Paying Your "Fair Share" of Property Tax: But Is It Fair to All?

 

This week we're going to veer off of our usual topics. As readers of Another Opinion know, most of our articles are national or global in nature. This week we are going to focus on something a little closer to home; some a bit more personal. Taxes.

Just over 200 hundred years ago, our nation kicked off a revolution against the most powerful country on the planet, England. What provoked us, a nation of farmers and merchants, to the point where we were willing to take on the highly disciplined and superbly equipped British army?  

The British monarchy, under King George III, and Parliament had repeatedly tried to impose taxes on the colonists without our consent. The colonist saw themselves as British subjects, no different than someone living in London or York, with the exception that they had no say when it came to taxation.

The Crown, which believed it wasn't answerable to the common working class, and especially to those thousands of miles across the Atlantic, felt justified in the imposition of taxes. After all, the British Crown had spent hundreds of millions of dollars and doubled their national debt to defend the colonists from the expansion of France into the western regions of the colonies and parts of Canada, with Native American support, killing or capturing settlers and burning settlements. This was known as the "French and Indian War" and the "Seven Years War", which lasted from 1756 until 1763.

Although the Britain ultimately prevailed, and in doing so, acquired additional territory in Canada and Florida (from the Spanish; an offshoot of the Seven Years War, lasting from 1762 to 1763), secured the Ohio Valley, and opened up the Mississippi Valley for further exploration and expansion. However, the war nearly bankrupt the Royal treasury. The taxes the Crown attempted to impose was to replenish the treasury. It was seen as being for the "common good", while those who opposed the taxes were viewed as "selfish" or "ungrateful" and disloyal to the Crown.

From the colonist's perspective however, they resented the fact that the Royal Government didn't take into consideration the cost already borne by the colonists. First, they already paid taxes to the crown. Secondly, the war was fought here, not in England or continental Europe. It was their homes and so forth which were affected, not to mention disrupting businesses and trade which negatively affected their income.

Lastly, but most importantly, the imposition of new taxes not just presented an additional hardship on the colonists, but they weren't even consulted; something they felt was the least the Crown should have done. Now, while each of the colonies had a representative or agent in London, most were beholden to the Crown, and thus, did little or nothing on behalf of the colonies.  It was Founding Father, James Otis Jr, who, given the situation, first coined the phrase "taxation without representation is tyranny". 

Where I live, here in Kentucky, we just received our property tax bill. For those of you unaware of what  a property tax, it's a additional tax homeowners pay for the privilege of owning their own property. The tax, which is usually collected by the County Sheriff, is calculated based on the appraised value of your home and property. The appraisal is done by the local government.  No conflict of interest there (sarcasm intended).

The property tax is broken down to indicate who gets what of your money. A portion covers state real estate tax, a metro real estate tax, a fire department tax, and a school tax. For those over 65, there is a homestead exemption deducted from the gross tax amount. You also have to pay interest, which goes to the local government, if your payment is late.

As an aside, Kentucky ranks nationally 23rd when it comes to property tax rates. Neighboring Indiana ranks 22nd while Ohio ranks 39th and Tennessee comes in 15th. The lowest tax rates are (surprisingly), Hawaii, Alabama, and Colorado. The highest are New Jersey, Illinois, and New Hampshire.

Most everyone here in Kentucky have come to accept that property is the penalty for owning property, though some would consider it simply the price you pay for a society just as you pay a tax when you buy a vehicle, you pay an annual licensing tax for that vehicle, and you pay a gasoline tax to drive that vehicle.  

The issue, however, is not the tax itself, although there are surely a more equitable way to tax citizens such as through a flat or consumption tax. But most people were outraged at the unexpected increase in their property bill, especially the school tax which increased about 9%, which brings up another point.

What about those who either don't or ever had children in school anywhere in the state? Those who had children in school have surely paid their fair "pound of flesh". But now that their children are grown and out of school, why do they have to pay the same as some who has three or five or however many children in school?  Why do those without children pay the same rate at those who do? Why do seniors or those on fixed incomes have to pay the same percentage of school tax as those who are working?

It would seem that if seniors are afforded a exemption on the overall property tax, they should also be exempt from paying a school tax, or at the very least, pay a reduced percentage. The same goes for those who never had children in school.  No one denies that schools generally benefit society though it's the students themselves who benefit the most. Without a adequate education, they are unlikely to find a job that pays much more than minimum wage or meaningfully contribute to society. However, it's the tax rate which is inequitable and unfair.

Secondly, the increase was done without the consent of the us, the taxpayers. Existing law says that certain entities can request and receive an increase up to 7% without approval of the voters. I've long opposed that. While it may be viewed as a "hassle" by various special interest groups and government officials, I believe that any increase in taxes, rates, fees, or salaries of elected officials must have our consent. It's our money, and we all know how politicians are when it comes to money.

However, that's unlikely to happen unless voters ban together. The state legislature is loath to give voters more control over our tax dollars or a greater voice on the issues by "allowing" us to have voter referendums (currently voters have to get a petition together with appropriate number of signatures and present it to a member legislature like some medieval supplicant and say "pretty please" to get it on the agenda to be heard and voted on). The same can be said of local governments too.

Voters should have the right to have an issue placed on the ballot without being on bended knee before some self important elected official. Yes, a realistic number of signatures should be required and the issue (as it will appear on the ballot) should be reviewed by either the local county attorney for a local issue or the state attorney general for a statewide matter to ensure that it's legal. I think voters are capable of making up their own minds without the guiding hand of government.

So, what do you think? Should the citizenry have been alerted of the coming tax increase and given an forum to comment? Should those with no children in school, seniors or those on fixed incomes be either exempted  from or at least afforded a discount on the school tax? While nobody wants to pay taxes, they should, at the very least, be fair. Those without children in school shouldn't be penalized by paying the same percentage as those who do.

What about referendums? Shouldn't voters have the right to put issues on the ballot without the acquiesce of the state legislature or local government as outlined above? What about a level playing field so that Independents (the nation's largest voting bloc) and third parties have the same requirements for running or holding appointed positions as Democrats and Republicans?  Those in power will do anything to retain and increase that power.

However, that "power" isn't theirs to hold on to. It's ours, and we need to remind them of that often. I believe that we should have the final say on taxes, fees, rates, or salary increases. For that matter, there's a great argument to be made that those who are 65 or on limited income should be exempt altogether from paying property tax. Our nation fought a war with the mightiest nation on earth over that issue of taxes and representation. What will we do?

If you want to know more, please take a look at the links below. If you enjoyed the article, please consider subscribing. It's free!

 

Property Taxes by State

 

Is It Time To Stop Funding Schools With Local Property Taxes?

School Taxes Are Driving Readers Crazy...

School Finance: The Elephant in the Property Tax Equation

School property tax elimination doesn't mean it's over

The Fourth of July and a Few Things to Bear in Mind.

On this Fourth of July, let us remember a certain event involving one of our most beloved Founding Fathers, Benjamin Franklin. The deliberations of the Constitutional Convention in Philadelphia in 1787 were held in strict secrecy. Consequently, anxious citizens gathered outside of what would become Independence Hall. When the proceedings ended, in order to learn what had been produced behind closed doors,
dozens gathered close by the doorway to question anyone they could. One of the first to emerge was Benjamin Franklin. A Mrs. Powell of Philadelphia asked Franklin, "Well, Doctor, what have we got, a republic or a monarchy?" With no hesitation whatsoever, Franklin responded, "A republic madam, if you can keep it". A democratically elected representative republic, if, as he said, we could keep it.

We did for many generations; through wars--foreign and domestic, good times economically and bad ones as well. We fought and argued among ourselves, but we kept our democratic republic nevertheless. But then something happened. Something changed about how we were governed, or perhaps it was us who changed. Maybe it was the rise of divisive factions; political cliques, better know as political parties which our Founding Fathers largely opposed that increasingly divided us. Perhaps it was the rise of a super wealthy business class which sought to usurp the power of the government. Regardless, the power bequest to us by the Founders began to slip from our hands. We dropped the levers of power and picked up television remotes or video joysticks to waste hours at a time instead of paying attention to what was being done in our name.

While we were busy watching "reality" television, sports, and playing on our video games, America slipped into an Oligarchy. A wealthy elite took control of our government. Free speech was replaced with money; whoever has the most shouts the loudest. Those elected or appointed to serve the People now serve new masters--corporations. Power today is maintained not by the Will of the People, but by corporate money, partisan gerrymandering, no term limits, and in many cases no direct recourse such as citizen referendums or voter initiatives. Our democratic republic experiment is little more than a shell now; something we try and pretend is real much like the ancient Romans did after the rise of the Caesars until such time as the farce could no longer be maintained. Today we struggle to define what it means to be an American Citizen or whether we have the right to secure or even have borders!

So, let's take a few minutes from the festivities of the day to remember why we fought a revolution against the world's mightiest nation at the time. It was over taxation without us having a say. It was over censorship of the media and our right to say what we believed, including the right to criticize those in government without fear of reprisal. It was over corruption of government officials, be it in the form of bribes, "loans", or voting themselves pay increases. It was over the right to worship in the faith of our choice, or even having the right to have no religious beliefs at all. It was, after all, the sovereignty of the individual with mattered the most.

It was over ending abuse by government troops who acted as the police of their time, including being forced to provide for their welfare. It was over the right to know what crimes we were charged with should we be arrested, and to face those who accused of these crimes. It was also over the right to a speedy trial rather than to spend months or even years in jails. It was over the right to posses firearms; not just to hunt with, but as our last resort against tyranny; the same tyranny which sought to deprive us of our other rights.

A Special Fourth of July Message

Can you believe that the Fourth of July is here? It seems like Memorial Day was just last week! I guess that just proves the old adage that the older you get the faster time flies. So, what does the Fourth of July mean to you? For most of us it's about taking trips, pool parties, cook outs with all the usual fare---hotdogs, hamburgers---and whatever else you can fit on a grill. Of course, what would the Fourth of July be without fireworks? For some, the Fourth is about watching sports while others prefer to participate instead of sitting on the couch or in the recliner . Some attend the numerous concerts, fairs and parades. But if you ask the average American what July 4th means, most younger (Millennial and "Generation Z") Americans don't have a clue. Sure, they know it's a holiday with all the usual festivities, but they have no clue as to why we celebrate it.

Perhaps that's due to the "dumbing down" of our education system or maybe it's because some groups are "offended" by the idea of our independence. Of course, there are those who get upset by the display of the patriotism, which they link to nationalism; a dirty word in their vocabulary just like some get "offended" by flying the Confederate 'Stars and Bars' without have a complete understanding of either the meaning behind the flag or actual causes which led to the Civil War. What every America should know is that the reason we celebrate July Fourth is because of its other name---Independence Day. Although our war with Great Britain would continue for a few more years, this was seen as our formal "divorce" from Great Britain. Although the Second Continental Congress has approved the Declaration of Independence, which had been penned primarily by Virginian Thomas Jefferson, a member of the Committee of Five whose job it was to draft a formal declaration, two days earlier. Nevertheless, it wasn't adopted until two days later because of the distance many of State Representatives had to travel.

The American Revolution lasted 18 years, from 1765 to 1783, before British General Cornwallis surrendered to American General George Washington in Yorktown Virginia. During those years, which divided families and loyalties just like the Civil War would 78 years later resulted in the deaths of approximately 25,000 (some estimates put that figure as high as 70,000) colonists, along with 7000 Frenchmen and 500 Dutch who found on the side of the colonists. Meanwhile, on the British side, just under 47,000 soldiers and sailors died along with 7744 German mercenaries (they were collectively known as "Hessians" although they came from all over Germany, Austria Empire and even Poland). Of these deaths, the majority was the result of various diseases (for instance, 2/3 of the deaths on the colonist's side were the result of disease compared with just about half of the deaths on the British side). In addition, there were huge numbers of deserters; 42,000 British (mostly sailors) and 4300 Germans.

As for the cause of the American Revolution, there were many as would be the case for Civil War. However, the principal reason was over taxation without any colonial representation in Parliament. The British felt perfectly justified in levying the taxes since they had previously spent tremendous sums in defending the colonies during the French and Indian War just a few decades previous (the French and Indian War was the North American portion of a much larger war known as the Seven Years War which ran from 1754 to 1763). Accordingly, the English Crown felt that they were well within the rights to try and recoup the costs. Besides, with their ongoing issues with the French, their treasury was getting light. However, the colonists felt that it was the duty of the Mother Country to defend its citizens. Secondly, the taxes, which weren't especially steep, would cumulatively cause substantial hardship on most businesses (Parliament had previously passed various acts to restrict trade in colonies, which included laws requiring the colonists to buy only from English merchants, such as the infamous Stamp Act which intended colonist to buy tea solely through the East India Company).

So, in essence, our revolution was about taxes being imposed on us without debate and/or approval from the colonists or their representatives. It was also over the failure of government, both at home and through royal appointment or in Parliament, to adequately represent the interests of colonists. Yet, at the same time, the wealthy were represented as were certain English goods (wool, cotton, tea, etc). Lastly corporations received a great deal of protection and support from the English Crown and Parliament (these weren't corporations in the same way as we think of them today, but they were close approximations. They were royally chartered joint-stock entities with the majority of the stock ownership being held by wealthy merchants and aristocrats. In addition, the crown was awarded a certain percentage of stock as well).

All this makes me wonder what our Founding Fathers would think of their experiment today. First, we are often and regularly taxed by the behemoth that is the federal government without our approval. The same thing can be said of our state and local governments. In fact, we have corporations which regularly "tax" us. The only difference is that they don't call them "taxes". Instead they are referred to as "fees", or some sort of "charge", be it a late charge, hook-up charge, or whatever. We see quasi-governmental companies such as gas, sewage, water, or electrical companies raising their rates almost at will. Public service regulatory agencies, who are suppose to look after our interests, are usually in the hip pockets of these companies (either that or they simply have the backbone removed as soon they're appointed). It's almost routine to read about a public utility wanting some astronomical rate increase for some project that we either don't want, need, or should have been implemented years earlier, while their top executives are paid well into the six figure range. In some cases, you have employees of these companies holding secondary government jobs; double dipping on the taxpayer's dime. Of course, while this is illegal, it's never enforced and the local media always turns a blind eye.

What about political parties, gerrymandering and term limits? Well, most of our Founding Fathers opposed political parties in general since they believed they would lead to representation of the wealthy only while the average voter would be tossed to the curb (nah, that could never happen...could it?). They felt the role of government was simply to do what can't be done in the private sector, and thus, the government should be kept as small as possible and that government should be kept as local as possible. The reason was the deep seated fear of a large centralized government. They believed government should stay as close to the people as possible, otherwise it runs the risk of forgetting who it represented. As for gerrymandering, again, they would have opposed anything which took power away from the people. Gerrymandering simply enables political parties to keep control. Along the same vein, they would have deeply opposed all efforts to keep non-aligned individuals out of debates.

As for term limits, the Founding Fathers believed that individuals should serve their term and go home. They deeply distrusted the concept of a professional politician or the development of a political class. In fact, that's what they were trying to get away from! In additional, some of our Founding Fathers, such as Thomas Jefferson, felt that those who served in office should do so without pay since it was their civic duty to serve. Nevertheless, they would have supported the term limitation of any individual elected to office. They would have strongly opposed legislatures holding votes in the dead of night in the hopes no one is watching (like thieves in the night). They most certainly would have disapproved of voting for their own pay hikes or provisions for automatic increases. I believe too that they would have vehemently opposed the special perks Congress and other elected representatives receive such as lifetime salaries, the use of private planes paid for by deep pocket lobbyists, or having a private gym. In fact, there's much our Founding Fathers would disapprove today. In fact, I think they would be calling for another revolution if they could see just Washington DC don't you?

On that note, here's wishing all of you a happy, fun, and safe Fourth of July. I hope you all will take the time to educate your children on the importance of the holiday and what it means, especially as we've slipped from a democratic republic into a neo-fascist oriented Oligarchy. If you don't, no one else will (I doubt most school systems spend any time on American Revolution) and the one thing the oligarchy wants is control, and requires a compliant population devoid of its history.

The 4th of July

With the 4th of July upon us, I thought it would be interesting to take a historical look at our Founding Fathers. Everyone knows the “big stuff” like Washington crossing the Delaware, Paul Revere’s ride (by the way, he didn’t actually say “the British are coming”. At the time, we were still the British. He said “the troops are advancing”), the winter at Valley Forge, and especially the myths which always seem to grow up around greatness. Personally, I’ve always found the historical person much more interesting, and especially the mundane; those things which make these larger than life individuals more human, and therefore, more accessible. Since everyone seems to associate greatness with height, I thought that would be a nice place to start.

Our first president, George Washington was a towering six feet two inches (he was believed to weigh approximately 175 pounds). An impressive height for both then and now. John Adams was 5’6” and said to be stocky in his youth and became “portly” with age. If you thought Washington was tall, Thomas Jefferson was taller at six feet two and half inches with a medium built. James Madison was the shortest of all the presidents. He was five feet four inches and weighed only 100 pounds!

As for some of the other Founding Fathers, Aaron Burr was only 5’6” while Alexander Hamilton was 5’7”. Samuel Adams (yeah, the “beer guy” and Father of the American Revolution) was about 5’6”. Thomas Paine was a little taller at about 5’8”. Benjamin Franklin was closer to 5’10”. Nathan Hale was approximately 5’7” as was John Paul Jones (Father of the US Navy not the Led Zeppelin bass player and keyboardist). John Hancock was fairly tall at just under six foot along with Patrick Henry. So, all in all, apparently height played little importance with the heights these men reached.

As for their ethnic background, most of the Founding Fathers were Scots-Irish or Scots-English (damn Scottish trouble makers). Several descended from English nobility. George Washington descended on his paternal side King Edward II. On his mother’s side, Jefferson descended for King David I of Scotland, while James Madison came up short (sorry, couldn’t resist). His ancestors were mainly craftsmen and planters. As an aside, the ancestry of all the presidents to date can be limited to German, English, Irish, Scottish, Welch, Dutch, and Swiss.

The subject of religion among the Founding Fathers has been quite divisive recently as some groups argue for a “return to the Christian values” of the Founding Fathers, while others argue that no such values existed. Well, the majority of all the Founding Fathers were Episcopalian, which was the counterpart to the Church of England. Most were very well schooled in theology, but equally too, they were well versed with the writers of the Enlightenment, especially Voltaire, Spinoza, Burke, Kant, Hume, Rousseau, John Locke, and Adam Smith. It was this “Age of Reason” which was to later give birth to the modern concepts of democracy, capitalism, and the natural or innate rights of Man (which, in turn, would lead to idea of equality and inequity of slavery, univeral suffrage and anti-discrimination laws).

As a result, many of the Founding Fathers, such as Thomas Paine, Jefferson, Revere, James Monroe, Franklin, Adams, Washington became “Deists”, or what we would consider Unitarian Universalist today. Others, such as Madison, took a more “enlightened” approach to religion, though remained Episcopalian (in fact, more US presidents have been Episcopalian than any other religion). A close second, both then and now, was Presbyterian followed by Methodist. Quakers too were an important and influencial group in Colonial American politics.

When it came to earning their “daily bread”, they again showed they were a diverse lot. Before becoming president, Washington was a surveyor (some say, a rather unscrupulous one to boot. He allegedly would survey and sell the piece of property to several folks before moving on). John Adams was lawyer and schoolteacher, while his cousin Samuel Adams, was a merchant and barkeep (though unsuccessful), and finally found his niche as a writer and political provocateur. Thomas Jefferson was a planter, lawyer, inventor, writer, and architect. Madison was a lawyer and political theorist (i.e.: troublemaker). Thomas Paine was a writer and provocateur (I’m beginning to like this occupation). Paul Revere was, as everyone knows, a coppersmith. Benjamin Franklin was a writer, inventor, and publisher (to which one could add a “ladies man” as well). Hamilton was a soldier, political theorist, economist, while Patrick Henry was a lawyer and writer.

So, with this being the 4th of July and all that, what would our Founding Fathers think of the America today? Well, that would depend on who you asked. As a group, all of the Founding Fathers believed that a continuing union with England wasn’t happening (while approximately 1/3 of the population supported a break with Mother England, 1/3 of the population did not and favored England, and the remaining 1/3 was undecided. Many of those decided in favor of independence once the war was in full swing. With some 83% of the present American population disenchanted with the Federal Government and the way we’re headed as a country, I often wonder what the future holds for us).

Most of the Founding Fathers opposed the creation of political parties. It was their belief the parties would ultimately divide the nation and would become the tool of special interest groups who would, in turn, come to dominate the government and essentially force the people out of the political decision process (nah, could never happen). Out of that, the ideas of Federalism and Anti-Federalism emerged. The Federalists, led by Alexander Hamilton, Washington, and John Adams, supported a strong federal form of government with weak states, while the Anti-Federalist, led by Jefferson, Mason, Patrick Henry and James Mason wanted strong local representation and a much weaker federal government (in fact, Henry and Mason refused to ratify the Constitution because they feared it would lead to a centralized government like England’s). Ultimately, the Civil War decided the issue in favor of the Federalists in 1865. So, Hamilton would be very pleased with the form of government we’ve evolved into while Jefferson would shake his head in sad disbelief.

On the subject of religion, most of the Founding Fathers would agree that Judeo-Christian beliefs played a central part in the formative thought of the nation; it was not the sole influence however. The great thinkers of the Enlightenment played a key role as did the great thinkers of Classical Greece and Rome. They feared a theocracy, much like the one that once held Europe in it's iron grip. Indeed, they feared the very concept of the state religion like England and most of Europe had. However, they would agree to one's right of belief, any belief or none at all, so long as it didn’t impinge on anyone else’s (you might say, one's freedom of and from religion). Thus on school prayer, they would have supported a moment of silence to do as you pleased. On the display of religious items on public property, they wouldn’t care so long as every religion had the same right. The display of the Ten Commandments would have been a given since it was part of the foundation of our concept of equality and justice.

There would have been no question about the right to bear arms. It was a key element in their minds to a maintaining a free people because it afforded the people the ability to defend themselves not just from crooks and invaders, but from the government as well. They knew that an unarmed people were an enslaved people. They would have unquestioningly believed in securing our borders and would have been dumbfounded at the idea we were even considering a dual language. We were to be one people out of many (see your dollar bill---E Pluribus Unum), and that meant one nation with one language.

On gay rights and gay marriage, the majority of the Founding Fathers would have supported the right of adults to engage in a mutually acceptable relationship. They would not, however, have supported the concept of gay marriage which in their eyes was for the procreation of life and the stability brought about by a husband, wife and family unit as the cornerstone of civilization. Elective abortion would have been seen as an affront to their understanding of the sanctity of life. Abortion to save the life of the mother would have been another matter.

The death penalty was in effect in Colonial America, and remained so. Actions have consequences just as freedom has responsibilities. They would have opposed our so-called “nation building” efforts as well as our invasion of Iraq. It was their belief that they were starting anew. They wanted no part of the “entanglements” of Europe. However, unprovoked attacks on America or Americans should be responded to quickly and mercilessly. Most would have supported protecting American jobs above all. They would have been appalled at our dependence on foreign oil and foreign investments to prop up our economy. Independence meant not just political and religious independence, but national economic independence as well.

Lastly, taxes. I suspect our Founding Fathers would flip their collective powdered wigs at our tax structure and how citizens are “nickeled and dimed” to death. The main reason for our revolt from Mother England was taxes; a lesson our politicians today have forgotten. And we’re taxed not just by government, but by corporations as well in the forms of service charges, late fees, user fees, handling fees, and other charges they don’t even bother to tell us about (our garbage bill just went up
$5.00. It seems that not only do we have to pay for pick up and disposal, we now have to pay for their gas too! Gee, silly me. I thought their cost of business was included in the bill to begin with).

Our Founding Fathers hoped we would become a nation of independent minded people living in mutual respect and economic cooperation. They envisioned a country free from government restrictions and dependence; free from excessive taxation. What we’ve become is a nation adrift in crushing national debt with jobs being exported in the name of profit while those same companies continue to get taxpayer financed tax breaks. We’re a country addicted to foreign countries financing our domestic debt and energy dependence like a crack junkie is to dope. We’ve been sold by special interests groups into a corporate servitude with the blessing of government. Enslavement takes many forms. This alone would make them wonder what became of our will to be free. As the great Roman statesman Cicero once said, “The cure for democracy is more democracy, not less”.

Here’s another interesting article from Peter Navarro. Peter wrote a terrific and timely book entitled “The Coming China Wars”. I thought you might enjoy this article as much as I did.

FBI Confidential and
"The Coming China Wars" by Peter Navarro

According to a leaked secret FBI document, Chinese counterfeiters have sold close to $75 million of fake Cisco Systems routers to the U.S. military. While this revelation has been largely ignored by the mainstream media, it raises troubling questions about both the integrity of U.S. defense cyber networks and the possible motives of a foreign government with a long rap sheet for military espionage and cyber hacking.

Routers are specialized computers that provide the virtual “pipes” to move millions of information packets through the world wide web, and it’s no accident that China is counterfeiting Cisco designs. Cisco not only holds about 80% of the world’s router market. It also outsources a significant share of its router production to China. Of course, once an American company outsources to China, the likelihood that its technology will be stolen and then reproduced for sale into world markets is extraordinarily high.

In fact, China is the counterfeit capital of the world. It accounts for two thirds of all the world’s pirated and counterfeited goods and fully 80% of all counterfeit goods seized at U.S. borders. The long list of purloined products includes everything from auto parts, baby food, and cigarettes to prescription drugs like Viagra and Lipitor and high tech equipment like routers and switches.

In each case, Chinese counterfeit products pose significant health and safety risks. For example, fake Viagra jazzed with strychnine or “Lipitor” with no active ingredients can both cause heart attacks. Counterfeit brake pads made from inferior materials can lead to deadly crashes. Cigarettes laced with cadmium and lead make one of the most efficient killers in the world even more deadly.

In this particular case, one obvious danger with America’s national cyber defense system being run through fake inferior routers is system failure at critical junctures. However, the more subtle – and far more disturbing – problem identified by the FBI is this:

At least some of China’s fake routers may be specially designed to provide Chinese hackers with undetectable “back doors” into the highest echelons of classified information throughout the defense department bureaucracy. That this possibility is closer to science fact than science fiction is bolstered by the work of scientists from the University of Illinois who recently demonstrated how it is possible to alter a computer chip to provide such undetectable access.

This specter of a virtual Chinese Trojan Horse deep in the bowels of the Pentagon raises an even bigger question, likewise posed by the FBI report: Are China’s sales of fake Internet equipment to America’s defense industry driven purely by the profit-seeking of rogue Chinese entrepreneurs? Alternatively, are these sales the result of state-sponsored cyber-terrorism specifically designed to penetrate U.S. defenses – and perhaps disable those defenses in time of conflict?

In support of the profit motive, there is this salient fact: According to FBI data, a typical router made by Cisco costs about $1400 to make while the inferior counterfeit can be knocked off for a little over $200. That allows for a bigger mark-up than even drug trafficking – which is why counterfeiting is such big business in China. That said, anybody who believes that China’s counterfeiters “come in peace” merely to make a quick buck needs to read some of the strategic tomes on cyber warfare generated by China’s military think tanks.

Exhibit A in the state-sponsored terrorism case is the work of Chinese Air Force Colonels Qiao Ling and Wang Xiangsui. They have written that “the first rule of unrestricted warfare is that there are no rules, with nothing forbidden.” They go on to describe a scenario in which China “buries a computer virus and hacker detachment in the opponent’s computer system … so that the civilian electricity network, traffic dispatching network, financial transactions network, telephone communications network, and mass media network are completely paralyzed.” Their overriding goal is to “cause the enemy nation to fall into social panic, street riots, and a political crisis.”

These are sobering dangers indeed, particularly in light of how easy it seems to be to dupe even America’s defense establishment into buying counterfeit goods. But what is ultimately so disturbing about all of this may well be how little attention either our government or the American people or the American media seem to want to pay to America’s growing China threat.

Peter Navarro is a business professor at the University of California-Irvine, a CNBC contributor, and author of The Coming China Wars. For more information, please visit http://www.comingchinawars.com.

Poll Results

I asked you if you could afford the cost of gas was to high. 54% of you wanted to "who can afford gas?" while 30% thought it was barely affordable. The rest of you thought that price was too high...big time. With the recent increases, I wonder where the breaking point is. Thanks for voting!