–Why Robert J. Samuelson wants to cut Social Security, Medicare and Medicaid. Monday, Mar 7 2011 

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Robert J. Samuelson is a weekly columnist for The Washington Post, writing on political, economic and social issues. His column usually appears on Wednesdays. Add his name to the long list of economics writers who are ignorant of Monetary Sovereignty, the basis of all modern economics.

In a March 7, 2011 column titled, “Why Social Security is Welfare,” he makes the following comments:

Recall that Social Security, Medicare and Medicaid, the main programs for the elderly, exceed 40 percent of federal spending. Exempting them from cuts – as polls indicate many Americans prefer – would ordain massive deficits, huge tax increases or draconian reductions in other programs. That’s a disastrous formula for the future.

Yes, Robert, not cutting Social Security, Medicare and Medicaid would “ordain” (?) deficits. However, because the U.S. now is Monetarily Sovereign, there is zero connection between deficits and taxes. For your benefit, Robert, I’ll say again what you as an economics writer already should know: “Federal taxes do not pay for federal spending.”

And so far as those draconian reductions in other programs, why do you believe a nation with the unlimited ability to create dollars, needs to cut spending, when inflation is nowhere in sight?

Here is how I define a welfare program: First, it taxes one group to support another group. . .

Robert, now repeat after me until you get it: “Federal taxes do not pay for federal spending.” State taxes do pay for state spending, and city taxes do pay for city spending. The states and cities are not Monetarily Sovereign. But, federal taxes do not pay for federal spending. In fact, FICA could be eliminated, and this would not reduce by even one penny, the federal government’s ability to support this program – even were benefits doubled.

Since the 1940s, Social Security has been a pay-as-you-go program. Most benefits are paid by payroll taxes on today’s workers.

Things have changed markedly since the 1940’s, and Robert has not kept up with the changes. In August, 1971, one of the biggest economic changes in our lives occurred. We became Monetarily Sovereign. At that instant, Social Security ceased being a “pay-as-you-go” program, because FICA no longer supported benefits. In a Monetarily Sovereign nation, tax dollars are destroyed upon receipt. They do not, and cannot, support federal spending.

Think about it, Robert. Why would a government with the unlimited ability to create dollars, need to use taxes to pay for anything? It makes absolutely no sense. Sadly, Robert still lives in a gold-standard (aka “flat-earth”) world.

Annual benefits already exceed payroll taxes. The gap will grow.

Yep, the difference between FICA collections and benefits will grow. More net money will be created. This will stimulate economic growth. So what is the problem?

No doubt people would be outraged (by benefit cuts). Having been misled, they’d feel cheated. They paid their taxes, why can’t they get all their promised benefits? But the alternative is much worse: imposing all the burdens on younger taxpayers and cuts in other government programs. Shared sacrifice is meaningless if it excludes older Americans.

No, shared sacrifice is meaningless if it is purposeless. There is absolutely, positively no reason to cause widespread human misery by cutting Social Security, Medicare and/or Medicaid benefits. Causing misery out of sheer ignorance is unforgivable.

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

No nation can tax itself into prosperity, nor grow without money growth.

–Why Medicare and Social Security are not “adequately financed” Sunday, Aug 8 2010 

The debt hawks are to economics as the creationists are to biology.

Soon you will read about this new report:

2010 Social Security Trustees Report, August 6, 2010:. . . the Medicare HI Trust Fund is adequately financed until 2029, and the Social Security OASI and DI Trust Funds are adequately financed until 2040 and 2018, respectively. . . significant longer term financial imbalances of the programs still need to be addressed .”

By:
Timothy F. Geithner, Secretary of the Treasury, and Managing Trustee
Hilda L. Solis, Secretary of Labor, and Trustee
Kathleen Sebelius, Secretary of Health and Human Services, and Trustee
Michael J. Astrue, Commissioner of Social Security, and Trustee

For Mr. Geithner et al, “adequately financed,” means tax revenues will equal or exceed spending. When, spending exceeds taxes, Medicare and Social Security will be “inadequately financed,” i.e insolvent.

To put it gently, Mr. Geithner et al do not know what they are talking about.

Visualize a scenario where there are zero federal taxes. The federal government has no income, not even any money, yet sends you a check for $10 trillion dollars. You deposit the check in your bank. Will the check bounce? No. Your bank will send the check to the Treasury, which will credit your bank and debit its own balance sheets for $10 trillion. The bank now has $10 trillion, which it credits to your account, allowing you to buy a few thousand Rolls Royces or the State of Montana, whichever you prefer.

The government can send you checks endlessly, in any amount. With each check, the government merely debits its balance sheet and credits your bank account. The government balance sheet is just a score sheet, though it misleadingly is called “debt.” Whether that score sheet reads $10 trillion or $100 trillion makes no difference to the score sheet. The only limit is the artificial “debt limit,” on which Congress votes periodically. There is no functional limit on what any balance sheet can read. The government can write a check of any size, despite zero taxes, credit your account for any amount, and enter any amount into its score sheet.

Taxes may be levied for several social reasons (cigarette and liquor taxes are examples), but supplying the government with spending money is not one of them. The government creates money by spending. It does not use tax money. Therefore, all federal debt is sustainable, endlessly.

Because Social Security and Medicare are federal agencies, the government can support them endlessly, without any FICA taxes at all, merely by mailing checks. Sadly, the wrongheaded beliefs of Mr. Geithner et al have led to the deterioration of Social Security and Medicare benefits.

At one time, the “normal retirement age for Social Security benefits was 65. Today, it is age 67 for people born after 1969. Mr. Geithner’s kind of reasoning has cost Americans two years worth of benefits. Further, these benefits are subject to income tax. Thus, you pay tax on your FICA payments and pay tax again on your benefits – a double tax. Finally, despite paying FICA taxes for years, the day you die all benefits cease. You could pay FICA for 40 years, and if you die at age 60, your estate will receive nothing – all because of the false belief that taxes pay for federal spending.

Medicare payments also are so restricted many Americans purchase supplementary insurance to cover what Medicare does not – all because of the false belief that taxes pay for federal spending.

We pay penalties for believing taxes support federal spending. We pay penalties for believing Medicare and Social Security could go bankrupt unless FICA is increased or benefits reduced. We pay penalties for believing the federal deficits are “unsustainable.” We pay penalties for the misinformation coming from our leaders. We pay penalties for believing them.

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

No nation can tax itself into prosperity

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