What you pay for ignorance of federal financing. Part II

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Let’s quickly review the facts:

  1. The U.S. federal government is Monetarily Sovereign. Even if all federal tax collections fell to $0, and expenses tripled, the government would not unintentionally run short of dollars.
  2. The government unnecessarily charges you for such services as Social Security and Medicare.
  3. Socialism is ownership and control, not spending.

Here are excerpts from an article that ran online today, 1/129/2022: Medicare Isn’t Free

Contrary to popular opinion, Medicare isn’t entirely free.

In a video interview, Dana Anspach, the founder and president of Sensible Money, explained the components of Medicare and the costs associated with Part B and Part D.

Medicare Part A, often referred to as hospital insurance, is free if you worked enough years in the U.S. to qualify. “Typically, if you’re eligible for Social Security benefits, you’re also eligible for Medicare Part A at no cost,” said Anspach.

This would be true if the federal government hadn’t socked you and your employer for FICA taxes, which purportedly fund Medicare and Social Security.

In reality, these taxes fund nothing. The federal government creates new dollars ad hoc, every time it pays an invoice.

Quote from Ben Bernanke when, as Fed chief, he was on 60 Minutes:
Scott Pelley: Is that tax money that the Fed is spending?
Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.

Medicare Part B covers other services and supplies, and it has a monthly cost that varies depending on your income.

The money deducted for Part B, like all other payments to the federal government, pay for nothing. All dollars received by the federal government are destroyed upon receipt.

When you pay federal taxes, dollars come out of your checking account. These dollars come from an money-supply measuren called “M1.”

When the Treasury receives your M1 dollars, they cease to be part of any money-supply measure. The reason: It is impossible to measure the amount of money the Treasury “has,” given that the government has the infinite ability to create its own sovereign currency, the U.S. dollar.

So those M1 dollars effectively are destroyed upon receipt.

And there is Part D, for prescriptions, and it is free if your income is low enough, but it has a cost once your income exceeds various threshold amounts.

The following chart outlines the payments — the unnecessary payments — you are forced to make in order to receive medical benefits from the federal government.

The Four Parts of Medicare

You have been brainwashed into believing the federal government, which created the U.S. dollar from thin air, now somehow can short of the dollars it created.

So, you are led to believe it financially is necessary for the federal government to receive your dollars, to pay for services.

It isn’t. The federal government has neither the need nor the use for your dollars. It has the infinite ability to create new dollars.

That is how it is able to sustain a debt of $25 trillion with no worries at all.

You are swayed by reasonable-sounding complexity:

“Like so many things associated with retirement, it’s more complicated than you may think

“First, the Social Security office references your tax return data from two years prior to determine your premium level, so if 2022 is your first year enrolling in Medicare, they will use data from your 2020 tax return.”

“Let’s assume you are turning 65 in 2022, and your MAGI from 2020 is below $91,000 if single/$182,000 if married filing jointly; in this case, your Part B premiums are $170 per month and Part D will be free. (Your MAGI is calculated by adding back any tax-exempt interest income to your adjusted gross income (AGI).)

‘Now, if your MAGI exceeds additional threshold amounts, your premiums will be higher. ‘This is referred to as means testing and is technically called the IRMAA. You are notified of your premium amounts via a letter from the Social Security office called your Initial Determination Letter, said Anspach.

The largest premiums of $578 for Part B and $78 for Part D apply to MAGI greater than $500,000 for singles and $750,000 for marrieds.

Now if you are not yet enrolled in Social Security, you will receive a quarterly invoice for these premiums, said Anspach. But if you are enrolled in Social Security, the premiums are deducted from your monthly Social Security payment.

So many caveats; so many details. And it’s all a lie. The federal government destroys your FICA dollars and deductions from Social Security the moment they are received.

The federal government easily could and should pay for Medicare Part A, Part B, and Part D without charging you anything.

So why does the government force you to send it dollars that it destroys?

The following chart, from the aforementioned article, contains a hidden clue:

Part B premiums

Did you see the clue?

Look at the last line. There is a ceiling on payments above a certain amount of income. That is, the person who makes a half million, or a million, or a  hundred million dollars a year pays the same.

The increases in payments stop at a certain level.

This is the same trick the government uses when calculating FICA payments. In 2021, employees pay a 6.2% Social Security tax (with their employer matching that payment) on income up to $142,800. Any earnings above that amount are not subject to FICA tax. 

The very rich are never satisfied. They always want to be richer.

“Rich” is a comparative. There are two ways to become richer: Obtain more for yourself or widen the income/wealth/power Gap between you and those below you by forcing them to receive less.

Because the very rich control the U.S. government, Congress and the President are only too happy to oblige by setting a ceiling on payments to the government.

As a share of disposable income, the rich pay far less than do you.

This effectively widens the Gap, thus making the rich richer.

2. It collects an unnecessary and huge FICA tax from salaried employees and their employers, not from dollars earned in non-salaried remunerations — more representative of the rich.
3. Employers count the FICA they pay as being part of salaries, thus reducing paid salaries.
4. Despite the fact that Social Security is quasi-insurance, ostensibly paid for by FICA, the government collects proportionately more taxes from lower-income people.
5. Lower-income people generally work for salaries that are taxed at the highest rates. Other forms of income, more usual for the rich, are taxed at lower rates or not taxed at all.
6. Wealth generally is not taxed.
7. Tax loopholes available primarily to the rich.
7. Tax complexity is intentional. It allows the rich, who can afford expensive tax accountants and lawyers, to take advantage of arcane tax laws, not understood by the general public.
8. Student loans. The rich can pay tuition. The not-rich are burdened by loans.
Keep in mind that all of the above taxation and fees, together with limits on federal benefits, are unnecessary. The federal government neither needs nor uses tax dollars, and its spending is not financially limited.
The rich want you to believe that federal finances, which are Monetarily Sovereign, are the same as state/local government finances, which are monetarily non-sovereign.
The fundamental difference is that the spending by state and local governments is limited by income from tax receipts and borrowing. Federal spending is not limited by any form of income.
The Federal government doesn’t need your hard-earned dollars. Ignorance is expensive.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. 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:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. 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.

MONETARY SOVEREIGNTY

Published by Rodger Malcolm Mitchell

MBA Northwestern, business turnaround expert, economist

Published

8 thoughts on “What you pay for ignorance of federal financing. Part II”

  1. Having spent Monday to Wednesday in the hospital I suppose I now owe Medicare $1556 that they can delete out of existence. Really love how being on Social Security Disability keeps a person stuck in an endless poverty trap.

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  2. Like a broken clock even Trumpty Dumpty is right every one in a while: https://mobile.twitter.com/stephaniekelton/status/1070677902289764352?

    Food for thought [to ask the ivory tower astrologers]: If raising rates was a great method to curb inflation wouldn’t then inflation simply cure itself? If by essentially making things more expensive by raising the interest rate is the solution how is that different from the supposed problem of things being more expensive on their own

    Is sleepy Joe so ignorant the he actually believes in the vital necessity of the ‘pay for’ game: https://mobile.twitter.com/StephanieKelton/status/1382045472580366344 A time wasting grief addicted funeral junky from Delaware is better than Trump, but not much better.

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    1. The interest rate theory is: Raising rates makes T-securities a more attaractive investment, but to invest in T-securities you need dollars, so the increase in demand for dollars increases the value of the dollar, which works against inflation.

      It is a workable method, but not nearly as good as solving the underlying cause of inflation, which is shortages — especially shortages of oil and food. Today we have many shortages in addition to oil and food, so raising rates won’t do the job. The government needs to get more drilling (yes, global warming problem) plus more aid to efficient farming. We also need to get our own computer chip manufacturing, and to help the labor shortage, let in more immigrants while cutting FICA taxes and voting for Medicare for All

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    2. Except Trump’s comments about debt were crazy. He wanted to buy back federal debt, which is about as ignorant as it gets. There are zero reasons to “buy back” T-securities. The Fed buys T-securities to pump dollars into the economy, but doesn’t buy them “back” to reduce debt or to save on interest.

      Trump demonstrated his ignorance of federal debt.

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      1. I’m not so sure Trump was all that crazy about “buying back federal debt”, although I am sure that he didn’t understand what that actually meant. The only real benefit of T-securities is to provide welfare, in the form of interest payments, to the wealthy who can afford to buy them. When the Fed redeems them from the private sector, it exchanges bank reserves for the Treasury securities. Bank reserves are included in M1, but T-securities are not, so the exchange increases the money available for spending.

        I know you are in favor of any increase in government payments into the economy, but not all such payments are equal in their benefits. If the money injected by the government goes to savings instead of spending, it doesn’t really get into the economy. That’s what happens with those payments to the wealthy; they just add to their wealth, widen the Gap, and increase the political power of the elites.

        And, a minor quibble. From what I see the politicos saying (and most mainstream economists), the false comparison with the federal government finances is to relate them to a household budget, not the state/local governments, although that is also a false comparison.

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        1. Be careful not to fall into the “first use” trap. Although by definition, saving is not spending, saving mostly results in investing, which in turn leads to spending. When a rich person buys a security (aka “investing”) that is a “first use.” The rich person pays someone dollars for the security, and that someone can use the dollars for spending {“second use.”)

          Ultimately, as dollars flow through the economy, the vast majority hit GDP.

          By the way. the purpose of T-securities is twofold:
          1. To provide a parking place for unused dollars, which helps stabilize the dollar
          2. To help the Fed control interest rates, which helps control inflation.

          T-securities are nothing more than U.S. dollars, except they are illiquid and pay interest.

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        2. Government payments into the economy occur by two means – fiscal operations (direct) and monetary operations (indirect). Fiscal operations include direct government spending into the economy, which has a direct impact on GDP. Spending on education, health care, infrastructure, green economy, etc. benefits middle class and lower income families and helps narrow the gap. This is why politicians, especially Republicans and “moderate” Democrats don’t like this type of spending.

          Monetary operations includes primarily Quantitative Easing, which is the purchase of T-Securities and other forms of securitized debt (i.e. mortgage) in exchange for pumping excess reserves into the banking system. The purpose of QE is to increase bank liquidity and lower interest rates to increase bank lending. This serves only one purpose – to inflate asset prices, primarily stocks and real estate, which benefits the wealthy and widens the gap. Rich people love QE, which is why most of the Trump pandemic relief was in the form of $700B+ in QE and why the stock market and real estate markets shot up benefiting Trump and the wealthy elite directly. In addition, the $500 billion in direct payments to families was of great political benefit and also helped the finance industry, as most of the money went to pay mortgages and other debts.

          It’s also interesting to note that interest payments to banks are included in “GDP” numbers, even though these are essentially asset transfers to the finance sector with nothing being produced or consumed. U.S. has great GDP numbers but we produce relatively little (hence the shortages) and much of that GDP goes directly to the non-productive gap widening FIRE sector (Finance, Insurance, Real Estate). I guess it’s no coincidence that many leaders at the Fed and Treasury were ex-investment bankers (Greenspan, Powell, Paulson, Geithner, Lew, Mnuchin, etc.).

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