–Closing the gap between rich and poor: Eliminate all local taxes

Mitchell’s laws: To survive, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Reduced money growth cannot increase economic growth. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Background: The politicians, the media and the old-line economists worry about how our Monetarily Sovereign federal government will pay its bills, despite the absolute fact the government can pay any bills of any size, any time.

Perhaps those same politicians, media and economists, rather than thinking of ways to support a government that needs no support, should worry about how the middle- and lower-classes will pay their bills. I don’t know whether to laugh or to cry when I hear our leaders insist that federal taxes must equal federal spending (i.e. a “balanced budget”), while doing nothing to make sure the people of America have balanced budgets.

Caring more for the financial health of our financially omnipotent government than for our financially suffering poor- and middle-classes, demonstrates uncommon ignorance. Even more remarkable is the acquiescence of the lower classes to this outrageous, Tea/Republicanism.

If Bill Gates and Warren Buffet refused to give a dime to charity, because they wished to run their own “balanced budget,” the world would be outraged at such meanness. Yet, even Gates and Buffet are not Monetarily Sovereign. So what should we say about our government, which unnecessarily wishes to balance its budget on the backs of the citizens?

In several posts I have explained that lifting the poor does not involve bringing down the rich. Very simply, lifting the poor requires lifting the poor.

On July 11, 2010 I posted
“A partial solution for the gap between rich and poor: Education.” The post suggested that fully paid-for education, not just K-12, but all the way through college and beyond, would be one step toward lifting the poorer classes. I also suggested that the government actually pay people a wage for attending college.

I also have suggested that eliminating FICA, the single most costly tax on working people, would help lift the lower classes. Now, in typical Obama style, we almost, but not quite, will eliminate FICA. We temporarily will eliminate half of it. That is the symptom of this administration: Always too little and too late

There is another tax, or rather a group of taxes, that powerfully affect the lower classes: Local taxes. Cities charge them. Counties charge them. States charge them. Even the federal government charges them. What if all local taxes were eliminated?

Though the federal government neither needs nor uses tax income, the states, counties and cities, being monetarily non-soveriegn, do. So how will these local governments be supported?

Here’s a “What if?” for you to think about: What if the federal government offered to support every state, county and city on a per-capita basis, if these governments voluntarily would forego collection of all local sales and income taxes?

Consider Chicagoans. They pay taxes to Chicago, to Cook County and to Illinois. Here are the taxes residents pay just to the state of Illinois:

Aircraft Use Tax, Automobile Renting Occupation & Use Taxes, Bingo Tax & License Fees, Business Income Tax, Charitable Games Tax & License Fees, Chicago Home Rule Municipal Soft Drink Retailers’ Occupation Tax, Cigarette & Cigarette Use Taxes, Coin-Operated Amusement Device Tax, County Motor Fuel Tax, Dry Cleaning License Tax & Fee, Electricity Distribution & Invested Capital Taxes, Electricity Excise Tax, Energy Assistance & Renewable Energy Charges, Environmental Impact Fee & Underground Storage, Gas Tax, Gas Use Tax, Hotel Operators’ Occupation Taxes, Individual Income Tax, Liquor Gallonage Tax, Manufacturer’s Purchase Credit (MPC), Metropolitan Pier and Exposition Authority (MPEA) Food & Beverage Tax, Motor Fuel Taxes, Oil & Gas Production Assessment, Personal Property Replacement Tax, Property Tax Information, Pull Tabs & Jar Games Tax & License Fees, Qualified Solid Waste Energy Facility Payments, Real Estate Transfer Tax, Sales & Use Taxes, Sales of Aircraft & Watercraft by Lessors, Tax Increment Financing (TIF), Telecommunications Tax, Telecommunications Infrastructure Maintenance Fees, Tire User Fee, Tobacco Products Tax, Use Tax for Individual Taxpayers, Vehicle Use Tax, Watercraft Use Tax, Withholding (Payroll) Tax

Not only are these taxes costly for residents (The payroll tax alone is 5%.), but they are costly to collect. What if the federal government said to Illinois, if you will forego your $25 billion in total annual taxes, we will give you $2,000 per person. Since Illinois has about 13 million people, that would come to $26 billion. If you consider deducting for collection costs, the state would come out millions ahead. What would the citizens say and what would the politicians say?

Then there is Cook County. It will collect $2 billion in taxes next year. With a population of 5 million, making the same deal with the federal government would require $400 per person.

Finally, Chicago: It collects about $3 billion a year in taxes. With a population of about 2.7 million, federal support would amount to about 1,100 per person.

So, replacing all Chicago, Cook County and Illinois taxes would amount to $3,500 per person. If every city, county and state in America opted to forego taxes, the federal government would supply a total of about $1 trillion dollars.

In 2010, the federal government spent about $3.5 trillion, so would an additional $1 trillion (29%) to eliminate all city, county and local taxes in America be “affordable”? Would it cause the inflation, the “inflationistas” always worry about? For perspective, 2009 federal spending increased 29%, and 2010 spending increased another 20% on top of that. Are they affordable? Do we have inflation? Have any federal checks bounced?

Admittedly, there would be many issues to consider, not the least of which is the probability that local politicians like taxes. They are a source of power. But what would you, as a taxpayer, think about the elimination of all local taxation and the associated budget (collection) savings? Something to think about.

The U.S. government is Monetarily Sovereign. It’s about time we make use of that asset.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings

MONETARY SOVEREIGNTY

13 thoughts on “–Closing the gap between rich and poor: Eliminate all local taxes

  1. RODGER MALCOM MITCHELL FOR CHANCELLOR FOR LIFE!! seriously, have you ever attempted to speak to Obama? I have written him numerous times suggesting he read your writings and asking why he refuses to accept reality. To date, zero response.

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    1. does your friend try to inform him? i watched a michael hudson interview recently where he explained what obama was doing(the way he offered up the safety net, something that the dems should fight tooth and nail for, on the chopping block) during the fake “debt ceiling crisis”. the repubes are on crazy train, while obama, the “adult” in the room has moved far right of center. he cant be trusted to do whats right for us. he needs replaced.

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  2. Hi, I enjoy learning from your site.

    Question: in the absence of local taxes, how does the federal government ensure that the locality does not receive for more money than it needs for the next 12 months?

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      1. You can’t be serious. But you did ask, so

        When they set their own tax rates, they set them to collect what they think they will need. They have a budget.

        Now answer the question, please.

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  3. Rodger,
    I have been following your blog for quite sometime now and that has lead me to other MMT related blogs. So thanks! Based on what I have read and understood so far, MMT makes the most sense on how the economy works. What I find is that you take things to the extreme when it comes to Modern Money, and that’s where I mostly disagree with your views.
    Take this post, you say we eliminate all State and local taxes. But without a productive economy how does it help? Or the other post about expanding the post office, or the one sometime ago about why we should even have to export anything.
    Today, the USA commands a position as the world’s top economic power and every other economy wants to trade with us and is willing to accept our currency in return for that trade. If we were to follow your advise and increase the size of the government by having as many people work for the post office or for that matter any of the 1000+ government agencies, doing nothing but collecting a pay check (or social security) and producing nothing tangible into the economy, why would the rest of the world continue to trade with us and still accept our dollars in return? Look at North Korea, they have their own version of MMT, but what good is it for their country and its people?
    We need limited government that allows (by spending & creating the money supply) so that the private enterprise can create goods of value that other economies willingly purchase from us.
    By your logic, if we expand the postal service or the 1000+ govt agencies, all we are creating is a bunch of useless work that produces nothing. Take the TSA for example. When that happens, I don’t think China will continue to supply goods to Walmart or Target and accept Dollars in return.What if they insist that we pay them in THEIR currency for their goods, as they see no future value for any goods produced in the US ? Where will we get the Chinese currency to fund these purchases? The big govt we created prevents us from manufacturing anything inside the US anyways. We will no longer be sovereign in our debt as we will being owing our traders in THEIR currency. What happens then?

    So, what we need is a balanced approach, which is what the other MMT proponents suggest and I agree with them.
    Your approach gives a bad name to MMT, so I think you are doing a disservice to it.
    Looking forward to your comments on this.

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  4. Oh, I also wanted to add that I agree that state and local taxes are unreasonably high in almost all the states. But we just cannot eliminate them and expect the Federal govt to fund the states to pay for the bloated salaries and pensions of state workers. The States and counties needs to be accountable for the services they provide to the community and expect a reasonable payback in return. Today all Govt workers have the best of all worlds, whereas the private citizens gets squeezed out everywhere. That cannot continue for ever.

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    1. The reason state employees tend to have large pensions and lavish benefits is that the system favors this method of compensation. Local politicians have an incentive to increase pay to their employees in some fashion, because these employees are powerful voting blocs in their district. At the same time, since localities are monetarily non-sovereign, to pay for these increases would require raising taxes, which is not politically favorable. The “compromise” is to push back payments, in the form of health insurance/pensions, until the current politicians have retired or moved on to higher office. This is why government employees tend to be overpaid in terms of long term pay, but underpaid (relative to their education level) in terms of immediate salary. If their immediate pay were negotiated with an organization that did not have to raise revenue to compensate, which is the case of our monetarily sovereign federal government, then a more logical relationship could be established. This is one of many inherent inefficiencies that Mr. Mitchell’s simple suggestion could address.

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  5. Hmm, it would seem the real work would be determining what amount per capita is paid to the states. If that amount was realistic, it would force states and local govt to still work w/in its means. But I would imagine its impractical b/c power politics would get in the way and determine what the amount is.

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  6. Netbacker,

    You said, ” . . . without a productive economy how does it (eliminating state taxes) help?” Are you asking how giving the taxpayers of Illinois $1 trillion would help?

    You said, “If we were to follow your advise and increase the size of the government by having as many people work for the post office . . .”
    I said, the government should support the post office, so it wouldn’t have to raise prices or reduce services.

    . . . or for that matter any of the 1000+ government agencies, doing nothing but collecting a pay check (or social security) and producing nothing tangible into the economy,. . . .”
    Never said anything like that. And really, do you believe the 1000+ government agencies do nothing but collect pay checks without producing anything tangible?

    . . . ” all we are creating is a bunch of useless work that produces nothing.” Don’t know how you came to that conclusion from my suggestion that the government support the post office. What’s your preference, worse service or higher postage costs?

    ” . . . why would the rest of the world continue to trade with us and still accept our dollars in return?” Because they want the exports.

    ” . . . What if they insist that we pay them in THEIR currency for their goods,. . . ” No problem. We simply buy yuan on the open market and use them.

    I think you have a preconceived notion that federal support for the post office, Social Security and Medicare requires hiring lots of useless people, and your “solution” seems to be to let these organizations fail.

    Rodger Malcolm Mitchell

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    1. $1T to Illinois? I thought the $1T would cover all the cities and states and counties?

      But, two questions:

      If you give $3500 per capita to each state (about what Illinois and Cook county and Chicago are now collecting), then Illinois breaks even, but what about New York, which is now taxing $5000 per capita, and Alabama which is now taxing only $2000 per capita? What would be the effect on government operations in those two places, and would it be good or bad? Maybe NY would not accept the deal, and would lose population to lower-tax (or now zero-tax) states even more quickly.

      Alabama would jump on it, and maybe pay its residents the difference in cash each year, kind of like Alaska pays out its oil royalties. Oh, and what about Alaska? Would they have to pay in, instead of collecting?

      Second, I know you believe the current deficit of $1.5T is insufficient. Do you think $2.5T is still not enough, or too much, or just about right? And how do you calculate that?

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