Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Alan Greenspan: “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. A government cannot become insolvent with respect to obligations in its own currency.”
St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e.,unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.
When the best intentions are based on the worst assumptions, the result will be chaos.
Keep the following three facts in mind as you read the referenced article:
1. The U.S. federal government, unlike state and local governments, is Monetarily Sovereign. It invented the U.S. dollar, and it originally created millions of U.S. dollars from thin air, by creating appropriate laws from thin air.
Today, the U.S. government continues to be sovereign over the dollar and to create U.S. dollars at will.
2. The U.S. government never unintentionally can run short of its own sovereign currency, the U.S. dollar.
Therefore, no agency of the U.S. government can run short of dollars unless the government wants that to happen.
3. Social Security is an agency of the U.S. government.
Therefore, Social Security cannot run short of dollars unless the government wants Social Security to run short of dollars.
Now for excerpts from the article:
Why Social Security Expansion May Stiff the Poor, By ANDREW BIGGS, February 13, 2019
On January 31, over 200 House Democrats jointly introduced the Social Security 2100 Act, legislation that would expand Social Security both by raising the 12.4 percent payroll tax and by phasing out the current $132,000 cap on taxable earnings.
Immediately, you see a problem. Question: If Social Security cannot run short of dollars, and the government wants to expand benefits, why is it necessary to raise the payroll tax and the cap on taxable earnings?
Answer: It isn’t. In fact, the federal government could completely eliminate the payroll tax (Federal Insurance Contributions Act – FICA), and still expand benefits to any desired level. See: The Ten Steps to Prosperity: Step 1. Eliminate FICA
Social Security Works, an activist group that was key to making Social Security expansion the de facto position of the Democratic party, crows that the Social Security 2100 Act would allow “no retiree to fall into poverty.”
Not only is that claim untrue, but this budget-busting expansion of the federal government’s already-insolvent retirement program may leave low-income retirees disappointed.
Because the U.S. government has the unlimited ability to create U.S. dollars, it cannot become insolvent, and no agency of the U.S. government can become insolvent (i.e run short of dollars with which to pay its bills).
The Social Security 2100 Act is the brainchild of Representative John Larson (D., Conn.), who took the progressive impulse to expand Social Security and turned it into detailed legislation.
Larson deserves credit for his efforts. With most members of Congress from both parties willing to go their entire careers without proposing anything to fix Social Security’s $10 trillion–plus funding shortfall, any congressman who does — to say nothing of one who attracts 80 percent of his own party to co-sponsor the bill — should be applauded.
“Funding shortfall” is the incorrect term the author gives to the difference between FICA and benefit payments.
However, FICA is not the source of benefit payments. All FICA receipts are destroyed upon receipt.
In theory, the Social Security 2100 Act would provide the low-income workers with Social Security benefit increases of up to 44 percent, a startling figure. In reality, many would see little difference in their benefits. For one thing, about 20 percent of the lowest-income quintile of U.S. workers fail even to qualify for Social Security benefits, owing to short working careers and Social Security’s ten-year vesting period.
The reason for a ten-year vesting period, or any vesting period, is to pretend that taxes fund benefits. This would be true if the federal government were monetarily non-sovereign, like city, county and state governments.
But, because Social Security is a federal program, there is no need for a vesting period. Ideally, every American would be vested on the day he or she is born.
These Americans end up relying on Supplemental Security Income, a means-tested welfare program that provides sub-poverty-level benefits while effectively prohibiting beneficiaries from working or accumulating savings.
Because Social Security benefits actually are funded by the federal government, and are not limited by tax collections, there is no reason why Americans must rely on other government programs.
Further, means-testing is an unnecessary cost-saving device. The federal government, having the unlimited ability to create dollars, does not need such cost-saving devices.
But even many low-income workers who qualify for retirement benefits won’t see much of an increase under the Social Security 2100 Act. Here’s why.
First, the Act’s advertised 44 percent benefit increase applies only to low-income workers who work for at least 30 years. Low-wage, long-career workers are unusual, making up only about a tenth of the retiree population.
For low earners with shorter careers — the ones most likely to land in poverty in old age owing to a failure to build savings — the Act offers a benefit increase of just 4 percent.blockquote>
Again, the 30-year requirement is an unnecessary, cost-saving device, based on the false linkage between FICA taxes and benefits paid.
And even these modest benefit hikes may prove to be illusory. Almost 40 percent of very low earners currently receive a supplemental benefit based on a spouse’s earnings.
For these “dually entitled” retirees, who are almost by definition low-income, the Social Security 2100 Act may increase the benefit check in their mailbox by very little or nothing.
For instance, imagine a couple where the husband’s earnings brought him $2,000 per month in Social Security benefits while the wife’s earnings brought her only $750.
Social Security’s spousal benefit would top her monthly check up to $1,000, half her husband’s check. Now imagine that the Social Security 2100 Act boosted her base benefit by 10 percent, to $825 per month. But that $75 per month increase would be deducted from her spousal benefit, leaving her with the same $1,000 total as before.
For many of these very low earners, the extra benefits won’t be enough to compensate for the nearly one-fifth increase in payroll taxes they’ll be hit with as the Social Security 2100 Act gradually boosts the current 12.4 percent rate to 14.8 percent.
The above contains additional unnecessary linkage between taxes collected and benefits paid.
The article goes on to describe other features that benefit the rich more than the poor, and then finishes with the following:
Yes, Social Security faces a significant funding gap. And yes, higher taxes are one way to fill it.
There is not funding gap, and federal taxes do nothing to assist funding.
But the Social Security 2100 Act imposes tax increases well beyond what’s needed simply to pay promised benefits in full, which itself is well beyond what is truly needed if we gradually scale down the growth of benefits for middle- and upper-income retirees.
No taxes are needed, and the last thing America needs is to scale down the growth of benefits for middle-income retirees.
It’s not at all clear why the nation should levy higher taxes on rich and poor alike merely to reshuffle most of those dollars to middle- and higher-income retirees.
Even from a progressive standpoint, isn’t there a better use for higher taxes than this?
Unlike state and local government taxes, which do fund state and local government spending, federal taxes have a completely different purpose: To encourage and discourage various activities, and/or to benefit the wealthy political donors.
For instance, when the federal government wished to encourage home ownership vs. rental, it gave a tax break to mortgage interest, but none to rental payments.
When the federal government wished to discourage cigarette smoking and liquor consumption, it taxed these “sin” activities.
The lower taxes on capital gains vs. salaries, were to benefit wealthy, political donors.
The purpose of federal taxation is not to fund federal spending. FICA does not fund Social Security. Benefits should not be limited by tax collections.
Rodger Malcolm Mitchell
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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
3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.