The almost-too-easy way to grow the economy and narrow the Gap

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It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders..
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Following the “Great Recession” of 2008, our economy has grown at an achingly slow pace. Look at the graph (below) and compare the past ten years with the period beginning 1972 (the year in which the U.S. went off a gold standard and became more completely Monetarily Sovereign):

Meanwhile, the Gaps between the richer and poorer, as expressed by the GINI ratio, (below) have widened. [A Gini ratio of 0 indicates perfect equality, where everyone has the same income. A Gini ratio of 1 indicates total inequality, where one person has all the income]:

In short, the economy has grown quite slowly, while the rich have become relatively richer, and the poor have become relatively poorer.

We have suggested the Ten Steps to Prosperity (see section below), as a process by which the economy can grow faster and the Gap can shrink. Some of those steps require significant changes in federal law, together with significant bureaucratic expansions.

But there is one Step that requires only minuscule changes in federal law together with a reduction in the bureaucracy: Step 1. Eliminate the FICA tax.

1. FICA is the most regressive tax in America, punishing lower-income, salaried workers, while barely touching higher income salaried workers, and having no effect on people who get their incomes from non-salary sources — mostly the retired and the rich.
2. Corporations submit half of all FICA collected, but corporations don’t actually “pay” taxes.  They merely are legal conduits between customers and corporate employees and owners.  Functionally, employees pay all FICA taxes; corporate managers consider FICA to be as much a cost of paying employees as are salaries.
3. The Federal government neither needs nor uses FICA dollars. Being Monetarily Sovereign, the federal government creates dollars ad hoc, every time it pays a bill. Tax dollars you send to the Treasury cease to be part of the money supply. Your tax dollars effectively are destroyed.

The elimination of FICA would add a $1 trillion+ to the money supply, which would stimulate the economy by increasing Non-federal Spending:

Gross Domestic Product = Federal Spending + Non-federal Spending + Net Exports.

Spending by consumers is by far the largest part of the U.S. GDP.  It accounts for an average of about two-thirds of GDP in the United States.

With GDP at about $18 Trillion, an addition of $1 Trillion (from FICA) would create about 5% of GDP growth (broad estimate, less investment).

Social Insurance Receipts*
          Year  | $ Trillions
          
2010 | 0.9
2011 | 0.8
2012 | 0.8
2013 | 0.9
2014 | 1.0
2015 | 1.1
2016 | 1.1
2017 | 1.1
2018 | 1.2

*Amount of Revenue by Source

With GDP growth averaging about 4% in the past ten years, an additional 5% growth (to 9%) would be quite significant — similar to the growth rate in the 1971-1981 period.

This brings us to the subject of inflation. There have been many changes to the methods for calculating inflation (a general increase in prices), and these changes have resulted in somewhat different results.

But, there does not seem to have been a relationship between GDP increases and inflation. (See graph below.)

While an increase in the Supply of money is inflationary, an increase in the Demand for money is deflationary: Value = Demand/Supply.

The Demand for money is based on the formula: Demand = Reward/Risk.

Interest is the Reward for owning money. The Federal Reserve controls inflation to its target rate (2%-3%) by increasing the Reward, i.e. by increasing interest rates.

We cannot end this article without referring to the brainwashing conducted by our thought leaders, including the U.S. government.

The Office of Retirement and Disability (Social Security) publishes a bulletin titled, “Social Security Trust Fund Flows and Reserves.”

The bulletin includes such sentences as:

Social Security benefits are paid from the reserves of the Old-Age, Survivors, and Disability Insurance (OASDI) trust fund.

The reserves are funded from dedicated tax revenues and interest on accumulated reserve holdings, which are invested in Treasury securities.

There is no “trust fund” for Social Security any more than there is a “trust fund” for other federal agencies.

Have you ever wondered why there is no “trust fund” to pay for the military, or for the White House, or Congress, or for the Supreme Court, or the CIA, the FBI, NSA, or any other agency you can mention? Have you ever wondered why no one claims these agencies soon will be

Have you ever wondered why no one claims these agencies soon will be insolvent?

The reason: The Social Security “trust fund” is an accounting fiction. It pays for nothing. Social Security and Medicare benefits are paid the same way as Congress’s salaries: By federal deficit spending.

“Trust fund” balances are available to finance future benefit payments and other trust fund expenditures–but only in a bookkeeping sense.

These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury.

The fake “trust fund” merely is a group of balance sheet notations, completely controlled by the government. The “trust fund assets” consist of nothing more than “liabilities” of the U.S. Treasury.  All the “trust fund” owns is what the Treasury owes it.

Thus, rather than paying Social Security and Medicare benefits out of a non-existent “trust fund,” the Treasury could pay benefits directly.  If the “trust fund” ceased to exist, this would have zero effect on the Treasury’s ability to pay Social Security and Medicare benefits.

The next time you read an article or see a graph telling you the Social Security trust fund will run short funds at some future date, know you are being treated to The Big Lie — the lie that federal taxes fund federal spending.

While state and local taxes do fund state and local spending, federal taxes do not fund federal spending. The federal government creates dollars, ad hoc, by spending, and never can run short of dollars.

Even if all federal tax collections fell to $0, the federal government could continue spending, forever.

IN SUMMARY:

Growing the economy, narrowing the Gap, and controlling inflation are three of the most important financial responsibilities of the federal government.  These responsibilities could be accomplished easily and simply by eliminating the useless and harmful FICA tax.

If we eliminated FICA tomorrow, you instantly would begin to reap the economic benefits.

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 A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) 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 EVERYONE Five 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 FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce 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 business 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