The tax “reform” Trojan horse. A sneak attack on social benefits

Image result for the truth will set you free
It takes only two things to keep people in chains:
The ignorance of the oppressed and the treachery of their leaders.

“Reform” is such an appealing word. It implies “improvement,” but all it means is “change” (re- form). And when Congress changes things, it generally tries to benefit its biggest contributors, the rich.

So, next time you hear or see the words “tax” and “reform” in the same sentence, hide your wallet and take your impressionable children indoors. You are about to feel strong winds from Washington carrying heavy BS rain.

The GOP is looking for ways to pay for tax cuts. Your 401(k) may bear the cost.
By Thomas Heath, August 31, 2017 at 2:58 PM

President Trump called for “fundamentally reforming” the tax code, and said he would work with Congress to achieve it at a speech in Springfield, Mo., on Aug. 30. (The Washington Post)

Ah, yes. Donald Trump, the great reformer, having presented his non-existent plan to replace Obamacare (Romneycare), by trying to leave 20 million lower-income men, women, and children without health care, now will build on his success by “fundamentally reforming” the tax code.

We assume his attitude toward lower-income people will not change.

House Republicans may tinker with the hugely popular 401(k) retirement benefit as part of their tax reform package.

Politico reported that one proposal would be taxing the money that workers place into their 401(k) savings plans up front instead of imposing the tax when they take the money out in retirement — 20, 30 or 40 years hence.

The idea would raise billions of dollars. 

Image result for trojan horse
Tax “reform,” a Trojan horse for benefit reduction

Immediately, you see all “reform” plans will be based on the myth that the federal government needs and spends your tax dollars.

Contrary to popular myth, your tax dollars are not spent or even saved. Upon receipt, your tax dollars no longer are part of any money supply measure. Hence, federal taxes are destroyed.

While monetarily NON-sovereign state and local governments do need and use tax dollars, the Monetarily Sovereign federal government uniquely pays its bills by creating new dollars ad hoc.

Even if there were zero federal taxes, the federal government could continue spending forever. State and local governments do not have that privilege; their financial systems resemble your finances and are totally different from federal finances.

Not only does the federal government not need to “raise billions of dollars,” but doing so actually takes billions of dollars out of the economy, and cuts into economic growth. A federal tax is the economy’s deficit.

Unfortunately, both political parties have spent the last 75 years convincing you, the public, that federal finances are just like state and local finances, business finances and personal finances.

However, the facts are:

  1. Being uniquely Monetarily Sovereign, the federal government pays its bills by sending instructions (not dollars), in the form of checks or wires, instructing creditors’ banks to increase the balances in creditors’ bank accounts. At the instant the banks obey those instructions, brand new dollars are created.
  2. The so-called “debt” is nothing more than the total of deposits in Treasury Security accounts, which are very much like savings accounts, and are not a future burden on the federal government or on future taxpayers. The federal government could pay off the entire “debt” tomorrow, without collecting a penny in taxes, simply by returning the dollars currently residing in those T-security accounts.
  3. Federal deficits are merely the difference between spending and taxing; they and could be sustained forever. In fact, federal deficits are necessary for economic growth. Gross Domestic Product = Federal Spending + Non-federal Spending + Net Exports. Cut federal spending and you cut GDP. That is why a lack of deficits leads to depressions and recessions.
  4. Being the creator of the dollar, and being sovereign over the dollar, the federal government can give the dollar any value it wishes. The Fed controls inflation to its target rate of about 2.5% by controlling the Demand for the dollar. Through more than 75 years of wars, natural disasters, and recessions, the Fed has made inflation average close to the Fed’s target rate. The federal government also can control the value of the dollar simply by declaring a value, just as it did for the very first dollars in 1780.

The 401(k) program, which began with the Revenue Act of 1978, has a mixed bag of supporters and critics.

Some say the tax-deferred accounts are in­cred­ibly successful at encouraging Americans to save for retirement.

Critics say it favors wealthier people who can afford to save and get a nice tax break while leaving behind low-income workers who cannot afford to do without the cash now.

The 401k has encouraged people to save for retirement, for two reasons: People don’t understand the implications of “save today but pay tomorrow,” and they don’t understand the federal government’s unlimited ability to fund Social Security.

Save Today But Pay Tomorrow
There are many tax savings that are not available in a tax-deferred account.

Long term capital gains and dividends are taxed at lower rates than are such gains when taken from a tax-deferred account. Similarly, you never want to hold municipal bonds in a tax-deferred account.

In short, a tax deferred account such as 401k, saves you taxes today but depending on your future income, you may pay far more in taxes, tomorrow.

Funding Social Security
The funding for Social Security, as with the funding for all other federal programs, is widely misunderstood.

You have been told that Social Security (and Medicare) are funded by FICA tax payments via “Trust Funds.” You probably visualize your FICA payments going into an account, where they are saved until they are distributed to pay your benefits — something like an annuity insurance policy.

Wrong. You’ve been scammed.

Because the federal government is Monetarily Sovereign, it creates brand new dollars every time it pays a bill. The so-called “trust funds” are accounting fictions. Even if there were zero FICA collections the federal government could continue paying Social Security and Medicare benefits, forever.

The federal government has the financial ability to provide Social Security  (Step #3, below)and Medicare (Step #2, below) benefits for every man, woman, and child in America, without collecting a single penny in FICA taxes.  (Step #1, below)

President Roosevelt, the originator of Social Security knew this. His stated reason for collecting FICA was not to provide funds, but rather to ensure that the government could not take away Social Security.

Roosevelt reasoned that if people thought they paid for SS, they would rebel against eliminating it.

As FDR foresaw, endowing Social Security with its own revenue stream has protected it over the years from grasping politicians — mostly conservatives, who have aimed since 1935 to eviscerate the program.

The weekly or bi-weekly payroll deductions that go to the program have given workers a proprietary interest in benefits that has been hard to undermine.

Not only have you been scammed by the completely unnecessary collection of FICA from your paycheck, but you have been scammed in a 2nd way: Rich people don’t pay FICA.

First, there is a payroll limit, above which no FICA is collected. And second, there are many categories of income — categories like capital gains, partnership profits, etc. that rich people generally are in — which are not subject to FICA.

In short, FICA is an unnecessary tax on the 99%, a perfect way to widen the gap between the rich and the rest — exactly what the rich want.

But it gets even worse. By pretending that FICA pays for benefits, the rich-bribed politicians not only have reduced your Social Security benefits (to “save” SS), but your benefits are taxed at your highest tax rate.

At this point in the post, we know:

  1. The federal government cannot run short of its own sovereign currency, the dollar.
  2. The government creates brand new dollars, every time it pays a bill.
  3. Therefore, the federal government, unlike state and local governments, has no need for taxes, and in fact, destroys your tax dollars upon receipt.
  4. Federal deficit spending is necessary for economic growth
  5. The federal “debt,” just being deposits in T-security accounts, is infinitely “sustainable.”
  6. The federal government, being sovereign over the dollar, can give the dollar any value it chooses, and so has the unlimited power to prevent inflation.

Everything you read and hear about “tax reform” and the “debt limit” is based on the lie (“The Big Lie”) that dollars are scarce to the federal government. 

When you begin a proposal with a lie, everything that comes after is tainted by that lie.

We already have demonstrated that FICA not only is unnecessary, but being regressive, it punishes the 99% and widens the Gap between the rich and the rest.

So it is with some surprise that we hear Donald Trump and the GOP wish to eliminate FICA. It is so unlike them to want to benefit the middle class. What is going on, here?

Read this:

Trump’s proposal to eliminate the Social Security payroll tax may be his worst idea yet.

President Trump’s tax reform agenda is in trouble. That’s not news, but one proposal that his team has floated as a way, ostensibly, to cut taxes on the middle class is.

According to the Associated Press, they’re toying with the idea of eliminating the payroll tax, which funds Social Security and part of Medicare, or cutting it drastically.

This is an absolutely terrible idea, partially because it smells like a back-door way of cutting Social Security benefits. It needs to be nipped in the bud.

“This proposal is a Trojan horse,” the veteran Social Security advocate Nancy J. Altman told me. “It appears to be a gift in the form of middle-class tax relief, but would, if enacted, lead to the destruction of working Americans’ fundamental economic security.”

Get it? Roosevelt was right.

Yes, FICA should and could be eliminated. It is an unnecessary and regressive tax on the 99%.

But so long as the public believes the federal government needs and uses tax dollars, eliminating FICA is an open door to the justification of SS & Medicare benefit reduction.

Not only has the public been brainwashed into believing federal taxes are necessary to pay for federal spending, but the tax “reformers” wish to cut taxes on the rich so they can justify cutting benefits to the rest of us.

We should adopt the Ten Steps to Prosperity (below), but only if the public understands why the government has the unlimited ability to take those steps.

Bottom line: Today’s breed of tax “reformers” will be delighted to make you poorer and the rich richer, by cutting your benefits and raising your taxes, and telling you this is good for America (meaning the 1%).

Learn the truth. Demand the truth. Fight like hell.

Otherwise, you and your children are screwed.

Rodger Malcolm Mitchell
Monetary Sovereignty


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.
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.
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.
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.
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.


5 thoughts on “The tax “reform” Trojan horse. A sneak attack on social benefits

  1. Conservatives wish to eliminate big government, regulations, and social programs. People should be self-sufficient.

    I agree. Eliminate all social programs — except the ones that help you and me.

    It is said that in a foxhole, no one is an atheist, and in a disaster, no one is a conservative.


  2. Language is powerful. We have come to believe certain things about our government because we have been fed a steady diet of metaphors that embed scary images in our minds. These analogies are all based around the image of an irresponsible person or business that gets into financial trouble, spending more than they earn.
    Look at these common phrases and think how they make you feel:

    • Exploding budget deficit
    • Mountain of debt
    • Mortgaging our future
    • Living beyond our means
    • Spending is unsustainable

    It all just sounds bad, right? These word images make us fearful or angry. But what if the underlying metaphor is actually wrong? Do you or I issue the nation’s currency?

    Our government issues the nation’s currency and is therefore nothing like a household or business. When there is a single supplier of something that serves the general public, what does that remind you of? It is someone who holds a “MONOPOLY”-Congress holds this Monopoly an is the ISSUER of our curreny.

    The debt ceiling is meaningless as a method for determining the right size of government and, to the extent it is weaponized by Congress, quite dangerous.

    But the argument for eliminating the debt ceiling actually goes even further.

    Why do we call Treasury Bonds a “debt” when all our government “owes” is the currency it creates on demand? Government bonds are not “debt” in any normal sense of the word. We can’t even buy government bonds unless we first have government currency. If we first have to get the government’s money before we can buy its bonds, how can a bond be a source of revenue to the government? We actually have it backwards – government spending is the source of our savings, not the other way around!

    We live in an age where our government’s fiscal activity disproportionately harms the weak. Imposing unnecessary austerity has become the norm under a pretense of market discipline, and the suffering that results is very real.

    Congress should seize on this opportunity for reform, ending the debt ceiling, ending the harmful Budget Control Act limitations, and begin using its fiscal power to serve the people’s interest and invest in America again.


  3. Robert Lucas said “We are all Keynesians in a foxhole”
    As soon as the greatest terror has passed analogies to household finances start creeping back again… Dan Davies.
    Napoleon; “in politics, stupidity is not a handicap”
    Marshall McCluhan “Only small secrets need to be protected. The big ones are protected by public incredulity”


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