–Really, really increase federal taxes on the rich

Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

Mitchell’s laws:
Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
●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.
●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.
●Everything in economics devolves to motive,
and the motive is the gap.
==================================================================================================================================================================

Two facts:

Fact 1: Federal taxes do not support federal spending. If all federal taxes fell to $0 or rose to $999 trillion, neither event would affect the federal government’s ability to pay its bills, not even by a penny.

Fact 2: Federal taxes remove dollars from the economy, thereby depressing the economy.

So why do we say, “Really, really increase taxes on the rich”
And what do we mean by “really, really”?
And who are the rich?

In May of this year, we published TROPHIC CASCADE: How Yellowstone National Park opened my mind, which drew a parallel between the top predators in Yellowstone Park and the U.S. government, the “top predator” in U.S. economics.

You should read the article to see the reasoning.

One of the four recommendations made in this article was:

Progressively higher federal income taxes on high incomes, while eliminating federal taxes on lower incomes.

Step 7, in the “Nine Steps to Prosperity” reads, “Increase the standard income tax deduction annually.

Additionally, the progressive income tax top rate should rise again. We might consider something along the lines of 1964 tax rates, where the highest income bracket was about $3 million and taxed at 77%.

Further, all income – salaries, capital gains, gifts, inheritances, etc., should be taxed at the same rate.

Ultimately, those earning up to $500K annually would pay no federal taxes, and those above that level would pay 60%+, adjusted for inflation.

Which brings us to this article in the Huff Post:

Economists Say We Should Tax The Rich At 90 Percent
Benjamin Walsh; Posted: 10/22/2014

All Americans would be better off if top tax rates went back to Eisenhower-era levels when the top federal income tax rate was 91 percent, according to a new working paper by Fabian Kindermann from the University of Bonn and Dirk Krueger from the University of Pennsylvania.

Here is the conclusion from the report, charted:

monetary sovereignty

Kindermann and Krueger say that a top marginal tax rate in the range of 90 percent would decrease both income and wealth inequality, bring in more money for the government and increase everyone’s well-being.

While “bringing in more money for the government” is bad economics (a Monetarily Sovereign government doesn’t need or use tax dollars), “decreasing income and wealth inequality” is great economics for many reasons, both moral and fiscal.

It is rational to accept high income tax rates on top earners and low rates for the rest as a form of insurance.

This insurance takes the form of low-income people paying dramatically less in taxes. “Everyone who is below four times median income” — that’s about $210,000 for households — “pays less,” Kruger said.

Again, the economics is a bit squirrely, because raising or lowering top rates has nothing to do with bottom rates. Apparently the authors falsely believe the federal government needs tax dollars.

However, their conclusion is sound. The top rates should be raised significantly and the bottom rates lowered to zero.

In the Ten Steps to Prosperity, Step 7. says, “Increase the standard income tax deduction annually,” and Step 8. says, “Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income.”

The paper assumes that tax rates won’t stop a future Bill Gates from wanting to start Microsoft.

Agreed. Few of us begin a business with the plan to become one of the wealthiest people on earth.

Instead we hope to create a successful company and make a great living, and if we are very, very lucky, circumstance then takes over, and our successful company becomes wildly successful.

A marginal tax rate of 95% on the top .1% earners, would discourage precisely zero people from working.

Sadly, since the very rich have increased their control over Congress, the President and even the Supreme Court, the likelihood of this ever happening is quite low.

Yet, if presented to voters as a package — lower rates for the lower 99%; higher rates for the upper 1% — it probably would pass.

Rodger Malcolm Mitchell
Monetary Sovereignty

===================================================================================
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 and here)

10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.
——————————————————————————————————————————————

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.
1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)
2. All deficit spending grows the supply of dollars
3. The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
4. The limit to non-federal deficit spending is the ability to borrow.

THE RECESSION CLOCK
Monetary Sovereignty

Monetary Sovereignty

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.

#MONETARYSOVEREIGNTY

42 thoughts on “–Really, really increase federal taxes on the rich

  1. When the rate was 91%, almost nobody paid it, even though their “income” – as understood by non-accountants – was in the range of the 91% rate.

    Assuming you really want people to pay this tax, how do you deal with arrangements such as deferred compensation, municipal bond interest, unrealized capital gains?

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    1. I won’t even begin to try to rewrite the tax code.

      We should begin by defining every form of “income” in a uniform manner, so that salaries, interest and realized capital gains are treated the same.

      My sensing is that if you give the job to a guy in the street, and tell him to use his best intuition about defining “income,” we would come out with perhaps a 2-page tax code and a 1-page tax filing form, that is much fairer than the one we have now.

      Of course, we’d have to find jobs for all those accountants.

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      1. I think the high rates are what keeps the accountants in business.

        So, the man in the street says your income is what comes into your bank account that year. Mr. Executive says “Please, board of directors, reduce my annual salary from $3M to $210,000, and instead of giving me that cash, add $2.8M to my deferred pension plan”. Then, about 10 years later, when he has enough in the pension plan to pay him $210,000 a year forever, he retires.

        How do you capture the 91% of that $28M?

        Perhaps more important, how do you capture the economic and social good that this obviously talented individual would have done during the 20-30 years he could have continued working, if he would have been properly compensated for his efforts?

        This is only the simplest of tax dodges. At 91%, the accountants would come up with much more complex arrangements.

        There were serious fairness issues with capital gains when rates were very high. Consider two guys with incomes of $100,000, both paying no income tax. Both have a stock portfolio that increases by $100,000 a year. Mr. A cashes out $100,000 of capital gains each year, and pays no income tax. Mr. B lets his account sit for 20 years, and then cashes out 20 years worth for a gain of $2M and pays $1.8M in tax. Why shouldn’t A and B be treated the same?

        I would rather further equality via the estate tax. Allow $1M per beneficiary tax-free, and 90% tax on anything over $1M to any single person. Let the high income earners keep most of what they earn, but if they don’t spend it during their lifetimes, let it be spread out.

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        1. “I think the high rates are what keeps the accountants in business.”

          Just look at the shenanigans in the corporate world where the highest tax rate is only 35%.

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        2. Are you saying we are not smart enough to come up with a simple tax code that eliminates the current “tax dodges”?

          Are you saying that if we heavily tax the rich, these “obviously talented” (rich = talented??) people will stop producing “economic and social good”?

          Are you saying that the rich, more than other people, produce “economic and social good”?

          Really?

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          1. Well, sure, the current tax dodges are designed for the current tax code. It doesn’t take much smarts to disable them. The problem is that there will be new ones that will be designed for any new code, or resurrected for the return of an old code like 91%.

            High wage compensation = talented, often. Think actors, sports stars, and neurosurgeons, not Rockefellers and Kennedys. How about the guy who invented the gopro, if he retires with his billions we’ll never have his next invention or the scientific discoveries that it enables. Yes, some people will enjoy themselves rather than working, once they have enough money and the financial rewards for continuing to work are too small. I know, for your 0.1% there is never “enough”, and they will keep scheming and cheating regardless of tax rates, but the next 9.9% might have different priorities.

            Here’s a really simple example: Nurse Nellie has a $40,000 job taking care of the sick and hits the lottery for $210,000 a year. If she keeps working at a 90% tax rate, she’ll make $2 an hour after taxes (assuming a 40 hour week, and all the nurses are laughing). What do you think she’ll do, and why is that good for the rest of us? How do you write the tax code so that she keeps working and doing good for society, and you can still tax Mitt Romney at 91%?

            My idea of “the rich” are people who have so much that they don’t work, they just live off their riches. Rentiers, they are called. Tax them at death, and in one generation nobody will have massive wealth unless they earned it in their own lifetimes. Or tax everything except wages. I don’t see the need to financially penalize the likes of Derek Jeter and Rihanna for being talented and working hard at their craft.

            There are some good reasons for some of the complexity in income taxes. Some changes to the current system would be obviously helpful, but after a point simplicity comes only at the cost of equity and increasing disincentives. Reasonable rates enable more simplicity without sacrificing too much equity.

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    2. RMM writes “95% tax rate on .1% earners”.

      Just so we know the numbers:

      Top 1% of earners is $350K per year income
      Top .1% = $1.9 M per year
      Top .01% = $10.2M per year.

      I do not think people should be penalized for making $1.9M per year. I wouldn’t agree with a 95% tax rate on any income below $10M per year. The 95% top tax rate is an effective wage ceiling so it needs to be set pretty high.

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    1. It might reduce inequality, but not nearly enough. A $20 minimum wage translates into $40K per year — barely survival for a family of four in a major, metropolitan area.

      The inequality problem is way bigger than that, so I was thinking of a far bigger solution.

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        1. Australia has been doing really well for a couple decades exporting their natural resources, much like the US in the 19th century. That employs lots of miners at pretty good wages, and minimum wage has nothing to do with it.

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          1. Interesting economic question. I suppose it depends on how easy it would be to substitute one worker for another. If there are unique skills involved, the marketplace will settle at a wage that is pretty much independent of the wage for other workers. If skills are readily available, the wage would tend to gravitate toward the minimum, to the extent that workers were willing to work at either job. I suspect mining requires some specialized skills and is not the sort of job that everyone would want to do, so the wage for it is not dependent much on other wages.

            If there are unions, there could be contractual relationships to the minimum. In the end, though, mining is either profitable or not at any particular wage, and that would tend to set an upper limit regardless of changes in the minimum wage.

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    2. Australia has a minimum wage of $16.87 per hour. Wonderful, except that (according to my Escapees magazine) diesel fuel is AU$1.59 a liter (US $6 a gallon), breakfast is $15-$20, the laundromat costs $4-$6 a load to wash, and groceries are about double the US prices. Are their minimum wage workers any better off than ours? I’d guess the richest Ozzies are not as wealthy as the richest Americans, so maybe they can take comfort in the smaller “gap”. Oh, wait, Rupert Murdoch. Too bad.

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      1. You hit the nail on the head here John. Far too often people mistake nominal for real. The nominal is far less relevant than the real, which is of course your point.

        Thats why goals should be defined differently, instead of endeavoring to raise the minimum wage, our goal should be to increase Real median incomes, stabilize the national income distribution share at some level that best suits public purpose, etc.

        The only thing that has seemed to accomplish the goal of real median income growth since 1980 has been when unemployment approaches and then stays below 5%.

        So the question of whether a minimum wage increase is “worth it” depends on the employment affects. Do we need a higher minimum wage in order to achieve full employment?

        Minimum wage increases are nothing more than a way for the Govt to increase demand (propensities to consume differences) without increasing its own spending. Is this good, bad, necessary?

        Its amazing just how different economic analysis becomes once people understand MS.

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        1. You can get lost in the stats. The bottom 20% (maybe 40%) have not seen real income growth. If the median went up, it is because the middle 20% (or 60%) – mainly baby boomers – were at that stage of their lives where their careers were advancing.

          JG effectively sets a minimum compensation package for breadwinners. There is no need to legislate wages for anyone, most especially not for part-time or casual workers who are not working to support themselves or their families. Full employment is opportunity for everyone willing and able to work. I’d be more concerned that the 5th percentile family income exceeds some poverty-level standard than what happens to the 50th percentile.

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  2. golfer:

    You said, “How about the guy who invented the gopro, if he retires with his billions we’ll never have his next invention or the scientific discoveries that it enables.”

    I’m confused. Will that guy retire because he has billions or because he is taxed too much?

    Same with Nurse Nellie (who, by the way, would see her taxes decrease). Are you saying she will retire because she has $210,000 per year, while the guy making $1 million a year will keep working?

    You said, “My idea of ‘the rich’ are people who have so much that they don’t work, they just live off their riches.”

    Who are those people? Bill Gates doesn’t work? Warren Buffett doesn’t work? Larry Ellison doesn’t work?

    And if they don’t work, have we lost their “next invention or scientific discovery.”

    I really wish I understood exactly what you are claiming. Are you saying:

    1. Rich people don’t work? If you work you’re not rich?
    2. Rich people are more talented than other people (however you define “talent.”)?
    3. The “talent” of rich people benefits the rest of us, and this talent will be lost to us if we tax the rich?

    And so far as “penalizing people who work hard at their craft,” are you talking about Nurse Nellie? An artist? The musician in the orchestra?

    Seems like a group of incompatible generalities . . . but maybe I’m wrong.

    By the way, this is why rich people don’t stop working: https://mythfighter.com/2013/08/06/the-psychological-basis-for-all-economics/

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  3. You’re confusing wealth and income.

    Nick Woodman is still working at 39.6%. I don’t know what he would do at 91%. Probably surf.

    Sorry, $210,000 was Kruger’s number. Yours is 60% above $500,000, so let’s bump Nurse Nellie’s lottery winnings to $500,000 a year. Her taxes under your system would be $24,000 of her $40,000 salary, and her net would be $8 an hour. If I were her, I’d retire. It’s true, under the current system her taxes on $500K would be greater than zero.

    The guy making $1M in salary, under your system, would still take home $700K and if he had no other income he’d still have to work, at least for a few years, although he’d be looking for a way to reduce his taxes. He might take a $500K job for 50-60 hours a week instead of 80. He should not be taxed at 60%. If he’s in the 0.1%, with $1B of wealth, he’s going to find a way to shelter his wages or he’s going to stop working. He’s not going to pay any 91% marginal rate.

    Who are those people? Kennedys and Rockefellers, and the rest of the Forbes 400 list. Your 0.1%. Some are still working, managing their empires, but at 91% would they still do it? They didn’t pay the 91% in the 1950’s. I don’t see why they would do it today.

    Gates and Buffet and Ellison are still working. Buffet says he pays 17% and should be paying 28%. What would they do at 91%? Sit still and take it?

    I’m saying that if you’re rich, and you could live in elegance without working, and you’re working for the money, you’ll probably work less if your compensation is drastically reduced. It happens even at current low tax rates. Consider Tiger Woods’ tournament schedule (before his injuries), or rock groups that cut back on their tours. Why do you think WNBA stars play pro basketball overseas during their off-season and NBA stars don’t?

    I’m saying that highly talented people are often highly compensated, and if they are working for the money, and you take away the money, they may stop (or reduce) doing whatever it is they do for money, and we will all be the poorer for it, even if it is a non-material poverty. Taxing highly talented people does nothing useful, and may be harmful.

    I’m saying the talent of highly talented people benefits the rest of us, and some of this talent will be lost to us if we tax the talented too highly. It has nothing to do with taxing the rich. I think it is better to tax the rich at the end of their lives than to tax the talented during their working lives.

    What I wrote is

    “I don’t see the need to financially penalize the likes of Derek Jeter and Rihanna for being talented and working hard at their craft.”

    No mention of Nurse Nellie or musicians. It’s quite clear who I was talking about.

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    1. How would Nick Woodman be able surf if all this time he had been paying 91%? At what point would he have stopped working? (You claim to be an expert on what rich people would do, so I’m asking.)

      I shudder to think what would happen to society if the Kennedy’s, the Rockefellers, the Jeters, the Rihannas and the Woods decided to stop going to the “office” and instead invested their dollars — or gave them to charity.

      That would be a real calamity, wouldn’t it?

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      1. Surfing is what he did before he was rich. I’m just guessing that he would go back to that. If the rate were 91% all along, I think he’d still be surfing, maybe part-time managing a very small company, maybe an underground company, making cameras only for his surfing buddies, instead of full-time managing a much bigger one. Maybe that’s OK.

        The Rockefellers and Woods do give a lot to charity. Or at least they fund charitable Foundations, where they and their relatives (Rockefellers, at least – don’t know about Tiger’s relatives) “work” for top 1% salaries, and they get huge tax deductions. In the one-page tax return those deductions would disappear, though, so they’d likely do something else instead. If their donations are more than 9%, the math would dictate a reduction even if their motivations didn’t change.

        But we’re getting far afield now. Is there some reason you prefer the high income tax vs my estate tax to narrow the gap?

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        1. “Your” (your??) estate tax is good, and yes, there should be a big increase.

          The way to minimize an estate tax is to spend heavily on depreciables (yachts, cars, travel, entertainment, rents, etc.) and to give away money to family and friends, before death. Give each of your infant kids a couple hundred million, as a small start in life.

          The former has some economic benefits, but doesn’t really close the wealth/power/income Gap. The later merely builds a dynasty ala the Waltons and the Pritzkers.

          Bottom line, you are advocating for what essentially is a wealth tax, and I prefer an income tax.

          Both have advantages and disadvantages.

          Either way, the key is a large tax increase on the rich and a large decrease in taxes on the not-rich.

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          1. Giving a couple hundred million to the kids doesn’t work. It’s actually a combined estate and gift tax. You’re only allowed to give < $12,000 a year (maybe has been adjusted for inflation?) to any single individual, or else you owe the tax immediately. When your executor files the estate tax return, any gift taxes previously paid are credits against the estate tax due.

            So it would break up the Waltons and Pritzkers into $1M chunks in one generation. Or if the old man insisted on leaving it all to one person, the dynasty would at least be drastically reduced.

            And spending is good, right? That's what we want to encourage those rich people to do, isn't it? Buy those yachts and employ lots of yacht-builders.

            And yes, I think it's mine. I've never seen anyone else suggest a per-beneficiary estate tax exemption like mine.

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  4. Income taxes should be removed, but a few things need to happen first.

    First, the Fed needs to be removed. We don’t need a useless institution dictating what the market rates should be and who gets to be bailed out. The market should be able to do this on its own. Banks taking excessive risks should get what they deserve.

    Second, all forms of income taxes should be removed. All this screaming about unfairness and inequality makes me sick. How can you ask for equality while at the same time asking for the government to take from someone else just for the simple reason they have more than you? This is the ultimate display of how evil and hypocrite a***oles some of us can be.

    Third, the government needs to take back money creation away from the Fed. I would actually love to see this happen because it would immediately show that money creation is the root of all inflation. Since people will quickly get fed up with inflation (just like they do with taxes), the population will scream like hyaenas and request an immediate stop to the looting just like they request the immediate stop on tax increases.

    The reason these 3 will not happen in our lifetimes is easy to see. The banks get to lend money without regard of whether they could pay or not – the fed will always bail them out. Taxes are only increased where possible – governments everywhere (including local and state) can always borrow on their credit – and defer tax increases into the future – delaying the pain and recognition.

    The government would not be stupid to change an arrangement where they can always point the finger at the fed by taking the power to create money back from the fed. Bad policy mistakes would be quickly easy to spot and the fingers would be pointing at them immediately.

    The outcome of such policy changes would definitely lead to extensive economic benefits to the regular person.

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    1. Glad to see we’re off the idea of government money creation by borrowing.

      MMT suggests that the Fed should set the short-term, risk-free rate at zero, or even that Congress should set it there by law and the Fed would merely act as unlimited involuntary buyer and seller to maintain it there. The Fed also does clearing among banks, and regulation, so if you abolish it all three functions need to be moved somewhere. Might as well stay put. In any case, the other rates (longer, or higher-risk) are set by the market, regardless of the Fed. Even now, with the Fed buying securities other than short-term Treasuries, they are not “setting” those other rates.

      “Banks taking excessive risks should get what they deserve.”

      I heartily agree with the sentiment. MMT suggests that banks be regulated as to what they are allowed to do, not what they are not allowed. “Narrow Banking” would let them take deposits and make loans. None of the risky shenanigans involving derivatives and secondary markets. They would be required to service the loans they make. Institutions that wish to engage in those other things will not be banks, will not have FDIC insurance, and will not be bailed out. Bank regulators will ensure proper underwriting of loans by banks.

      MMT states that money creation is done by Treasury, not by the Fed. In any case, the Fed and Treasury cooperate closely to match Fed operations to Treasury spending and taxing. A “rogue” Fed chairman would quickly be brought back into line (or fired) if she were to act against the wishes of the President.

      “governments everywhere (including local and state) can always borrow on their credit”.

      Not so. Local governments can and do go into bankruptcy when they spend more than they can tax and borrow. Some states have gotten close as well, although I understand there are legal questions about whether they can do bankruptcy the same way. But state and local governments are not monetarily sovereign. They are limited just like you and I.

      As for taxes, I think a progressive income tax is psychologically good for us as a nation, but it should not be a major tool of macroeconomic policy. FICA should be eliminated, and corporate income taxes as well. Corporations don’t pay taxes, they collect them. There should be a low-rate business gross receipts tax adjusted by a board similar to the Fed in order to manage aggregate demand. Managing aggregate demand is the only economic reason for any taxation by a monetary sovereign.

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      1. I did not mean local and state governments can borrow indefinitely – but they’ve been doing it for about 4 decades nonstop. Think about the consequences there.

        Most of those reading were either very young, walking on their diapers, and some of us were not even born yet. 40 years is a lifetime.

        Now think about how many folks were part of the selected few which got high wages, full pension, free healthcare, early retirement – and lived happily ever after. Now, swing back to reality and take a look at cities like Detroit – decimated by those early retirees for years and still being decimated because they are probably still alive in some beach collecting their pension – while the average person is barely making ends meet – if they can survive the next drive by shooting.

        We have had extremely solid laws for hundreds of years – laws that would put small time fraudsters in jail in no time. All regulations will do is add more to the freeloading / early retiring payroll I mentioned above. What we need is to find some balls and prosecute those that break the laws that already exist.

        The people believe taxes are needed, I just don’t believe any form of tax can be called “progressive”. That’s like saying that you know how to spend my money better than I do. I’d say all forms of taxes (including devaluation of the currency via creation) is regressive because only the person that earned it knows how difficult it was to get it. Give it to someone that did not and you will find yourself with a boat of looters, like we are today.

        How do you manage demand? Are we too stupid to not even know how to take our money out of our pockets and spend it? Are we too stupid that we even need direction deciding how much to buy? The idea of managing demand almost made me puke – seriously.

        People are not morons John…. If they believe in this MMT theory, they definitely are.

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        1. Managing aggregate demand isn’t about directing people to spend or not. AD = GDP = C + I + G + (X-M).

          When you reduce taxes, C and I go up, because people and businesses have more money, and some of them will decide to spend/invest it, managing their own consumption as you describe. When you increase taxes, they have less money, and some of them will reduce their spending. That (fiscal policy) is how aggregate demand should be managed (we’re trying to do it with monetary policy, and that doesn’t work), to achieve the target levels of employment and inflation. Not to direct individuals to spend or save.

          “Progressive”, with reference to a tax, is a technical term. It’s not an opinion or a political view. You don’t get to define it. It means the tax rate increases as the means to pay it increases.

          We all agree that enforcement of current laws is lacking. Narrow Banking is an idea that would require less sophistication and integrity on the part of the regulators and enforcers, so should make things better even if we get another Eric Holder.

          Detroit’s star was hitched to the auto industry, and their wage and pension systems were designed when the Big Three had no competition. In hindsight, it’s easy to say they could have done things differently, more frugally, more diversified. Not so easy to do in real time.

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          1. I disagree, it was easy. What was much easier though was to allow unions, unions that would keep politicians in office for a long time. It was much easier to comply with their demands to stay in office for a long long time.

            I almost puked again with the comment above about empowering unions. Amazing, that person thinks we are flat out stupid. Empower unions so that they can retire at 45 and the rest of us at 75.

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  5. Since a federal tax pays for nothing why force rich people to keep working?All it would do is reduce opportunity for those that actually need the work.

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    1. Hahahaha…. This is amazing…

      Penny – this sure worked out well in Zimbabwe. After kicking out the white farmers – the black people (that needed the work) were pretty successful at farming… NOTTTTTTTTTTTTT….

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    2. @ Penny, not to sidetrack the discussion but you should really think about the statement “federal taxes does not pay for spending”. There is no basis for that statement whatsoever.

      I agree with Rodger that the government holds no dollars, at least not like you or I hold dollars in a saving account.

      I would also agree that the government does not need taxes in order to spend (not that I agree the government should spend without any limitations), that is taxes could drop to $0 and the government could still spend.

      I also agree that the government is not constrained in its spending by taxes…that is it can pay just about any bill (unless of course someone in government tried to pay a bill or spend $900 trillion for example) nor does the government need to tax first before it can spend.

      I would also agree that taxes remove money from the economy but would disagree that taxes “destroy” money in the way MS/MMT mean but I believe this is somewhat semantics.

      However there is absolutely no proof that taxes do not offset spending. If there is I would like to see it!!

      There are many good reasons to reduce taxes or modify the tax codes but saying that taxes don’t pay for anything is not one of them.

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      1. Interesting. You correctly say:

        the government holds no dollars
        the government does not need taxes in order to spend
        the government is not constrained in its spending by taxes
        taxes remove money from the economy

        But then you take all that, and come up with “there is no basis for the statement that federal taxes do not pay for federal spending.” Hmmm . . .

        Later, you change “pay for” to “offset” which is quite different.

        For any two numbers, one can “offset” another. For example:

        Say, you and I are brothers. You spend $1,000 and my income is $700.

        Someone might calculate a “family deficit” of $300. But there is no real connection between your spending and my income.

        My income does not pay for your spending.

        That “family deficit” is just a calculation.

        Similarly, there is no real connection between federal income and federal spending. Federal income does not pay for federal spending.

        Any arithmetic connection between the two is descriptive, not functional.

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        1. Hmm….Not sure why you would consider that interesting?? The first 3 items speak to potential constraints on spending, it does not say anything about whether the government actually spends the tax money it receives.

          The last item by itself also does not speak to whether the government actually spends the tax money it receives.

          The second part of the last item which you left out is if tax money is destroyed. This does speak to whether the government
          spends the tax money it receives.

          Unfortunately it does not destroy money the way that you mean. If you send the government a check or physical dollars to pay your taxes, the physical money may be destroyed but the transaction would be recorded and the physical money would be converted to digital money and in reality no money is actually destroyed.

          However it does affect the reserves in the banking system. The government’s accounts are not counted against the reserves in the banking system. If something is not being counted does that then mean it is “destroyed” and it no longer exits, I would say it does not but this is as I said semantics.

          As far as switching between “pay for” and “offset” not sure what the issue is.. your example of what the issue is not helpful and I am not going to waste time explaining why…this just seems to be a distraction.

          So getting to your main point…if I am wrong I stand corrected but the government has a number of accounts where they receive revenue into and pay bills from.

          By your example are you then suggesting that these are totally separate accounts, that they have no relationship with each other that is that they don’t transfer money between them or that they are owned or controlled by separate entities both of which calls it self the US Government ?? And /or are you suggesting that the account that receives the revenue is always set to zero, they just delete whatever comes in but the government then keeps track of the numbers just for its own recorded keeping??

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  6. I think the problem some folks reading this have is that the full story is not being given. What do I mean by this?

    Well, say the government collected 1 trillion in taxes and destroyed it. I can see how dollar bills could easily get destroyed, but as per Rodger – bills only represent dollars. So then, how do you destroy digits? let’s say that the government decommissions the dollar digits somehow. Since it’s been decommissioned, they can no longer be used.

    Next, let’s say the government creates 1 trillion worth of new dollars. By the stroke of a key – voila, 1 trillion new dollars get created.

    Let me ask – aside from technicalities – what is the difference between the above and the government collecting taxes and spending the same exact tax money? I have the answer – NOTHING.

    It’s exactly the same thing. The population no longer has the ability to spend the 1 trillion, while the government just spent the 1 trillion. One offset the other.

    To say that taxes do not pay for spending is disingenuous. It sure does pay for it. Deficits are somewhat offset by interest payments on the bonds – the net increase in money supply is completely inflationary.

    Math is not that hard folks…

    Also, to say that the government is not constrained by taxes is also disingenuous. Let me first say that the government can drop the taxes to 0 and keep spending. Let me ask smerls, how do you prefer your taxes? Would you prefer to pay them or have the government devalue your currency to get them any way.

    If taxes dropped to zero, the government could just borrow the money into existence – like it does today. Except that since there would be no taxes to remove some money from the population – inflation would be higher to offset it. So again, you are still paying taxes in such scenario.

    I would prefer to pay taxes because at least I know what I am paying for and at least I have some bargaining chip on how the government spends my money. If you think that more government spending without taxes is a good thing, I sure hope to see this happen because of the reason I stated above. It would clearly show that the root of inflation is money creation without a doubt. Today, the government blames the Fed / rich people for “income inequality” and the uninformed part of the population believes it.

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    1. @Endisnear just to be clear I was not commenting on whether it is a good/bad idea to drop taxes to zero…although your point is taken that if nothing else changed and taxes where dropped to $0, there would be problems….I was just recognizing as you did that taxes could be dropped to $0 and the government could still spend….it checks would not bounce. In fact as I mentioned above this really has nothing to do with whether the government spends the money/revenue it receives.

      I also agree with you that the whole story is not being told and folks like Penny are repeating but they may not be aware of it so I just wanted to point that out.

      However I will disagree with you when you say that there is no difference between the government destroying money and then issuing new money and the government taxing but not destroying but spending the money it receives.

      Think about this and this is a question I posed to Roger on another post…what if the government ran surpluses would the distinction then make a difference.

      Say the government did run surpluses obviously there would be calls to cut taxes or pay off debt to offset the surpluses but lets put the politics aside (also I am not sure if there are any laws that would prevent) and what it might do to the economy aside and …

      If the government did run surpluses, held those surpluses in an account like you or I would have a savings account, and if the government ran as Rodger suggests where taxes are destroyed upon receipt then would the government show a positive balance in its accounts. Would the governments accounts show a $0 balance but the government would keep track of the numbers for its own records but the money would not be available to spend?? Or would the surpluses be available for the government to spend?? I may be wrong but I believe it changes things when you are dealing with a surplus and not a deficit not that that has been a problem…

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      1. The Treasury does have bank accounts, at the Fed, and at local banks like you and I do. When you write a check to them for your taxes, they deposit the check into one of those accounts, and it clears through the Fed like any other check you write. Likewise when they cut a check or make an electronic transfer to buy a jet fighter or pay someone’s Social Security.

        In order to keep their account balances positive, Treasury sells bonds to add money to them when they get low, because taxes are less than spending. They create the bonds out of thin air. The Fed buys some of them, so as to prevent the bond selling from raising interest rates. The Fed has no bank accounts. When they buy bonds they simply mark up the sellers’ account.

        The point of MMT is that we do it this way only because Congress has mandated it. Treasury doesn’t need to have accounts with balances, they could simply instruct the Fed to mark up the balance in your account when they pay you, or mark it down when you pay them, without having any accounts of their own. Government is the SOVEREIGN. They can do whatever they want. That’s what it means to be the sovereign. Instead of creating bonds out of thin air, they could create the money directly out of thin air. The charade of selling bonds and having them bought by the Fed could be done away with, if Congress wished.

        There’s documents on Mosler’s web site and other places with more details of the actual operations.

        In the days of the gold standard, it was important that there was always enough gold to cover redemption requests, so accumulated deficits were limited by the amount of gold. That constraint was removed in 1971, now the only constraint is inflation.

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  7. I thought you were getting it until you said

    “Deficits are somewhat offset by interest payments on the bonds – the net increase in money supply is completely inflationary.”

    A deficit is a positive difference between spending and taxing. Interest payments are spending. They do not offset each other. If there is a deficit, interest payments are part of the spending that creates the deficit.

    The math is not hard, but you must at least get the + and – signs correct.

    As for the increase in money supply being inflationary, so far you seem to accept the MMT definition of money supply, not the M1 and M2 and such, which have soared by hundreds of percent over the past 6 years, and there has been no inflation. So an increase in money is caused by the deficit. On the other side of the supply of money is the supply of goods and services. A net increase in goods and services is deflationary. Conversely, a net decrease of goods and services is inflationary (see Zimbabwe) and a net decrease in money supply is deflationary (see the EU today). In order to have growth with stable prices, the supply of money must match the supply of goods and services, and both must increase. That is the math that explains why deficits are necessary to a growing economy.

    To understand the proper size of the deficit requires examination of the sectoral balances. In order for one sector to save some of its income, which is to say spend less than its income, some other sector must spend more than its income. Since, in the case of the US, the foreign sector is saving, if we want the domestic non-government sector to save, then the government must have a deficit, and the deficit must be equal to the savings of the other two sectors.

    For instance, if the foreign sector saves 3% of our GDP, and the domestic private sector is to save 5%, then the government deficit must be 8% of GDP. If it is not, then all the output doesn’t get sold, and producers cut back production, or accumulate unwanted inventory (which is what is happening now, because the deficit is too small to buy all the output).

    You say it is disingenuous to say the government is not constrained by taxes, and then you go on to talk about inflation. MMT says the government is constrained by inflation. There is nothing disingenuous, or even different, about your position vs MMT. Nobody wants to cause inflation. MMT says that when inflation threatens, it is time to raise taxes. (Rodger says raise interest rates not taxes, and MS and MMT disagree about that.)

    I don’t think that what the economy particularly needs right now is a lot more spending. There are a few pressing infrastructure things. JG would be nice, but that would largely be offset by reduced transfer payments. We could spend a lot smarter than we do, but what I would do to increase the deficit is cut taxes, specifically FICA. The Progressive agenda includes lots more spending, and the issue of spending vs tax cuts is one of politics more than economics, and MMT doesn’t take a position one way or the other.

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