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●The more federal 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 ultimately 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.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive, and the motive is the gap.
Today, Philip Pilkington, one of the chosen few who understands Monetary Sovereignty, published a marvelous article, Taxation, Government Spending, the National Debt and MMT that appeared in the Naked Capitalism blog.
I’ll give you a few excerpts, but I urge you to click the link and read the article in its entirety.
. . . .an absolutely fascinating piece of writing called ‘Taxes For Revenue Are Obsolete,’ was written in 1945 by Beardsley Ruml, the director of the New York Federal Reserve Bank from 1937-1947. He also worked on issues of taxation at the Treasury during the war.
The article lays out the case that taxation should not be focused on revenue generation. Rather, Ruml argues, it should be thought of as serving other purposes entirely. He writes:
The necessity for a government to tax in order to maintain both its independence and its solvency, is true for state and local governments, but it is not true for a national government.
Two changes of the greatest consequence have occurred in the last twenty-five years, which has substantially altered the position of the national state with respect to the financing of its current requirements.
The first of these changes is the gaining of vast new experience in the management of central banks.
The second change is the elimiantion, for domestic purposes, of the convertibility of the currency into gold.
Ruml is making the same case that the Modern Monetary Theorists (MMTers) make: a country that issues its own sovereign currency and is unconstrained by a gold standard does not require tax revenue in order to fund spending.
This is because the central bank always stands by ready and able to buy any sovereign debt issued that might lead to the interest rate rising. Indeed, it does this automatically in the way that it conducts its interest rate policy. Ruml then outlines what taxation is really for in such a country.
What Taxes Are Really For
Federal taxes can be made to serve four principal purposes of a social and economic character:
1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
2. To express public policy in the distribution of wealth and income, as in the case of the progressive income and estate taxes;
3. To express public policy in subsidizing or penalizing various industries and economic groups;
4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.
‘ ‘ ‘ taxing is never to be undertaken merely because the govenrment needs to make money payments. . . Taxation should be imposed only when it is desirable that the taxpayers shall have less money to spend, for example, when they would otherwise spend enough to bring about inflation.
The above is the essence, which you who understand Monetary Sovereignty, will find quite familiar. But again, I urge you to to read the article, which has additional informative commentary.
That said, I have one bone to pick with Mr. Ruml and Mr. Pilkington, and it’s a rather large bone. Both gentlemen discuss theoretical, academic effects of taxation, but both ignore the real, political purpose of today’s tax structure, which is: To provide the underpinnings for widening the Gap between the rich and the rest.
Consider Ruml’s point #2: (“To express public policy in the distribution of wealth and income, as in the case of the progressive income and estate taxes”) implies that taxes serve to narrow the Gap, while in fact, the opposite is true — for two reasons:
1. Middle-class salaried people pay FICA, high tax rates on salaries, plus many and various sales taxes and other state taxes, all adding up to an enormous percentage of their income — often approaching 50% when everything is considered.
By contrast, for the wealthy, FICA is collected only on a minuscule part of their income, taxes on capital gains and interest (from which the wealthy receive a majority of their income) are at low rates, and various “loopholes” are available only to the wealthy.
By clever manipulation, it can be realistic for an ultra rich to pay virtually no taxes at all, or very close to it.
2. Collecting taxes fools an uniformed public into believing federal government finances are like personal finances, thereby justifying austerity. Because austerity punishes the lower 99.9% far more than it punishes the upper .1%, austerity widens the Gap between the rich and the rest — and it is the Gap, more than absolute dollars — that the rich treasure most.
Thus, though Ruml and Pilkingon understand the mechanics of Monetary Sovereignty, they seem to believe our government leaders are ignorant of these facts. That is naive.
It is naive to believe that every President, the entire Council of Economic Advisers (composed of scores of professional economists), all 535 members of Congress, all media writers and the hundreds of university economists all are ignorant of the simple fact that federal financing is not like personal financing.
Why then did Rep. Boehner say, “Let’s be honest. We’re broke”? And why did President Obama say, “(My) budget asks Washington to live within its means . . . That’s what families do in hard times. And that’s what our country has to do, too”?
Why do all the media writers and most university economists proclaim that the federal deficit and debt are “unsustainable”?
They are paid by the upper .1% to widen the Gap.
The politicians are bribed by campaign contributions and promises of lucrative employment later. The media are paid by ownership. The universities are bribed by contributions to their various funds. Almost no one is willing to incur the wrath of the upper .1%, and lose precious dollars and jobs, by revealing that federal deficits are necessary, easily supportable, and can be non-inflationary.
No, it isn’t ignorance by our leaders that leads us to austerity, i.e increased taxation and reduced spending. It is greed by the upper .1% and by those whom they bribe, which leads inexorably to a the widening of the Gap.
It’s the Big Lie, and until we understand this, all the “education” in the world will not change things.
We must confront, challenge and accuse. We must throw into their faces, the word “bribery,” until the public grows angry enough to demand change. Nothing good will happen until then.
Rodger Malcolm Mitchell
Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
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:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports
THE RECESSION CLOCK
Vertical gray bars mark recessions.
As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.