Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
The first three Parts of this series mostly have provided facts, with just a few opinions. Some of the facts are:
–The U.S. government is Monetarily Sovereign (MS), while the people, businesses and state and local governments are monetarily non-sovereign
–Our MS government creates dollars by spending and destroys dollars by taxing. In contrast, you and I transfer dollars by spending, and never destroy dollars.
–A MS government has the unlimited ability to pay any bills of any size at any time. Monetarily non-sovereign people and governments do not have this ability.
–A federal deficit is the difference between taxes and spending.
–A MS government does not need to obtain its sovereign currency from anyone, so taxing and borrowing do not support government spending.
–Federal debt is the total of outstanding Treasury securities.
–The government pays its debt by subtracting dollars from a debt holder’s T-security account and adding dollars to the debt holder’s checking account. It’s a simple asset exchange.
–Reduced money growth has been associated with recessions.
Part 4. will continue showing you facts, but also will include far more of my opinions.
The purpose of a government is to do for people what the people cannot, or do not wish to, do for themselves. A man living alone in the woods, neither wants nor needs a government. He does everything for himself.
Most of us do not live alone in the woods. We want the government to help protect us from crime, fire, tainted food and water, poverty, disease and enemies. We want the government to provide us with roads, bridges, education, justice and many of the services that improve our lives. In short, we want government to address the three “P’s”: Poverty, Protection and Prospects (the opportunities for success, health, comfort and happiness).
Some people, who view themselves as self-reliant, call such help “socialism.” They are wrong. Help is what any government does. Socialism not only includes providing help, but more importantly includes government ownership.
Even “self-reliant” people encounter situations where they want government help. When their house is on fire, using a garden hose might not be enough, and few people wish to build their own roads and bridges.
In less advanced societies, help may come from friends and neighbors. The more advanced governments provide more help, and one measure of a government is how well it provides for its citizens.
Most advanced civilizations care for their aged. There are two reasons:
1. Older people need help. They often lose some ability – financial, physical or mental – to care for themselves, so purely for moral and humanitarian reasons, governments provide care.
2. Older people are valuable. They have knowledge. They often understand past events, successes and failures, and can apply these to the future. They can teach those younger than them. This passing of knowledge from old to younger is a human advantage. It is a key to our survival as a species.
Without drifting too deeply into philosophy, I offer you my opinion that Social Security is one of the crown jewels of the American society, a great benefit not only to the individuals receiving benefits, but to America as a whole.
I have, however, three arguments with Social Security as it now is implemented. In my opinion:
I. FICA (Federal Insurance Contributions Act) tax should be eliminated
II. The income tax on Social Security should be eliminated.
III. The benefits should be increased
I. Why FICA Should Be Eliminated
Contrary to popular belief, FICA does not pay for Social Security. The U.S., as a Monetarily Sovereign nation, which has the unlimited ability to create its sovereign dollars, neither needs nor uses dollars received from anyone.
Here is how the U.S. pays Social Security benefits:
1. Every month, it sends a wire to each recipient’s bank, or it sends a check to the recipient. The wire and the check are not dollars; they are instructions to the bank.
2. The instructions tell the bank to increase the numbers in the recipients checking account.
3. The bank does as it is instructed. Increasing those numbers is what creates dollars.
The federal government, being Monetarily Sovereign, has the unlimited ability to send instructions. Even if FICA were $0, and SS benefits were tripled, the federal government still would not run short of instructions to increase checking accounts and pay SS benefits.
The federal government can pay any bill of any size at any time. It never can go bankrupt. Because the federal government can’t go bankrupt, none of its agencies can go bankrupt, and none ever has. No federal check ever has bounced.
Social Security is a federal agency. If you go on line to federal agencies, you will see a list of about 650 agencies. Not one ever has gone bankrupt. Not one ever has bounced a check. Yet, only two of these agencies is “supported by” (actually, limited by) FICA or by any other tax collection: Social Security and Medicare.
Why was this limit placed on Social Security and Medicare? Both programs were created when the U.S. government was monetarily non-sovereign. So, Congress needed to be convinced these two programs wouldn’t cost anything, and that these two programs were like private insurance policies, in which people paid for the benefits they received. That was the only way to get Congress to create Social Security and later, Medicare.
Today, because the U.S. now is Monetarily Sovereign, FICA not only is useless, and financially harmful, but it creates the wrong impression about Social Security finances. Because of FICA, some people believe Social Security will run out of money.
These people are wrong. Like all federal agencies, Social Security is funded by the U.S. government, not by FICA. It never can run short of money unless Congress and the President decide to withhold dollars.
FICA is harmful because:
1. Like all taxes, it takes dollars out of the pockets of people and companies. When people are forced to spend less, the economy is injured.
2. FICA is a regressive tax. It hurts poor people much more than rich people. For many poor people, it is the biggest tax they pay.
3. Some people receive income that is not covered by FICA; they may pay no tax. When these people get old, they still may need Social Security, but they will not receive it. Eliminate all FICA, and this problem will disappear.
II. The Tax On Social Security Benefits Should Be Eliminated
Though the government wrongly tells people to pay the FICA tax to “support” Social Security, the government also collects taxes on the benefits people receive. Interestingly, no such tax is extracted from Medicare benefits, which also supposedly are supported by FICA, though I expect Congress to take that step, one day.
I have difficulty imagining the logic that first tells people to pay dollars to a government having the unlimited ability to create dollars – and then tells people to pay a tax on the benefit that supposedly was paid for by taxes..
III. Social Security Benefits Should Be Increased
The purpose of Social Security is to keep our senior citizens from poverty. But anyone trying to survive solely on Social Security benefits lives in poverty.
Millions of people, either because of low earnings, joblessness, sickness or other factors, have not been able to save enough for retirement. These people are not lazy. They do not “deserve” to be poor. For many of them, it’s a case of bad luck.
Perhaps they were born unintelligent or to impoverished parents who couldn’t afford to educate them. Perhaps they have been stricken with illnesses. Perhaps they tried business and failed, or were fired, or lost their home to recession. Perhaps they had to support sick relatives. There are many reasons for poverty.
Whatever the cause, they turned 65, and they don’t have enough money saved, and Social Security will not give them enough to lead decent lives. They may be hungry, homeless, without adequate clothing, without adequate care. Do we turn our backs?
America, this Monetarily Sovereign nation, has no excuse. The government can pay any bill of any size at any time. There is no reason for Social Security benefits to be below subsistence levels. Yet, according to the Social Security Administration, “The average monthly Social Security benefit for a retired worker was about $1,230 at the beginning of 2012.”
That’s just the average, so many people receive less. And that average comes to only $14,760 per year, which barely might be enough for a person living in a small, rural area, but guarantees starvation for someone living in a big city.
The next time you hear someone say Social Security will run out of money, know this: FICA can and should be eliminated; the tax on benefits can and should be eliminated; the benefits themselves can and should be greatly increased – and Social Security will not run out of money unless Congress and the President deliberately withhold funds.
Rodger Malcolm Mitchell
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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports