The “Big Lie” in economics is: Federal taxes fund federal spending.
State and local taxes fund state and local spending, because state and local governments are monetarily non-sovereign, while the federal government is Monetarily Sovereign.
But federal taxes do not fund federal spending. Even if all federal tax collections were $0, the federal government could continue spending forever.
The federal government is the creator and issuer of the U.S. dollar. It doesn’t need or use tax dollars. The sole purpose of federal taxes is to aid the government in controlling the economy by taxing what it wishes to discourage and giving tax breaks to what it wishes to encourage.
That’s why the federal government is able to pass multi-trillion dollar spending bills without worrying about “Who’s going to pay for it?” They just create the money.
State and local governments are merely users of the U.S. dollar. They do need and use tax dollars.
And that makes all the difference.
That Big Lie leads to wooly-brained concerns that the U.S. government can run short of the very dollars it creates, and that its agencies can become insolvent.
But as big and nutty as the Big Lie is, there is an even bigger, nuttier, and more damaging lie:
The unspoken lie:
The federal government does not have the power to change its own laws.
Who would believe that? Well, the Committee for a Responsible Federal Budget (CRFB) for one. Here is what they tell people:
Some of the nation’s most important government programs are financed with dedicated revenue sources using federal trust funds. Four of those programs are within 14 years of insolvency.
FY 2022: Highway Trust Fund (HTF)
FY 2026: Medicare Hospital Insurance (HI) Trust Fund
CY 2032: Social Security Old Age and Survivors Insurance (OASI) Trust Fund
CY 2035 Social Security Disability Insurance (SSDI) Trust Fund
By law, trust fund spending cannot exceed revenue once reserves are depleted. Insolvency would trigger a 7 percent cut to disability benefits, a 13 percent cut in Medicare payments, a 25 percent cut in highway spending, and an abrupt across-the-board 27 percent cut in Social Security retirement benefits.
This situation supposedly is so dire, the CRFB article repeats it, just to make sure you are sufficiently frightened:
Under the law, trust fund programs cannot spend in excess of their dedicated funding sources.
Once the trust funds are depleted, the programs may only spend incoming revenue. For the Highway Trust Fund, this means new projects will be immediately halted and spending ultimately reduced by one-quarter.
For Medicare, all payments will be cut by 13 percent or delayed by an equivalent amount upon insolvency.
“By law”? “Under the law”?
Whose law are they talking about? Do they mean Russia’s law? China’s law? The CRFB’s law?
No, they are talking about America’s law, you know, the law that is created by Congress and the President.
It is the law that is not chiseled into marble, but rather changed every month of every year, at the whim and behest of Congress and the President.
There is absolutely nothing to prevent Congress and the President from changing the law and allowing trust fund spending to exceed revenues. A federal clerk on a typewriter could do it.
The CRFB continues on its errant path, with lie after lie:
Policymakers must restore solvency to the major trust funds to avoid abrupt across-the-board benefit and spending cuts.
However, solvency solutions can also improve the sustainability of the national debt, increase economic output and income, and improve policy outcomes.
Whoops, there’s the CRFB’s favorite word: “Sustainability.” What does it mean? No one knows, but it surely must be something important.
In 1940, the federal debt was $40 billion. Today, it has grown to about $25 TRILLION! That’s a 62,500% increase. Let me pretend to put it in scare headlines, like the CRFB does.
OUR FEDERAL DEBT HAS INCREASED SIXTY-TWO THOUSAND, FIVE HUNDRED PERCENT IN EIGHTY YEARS!
And yet here we are, sustaining a debt that supposedly can’t be sustained, along with the strongest economy in the world.
The article continues:
CBO’s budget projections generally assume trust fund programs continue spending as scheduled after insolvency, as if lawmakers used general revenues to support the funds. Under CBO’s baseline, debt will double from a near-record 100 percent of GDP in 2020 to over 200 percent of GDP by 2051.
Wait! What? “Used general revenues”? What does that mean?
It means that with all the wailing and weeping about “unsustainable,” the CRFB acknowledges that the federal government simply can pay for the bills and not rely on phony trust funds.
(Although the CRFB erroneously says the government could use “general revenues” the federal government does not use revenues for anything.)
The federal government simply could write checks to support all the spending of the Highway Trust Fund, the Medicare Hospital Insurance Trust Fund, the Social Security Old Age and Survivors Insurance Trust Fund, and the Social Security Disability Insurance Trust Fund — or better yet, do away with those trust funds altogether and simply pay the bills.
That’s what it does for every other agency of the government.
There is no need for the dire consequences of insolvency.
Recognizing that the phony trust funds represent important benefits to Americans, here are the CRFB’s “solutions” to the Highway Trust Fund’s fake impending doom:
|Increase gas and diesel taxes by 10 cents||$140 billion|
|Impose 1 cent per mile Vehicle Miles Traveled Tax on all vehicles||$150 billion|
|Impose 5 cent per mile Vehicle Miles Traveled tax on commercial trucks, only||$160 billion|
|Impose $5 per barrel per barrel tax on oil||$160 billion|
|Impose $25 per ton carbon tax in place of the gas tax||$700 billion|
|Freeze Highway Spending for Five Years||$60 billion|
|Replace Surface Transportation Block Grants with Matching Grants’||$70 billion|
|Cut Federal Transit Spending in Half||$60 billion|
|Reduce Federal Share of National Highway Performance Program by 15%^||$50 billion|
|Repeal Davis-Bacon Act||$20 billion|
In short, the CRFB wants the federal government to remove $1.31 TRILLION from the economy as “revenue,” while adding $260 BILLION less than planned — a $1.57 trillion loss for the economy.
Do you think taking $1.57 TRILLION stimulus dollars from the private sector will affect economic growth? Who doesn’t think so?
Well, the CRFB doesn’t seem to think that’s a problem at all.
And here’s what the CRFB would like to do with Medicare Part A. (We should mention that the federal government simply pays for Medicare Part B. No trust fund, there. That’s exactly what they should do for Part A.)
Here, the CRFB wants to remove $2.055 TRILLION from the private sector. So between just two of the phony “Trust Funds,” the CRFB suggests removing $3.7 TRILLION from the economy in just ten years.
What effect do you think that would have?
And that doesn’t even count what they want to do with the Social Security “Trust Funds.”
The CRFB use the euphemism, Social Security “reforms.” If they were being honest, they would label the Social Security “benefit cuts and tax increases.”
And if all this wasn’t damaging enough, let’s move on to what the CRFB wants to do about the $25 trillion federal “unsustainable” debt. The CRFB thinks that’s too high. How many trillions should we remove from the economy to pay that off, even though the so-called “debt” is nothing more than the total of deposits into T-security accounts, which are paid off simply by sending the dollars back?
These deposits are similar to deposits into a bank safety-deposit box. Money goes in, and when you want it, you take the money out. It’s not real debt at all.
The bottom line of all this is: The federal government can change any laws it wishes to change. It has full power to:
- Fund all federal benefits simply by issuing checks.
- Eliminate all “debt” by returning the money currently in T-security accounts.
All this “woe-is-us” wailing and moaning about debt and solvency is meant to mislead you. Federal finance is similar to the Monopoly game in which the federal government makes all the rules.
Pass a couple of laws and the federal government would be “debt”-free and its agencies would be flush with spending money, and you wouldn’t have to worry about your Social Security, Medicare, and road funds disappearing.
All it requires is for you, the voter, to understand the realities of Monetarily Sovereign federal finance.
Rodger Malcolm Mitchell
Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.
The most important problems in economics involve:
- Monetary Sovereignty describes money creation and destruction.
- Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
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 Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:
Ten Steps To Prosperity:
- Eliminate FICA
- Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
- Social Security for all
- Free education (including post-grad) for everyone
- Salary for attending school
- Eliminate federal taxes on business
- Increase the standard income tax deduction, annually.
- Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
- Federal ownership of all banks
- Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.