they can tax any time they want to, 84 00:07:51.760 --> 00:07:57.880 and they can cut their budgets whenever it's needed and to make everything all better. 85 00:07:57.880 --> 00:08:02.580 They can balance their budgets anytime they want to. 86 00:08:02.580 --> 00:08:06.800 And some governors are trying to do that. 87 00:08:06.800 --> 00:08:16.000 That means they're having to cut state worker pay, trying to renegotiate union contracts. 88 00:08:16.000 --> 00:08:22.000 You may have read about a bit of a dust-up in Wisconsin about this with Governor Scott 89 00:08:22.000 --> 00:08:28.080 Scott Walker wanting state workers to contribute a little bit of their own money toward their 90 00:08:28.080 --> 00:08:31.280 own retirements. 91 00:08:31.280 --> 00:08:37.160 He also wants to undo their collective bargaining rights and of course these collective bargaining 92 00:08:37.160 --> 00:08:48.160 rights have led to the cost of the benefits being adding 74 cents to each dollar of salary 93 00:08:48.160 --> 00:08:50.240 in the state of Wisconsin. 94 00:08:50.240 --> 00:08:56.320 Of course, Badger State teachers will have none of this. 95 00:08:56.320 --> 00:09:02.520 They abandoned their classrooms and they descended on the Capitol and they linked, they sat down 96 00:09:02.520 --> 00:09:09.760 body against body, filling a corridor chanting, freedom, democracy, unions. 97 00:09:09.760 --> 00:09:17.720 I don't think that's exactly what Thomas Jefferson had in mind, but that's the way it is in Wisconsin. 98 00:09:17.720 --> 00:09:21.520 So when the senators were convening, that's what was going on. 99 00:09:21.520 --> 00:09:29.280 Now in Nevada, the University of Nevada at Las Vegas, where I attended and Murray Rothbard 100 00:09:29.280 --> 00:09:35.200 used to teach and Hans Hoppe used to teach, they may have to file what's known as financial 101 00:09:35.200 --> 00:09:40.280 exgency, the equivalent of bankruptcy. 102 00:09:40.280 --> 00:09:50.280 The university president said, our state is nearing a state of financial collapse, and 103 00:09:50.280 --> 00:09:55.200 when he told the faculty this, they were moved to tears. 104 00:09:55.200 --> 00:10:02.140 The education leadership professor, and I don't know what an education leadership professor 105 00:10:02.140 --> 00:10:06.960 would actually teach day-to-day, but I leave that to you. 106 00:10:06.960 --> 00:10:16.040 On Cecilia Maldonado, she read a list of grievances that the faculty had when the bad budget news 107 00:10:16.040 --> 00:10:22.880 was announced and each one of these grievances started with, I'm sick. 108 00:10:22.880 --> 00:10:26.980 She said, I'm sick, we are destroying much of what we've built. 109 00:10:26.980 --> 00:10:33.960 She said she is sick of politicians describing professors as enjoying fat salaries and easy 110 00:10:33.960 --> 00:10:40.080 Living, and she said she is sick of the public, that the public doesn't seem to understand 111 00:10:40.080 --> 00:10:42.400 the importance of higher education. 112 00:10:42.400 --> 00:10:49.560 Of course, this past week, public employees protested in Ohio State House in Columbus, 113 00:10:49.560 --> 00:10:56.040 they protested in Tennessee, they protested in Nevada State House up in Carson City, all 114 00:10:56.040 --> 00:11:01.740 in the show of solidarity for their union brothers and sisters in Wisconsin. 115 00:11:01.740 --> 00:11:08.300 The point of all this is state legislatures are going to have a hard time cutting budgets. 116 00:11:08.300 --> 00:11:15.940 You might say that government employees feel entitled and they are not going to give up 117 00:11:15.940 --> 00:11:19.860 their pay and benefits easily. 118 00:11:19.860 --> 00:11:26.460 Now when it comes to raising taxes, in the case of Jimmy John, when the government pushes 119 00:11:26.460 --> 00:11:32.260 who moves you down on the sidewalk and decides to steal your wallet, claiming that some other 120 00:11:32.260 --> 00:11:39.460 person is more worthy of your money than you are, well, you fight back, right? 121 00:11:39.460 --> 00:11:45.660 And if you're Jimmy John, you have the resources and you have the options, you might just move. 122 00:11:45.660 --> 00:11:49.940 So you move down here to sunny Florida. 123 00:11:49.940 --> 00:11:56.000 But if you're an average working stiff, you're underwater on your house, your job prospects 124 00:11:56.000 --> 00:12:03.520 Tax are local, and maybe you have family tying down when the taxman comes wanting more. 125 00:12:03.520 --> 00:12:07.760 Well, let's just say a fight breaks out, right? 126 00:12:07.760 --> 00:12:12.400 So what's the cause of state and local fiscal woes? 127 00:12:12.400 --> 00:12:15.000 Was it just the recession that did all this? 128 00:12:15.000 --> 00:12:19.580 I mean, this seems to be fairly new, right? 129 00:12:19.580 --> 00:12:25.980 The Wall Street Journal's David Wessel points out that at the worst point in early 2009, 130 00:12:25.980 --> 00:12:33.740 State and local tax revenue combined were down 11% from year earlier levels. 131 00:12:33.740 --> 00:12:37.060 Local governments took a hit from the housing bust. 132 00:12:37.060 --> 00:12:43.980 State governments got hammered when the income, spending and capital gains, the tax declined. 133 00:12:43.980 --> 00:12:49.060 And despite an improving U.S. economy, he writes, tax receipts at the state level remain 134 00:12:49.060 --> 00:12:53.620 12% below pre-recession peaks. 135 00:12:53.620 --> 00:13:00.960 But almost in Austrian economics fashion, Wessel then goes on to recognize really what 136 00:13:00.960 --> 00:13:05.320 the problem was, and the problem was the boom. 137 00:13:05.320 --> 00:13:11.180 He writes, in the good times, governments enjoyed and spent a tax windfall. 138 00:13:11.180 --> 00:13:17.300 State and local tax revenue rose 36% in the five years before the bust. 139 00:13:17.300 --> 00:13:22.300 In the mid-2000s, overall receipts, taxes and federal grants rose rapidly. 140 00:13:22.300 --> 00:13:26.260 In the insuring years, spending rose rapidly too. 141 00:13:26.260 --> 00:13:31.800 Flush with money, governments did more, often encouraged by voters who wanted more spending 142 00:13:31.800 --> 00:13:35.660 on education and the like. 143 00:13:35.660 --> 00:13:38.660 Now everybody wants to point their finger at Wall Street. 144 00:13:38.660 --> 00:13:46.100 They want to point their finger at the bank for ramping up on real estate during the boom. 145 00:13:46.100 --> 00:13:48.020 But what about City Hall? 146 00:13:48.020 --> 00:13:49.620 They did the same thing. 147 00:13:49.620 --> 00:13:56.580 They hired on plan checkers, inspectors, city planners, they built fancy new buildings to 148 00:13:56.580 --> 00:14:01.780 house all these people, and they strapped themselves essentially to the same real estate 149 00:14:01.780 --> 00:14:07.380 rocket that the banks and Wall Street did. 150 00:14:07.380 --> 00:14:12.500 And as ever-increasing tax levies from these real estate appreciation, which they knew, 151 00:14:12.500 --> 00:14:17.220 you know, we all know that real estate goes up in value each and every year, that was 152 00:14:17.220 --> 00:14:27.220 is the common view. City Hall was waiting to just assess more and more and receive more and more in tax benefits. 153 00:14:27.220 --> 00:14:37.220 And what they could do with this money is fund everything from education to the homeless or child care or anything that they wanted to fund, 154 00:14:37.220 --> 00:14:45.220 all on the backs of real estate appreciation. That's the same way in the state houses around the country. 155 00:14:45.220 --> 00:14:55.220 I mean, who cares about what onerous union contracts you sign when the money's flooding in, who cares? 156 00:14:55.220 --> 00:15:03.220 You just go ahead and sign and move on to whatever people's business you have to do. 157 00:15:03.220 --> 00:15:10.220 It's like that old Merle Haggard song, we'll all be drinking free bubble up eating that rainbow stew. 158 00:15:10.220 --> 00:15:17.840 Well, this came apart when the financial markets melted down three years ago, and it turns 159 00:15:17.840 --> 00:15:23.360 out though that America's done this before. 160 00:15:23.360 --> 00:15:29.380 Three years after the 1929 crash, Herbert Hoover urged Congress to pass the Revenue 161 00:15:29.380 --> 00:15:32.460 Act of 1932. 162 00:15:32.460 --> 00:15:38.220 Murray Rothbard wrote that the range of tax increases were enormous. 163 00:15:38.220 --> 00:15:42.580 A number of wartime excess taxes were reinstated. 164 00:15:42.580 --> 00:15:50.140 Sales taxes were imposed on a number of everyday goods, necessities and luxuries alike. 165 00:15:50.140 --> 00:15:52.700 Income taxes were raised dramatically. 166 00:15:52.700 --> 00:15:59.300 Now these numbers will seem quaint, but the nominal rate, income tax rates, were ranged 167 00:15:59.300 --> 00:16:06.180 from a range of 1.5 percent, wouldn't you like to pay 1.5 percent in federal income 168 00:16:06.180 --> 00:16:11.220 Income Tax, to a top rate of 5%. 169 00:16:11.220 --> 00:16:18.580 But they changed that from a 4% bottom rate to an 8% upper rate. 170 00:16:18.580 --> 00:16:24.380 We'd love those rates today, but that was a huge percentage increase back in the day. 171 00:16:24.380 --> 00:16:31.340 Personal exemptions were reduced, earned income credit was eliminated, surtaxes were jacked 172 00:16:31.340 --> 00:16:37.620 Act from 25% to 63% on the highest incomes. 173 00:16:37.620 --> 00:16:42.620 Corporate incomes taxes were raised and the gift tax was restored. 174 00:16:42.620 --> 00:16:49.200 And all of these tax increases came on the heels of huge tax increases at the state and 175 00:16:49.200 --> 00:16:56.120 local levels during the 1920s because the 20s were just like what we've lived through. 176 00:16:56.120 --> 00:16:58.440 Huge increase in real estate appreciation. 177 00:16:58.440 --> 00:17:07.920 So in 1920, state taxes were 0.83% of the national income, but by 1929, that had more 178 00:17:07.920 --> 00:17:13.400 than doubled to 1.9% of the national income. 179 00:17:13.400 --> 00:17:18.680 By the end of the Roaring Twenties, property taxes accounted for 90% of the taxes levied 180 00:17:18.680 --> 00:17:22.000 at cities over 30,000 people. 181 00:17:22.000 --> 00:17:28.240 Real estate owners were filling coffers at city hall and state government all over the 182 00:17:28.240 --> 00:17:30.680 of the Country. 183 00:17:30.680 --> 00:17:36.120 And David Bado writes in a book, Taxpayers in Result, Revolt, Tax Resistance During the 184 00:17:36.120 --> 00:17:41.160 Great Depression, which we have a few copies out there, and you should really take a look 185 00:17:41.160 --> 00:17:42.160 at this book. 186 00:17:42.160 --> 00:17:48.240 It's a wonderful book about tax resistance during the depression. 187 00:17:48.240 --> 00:17:53.860 It's something a lot of people haven't read about, and it's a wonderful complete history 188 00:17:53.860 --> 00:17:55.360 of this. 189 00:17:55.360 --> 00:18:01.120 He writes that the only real estate tax, the real estate tax seemed almost destined to 190 00:18:01.120 --> 00:18:03.680 incite rebellion. 191 00:18:03.680 --> 00:18:11.480 Only vaguely did it meet the definition of a tax based on the ability to pay. 192 00:18:11.480 --> 00:18:20.480 In the 20s, as in the case of the early 2000s, real estate ownership was a poor barometer 193 00:18:20.480 --> 00:18:23.240 of the Wealth of Individuals. 194 00:18:23.240 --> 00:18:30.800 Just because the Fed policies flood money into real estate assets doesn't mean that 195 00:18:30.800 --> 00:18:37.560 the owners of those real estate assets are being able to afford the tax bill that they 196 00:18:37.560 --> 00:18:45.000 get from City Hall, that City Hall is so eager to assess these higher and higher rates. 197 00:18:45.000 --> 00:18:48.200 I mean, after all, these aren't rental properties. 198 00:18:48.200 --> 00:18:49.200 People live there. 199 00:18:49.200 --> 00:18:56.200 You can't pass the increase in taxes on to your renters. 200 00:18:56.200 --> 00:19:01.200 Now, local and state governments, they love property taxes, right? 201 00:19:01.200 --> 00:19:04.200 I mean, the administration costs are tiny. 202 00:19:04.200 --> 00:19:08.200 I mean, it's hard to hide a house. 203 00:19:08.200 --> 00:19:14.200 So, no detectives are needed to find your house for collections. 204 00:19:14.200 --> 00:19:17.200 And what happens if you don't pay your real estate taxes? 205 00:19:17.200 --> 00:19:20.080 I bet there's plenty in here that know what happens. 206 00:19:20.080 --> 00:19:23.200 Well, you get your name in the local paper. 207 00:19:23.200 --> 00:19:32.280 All your friends and neighbors get to see that you haven't RSVP'd the tax man on time. 208 00:19:32.280 --> 00:19:35.200 And what if you don't pay? 209 00:19:35.200 --> 00:19:38.320 Local authorities just slap a lien on your property and wait. 210 00:19:38.320 --> 00:19:44.840 Property isn't going anywhere, and the tax liens are superior to any home mortgage you 211 00:19:44.840 --> 00:19:49.080 you have, or any other liens. 212 00:19:49.080 --> 00:19:57.140 You see that's the way private property works in the good old U.S. of A. The property taxes 213 00:19:57.140 --> 00:20:03.500 actually predated the American Revolution and Beto explains in his book that property 214 00:20:03.500 --> 00:20:06.940 taxes possess the cardinal administrative virtue. 215 00:20:06.940 --> 00:20:10.480 The old tax is the good tax. 216 00:20:10.480 --> 00:20:16.360 And during the 20s, land wasn't the only thing that was taxed. 217 00:20:16.360 --> 00:20:18.560 Personal property was taxed as well. 218 00:20:18.560 --> 00:20:24.520 The assessment of land and the tax burden, unfortunately, it was arbitrary, it was ripe 219 00:20:24.520 --> 00:20:28.560 with corruption. 220 00:20:28.560 --> 00:20:34.120 But even with the prosperity of the 20s, the roaring 20s, taxpayers buckled under this 221 00:20:34.120 --> 00:20:37.640 pressure of these increasing tax burdens. 222 00:20:37.640 --> 00:20:50.080 Detroit, for instance, the rate of tax delinquency increased from 4.5% in 1921 to 12% in 1929. 223 00:20:50.080 --> 00:20:54.480 And this was a trend that was happening nationwide, it wasn't just Detroit. 224 00:20:54.480 --> 00:20:59.880 According to the report by the President's Conference in Home Building in 1932, the growth 225 00:20:59.880 --> 00:21:05.800 of delinquency is apparently not due to the present business depression, but has been 226 00:21:05.800 --> 00:21:10.600 going on since 1920 at the latest, the report said. 227 00:21:10.600 --> 00:21:16.520 The report concluded that people weren't paying their property taxes apparently due to the 228 00:21:16.520 --> 00:21:22.760 increase of the property tax more than any other one caused. 229 00:21:22.760 --> 00:21:29.920 Now as you can imagine in the 30s, the farmers were hit very hard by these taxes. 230 00:21:29.920 --> 00:21:35.160 While the price of their goods was plummeting, their taxes were increasing and that led the 231 00:21:35.160 --> 00:21:41.560 The Department of Agriculture to issue a report that concluded in 32 that the real weight 232 00:21:41.560 --> 00:21:49.120 of a farmer's tax burden has been doubled by falling prices since 1929. 233 00:21:49.120 --> 00:21:55.100 And it takes more than four times as many units of farm produce to pay the tax bill 234 00:21:55.100 --> 00:21:59.600 now as it took in 1914. 235 00:21:59.600 --> 00:22:03.400 Farmers didn't take this lying down. 236 00:22:03.400 --> 00:22:09.980 In January of 1933, farmers in Doylestown, Pennsylvania overran a tax sale. 237 00:22:09.980 --> 00:22:16.020 They purchased the farmer's title for $1.18 and then they turned around and gave it back 238 00:22:16.020 --> 00:22:18.380 to the over. 239 00:22:18.380 --> 00:22:25.340 Farmers across the country started employing the dollar sale strategy and in some cases 240 00:22:25.340 --> 00:22:32.020 farmers just quit paying and the local authorities decided to leave them alone. 241 00:22:32.020 --> 00:22:39.300 Tax protesters in Freeborn County, Minnesota demanded the abolition of the county agent, 242 00:22:39.300 --> 00:22:48.980 the county nurse, the weed inspector, home demonstration agents, and a 20% cut in all 243 00:22:48.980 --> 00:22:51.980 other county employees. 244 00:22:51.980 --> 00:22:58.580 Neighboring county 2,000 protesters turned out to demand the same thing. 245 00:22:58.580 --> 00:23:07.060 So the rural protest had a distinctly spontaneous flavor to it according to Beto. 246 00:23:07.060 --> 00:23:13.860 Taxpayers' organizations would appear, they'd reappear, they'd go away. 247 00:23:13.860 --> 00:23:23.540 So organizing farmers wasn't like organizing a herd of cows, but more like organizing a 248 00:23:23.540 --> 00:23:25.800 herd of cats, I suppose. 249 00:23:25.800 --> 00:23:34.160 But they still had, their protests were heard and their protests were effective. 250 00:23:34.160 --> 00:23:37.520 Farmer J.M. Sentin issued a warning to Governor Henry Horner. 251 00:23:37.520 --> 00:23:42.220 He wrote to him and said, in some states at tax sales, the people bought their property 252 00:23:42.220 --> 00:23:46.880 with 50 cents with shotguns. 253 00:23:46.880 --> 00:23:53.440 Politicians only understand the language of bombs and bullets. 254 00:23:53.440 --> 00:24:00.600 And James Babcock who wrote 1934, he wrote about farmers that were complaining that schools 255 00:24:00.600 --> 00:24:07.760 cost too much, teachers are paid too much money, we are going broke supporting our schools. 256 00:24:07.760 --> 00:24:16.120 I say abolish the county agent, he says he was wished upon us by the state college. 257 00:24:16.120 --> 00:24:21.960 Now urban protesters did a little better in coalescing than their rural brethren in most 258 00:24:21.960 --> 00:24:30.440 Cases. Individual taxpayer leagues popped up on a city and county basis all over the 259 00:24:30.440 --> 00:24:39.440 country. There were not less than 3,000 and probably about 4,000 of these taxpayer organizations 260 00:24:39.440 --> 00:24:51.800 in action. And in 1933, the number was rising rapidly. In fact, 700 were formed just in 261 00:24:51.800 --> 00:24:58.560 in the Spring of 1933 alone, according to the Committee on County Government. 262 00:24:58.560 --> 00:25:06.760 Now that's a far cry from 1927 when there were only 43 of these organizations that existed. 263 00:25:06.760 --> 00:25:12.520 Now as you might expect, the socialist mayor of Milwaukee, Daniel Horne, he hated these 264 00:25:12.520 --> 00:25:15.080 tax protesting groups. 265 00:25:15.080 --> 00:25:20.040 He claimed that they were doing more to undermine faith in government than all the communists 266 00:25:20.040 --> 00:25:27.160 in the World, and that they were mere fronts for greedy capitalists and real estate swindlers, 267 00:25:27.160 --> 00:25:30.120 is what he said. 268 00:25:30.120 --> 00:25:37.320 In Atlanta, a brand new taxpayer league attracted 1,000 members in its first week. 269 00:25:37.320 --> 00:25:44.080 It quickly rose to 5,000 members, and despite the protests, Atlanta politicians went ahead 270 00:25:44.080 --> 00:25:46.540 and raised taxes. 271 00:25:46.540 --> 00:25:53.820 And they were shocked when counseled that the tax increase would cause a rebellion, 272 00:25:53.820 --> 00:25:58.940 finding it difficult to imagine, quote, our staunch leading citizens taking part in any 273 00:25:58.940 --> 00:26:00.320 sort of tax strike. 274 00:26:00.320 --> 00:26:04.980 Why that thing simply isn't done. 275 00:26:04.980 --> 00:26:11.220 Tax protesters wondered why the cost to government hadn't gone down like the economy had. 276 00:26:11.220 --> 00:26:18.080 William Monroe wrote that, I buy less food, less tobacco, less recreation, says the man 277 00:26:18.080 --> 00:26:25.460 who holds his job, I would like to buy less government. 278 00:26:25.460 --> 00:26:30.940 But the real flashpoint for these tax protests was Chicago. 279 00:26:30.940 --> 00:26:33.700 Corruption was pervasive in Cook County. 280 00:26:33.700 --> 00:26:40.460 I think it still is, but I'm sure the Rahm Emanuel administration will take care of all 281 00:26:40.460 --> 00:26:49.100 But anyway, its assessment system was an embarrassing mark of local distinction. 282 00:26:49.100 --> 00:26:55.320 Tax-fixing in the Windy City involved juggling assessments, rewarding those who cooperated 283 00:26:55.320 --> 00:27:02.060 with the local political machine and punishing those who didn't. 284 00:27:02.060 --> 00:27:10.420 Now there was reform reassessments and there was a two-year tax holiday between 1928, 1930, 285 00:27:10.420 --> 00:27:20.420 But the Silas-Strawn Plan assessed taxes during that same period, even though there was a tax holiday in terms of payment, 286 00:27:20.420 --> 00:27:24.420 the assessment taxes jumped 24%. 287 00:27:24.420 --> 00:27:30.420 It's significant because at the same time, real estate values were plunging. 288 00:27:30.420 --> 00:27:34.420 The value of new construction was falling 86%. 289 00:28:04.420 --> 00:28:13.420 Payers, known as the A-R-E-T, formed 161 branch offices throughout the area, and that 290 00:28:13.420 --> 00:28:20.660 offered taxpayers the opportunity to join and engage in the tax strike. 291 00:28:20.660 --> 00:28:25.540 It was common knowledge that city government was helpless about this. 292 00:28:25.540 --> 00:28:31.780 In fact, a municipal court judge said at the time that his neighbors and friends made fun 293 00:28:31.780 --> 00:28:39.020 Now, City Hall tried to shame people into paying their taxes. 294 00:28:39.020 --> 00:28:41.740 You'll probably start seeing more and more of this. 295 00:28:41.740 --> 00:28:49.420 While the ARET was not allowed to buy advertising in local papers, the papers wouldn't sell 296 00:28:49.420 --> 00:28:56.660 it to them, the same papers donated full-page pay-your-taxes ads. 297 00:28:56.660 --> 00:29:04.660 Posts were printed up with, take your trade where the taxes are paid. 298 00:29:04.660 --> 00:29:10.980 Tax paying property owners were given, this property is now paying taxes posters to proudly 299 00:29:10.980 --> 00:29:14.740 display in their windows. 300 00:29:14.740 --> 00:29:21.740 But despite being called anarchist and worse, ARET membership reached 30,000 people. 301 00:29:21.740 --> 00:29:30.740 And in 1931 and 32, the tax delinquency rate in Chicago exceeded 53 percent. 302 00:29:30.740 --> 00:29:37.340 But it wasn't the rich fat cats that were stiffing the tax man. 303 00:29:37.340 --> 00:29:42.820 Maybe the socialist mayor thought that would be the case, but Beto's research reveals 304 00:29:42.820 --> 00:29:50.340 that it was actually skilled blue collar workers who made up the single biggest part of ARET. 305 00:29:50.340 --> 00:29:55.060 And in fact 26% of the members were women. 306 00:29:55.060 --> 00:30:04.400 Now Beto writes that the strike's demise actually came from division within its ranks. 307 00:30:04.400 --> 00:30:11.200 And if you're wondering if the tax strikes were successful, they were, but as Beto says 308 00:30:11.200 --> 00:30:14.500 only with some qualifications. 309 00:30:14.500 --> 00:30:20.300 But there is a history out there to draw from that I believe is instructive for all of us. 310 00:30:20.300 --> 00:30:26.940 Of course, all of these protests around the country flew in the face of municipal reformers 311 00:30:26.940 --> 00:30:34.780 who had spent a generation trying to professionalize government in an attempt to improve the image 312 00:30:34.780 --> 00:30:38.100 of government workers. 313 00:30:38.100 --> 00:30:43.820 It was predicted that if these tax protesters persisted, the reform edifice that they had 314 00:30:43.820 --> 00:30:49.700 constructed would be irreparably damaged. 315 00:30:49.700 --> 00:30:57.620 Charles Merriam at the time warned that these recurrent criticism of government employees 316 00:30:57.620 --> 00:31:04.780 threatened to poison permanently the springs of government interest, enthusiasm and service. 317 00:31:04.780 --> 00:31:11.700 Glenn Frank worried that the spreading anti-government ideology would divert men of capacity and 318 00:31:11.700 --> 00:31:18.060 self-respect from the public service for a generation. 319 00:31:18.060 --> 00:31:25.420 Well I guess maybe he's right. Maybe it has. As H.L. Mencken wrote, the average American 320 00:31:25.420 --> 00:31:35.460 legislator is not only an ass, but an oblique, sinister, depraved, and naivish fellow. 321 00:31:35.460 --> 00:31:43.620 Well the last time a U.S. state defaulted on its debt was 1933. And that was the state 322 00:31:43.620 --> 00:31:51.220 of Arkansas, they stiffed $146 million worth of bondholders. 323 00:31:51.220 --> 00:31:58.140 But that time has come again, because taxpayers will either flee as Jimmy John has, or they're 324 00:31:58.140 --> 00:32:02.720 going to stay and they're going to fight and they're going to strike. 325 00:32:02.720 --> 00:32:09.020 Because like that Farmer Jam's sentence said, politicians only understand the language of 326 00:32:09.020 --> 00:32:13.400 two things, bombs and bullets.