–Does your money belong to the government?

An alternative to popular faith

The November 23, 2009 New Yorker contained an article by James Surowiecki, titled “The Debt Economy.” He claims what he calls “tax breaks,” adversely skew the economy and cause people not to “make decisions based on economic fundamentals (but) on tax considerations.”

He gives the example of corporate interest payments vs. dividends. The former are tax deductible “tax breaks”; the later are not, which provides a “debt bias” (his words) to the economy.

Mr. Surowiecki disparages “tax breaks” as being “unnecessary” and having “nonexistent social benefits.” His solution: Eliminate tax breaks.

Consider health insurance. The government encourages companies to provide it by allowing payments to be tax deductible for the companies, and not taxable to the employees – i.e., using before-tax dollars. In contrast, people who purchase their own health insurance must use after-tax dollars. In Mr. Surowiecki’s world, the economy would benefit from eliminating the “tax break” by taxing employees’ health benefits.

This solution suggests taxes are the norm, and tax breaks are departures from that norm. That is, all the money you earn belongs to the government, and only an aberration or “break,” allows you to keep some of it.

I disagree. It is taxes, not “tax breaks,” that skew our economy, forcing decisions away from economic fundamentals. Eliminate taxes and the economy would be steered by the economic fundamentals Mr. Surowiecki craves. All taxes depart from these economic fundamentals. There are no innocuous taxes. They all make a difference. So the very act of imposing a tax, any tax, will skew the economy.

Further, there are no “fair” taxes. You can read a one-page article on this subject at: http://rodgermitchell.com/FairTaxes.html

Tax breaks are less harmful than taxes, not only because taxes skew the economy, but because all taxes remove money from the economy, thereby reducing economic growth.

Taxes are not the norm. Your money does not belong to the government. When deciding whether to tax debt or to “untax” non-debt, the economy would benefit from the later.

*Faith is belief without evidence. Science is belief from evidence.

-To: Diane Lim Rogers of Concord Coalition

An alternative to popular faith

Here is copy of an Email sent to Diane Lim Rogers, the chief economist of the Concord Coalition. We been trying to discover what she does, other than to parrot the Concord, debt-hawk party line. We decided to ask her for some information a real economist would know and, considering her position, want to share.
(Frankly, we didn’t expect an answer, and as of October 30th, have not received one. Instead, she removed our comments from her blog.)

October 7, 2009

“Hello Diane,
        For the past 17 years, the Concord Coalition has been “dedicated to educating the public about the causes and consequences of federal budget deficits (and) the long-term challenges facing America’s unsustainable entitlement programs.”
        By now, you must have assembled vast amounts of evidence supporting your mission. Can you share some of your evidence showing that our admittedly large and growing deficit has adverse economic consequences and cannot support entitlement programs?
        Thank you for any enlightenment you can provide.”

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

-It isn’t “taxpayers’ money” .. Tax rates through the years

An alternative to popular faith

The media frequently claim federal deficits spend taxpayers’ money. This is, as Star Trek’s Mr. Spock said, “illogical.”

If deficits spent tax money, they wouldn’t be deficits. “Deficit” means spending beyond tax receipts.

“Ah,” you say. “But our children and grandchildren will pay the taxes.” Wrong again. There is no historical relationship between tax rates and deficits. In more than 50 years, tax rates have gone down or remained level, depending on your income. This, despite huge deficits and even a couple surpluses.

Tax rates 60-09

Since taxes do not supply the money for federal spending (the government creates money ad hoc, for all its spending) your children and grandchildren will not pay for today’s deficits, which can and will continue forever.

So don’t be concerned if GM and Chrysler don’t pay back their loans. In fact, be concerned if they do. Any payback merely takes money out of the economy and costs jobs — call it an “anti-stimulus” — and doesn’t put one penny in your pocket.

Rodger Malcolm Mitchell
For more information, see http://www.rodgermitchell.com

-Does taxing the rich help the poor?

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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President Obama wants us to believe that increasing taxes on the rich allows him to give more to the poor, ala Robin Hood. However, there is no historical relationship between federal spending and federal tax rates, which despite massive deficits and debt, have remained level or declined for the past fifty years.

Yes, raising the tax rate on the wealthiest Americans may address a psychological need to punish the rich for being rich. But, if this tax increase succeeds in collecting more taxes from any group, rich or poor, it will hurt poor people. All taxes remove money from the economy, which slows or reverses economic growth. Even now, with so many unemployed, the poor remain slow to understand that their jobs depend on the financial health of the rich, the spending they do and the businesses they own.

The economy runs on money. Among the government’s most important jobs are to create money and to spend it. In 1971 we went off the gold standard specifically to give the government the unlimited ability to create and spend money. When the government fails to do that job, the economy falters. Every depression in U.S. history and every recession in the past 40 years followed periods of reduced federal deficit growth, and every recovery as been associated with increased federal deficit growth.

The media and the politicians suffer from federal debt paranoia, which is responsible for more misery in America than all the crime and illness combined. Federal debt paranoia keeps us from providing universal health care, fully funded Social Security and improved education, military, infrastructure, energy and policing.

I call it “paranoia,” because, history indicates large federal deficits do not cause inflation, recession or any other negative economic effect. On the contrary, large and growing deficits stimulate the economy. We keep falling back into recessions because of federal debt paranoia.

Although President Obama wants to redistribute wealth, increasing any taxes will reduce overall economic growth, taking from the rich and from the poor.

Rodger Malcolm Mitchell
For more information, see http://www.rodgermitchell.com Continue reading “-Does taxing the rich help the poor?” →