Why the Taxman didn't come
Time Dollars ISBN 0-87857-985-0
by Edgar Cahn, Ph.D., J.D.
   JCT: This is one of the most beautiful books on local currencies 
ever written. I urge everyone to get it as it will be a valuable 
addition to any monetary reform library. 
Chapter 6 
   In 1830, John Marshall, then Chief Justice of the United States, 
decided that it was time, once and for all, to put Missouri out of the 
business of creating new kinds of money.
   The case concerned a rather ingenious scheme that the state had 
dreamed up to meet its fiscal needs. Missouri had issued "salt 
certificates" in amounts ranging from 50 cents to $10, based on 
expected revenues from the state-owned salt springs. The state tried 
to characterize these as mere "salt coupons," like the ones people 
clip out of the Sunday papers today. After all, they were ultimately 
redeemable only in salt. In reality, however, the certificates 
circulated as money. And the governor was authorized to pledge the 
state's assets to acquire "a loan of silver or gold" in order to 
redeem these certificates. 
   This was not the first time that Missouri had engaged in a monetary 
experiment. Early in its history, the state had issued "wolf-scalp 
certificates" and "crow certificates" as rewards for killing wolves 
and crows in order to protect cattle herds and crops. The wolf-scalp 
and crow certificates were legal tender in Missouri for purposes of 
paying taxes.
   Wolf scalps had escaped judicial scrutiny. But these salt 
certificates were more than Chief Justice Marshall, the great 
Federalist, could swallow. Marshall had authored the landmark decision 
of Marbury vs. Madison, declaring the Constitution, as interpreted by 
the Supreme Court, to be the final law of the land. He had reiterated 
that declaration in a series of other decisions. Having presided over 
the magnificent edifice of federal supremacy, he was not about to let 
a puny state mock it with salt certificates. 
   The question of money was a touchy one to begin with in the early 
days of the Republic. The Continental Congress that drafted the old 
Articles of Confederation was run out of Philadelphia by soldiers who 
had fought under George Washington only to be paid by state 
governments in worthless IOUs. A major economic depression had 
resulted from precipitate drops in the value of money that state-
chartered banks had issued. The Founding Fathers were understandably 
leery of paper money, especially when issued by states. 
   And so, speaking for the court, Marshall reminded the state of 
Missouri that Article I, Section 8 of the Constitution of the United 
States gives Congress exclusive powers "to coin money and regulate the 
value thereof."
   One hundred and thirty five years later, Missouri is at it 
again. IN the mid-1980s, the state enacted a law to use Time Dollars 
to provide relief for people who take care of the elderly family 
members at home. In a sense, Time Dollars are simply updated wolf-
scalp or crow certificates - a way of paying citizens for performing 
a public service. So far, Missouri is the only state to commit its 
"full faith and credit" to the Time Dollar: if no Time Dollar 
participant is available to help a person who has earned this 
currency, the state will provide this help at its own expense. 
   This time, Missouri went even further. The passage of time has 
mooted Marshall's early decision: credit cards, state revenue bonds, 
any number of other devices, have rendered antique the notion that 
only the federal government can create money. That still leaves the 
Internal Revenue Service (IRS), however. In 1985, Missouri had the 
temerity to ask the agency to declare this money exempt from federal 
income tax. 
   The IRS is not generally known for generosity where federal 
revenues are concerned. It is especially wary of basing exemptions on 
broad conceptual grounds, as opposed to narrow interpretations of the 
statute. Yet, the IRS has concluded that credits earned under the 
Missouri law will not be treated as taxable income. It did so not once 
but three twice - first in a ruling by a regional office on a request 
from the state of Missouri, the second time, in a "private ruling" by 
the national office in response to a request from a settlement house 
in St. Louis. 
   These rulings apply only to the particular cases involved and 
might not hold in different circumstances. But they are highly 
significant nevertheless. At a practical level, they help people 
designing Time Dollar programs to avoid entanglements with the IRS. 
(This has been a concern in some social service quarters.) 
   The reasoning behind the exemption is even more important. 
Examining Time Dollars through the exacting lens of federal tax law, 
the IRS lawyers saw some crucial deferences between these and ordinary 
money that might elude the more casual mind. These differences, in 
turn, illuminates well as anything that has come along the nature of 
the social bonds that the Time Dollar movement is seeking to rebuild. 
   The IRS rulings are all the more remarkable if we recall the 
economic climate of the early 1980s and the hostility of the IRS 
toward barter. Unemployment and inflation had both reached 
double digits. The economy was so low that some economists were 
calling it a depression. The Federal Reserve had moved to curb 
inflation by restricting the supply of money, thereby stifling the 
economy even further. Federal spending on domestic programs was being 
slashed by a new president, Ronald Reagan. And the United States 
government was operating on a deficit of a mere $50 billion to $70 
   Back in the 1930s, when jobs and money were in short supply, many 
discovered barter to meet their needs. In the early 1980s, the middle 
class did the same. Paperbacks proliferated on drugstore counters 
carrying titles like "The Barter Way to Beat Inflation" and "How to 
Get on the Barter Bandwagon where CASH is a four-letter word." Barter 
clubs arose in which members bought and sold services and wares 
through computerized exchange pools. Several national barter 
franchises prepared public offerings; Sears, Roebuck and Company 
created Sears World Trade specializing among other things in barter 
and countertrade. Magazine articles noted that nearly one-third of 
international trade was done using barter rather than currency.
   Much of this happened because the IRS was asleep to the issue. 
Then the agency woke up and spoiled the fun. New regulations expanded 
the definition of barter and required full disclosure of all such 
exchanges on one's annual tax return. Even worse, credits received 
through a barter network were determined to be taxable income when 
received rather than when spent. That is, if someone paid you 2,000 
barter credits in exchange for your used car, you were taxed when the 
credits were added to your account, even if you had not spent them. 
That made good sense from an accounting standpoint. But it was 
terrible news to anyone who held nothing except except some credits in 
a soon-to-be-defunct barter club.
   Yet, despite its "jihad" against barter-based tax avoidance, the 
IRS made an exception for Time Dollars. In March 1985, the regional 
IRS office in St. Louis ruled that volunteers in a state program who 
qualified for hours of service by earning service credits would not be 
taxed on the value of those services. The ruling focused primarily on 
the charitable nature of the transaction and the public purpose it 
transaction fundamentally different from commercial barter, which is 
simply another form of a market transaction that might have occurred 
for cash. 
   Then in June 1985, the national office of the IRS issued a 
"private letter" ruling regarding the Time Dollar program in St. 
Louis, which had been operating for several years. Grace Hill, a local 
settlement house, had been using Time Dollars to provide housekeeping 
and babysitting to residents of the community and also to provide more 
skilled services such as house painting. The computerized bookkeeping 
operated in the usual way. "When a volunteer performs a service" the 
ruling noted, the "taxpayer (Grace Hill) credits the hours spent to 
the volunteer's account and debits the hours to the service 
recipient's account." 
   Despite the obvious value of the services and the extensive 
record keeping involved, the IRS nonetheless concluded that these 
credits "have no monetary value" and service recipients do not incur a 
"contractual liability." The agency saw that these Time Dollars are 
fundamentally different from money. They provide recognition and a 
form of bonding, rather than a cash reward. "Credits posted to the 
volunteers' accounts serve merely as a means to motivate the 
volunteers," the IRS said. "The continued effectiveness of this 
taxpayers' program depends on the volunteers perceiving the value of 
their efforts to the community. Taxpayer hopes that knowledge of the 
hours they provide... will instill pride in the volunteers." 
   The Time Dollar networks are different from commercial barter, 
the ruling said. They are simply a different form of the things 
neighbors do for one another. Commercial barter, by contrast, "does 
not include arrangements that provide solely for the informal exchange 
of similar services on a non-commercial basis." In commercial barter, 
the parties are bound by contract, and credits in a barter network are 
a "cash substitute." Here, by contrast, people who receive a service 
have no contractual - i.e., legal - obligation to repay. And people 
who give service get no contractual right to compensation: "The 
credits merely serve as a means to motivate the volunteers to continue 
their community service." 
   This ruling cut through a lot of academic fog that has grown up 
around the issue. A tax professor who authored one of the leading 
casebooks on federal taxation, for example, could not fathom how the 
IRS could deem Time Dollars not taxable. After all, he said, "benefit 
is benefit." 
   But the IRS did, and the practical importance of the ruling cannot 
be overstated. It is hard to imagine people lining up to volunteer, 
knowing that come April 15th, Uncle Sam was going to tax the Time 
Dollars they earned - even though they had gotten no money with which 
to pay those taxes. Even if the IRS valued the credits at only $5 per 
hour, a volunteer could easily owe several hundred dollars in taxes.
   The conceptual basis of the rulings is even more important. The IRS 
went right to the heart of the difference between Time Dollars and 
money. The ruling that declared that these exchanges were not 
commercial barter implicitly recognized a distinction between the 
market and the nonmarket economy, with the important corollary that 
exchanges in the nonmarket economy are beyond the scope of the federal 
income tax laws. Not all exchanges among family members and neighbors 
are exempt, of course; certain trust arrangements between parents and 
children, for example, are blatant tax avoidance devices. 
   But the IRS did not see evidence of this in Missouri's Time Dollar 
program. It pointed out that, to the contrary, the care in question 
was charitable in motive and was openly reported to the state of 
Missouri. There was little danger that respite care syndicates would 
sweep the nation as a hot new form of tax avoidance. 
   The St. Louis ruling is even more impressive because it fleshes 
out a distinction that seems to elude most tax lawyers. The ruling 
noted that participants earning credits had no "contractual" rights to 
anything in exchange for their efforts. (The St. Louis program was 
not backed by the state.) Any expectations or increased sense of 
security people feel rests on their trust in the program, and 
particularly in their fellow members. They can't go to court to demand 
service from anyone,no matter how many Time Dollars they hold, because 
trust is all there is. 
   This goes to a fundamental different between contractual 
obligations and dealings between friends and family. With the latter, 
legal rights are of limited use. You have to choose between asserting 
them and maintaining the underlying relationship. Resorting to the 
courts means you are asserting the rights of a stranger against 
strangers, and often, that you are operating in a context of monetary 
values rather than ones of trust.
   Shimone Bergman, regarded as the "father" of gerontology in 
Israel, responded with a glimmer of recognition when he heard a 
description of Time Dollars. Perhaps one of the earliest precedents, 
he said, is found in the scriptural commandment "Honor thy father and 
thy mother that they days may be long upon the land which the Lord thy 
God Giveth thee." Considering that Moses's followers would wander 40 
years in the desert before being permitted to enter that land, the 
promised exchange was at best somewhat speculative in nature. A court 
would have thrown it out for want of mutuality or on any number of 
other grounds as altogether lacking in the requisite specificity. 
   Families and communities operate on a standard of reciprocity. 
That is a moral norm, not a legal one; the mechanism of enforcement 
is not the courts, but the sanctions that operate normally between 
people. The person who takes and takes and takes becomes, at some 
point, like the child who cried "wolf" once too often. Anthropologists 
tell us that the ostracism practiced by "primitive" legal systems may 
be more powerful than the forms of punishment to which "civilized" 
society resorts when it puts miscreants in prison and turns them into 
polished criminals. 
   Time Dollars draw from an ethical tradition, rather than the 
legal and commercial tradition that lies behind the Internal Revenue 
Code. The ethical norm was succinctly summed up centuries ago by Rabbi 
Ben Azzai, who said: "The reward of a good deed is a good deed." The 
only real guarantee is the good faith and best effort of the 
individuals and organizations involved.
   Indeed, there can be no "contractual remedy" that substitutes for 
membership in family and community. These provide a kind of all-
purpose insurance and all-purpose safety net that no commercial 
company would underwrite and no government could afford. That is the 
measure of security we have lost; that is the measure of genuine 
security that Time Dollars seeks to reestablish.
   Income, said the IRS, belongs in the world of the market; 
altruism, empathy, and reciprocity belong to another world, which 
by and large is off-limits to the IRS. To be sure, IRS lawyers 
would warn that these regional rulings are not binding precedent. The 
possibility remains that as Time Dollar systems expand, and as the IRS 
feels continuing pressure to increase federal revenues to avert the 
need to raise tax rates, the agency could have a change of heart. 
   If the IRS really wants to decree that retirees will be taxed for 
driving their neighbors to the doctor, one is tempted to respond 
cheerily, "See you on Capitol Hill." But Congress wouldn't even have 
to act. This do-it-yourself currency even includes a do-it-yourself 
defence against the IRS. 
   People earning Time Dollars could simply give them to the tax-
exempt membership organization sponsoring the program. They would in 
effect be saying, we trust the norm of reciprocity more than the world 
of contract. Should we ever be in need, we would rather place our 
trust in each other.
   If you, the IRS, insist on distorting what we are doing by 
perverting Time Dollars into a taxable quid pro quo transaction, then 
we willingly surrender any "contractual right" valued by the market 
mentality. That part we give to ourselves is not for sale. We have an 
inalienable right to the private world of the family, of extended 
family, of community. We will render unto Ceasar,what which is 
Ceasar's. But no more. There is another domain you may not touch. 

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