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It takes only two things to keep people in chainsThe ignorance of the oppressed and the treachery of their leaders.

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If you are a regular reader of this blog, you have seen “The Ten Steps to Prosperity” at the end of many posts, including this one.

Each Step includes one or more links that provide explanations and justifications. However, some people find clicking from page to page inconveniently interrupts the continuity of thought.

So, for your convenience, we will devote each of the next few posts to one Step.

Background:
The single biggest problem in world and American economics is the wide and widening Gaps between the richest and those below them (in terms of income, wealth, and power). The Ten Steps were created to address that problem.

The U.S. federal government is Monetarily Sovereign, meaning it is sovereign over its own currency, the dollar.

The government can do anything it wishes with the dollar. It can create dollars, destroy dollars, and give dollars any values it chooses. It never can run short of dollars, it can pay any creditor any amount, and it can cause or cure inflation, at will.

Step #1. Eliminate FICA.
The federal government has three primary sources of income: Individual Income Tax (47%), Corporate Income Tax (11%), and FICA (34%).

But, because the federal government can create dollars at will, and never can run short of dollars, it has no need for income. Even if all of the above-mentioned taxes were eliminated, the federal government could continue spending forever.

The most common measure of the economy as a whole is Gross Domestic Product (GDP). The formula is GDP = Federal Spending + Non-federal Spending + Net Exports.

Federal taxes remove dollars from the economy, while federal spending adds dollars to the economy. When federal spending exceeds federal taxing, i.e adds dollars to the economy, this misleadingly is termed a “deficit.” When federal taxing exceeds federal spending, this is termed a “surplus.”

A federal surplus is the economy’s deficit, and a federal deficit provides the economy with a surplus. Thus, contrary to popular intuition, federal surpluses are recessionary and federal deficits lead to GDP growth.

A regressive tax adversely affects the poorer more than the richer. FICA not only is a large tax, but it is our single most regressive federal tax, because it is collected only on salaries below approximately $100K.

All other incomes –interest, capital gains, salaries above $100K, etc. — which are more important for the rich, are not subject to FICA. (Sales taxes are our largest non-federal regressive taxes).

In 2017, the federal government expects to collect about $3.7 trillion in taxes, of which $1.7 trillion is expected to come from FICA. If the federal government were to eliminate FICA, while continuing to pay exactly the same amounts in Social Security and Medicare benefits, $1.7 trillion would be added to the economy this year.

The addition of $1.7 trillion would offer the greatest benefit to the payors of FICA, the lower income, salaried people. (FICA is a deduction from salaries. Even the portion that ostensibly is paid by corporations actually functions as a salary deduction.)

Simply ending FICA (Step #1) would grow the economy,
improve health care, and narrow the Gap
between the rich and the rest.

Since ending FICA is easy to execute — just stop collecting from paychecks — why hasn’t it been done? Actually, it has, or at least a mini version has:

Payroll Tax Cut Temporarily Extended into 2012
IR-2011-124, Dec. 23, 2011

WASHINGTON — Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011.

The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012.

This reduced Social Security withholding will have no effect on employees’ future Social Security benefits. 

Due to massive federal deficit spending, the “Great Recession” ended, and in 2010, Gross Domestic Product grew 3.78%. However, in 2011, the growth rate fell to 3.70%, and the government feared we might slip back into recession.

So, the government instituted what it called, a payroll tax “holiday.” The government temporarily (for two years) made a small cut (2%) in Social Security collections, and even this temporary, small cut made a difference. In 2012 GDP growth rose to  4.11%.

If a temporary, mini FICA cut could have a positive effect on the economy, and did not reduce Social Security benefits, the question remains, why hasn’t FICA been eliminated?

Three reasons:

  1. The “Big Lie,” which simply stated is: Federal taxes fund federal spending.  Even a cursory examination reveals the truth.Since the federal government has the unlimited ability to create dollars, clearly it does not need taxes to fund its spending. It could (and does) fund spending by creating dollars, ad hoc.
  2. The inflation myth: Cutting taxes increases the money Supply. The inflation myth says that increasing the Supply of money decreases the Value of money  (aka inflation).  However, the Value of money is based on Supply AND Demand. And the Demand for money is based on interest rates, which the Fed controls.The federal government has absolute control over the value of the dollar. There is no historical data, either domestic or foreign, demonstrating that deficit spending causes inflation. (Hyperinflations in Zimbabwe, Weimar Republic, Argentina, et al, were caused by shortages, not by money “printing.”)
  3. The Gaps are the differences between the richer/more powerful and those below them on the economic scales. It is the Gaps that make people richer and more powerful, so they want to widen those Gaps.  But cutting FICA would narrow the Gaps, so the higher economic groups, having more power, are able to convince Congress to keep, and even increase FICA.

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FICA collections have another, more insidious effect. By providing the illusion that FICA funds Social Security and Medicare, FICA forces limits on those benefits — benefits that are far more important to the lower income groups. A double penalty for the less affluent.

But it gets worse. Medicare payments are unnecessarily low (because of the Big Lie), so many of the best doctors now opt to refuse Medicare or become “boutique” doctors. These doctors are not financially available to the lower-income groups, who then receive on average, lesser health care (not only from the standpoint of skill but because of the number of patients each doctor must serve).

And it gets worse, yet: America has a severe shortage of doctors and nurses. But limiting the size of benefits has the unintended consequence of discouraging our best and our brightest from entering medicine.

And then the final insult. Though the dollars you use to pay FICA are taxed (corporate dollars are tax deductible), the benefits you receive from Social Security also are taxed — a double tax against the less affluent.

Summary: FICA is unnecessary; it’s a drag on the economy;  it reduces the number of, and availability of, health care providers: and it punishes the less affluent, widening the Gap between the richer and the rest.

FICA should be eliminated.

Rodger Malcolm Mitchell
Monetary Sovereignty

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The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE AN ANNUAL ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA, AND/OR EVERY STATE, A PER CAPITA ECONOMIC BONUS (Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Guaranteed Income)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONEFive reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE CORPORATE TAXES
Corporations themselves exist only as legalities. They don’t pay taxes or pay for anything else. They are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the government (the later having no use for those dollars).
Any tax on corporations reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all corporate taxes come around and reappear as deductions from your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and corporate taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY