The four worst taxes in America

INTRODUCTION When we rank the “worst” taxes, we consider those that do the least good and cause the most harm to the American people and the economy. The U.S. federal government is unique. It is Monetarily Sovereign, unlike state and local governments, businesses, and individuals, which are monetarily non-sovereign.

It initially created the U.S. dollar—as many as it arbitrarily chose—and remains the only entity with the infinite ability to create dollars. The federal government cannot unintentionally run short of dollars. Even if it didn’t collect a penny in taxes, it could continue spending forever. Thus, no federal government agency can run short of dollars unless that is what the government wants. Anyone who claims otherwise either is ignorant about federal financing or lying. Often, you have seen and heard statements indicating the government or certain agencies of the government — Social Security, Medicare, et al. — are about to run out of dollars or that specific proposals — Medicare for All, increased anti-poverty benefits, etc. — are “unaffordable.” You will encounter questions like, “Who will pay for it?” or “When will the government run out of other people’s money?” Such statements deceive, intentionally or not. Sadly, even government employees, media representatives, and economists who should know better repeatedly promulgate disinformation. Sometimes, you will be treated with honesty, such as the following statements which have been repeated on this blog:

Former Fed Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”

Former Fed Chairman 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. It’s not tax money… We simply use the computer to mark up the size of the account.”

Current Fed Chairman Jerome Powell: “As a central bank, we have the ability to create money digitally.”

St. Louis Federal Reserve Bank: “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.”

Different entities are Monetarily Sovereign over other forms of money. For example, the European Central Bank (ECB) is sovereign over the euro: When asked, “Can the ECB ever run out of money?” Mario Draghi, the ECB president, replied, “No. We cannot run out of money.”

Unfortunately, such honesty is rare, and we are more likely to be subjected to misleading statements:

Molly Dahl, the Chief of Long-Term Analysis at the Congressional Budget Office (CBO), recently emphasized to the Senate Budget Committee that Social Security could run out of funds in about eight to nine years if no action is taken.

The Social Security Board of Trustees also projected that the trust funds could be depleted by 2035.

And,

The Medicare Board of Trustees has projected that the trust fund for Medicare Part A, which covers hospital insurance, could be depleted by 2031

Tricia Neuman, the executive director of the Program on Medicare Policy at KFF, has also highlighted the need for action to avoid severe Medicare cuts.

Additionally, Robert Emmet Moffit, co-editor of Modernizing Medicare, has pointed out the financial challenges due to factors like the rising number of older Americans and advanced medical technology.

These “experts” and many others fail to mention that the problems could be eliminated at the stroke of a President’s pen by approving a Congressional bill that would, in essence, say, “The federal government will fully fund All Medicare and Social Security expenses.” The federal government neither needs nor uses tax dollars to fund anything. All federal tax dollars are destroyed upon receipt. When federal taxes are taken from the public, they begin as checking account dollars in the M2 money supply measure. When they reach the U.S. Treasury, they suddenly cease to be part of any money supply measure. They simply disappear into the federal government’s infinite supply of money. Infinity plus any number equals infinity. Federal taxes do not provide the federal government with spending money. The government creates new dollars by paying creditors’ bills. To pay a creditor, the government sends instructions (not dollars) to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. New dollars are added to the M2 money supply measure when the bank does as instructed. The bank balances its books by clearing the transaction through the Federal Reserve system. What, then, is the purpose of federal taxes?

1. Federal taxes assure demand for the U.S. dollar by requiring taxes to be paid in dollars.
2. Federal taxes allow the federal government to control the economy by taxing what the government wishes to discourage and by giving tax breaks to what the government wishes to reward.
3. Then, there is the real function of federal taxes: To help the rich become even wealthier by widening the gap between the rich and the rest.

It is the Gap that makes the rich rich. Without the Gap, no one would be rich; we would all be the same. The wider the Gap, the richer. To become richer, one must accomplish two things: gain more wealth for oneself and/or ensure those below have less. Federal tax laws accomplish the latter by granting tax exceptions for the kinds of income enjoyed by the wealthiest among us. Just one example:

Donald Trump on his federal tax returns declared negative income in 2015, 2016, 2017 and 2020, and that he paid a total of $1,500 in income taxes for the years 2016 and 2017. On their 2020 income tax returns, Trump and his wife Melania paid no federal income taxes and claimed a refund of $5.47 million.

Billionaire Donald Trump paid less income tax than you did from 2015 through 2020. And this is not an exception. It is a fundamental purpose of federal tax laws—the Gap-widening process for which the rich bribe Congress. THE FOUR WORST TAXES IN AMERICA  Because the federal government neither needs nor uses tax dollars, three of the four worst taxes are federal. They take dollars from the private sector (also known as “the economy”) and transfer them to the government, where they are destroyed. Mathematically, federal taxes (but not state/local taxes), pay for nothing, reduce Gross Domestic Product, and are recessive.

4. The fourth worst taxes in America are the ones that are not federal: State and local sales taxes. Unlike the federal government, state/local governments are part of the U.S. economy. They deposit tax dollars into bank accounts, which become part of the M2 money supply measure. Thus, state/local taxes are not mathematically recessive. However, they are regressive. They negatively affect the rich much less than the rest of us simply because they use a smaller percentage of their income to purchase sales-taxable items. 3. The third-worst tax in America is the federal capital gains tax. In theory, this tax could be somewhat beneficial. On the surface, it should tax the rich more than others because they are far more likely to have capital gains. Further, the higher tax on short-term (one year or less) capital gains should encourage investment above speculation. The reality is far different. The rich have bribed Congress to include so many exceptions and caveats in this highly complex tax law that the rules allow the rich to escape most if not all, taxation (See Donald Trump). Though federal tax dollars are destroyed upon receipt, the tax could benefit the economy if it served a practical purpose: Narrowing the Gap between the rich and the rest. In practice, it does the opposite. 2. The second worst tax in America is the federal tax on Social Security benefits. While the notion that the federal government should provide benefits to the elderly and disabled makes sense, unnecessarily taxing those benefits is senseless and regressive. The people most in need of Social Security benefits have the least ability to pay taxes on the program’s already meager payments. Despite having the infinite ability to pay benefits and unnecessarily collecting taxes on benefits, the federal government repeatedly has raised  the minimum age for receiving full benefits:

Normal Retirement Age

Year of birth	Age
1937 and prior	65
1938	65 and 2 months
1939	65 and 4 months
1940	65 and 6 months
1941	65 and 8 months
1942	65 and 10 months
1943-54	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67

Taxing benefits while raising eligibility ages is unconscionable but perfectly rational for a government that has been bribed to widen the income/wealth/power Gap between the rich and the rest. 1. The worst tax in America is FICA, the Federal Insurance Contributions Act. The federal payroll tax supposedly funds Social Security and Medicare programs. It is deducted from each paycheck and ostensibly provides financial and health care benefits for retirees, disabled Americans, and children. It does none of those things. Like all federal taxes, it is destroyed upon receipt by the Treasury. It is designed to impact salaried people in lower-income groups. It is not levied against the type of income the rich most enjoy, such as capital gains, interest, and other “non-income” income. It is limited to salaries below $168,600. A person earning a million dollars a year would pay almost* the same amount of FICA tax as a person earning $168,000 a year. (*An extra 2% of salaries above $299K) is deducted for Medicare.) Half of FICA supposedly is paid by businesses, but this is a charade. Businesses consider the cost of FICA when determining salaries, particularly for lower-paid employees. It is the lower-paid employees who ultimately suffer the full burden of FICA. However, FICA encourages businesses to hire workers as independent contractors liable for their retirement financing. This allows companies financial room to pay higher salaries, giving the illusion of more generous compensation. FICA and its sister taxes, the self-employment tax on individuals who work for themselves, and FUTA, the Federal Unemployment Tax Act that employers pay for unemployment insurance, are the worst taxes because they are the most regressive. They do the most to widen the Gap between the rich and the rest. Taxing employment discourages businesses and the economy from employing people, which is exactly the opposite effect one would desire for any government action. All federal employment taxes could and should be eliminated immediately. SUMMARY

1. Federal taxes do not fund federal spending. The federal government destroys all the tax dollars it receives.
2. Further, federal taxes reduce GDP, so they are recessive.
3. Federal tax laws, as currently written and enforced, are regressive widening the income/wealth/power Gap between the rich and the rest.
4. However, federal taxes support demand for the U.S. dollar and help the government control the economy by taxing what it wishes to limit and giving tax breaks to what it wishes to encourage.
5. State and local taxes fund state and local spending. They do not reduce GDP but are often regressive.
6. All federal taxes should be eliminated except where the government wishes to limit some activity.
7. Another means of federal control would be to use federal spending (rather than tax breaks) to support activities the government wishes to encourage.
8. The federal government could help reduce the regressive nature of state/local taxes by providing per capita aid to all states.

And yes, I know, federal spending supposedly causes inflation. That already has been debunked here, here, here, and elsewhere in this blog. Federal spending prevents and cures inflation when it acquires and distributes the scarcities causing inflation. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY