●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Recently, CNNMoney.com published an article titled, “How much should the rich pay in taxes?”
The data in the article are interesting, but the fundamental premise of the article is nonsense. Here are some excerpts:
How much should the rich pay in taxes?
By Jeanne Sahadi | CNNMoney.com – Thu, Aug 30, 2012
It’s a heated question these days. President Obama and his Republican challenger, Mitt Romney, spar over it bitterly. And the taxes Romney pays on his own vast wealth have become the subject of massive press attention. But the question is not so easily answered and depends on a number of hard-to-nail-down factors — starting with how you define rich.
“Virtually no one thinks of themselves as wealthy,” said Joseph Henchman, a policy analyst at the Tax Foundation. “They’re thinking about what others should pay in taxes.”
One frequently used definition of rich is the top 1% of federal tax filers — those with adjusted gross incomes of at least $343,927 in 2009.
They earned nearly 17% of all AGI in the country and paid more than a third (37%) of all federal income taxes collected by the government. The group’s average effective tax rate — AGI divided by income taxes paid — was 24%, more than twice the national average.
The top 0.1% — had an AGI of at least $1.43 million. They paid 17% of income taxes collected. But, some wealthy individuals pay little or nothing in federal income taxes because their income is from sources not included in AGI such as tax-free municipal bonds.
Federal income taxes, meanwhile, don’t reflect a household’s total federal tax burden. That leaves out things like payroll taxes, estate taxes and corporate taxes. The Tax Policy Center incorporates these broader views of income and tax burdens in its calculations. And it found that in 2009, people making more than $1 million in total income paid roughly 16% of all federal taxes in 2009.
Ultimately, there is no right answer about how much the rich should pay. A majority of Americans simply say “more.”
My guess: Most people would describe “rich” as anyone earning significantly more than they themselves earn, and “soaking the rich” always has been a great populist agenda, fueled by envy. Everyone enjoys seeing the rich get their comeuppance.
Policymakers will have to decide not only on a definition of rich, but also consider broader questions about the federal budget and economy. Questions such as: What do Americans want from their government and how much will it cost?
Here is where the article veers off track, because what Americans want from government has absolutely nothing to do with its cost. Apparently the author, Jeanne Sahadi, wrongly believes federal taxes pay for federal spending.
Yes, state taxes pay for state spending, and county taxes pay for county spending, and city taxes pay for city spending. The states, counties and cities are monetarily non-sovereign. But, federal taxes do not pay for federal spending. Even if federal taxes fell to $0, our Monetarily Sovereign federal government easily could double or triple its spending.
So if federal taxes don’t pay for federal spending, what purposes do they have? I can think of four:
1. To force social change. Cigarette and liquor taxes help reduce the purchase of cigarettes and liquor — a bit. Maybe.
2. To help close the gap between rich and poor, though this form of gap-closing would not help the poor; it only would hurt the rich. So at best, it’s a questionable strategy.
3. To force demand for U.S. dollars, which are necessary for paying taxes. However, there are sufficient state and local taxes to produce that effect. Federal taxes would be unnecessary.
4. To prevent/cure inflation, though this would be a very last resort in case no other prevention/cure worked. (I discuss this in more detail at Preventing and Curing Inflation: Modern Monetary Theory vs. Monetary Sovereignty. Using taxes to fight inflation trades one disaster for another, i.e. recession for inflation.)
In summary, #1 and #2 have some slight merit; #3 is unnecessary and #4 is unmanageable and dangerous.
What is the fair level of taxes on the rich relative to everyone else? And should the more than 40% of households with no federal income tax liability — thanks largely to tax breaks — be asked to pay something in income taxes as well?
“Fairness” always is an issue for which there can be no resolution. We discuss this at: “Which Taxes Are Fairest? Which Taxes are Least Fair?” (Summary: No taxes are fair; all are unfair; some are more unfair than others.)
In the end, any decision Washington makes about taxing the rich could affect the economy.
That actually is the central issue, though it is the least discussed. Economic growth, and measured by Gross Domestic Product (GDP) is calculated this way: GDP = Federal Spending + Non-federal Spending – Net Imports.
If we increase taxes on the rich, we reduce Non-federal spending, but do not increase Federal Spending. So increasing taxes on the rich absolutely, positively will result in a reduction in GDP growth, which will impact the non-rich more than the rich.
Any tax increase of any kind always, always, ALWAYS must have a negative effect on the economy. Period.
To stimulate the economy, and to reduce the gap between the rich and the poor, the first tax step is to reduce taxes on the non-rich. And that begins with eliminating the worst, most harmful, most useless tax America ever has known: FICA (see “Ten Reasons to Eliminate FICA”)
Increasing taxes on the rich is the classic, “Cutting off your nose to spite your face.” The right wing claims that raising taxes on the rich taxes the “job makers,” and to some degree they are correct. But the real problem is not in raising taxes on the rich; it is in raising taxes anyone.
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%
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 Imports