Economic Bonus (EB) and the comparative morals of two nations

The Ten Steps to Prosperity, which is at the end of most posts on this site, includes:

This step proposes we give a monthly Economic Bonus (EB) to every man, woman, and child in America, regardless of any other income or wealth they may have.

You would receive the same EB as the poorest receives and as Bill Gates receives.

No need to go through the convoluted steps our gigantic tax code demands, to determine what is “income,” and what kind of income it is, and when you received it and how you received it, etc., etc.

If you live in America, you receive your monthly EB.

The whole economy benefits by receiving dollars from the government, but the poorer would benefit proportionately more from this direct infusion.

It’s just more dollars for the economy, and it costs no one anything — not you, not me, not even our federal government, which creates dollars, ad hoc, by paying bills.

How much should the EB be? My early thought is $1K per month for each person above the age of 21, and $500 per month for everyone below that age.

Why not more? Or less? I wish I could give you a strong reason, but there is none. The U.S. government already has done something similar.

In a weak attempt to moderate the Great Recession of 2008, the government mailed each taxpayer a check for as much as $500, depending on their tax return.

Had the government sent every person $5,000 rather than the $500 maximum per family, the recession likely would have ended immediately.

Starting with $1K and $500 per month allows time to evaluate results. The program could be stopped during the first year, modified, or extended indefinitely.

Perhaps sending money to the “lazy” poorer, goes against our Puritan grain and our self-image of deserving what we get. But we should move past that notion.

There are many reasons people don’t have money, and unwillingness to work isn’t anywhere near the top of the list.

There have been three primary objections to EB:

It would cost the federal government and taxpayers too much.
It would cause inflation.
It would encourage sloth and discourage people from working

Readers of this site understand that as a Monetarily Sovereign nation, the U.S. government never can run short of dollars, and so does not need or use tax dollars to fund its spending.

Those readers also know that our Monetarily Sovereign government has absolute control over the value of its sovereign currency, the U.S. dollar, so federal deficit spending does not and has not ever caused inflation.

Finally, moral readers understand that a nation can be considered great only if it is willing to care for the poorest and least powerful of its people.

Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.

Here is an article describing Finland’s experiment with something similar to EB, and the attempt to care for anyone who lacks sufficient income for a healthy productive life:

New Scientist Magazine, Feb 16, 2019
Universal income study finds money for nothing won’t make us work less
By Joshua Howgego

For the last two years the Finnish government has been giving 2000 unemployed people a guaranteed, no-strings-attached payment each month.

It is the world’s most robust test of universal basic income, and the preliminary results, released this morning, seem to dispel some of the doubts about the policy’s negative impacts.

Universal basic income comes in different flavours, but the essence of the idea is to give everyone a guaranteed income that covers their basic needs, like housing and food.

Here it differs from Step 3., Monthly Bonus for All, in that it has the specific goal of covering listed needs rather than merely to give everyone money.

But merely giving everyone money has the advantage of eliminating all argument about what “basic needs” are, and how much is “basic.”

(What kind of food? How much food? What kind of housing? What housing location? Is education basic? Etc.)

Crucially, the income is the same for everyone all the time – it does not get reduced if, for example, a person gets a job or a salary increase.

This approach is the same as for Step. 3.

The Finnish results were hotly anticipated because the experiment’s careful design promised robust evidence on UBI.

“This is an exceptional experiment, both socially and globally,” said Pirkko Mattila, Finland’s minister of social affairs and health, at a press conference.

The experiment began in December 2016. Kela, the Social Insurance Institution of Finland, randomly selected 2000 people aged between 25 and 58 from across the country who were on unemployment benefits.

It then replaced those people’s unemployment benefits with a guaranteed payment of 560 euros a month. They would continue receiving the payments whether they got a job or not.

Continuing to receive payments, whether or not employed, is similar to what EB would offer.

The experiment ended on 31 December 2018 and compared the income, employment status and general wellbeing of those who received the UBI with a control group of 5000 who carried on receiving benefits.

The surveys also showed that the UBI group perceived their health and stress levels to be significantly better than in the control group.

“This is early data but nonetheless a significant moment as global interest gathers in basic income,” says Anthony Painter at the RSA think tank, which is working with the Scottish government to scope out a possible trial of UBI in Fife.

Supporters of UBI say that it frees people’s time for social goods like looking after children or serving their community, although this wasn’t measured in the Finnish trial.

Additionally, requiring unemployed people to continually prove they are looking for work creates a lot of stress for them, which is bad for their health and may mean they are less likely to be able to find work.

The above are just two of the many criticisms of the Modern Monetary Theory’s “Jobs Guarantee” (JG)proposal.

It also creates bureaucracy for the state.

The above is another of the many weaknesses of the JG proposal.

Not only would JG necessitate a huge bureaucracy, but the bureaucracy constantly would have to change with changes in the economy. As more or fewer people were unemployed, at any given time, they would need service.

On the other hand, basic income is expensive, even if it replaces existing benefits. And some say it could encourage people to work less.

“The criticism levelled at basic income that it would disincentivise work is not supported by [the Finnish] data,” says Painter.

There was no difference between the two groups in terms of the number of days in employment in 2017.

The fact that UBI and EB would be “expensive” (however that term is defined) is a feature, not a flaw — at least in the case of the U.S. government.

“Expensive” by any definition merely means that the government pumps more growth dollars into the economy.

Interestingly, Finland is monetarily no-sovereign. They use the euro, which is not their sovereign currency. Finland does not have the unlimited ability to create euros. It can run short of euros.

Yet it was Finland, and not the U.S., that felt the moral and economic needs to run the experiment. It makes one wonder about the comparative morals of the two nations.

UBI is a concept that originated at least 200 years ago. But over the past few years it has become a fashionable policy idea, with many countries exploring pilot studies.

One reason for the increased interest is the fear that automation might displace large numbers of people from employment – essentially robots taking our jobs.

There have been several other trials of the idea, but none were definitive. Take for example the Mincome experiment, in which the 10,000 citizens of Dauphin in Manitoba, Canada, were guaranteed a basic level of financial security in 1975.

Recent analysis of public records from the time showed that it was only young men and young women who spent less time in work during the trial, and this because they were either in college or looking after babies.

Again, the Puritanical “sloth” concern did not emerge.

Yet there was no control group. And it wasn’t a true basic income, because the money wasn’t given unconditionally — people’s earnings were topped up when they dropped below a threshold.

Painter points out that, because the Finish experiment chose people randomly from across Finland, it can’t tell us about any regional differences in the effects of UBI. “There is a strong case for further experiments,” says Painter. “It would be good to see ‘saturation’ pilots where everyone in an entire area receives a basic income.”

Today, the U.S. debates various, insufficient versions of Step 2, Federally Funded Medicare –Parts A, B & D, Plus Long Term Care — for everyone, and has not even addressed the easily-taken Step 1, Eliminate FICA — all because of non-existent cost issues.

Other nations, that do not have as much financial ability as the U.S. to support social benefits, recognize the need and move forward with experiments and actual implementation.

Meanwhile, the wealthy and Monetarily Sovereign U.S. focuses on how to reduce Social Security, reduce Medicare, and pay for walls and other ways to keep out refugees.

Yes, it makes one wonder.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

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The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

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

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to 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 you.

MONETARY SOVEREIGNTY

Why cut the state tax deduction?

If you begin with the wrong assumptions, you come to the wrong conclusions.

Here are excerpts from an article in Bloomberg, where the author mistakenly assumes that federal taxes pay for federal spending.

Image result for burning dollars — **Your federal tax dollars are destroyed upon receipt.**

While state and local taxes do fund state and local spending, federal taxes do not fund federal spending. Your federal tax dollars are destroyed upon receipt.

Not understanding the difference between federal and state finances, (the federal government uniquely is Monetarily Sovereign), the author offers wrong conclusions:

Get Rid of the State-Tax Deduction Altogether
High-income taxpayers in high-tax states don’t deserve special treatment.By Michael R. Strain, February 28, 2019

(Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and resident scholar at the American Enterprise Institute. He is the editor of “The U.S. Labor Market: Questions and Challenges for Public Policy.)

The 2017 tax law capped at $10,000 the amount of state and local tax payments a household can deduct from its federal income taxes. Previously, people could deduct the entire amount they paid in state and local property taxes, and either the state individual income tax or state sales tax.

According to a Treasury Department estimate released Tuesday, this cap will stop 10.9 million tax filers from writing off these payments from their federal income taxes, with the largest bite felt in high-tax states like New York, New Jersey and California.

Though politicians from these states are howling — New York Governor Andrew Cuomo recently met with President Donald Trump to discuss his concerns — limiting this deduction was the right thing to do.

Congress should go all the way and repeal what remains of it.

Importantly, just because 11 million people may lose this popular tax break — which has been in the federal code since the income tax was created a century ago — does not mean that all of them will be paying a larger share of their income in federal taxes.

An analysis by the Tax Policy Center in December 2017 found that 80 percent of households would receive a tax cut in 2018, while only 5 percent will face a tax increase. (As temporary provisions of the 2017 law expire, more households will face a tax increase in future years.)

An initially appealing argument in favor of this deduction is that it reduces an individual’s marginal income tax.

That’s only part of the story. By shrinking the federal income tax base relative to what it would be without the deduction, raising any given amount of revenue requires higher tax rates.

This likely offsets the deduction’s marginal rate reduction.

Mr. Strain reveals his belief that our Monetarily Sovereign government, which creates dollars by spending dollars, and never can run short of dollars, needs to increase taxes when spending increases. He is wrong.

The federal debt itself demonstrates that federal taxes don’t fund federal spending.

Let me remind you of what two experts in the field have said:

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

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.”

Could anything be clearer? Nothing “requires higher taxes.” In fact, nothing requires federal taxes at all.

So why does a government, having the unlimited ability to create its own sovereign currency, levy taxes?

The primary reason is economic control. Things they wish to encourage (i.e. charity, business investment, etc.) are tax deductible. Things they wish to discourage (i.e. smoking, alcohol, gambling, etc.) are heavily taxed.

And most importantly, the people the politicians wish to reward (i.e. rich donors) are given the lowest tax rates on what matters: Asset growth, long-term capital gains, dividends, and delayed taxes on various sorts of income.

The state and local deduction also encourages taxpayers to itemize their deductions rather than take the standard deduction.

This leads people to use other deductions more as well, amplifying the harm done from much less defensible tax breaks, like the one for mortgage interest payments.

The government made mortgage interest deductible in order to encourage home ownership.

There is no “harm done” by this deduction. On the contrary, the “harm done” is the taxing of mortgage payments. Tax dollars are taken from the private sector and given to the federal government, where they are destroyed.

Again, the U.S. Treasury destroys your hard-earned tax dollars upon receipt, and creates brand new dollars by spending. That is the government’s method for “printing” dollars.

The destruction of dollars impoverishes the economy, just as all federal taxes do.

For the reasons I mentioned above, we should want a broader base and lower rates, not a smaller base and higher rates.

The above sentence makes no economic sense. The federal government could get along quite nicely, thank you, if it collected, and then destroyed, zero taxes.

Meanwhile, the economy, i.e. the private sector, would flourish by the additional money that remained in consumers and businesses pockets.

In addition, the state and local deduction is a subsidy to states with large numbers of high-income individuals.

Because they face higher marginal income tax rates, deductions are relatively more valuable to this group of taxpayers.

The above sentences are mathematically correct but in practice, wrong.

The state and local tax deductions benefit residents, not the state governments, which receive no direct dollars from that tax deduction.

And it is not the rich who benefit most The rich pay for their homes via business expenses and other tax avoidance schemes. It is the middle and upper-middle classes in these states, that pay the penalty.

These are the people who have homes in higher-tax locations, and perhaps summer homes as well, but are not in the hundreds-of-millions or billions category.

Bottom line, everyone, rich and poor in America, is punished when the private sector must send dollars to the federal government.

Residents of lower-tax states should not be on the hook for spending decisions of governments in higher-tax states.

Of course, higher-income households (many of which are located in higher-income states) do pay relatively more income tax, which is used to finance federal spending programs and transfer payments, some of which benefit citizens in other, lower-income states.

Again, Mr. Strain demonstrates ignorance of federal financial reality.

Residents of one state never are “on the hook” for spending in other states, neither with regard to federal taxes or to taxes in the other states. Residents of a state are “on the hook” for taxes in that state.

And federal income tax is not used to “finance federal spending programs and transfer payments.” The federal government destroys tax dollars, and creates new dollars to finance all spending.

State and local spending finances some public goods, like education. And there is a role for government to subsidize education, because the benefits of an educated citizenry extend beyond the individuals enrolled in school.

It would be better to directly subsidize education than to use a roundabout state and local deduction to achieve that goal.

I agree that the federal government should finance education. See: Ten Steps to Prosperity: Step 4: Free education for everyone and Ten Steps to Prosperity: Step 5: Salary for attending school.

But this has nothing to do with the useless, indeed harmful, tax on mortgage payments and other state taxes.

Importantly, the $10,000 cap mitigates some of these concerns. For example, the cap and the larger standard deduction — another feature of the 2017 tax law — will lead many fewer households to itemize.

It doesn’t eliminate them, however. And the remaining deduction is significant. According to the Joint Committee on Taxation, 16.6 million tax filers will still claim the state and local tax deduction in 2018.

Because of this subsidy, the federal government is estimated to have lost $20 billion in revenue last year.

” . . . will lead many fewer households to itemize, but allow the richest to continue itemizing charitable and business-related deductions.

And read carefully what Mr. Strain is saying. He thinks of not taking your tax dollars from your pocket as a “subsidy,” as though the government were giving you something rather than you not giving the government something.

Next time you fail to give your neighbor a gift, Mr. Strain suggests you thank them for the “subsidy.”

Congress should get rid of the deduction entirely. To minimize disruption, the deduction should be set on a gradual glide path toward zero over a number of years.

Doing so might mean that high-income people leave high-tax states, although the benefits to them of living in major urban centers makes me suspect that relatively few will do so.

Even if this does happen to a significant degree, it would not be something to bemoan. Households should decide where to live based on their preferences, not on tax policy.

Oh really, Mr. Strain? Is that what households “should” do? I have news for you. Not all of the population increase in Florida is due to the weather. Much of it is due to Florida’s low taxes.

Many thousands of people live in Florida at least six months out of the year, just to take advantage of its low taxes.

And now comes Mr. Strain summarizing his own economic ignorance:

The real change would be in the behavior of states.

Some would still choose to provide more services than others — this key feature of the U.S.’s federalist system would remain.

But they won’t be relying on a subsidy from the federal government — from taxpayers in other states — to pick up part of the tab.

No, Mr. Strain. Taxpayers in other states do not pick up the tab for better schools, better healthcare, better support for the impoverished, etc. that you seem to feel should be cut.

That is the right-wing, anti-poor, pro-rich theme. You should be ashamed.

Here is a good idea for everyone:

To contact the author of this story: Michael R. Strain at mstrain4@bloomberg.net

To contact the editor responsible for this story: Katy Roberts at kroberts29@bloomberg.net

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Implementation of The Ten Steps To Prosperity can 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. Provide a monthly economic bonus to every man, woman and child in America (similar to 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 you.

MONETARY SOVEREIGNTY

Finally, Mexico’s check to pay for the Wall

Finally, here is Mexico’s wall payment that President Trump promised:

Warren Buffett finally begins to get it. OMG!

Here is a passage from Warren Buffett’s latest shareholder letter:

Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400 fold during the last of my 77-year periods. That’s 40,000%!

Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency. To “protect” yourself, you might have eschewed stocks and opted instead to buy 3 1/4 ounces of gold with your $114.75.

And what would that supposed protection have delivered/ You would no have an asset worth about $4,200, less than 1% of what would have been realized from a simple, unmanaged investment in American business. The magical metal was no match for the American mettle.

Monetary Sovereignty has preached deficit spending for 20+ years. Finally, the “Oracle” begins to see the light.

I say “begins,” because it isn’t clear whether he truly understands Monetary Sovereignty. But perhaps it’s a start. Now, if only the Committee for a Responsible Federal Budget (CRFB) and all the others of their, debt-fear-mongering ilk, would finally just shut up, and allow America to grow.

Perhaps someone will tell Buffett about the Ten Steps to Prosperity (below). Then, we could narrow the Gaps between the rich and the rest, cut federal taxes, eliminate poverty, and create a truly great America for all Americans, not just the chosen few.

After laboring quietly, mostly alone, for all these years, will I live long enough to see it?

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Implementation of The Ten Steps To Prosperity can 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. Provide a monthly economic bonus to every man, woman and child in America (similar to 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 you.

MONETARY SOVEREIGNTY

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