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By: Edward Leone Jr. DMD MBA CFP RFC
I had the honor of speaking at a meeting of a local investment club last Thursday evening. My subject was ” The One Hundredth Birthdays”. Just today, I opened my latest issue of Forbes Magazine. Steve Forbes did an article on the very same subject. It is very well done and deserves your review. I would like to present my view on these birthdays so here we go!!
The Centennial Anniversaries which we may celebrate this year are those of the IRS and the Federal Reserve Bank. In February of 1913 with 3/4ths of the 48 states supporting the 16th amendment to the US Constitution, the IRS was born under the Department of the Treasury. In October of 1913, the Revenue Act of 1913 became law setting up tax rates of 7% for those earning $500,000 or more per year. The lowest rate structure was at 1% for individuals earning $3000 and joint filers earning $4000 ($3000 is $68,612 in today’s dollars). Less than 5% of the population paid income tax under this new law. Things have changed quite a bit over the last 100 years. The IRS has significant influence over fiscal policy and our economy. In 2011 234 million returns were filed yielding $2.4 trillion in revenue (at a rate of $1 million per month, it would take a little over 83 years to reach $1 billion and over 83,000 year to reach $1 trillion).
After the passing of JP Morgan in 1913, President Wilson began the process of establishing a central bank for the US. On December 23rd 1913, the Federal Reserve Act became law. The FED has evolved into an entity which is designed to stabilize the financial system; manage the money supply; stabilize prices (inflation); maximize employment and moderate interest rates. The FED is the lender of last resort and sets monetary policy through open market operations. The FED Board of Governors is composed of 7 people appointed by the President. There are 12 regional banks whose presidents compose the FED Open Market Committee. The Board of Governors and 4 FOMC members vote on FED policy. With the FED monetary policy we have still experienced many boom and bust cycles over the past 100 years. You would need $23 today to have the same buying power as a dollar in 1913. We must question the stewardship of our currency as performed by the Treasury. We are also constantly faced with adjustments in the definitions of statistics which our government provides on economic matters. Such factors as unemployment and inflation are constantly being redefined making it difficult to judge where we are compared to historic data. We need to institute a discipline in management of the currency and reportable data!!
The IRS and the FED have significant influence over our economy.
For The Record:
DJIA 14,578.84
NASDAQ 3,267.52
S&P 500 1,569.19
Suggested Reading:
“The Concise Encyclopedia of Economics” by Milton Friedman
Leonesmoneymonitormonthly's Blog 
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