Readers of this site know that federal tax dollars, unlike state/local tax dollars, do not fund anything. (See “Motley Fool spreads the bullshit about Social Security”)
Unlike state/local tax dollars, federal tax dollars are destroyed the second they are received by the government.
State/local governments, being monetarily non-sovereign, need tax dollars to support spending. The Monetarily Sovereign federal government does not.
Federal tax collections do nothing but take dollars from the U.S. economy and therefore are recessive. (State/local tax dollars remain in the economy.)
Thus, steps to reduce federal tax collections are economically stimulative because those steps keep money in the economy.
An article from the Wall Street Journal discusses the latest Republican steps to reduce federal tax collections — the right move for the wrong reasons.
GOP House Takes First Swipe at IRS Money
A bill expected to be first legislation from the new Republican majority would rescind billions in funding for tax agency
WASHINGTON—The new Republican-controlled House is poised to vote as soon as Monday to repeal tens of billions of dollars in Internal Revenue Service funding, taking up a bill that is unlikely to become law but that previews coming battles with Democrats over the tax agency’s expansion.
Initially, this repeal would be recessive. It would prevent the federal government from adding tens of billions of growth dollars to the economy.
However, if those dollars were to be used to increase the collection of taxes, repealing the added federal spending could be stimulative.
The bill—expected to be the first legislation advanced by the Republican majority that took over the House last week—aims to erase a key policy priority of the Democrats, who used their control of the government to enact it last year.
Democrats, who still hold the Senate and White House, could block the legislation. But Republicans’ emphasis on clawing back IRS funding marks it as a top concern and demand for the House majority, one that could re-emerge when lawmakers turn to raising the debt ceiling or passing annual spending bills later this year.
The bill, sponsored by Rep. Adrian Smith (R., Neb.), would rescind almost all of the $80 billion in IRS funding that Congress approved in August in the climate, health, and tax law known as the Inflation Reduction Act.
In short, whether the Smith bill would be stimulative or recessive depends on whether the $80 billion would result in more or fewer federal tax dollars being collected.
If rescinding the $80 billion investment would prevent the collection of more than $80 billion tax dollars, the Republican bill would be stimulative. Until that point, however, rescinding the $80 billion investment would be recessive.
That’s just arithmetic.
The other consideration is why the Republicans wish to rescind this expenditure.
House Speaker Kevin McCarthy (R., Calif.) promised, “Our very first bill will repeal the funding for 87,000 new IRS agents. We believe government should be to help you, not go after you.”
The IRS would keep $3.2 billion for taxpayer services, which it started using to hire thousands of customer-service representatives to answer phone calls during the coming tax-filing season. In fiscal year 2022, the agency’s level of service—a measurement of how often phones are answered—was 17.4%, below its 30% target for that year, its 75.9% level from 2018, and the 85% target for this year.
The Republicans, the party of law and order — the party that is pro-police — tells America that added IRS “police” would “go after” the public. The Dems deny it.
The fact that the IRS would keep $3.2 billion is stimulative from the standpoint of dollars added to the economy. Using that money to improve customer service is stimulative in that it increases the efficient use of time. Increased efficiency is stimulative.
The IRS would also keep $4.8 billion for systems modernization, which the agency plans to use to update aging technology.
If updating aging technology would increase federal tax collections by more than $4.8 billion, the systems modernization would be recessive.
But tens of billions designated for enforcement, operations, the inspector general’s office, the U.S. Tax Court and the Treasury Department would be rescinded.
Democrats championed the $80 billion IRS expansion to bolster the agency, which had generally flat or declining budgets for much of the past decade. The IRS has shed staff and conducts audits less frequently than it did in the past.
Conducting audits less frequently is stimulative because it leaves more dollars in the private sector (i.e., the economy).
The biggest piece of the money went to enforcement, and administration officials say they want to focus on high-income taxpayers and large corporations. The Congressional Budget Office estimated that the $80 billion in spending would generate $180.4 billion in additional revenue.
If the Congressional Budget Office is correct, the Democrat’s bill would be $100 billion recessive.
But then we come to the huge unknown, the key phrase, “. . . focus on high-income tax-payers and large corporations.”
To the degree that the $80 billion would focus on high-income taxpayers, the program would help narrow the income/wealth/power Gap between the rich and the rest. That Gap is currently too broad, and it is widening. Narrowing the Gap would help the economy.
But the effect of large corporations on the economy is primarily positive. On balance, large corporations can better provide efficient services than small businesses.
While the economy needs small businesses’ creativity and employment power, using tax laws to punish large companies seems counter-productive.
The administration has said audit rates for taxpayers with incomes below $400,000 would stay around recent or historical levels. But the IRS hasn’t specified what those audit rates would be, and audit rates have fluctuated over time.
Democrats argued that removing the funding would offer comfort to tax cheats, making it harder for the IRS to find and penalize tax dodging.
Federal taxes are a significant drag on the economy, and tax laws exacerbate the Gap between the rich and the rest of us. So again, we have a split decision.
Tax dodging helps the economy by leaving more dollars in the private sector, but the rich are more able to do it, hurting the economy.
Perhaps, a vital issue is motive.
The Democrats wish to collect more taxes from the rich, using the false premise that those additional tax dollars would pay for more benefits given to the poor.
The GOP wishes to collect less tax from the rich because it, more than the Democrats, is ruled by the rich. As perhaps an overly broad generalization, the Republicans are the party of the rich, while the Democrats are the party of the rest — at least from a purely financial standpoint.
Race, religion, and country of origin affect that metric.
Federal taxes are an unnecessary drag on the economy. They pay for nothing and are destroyed on receipt. Anything that reduces federal tax collections benefits the private sector (aka, “the economy”).
The sole function of federal taxes is to control the economy by punishing what the government wishes to discourage and by giving tax breaks to what the government wishes to encourage.
The economic drag could be eliminated if the government gave financial rewards to what it wishes to encourage, and simply didn’t reward what it wishes to discourage.
Federal taxes can and should be eliminated.
The Democrats wish to increase federal tax collections while promulgating the false notion that federal deficits are too high and federal taxes are necessary to minimize deficits while paying for benefits.
The Democrats correctly, wish to narrow the income/wealth/power Gap between the rich and the rest, but increasing federal taxes is a poor strategy for that purpose.
The Republicans wish to widen the Gap and enrich the rich by cutting tax collections from the rich. They promulgate the lie that the middle classes and the poor should pay more taxes to fund such benefits as Medicare, Medicaid, and Social Security, though federal taxes do not fund those benefits.
The GOP’s stated concern that additional IRS agents would attack the low-paid is camouflage for their genuine concern that additional agents would focus on the rich.
Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.