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.
Federal taxes take dollars from the economy and destroy them. Then, there’s the waste of money in calculating, paying, and collecting taxes, and punishing evaders.
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.”The U.S. federal government is Monetarily Sovereign. It cannot run short of U.S. dollars. It has infinite dollars.
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?
Federal taxes assure demand for the U.S. dollar by requiring taxes to be paid in dollars.
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.
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 returnsdeclared 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.Relative to their income, the poor pay far more in sales taxes than the rich.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
Federal taxes do not fund federal spending. The federal government destroys all the tax dollars it receives.
Further, federal taxes reduce GDP, so they are recessive.
Federal tax laws, as currently written and enforced, are regressive widening the income/wealth/power Gap between the rich and the rest.
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.
State and local taxes fund state and local spending. They do not reduce GDP but are often regressive.
All federal taxes should be eliminated except where the government wishes to limitsome activity.
Another means of federal control would be to use federal spending (rather than tax breaks) to support activities the government wishes to encourage.
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 SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: 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.
Imagine you were in charge of the advanced mathematics department at a university. You would be expected at least to understand arithmetic.
Similarly, if you were the Secretary of the U.S. Treasury, Chair of the Federal Reserve, or President of the United States, you should understand what former Chairs seem to know, i.e., the difference between a Monetarily Sovereign entity and a monetarily non-sovereign one.
It’s that basic.
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.”
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.”
Alas, we are not so fortunate with our leadership’s knowledge:
In 2016, (former President) Trumpsaid he could pay down the national debt, then about $19 trillion, “over a period of eight years” by renegotiating trade deals and spurring economic growth.
In 2018, he said, “We have $21 trillion in debt. When this [the 2017 tax cut] really kicks in, we’ll start paying off that debt like it’s water.
I’ve decided that what we successfully have done for the past 84 years, to build the world’s greatest economy, is unsustainable.
“Because of Tariffs we will be able to start paying down large amounts of the $21 trillion in debt that has been accumulated, much by the Obama Administration.”
He urged policymakers to prioritize fiscal sustainability, warning that running large deficits during good economic times cannot continue indefinitely.“
In the longer run, we’ll have to do something sooner or later, and sooner will be better than later,” he added.
Notice that Powell uses the favorite word of debt fear-mongers: “Unsustainable.” (See here and in many other posts on this blog). Despite false claims since 1940 that the debt and deficits are “unsustainable,” we have sustained it.
The debt fear-mongers never learn from experience.
In 2022, President Biden said, “My Treasury Department is planning to pay down the national debt this quarter, which never happened under my predecessor.”
Every U.S. depression has come on the heels of federal surpluses.
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807. 1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819. 1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837. 1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857. 1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873. 1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893. 1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929. 1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.
Treasury Secretary Janet Yellen agrees that the federal debt is too high, but when a simple, non-recession solution was presented to her, she preferred austerity, i.e., the mathematical certainty of a recession or depression.
The solution demonstrated the federal government’s total sovereignty over the U.S. dollar:
Legislation enacted in 2001 allows the treasury to mint platinum coins of any value without congressional approval.Under that law, the coin’s value could be anything, but it would have to be platinum, not gold or silver, nickel, bronze or copper, which are under Congress’ control.
President Joe Biden could order Treasury Secretary Janet Yellen to have a coin with the value of $1 trillion be minted and deposited into the Treasury, giving the government an extra trillion dollars to cover debts and prevent default.
The idea was floated before in 2011 when the government faced another debt ceiling crisis. Former President Barack Obama said in 2017, on the podcast “Pod Save America,” that he and his advisers discussed use of a trillion dollar coin as a safety valve.
“There were all kind of wacky ideas about how potentially you could …. have this massive coin.” Obama said in the 2017 interview. “I mean … it was some primitive — it was like out of the Stone Age or something and I pictured rolling in some coin.”
Thus, as usual, President Obama demonstrated his abject ignorance about federal finance. Remember, he was the one who created the Simpson/Bowles Commission that labored to create these recommendations:
Reduce the deficit by $4 trillion over ten years
Cap government spending at 21% of GDP
Reduce discretionary spending to 2008 levels, adjusted for inflation
Raise the retirement age and reduce Social Security benefits
Reduce Medicare benefits.
Fortunately, none of this was done; otherwise, we would have had the worst depression since the Great Depression. However, it reflects Obama’s economic ignorance (or intent?).
Getting back to the platinum coin solution to the debt ceiling idiocy:
Treasury Secretary Janet Yellen said Tuesday in an interview with CNBC that she is “opposed” to the idea, and doesn’t believe it should be considered seriously.
“It’s really a gimmick and what’s necessary is for Congress to show that the world can count on America paying its debts,” Yellen said Tuesday on CNBC’s “Squawk Box”.
And there you have it. Janet Yellen, Secretary of the U.S. Treasury, thinks there is a danger the Monetarily Sovereign U.S. government might not be able to “pay its debts” unless something is done about the federal debt (which isn’t federal and isn’t debt.
Yellen also raised concerns about how using a trillion dollar coin would affect trust in and independence of the Federal Reserve and treasury.
“The platinum coin is equivalent to asking the Federal Reserve to print money to cover deficits that Congress is unwilling to cover by issuing debt, it compromises the independence of the Fed conflating monetary and fiscal policy, and instead of showing that Congress and the administration can be trusted to pay, to pay the country’s bills, it really does the opposite,” Yellen said.
OMG, Secretary of the Treasury Yellen just gets worse and worse. She doesn’t seem to realize that U.S. dollars are debt, and every debt requires collateral.
The collateral for U.S. dollars is the full faith and credit of the United States government. This may sound nebulous to some, but it actually involves certain, specific, and valuable guarantees, among which are:
The government will accept only U.S. currency in payment of debts to the government
It unfailingly will pay all its dollar debts with U.S. dollars and will not default
It will force all your domestic creditors to accept U.S. dollars if you offer them to satisfy your debt.
It will not require domestic creditors to accept any other money
It will take action to protect the value of the dollar.
It will maintain a market for U.S. currency
It will continue to use U.S. currency and will not change to another currency.
All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa.
Yellen doesn’t want the Fed to print money. Yet, her signature is on Federal Reserve Notes!~
As economist Hyman Minsky said, “A government that can issue Treasury bills can issue dollar bills.”
Look at the dollar bill in your wallet. At the top, it says, “Federal Reserve Note“, and it is signed by — that’s right — the Secretary of the Treasury and the Treasurer.
Janet Yellen complains that “the platinum coin is equivalent to asking the Federal Reserve to print money,” while she has her signature on dollar bills, which are Federal Reserve Notes!
Many experts are unsure about what the economic effects of the move would be given that it is unprecedented.
But experts cite concerns about inflation, saying that creating more money would weaken the value of existing money circulating in the economy.
We have been “creating more money” for 84 years. In some years, inflation was above the Fed’s target. In other years, it was below. Just before COVID, inflation was quite low. Then COVID created shortages and, thus, inflation.
A “gimmick” too simple for our leaders. They prefer the insanity of the debt ceiling.
The platinum coin’s economic effects would relieve uncertainty about the extraordinarily ignorant Debt Limit. Economies don’t like uncertainty because it hinders investment in the future.
That would mean that existing dollars would have less buying power, which could affect American consumers.
I wonder why America hasn’t suffered that fate so far. Perhaps because it isn’t real??
Still, some Democratic lawmakers backed the idea. House Speaker Nancy Pelosi said that Rep. Jerod Nadler, D-N.Y., brought up the coin during a closed policy meeting last week as one of other “options” to prevent government default without congressional action.
And in case you miss your daily dose of debt fear-mongering about something that never happens, here’s a bit more.
US National Debt Hits $35 Trillion Milestone
In a historic fiscal milestone for the federal government, the national debt rose to $35 trillion for the first time, according to the latest Treasury Department data. Current debt levels are equal to $105,000 per person and $266,000 per U.S. household.
Washington accumulated $1 trillion in debt in less than seven months. Over the past year, the national debt has spiked by nearly $2.35 trillion, an average of about $6.4 billion per day.
The immense growth of red ink flooding the nation’s capital has captured the attention of public policymakers. Federal Reserve Chair Jerome Powell in February conceded that the federal government is “on an unsustainable fiscal path.”
Two of the big three credit agencies downgraded their outlook on the U.S. debt, citing fiscal deterioration, persistent debt ceiling negotiations, and ballooning interest payments. When these updates were released last year, the White House disagreed with the firms’ outlooks.
The two credit agencies referred to are likely Fitch Ratings and Moody’s. Fitch recently downgraded the U.S. government’s credit rating from AAA to AA+ while Moody’s has changed its outlook on U.S. debt to negative.
It’s ironic that two companies should downgrade the U.S. dollar. If the U.S. fails to pay it’s bills, not only will the dollar be worthless, but so will every business on earth, including Fitch and Moody’s.
But Yellen doesn’t want a simple solution to the crazy Debt limit, because “it’s a gimmick” that might (but almost sure will not) cause some inflation.
Economists told the Daily Caller News Foundation that persistent government spending under the Biden administration propped up U.S. economic growth in the second quarter of 2023.
Real gross domestic product (GDP) grew 2.8% in the second quarter of 2024, far higher than economists’ expectations of 2.1%,
However, a significant portion of the recorded growth in the quarter was driven by government spending, both directly through a rise in government expenditures and indirectly through growth in sectors that benefit heavily from taxpayer dollars.
Apparently, some economists believe that when the government spends, it is not true economic growth, but when the private sector spends, that is true growth.
However, exactly the opposite is true. When the government spends, new stimulus growth dollars are created and added to the economy. By contrast, when the private sector spends, dollars are just moved from one hand to another.
Private sector spending that is not financed by borrowing creates no money.
“Government spending has played a large role in much of the economic growth seen over the past few years,” Peter Earle, a senior economist at the American Institute for Economic Research, told the DCNF.
Government spending supposedly is bad because it adds dollars to the economy. It’s also supposedly bad because it just redistributes existing dollars. Huh??
“The problem with that, of course, is that government spending is redistribution: taxing certain citizens or floating more trillions of dollars in debt to send those dollars to other citizens.
It’s not innovative entrepreneurship or other productive commercial undertakings.”
Peter Earle has it exactly backward. Federal spending is done with newly created money, not with tax money.
The crazy part of Earle’s comment is that the debt fear-mongers take both sides of the same issue.
They claim that federal deficit spending adds to the money supply, and so, is inflationary.
Then they claim federal deficit spending is redistribution — i.e., doesn’t add to the money supply.
And they ardently believe both opposing statements.
E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF that even the increase in consumer spending, which totaled 2.3% in the second quarter — up from 1.5% in the previous quarter — was also partially driven by government expenditures.
That is exactly what federal spending is supposed to do. It puts spending money into consumers’ pockets. Why that is a bad thing is beyond all comprehension.
“Government purchases do not include all of government spending. When the government takes money from one person and gives it to another in the form of welfare, for example, it gets counted as consumer spending,” Antoni told the DCNF.
Trust the extreme right wing to come up with nonsense opposing welfare. No comments opposing the tax breaks given to the wealthy, however.
In any event, the federal government doesn’t give tax money to anyone. It destroys all the tax dollars it receives and creates new dollars to pay its bills.
“Currently, about $4.2 trillion of annual consumer spending is government transfers, illustrating how total government spending is much larger than the GDP report indicates.”
No federal spending is “transfers;” all state/local government spending is “transfers.”
That’s the difference between Monetary Sovereignty and monetary non-sovereignty. The former creates new dollars to pay its bills, while the latter uses borrowed money and taxes.
“What were the big things that contributed to the GDP number? You have a big increase in health care spending, which is consistent with all the jobs we’ve seen in health care, and a lot of that is paid for by government,” Faulkender told the DCNF.
“You have money going into transportation investment, which is deficit-funded [Inflation Reduction Act] money [and] you had the increase in government spending.”
Healthcare spending was responsible for approximately 16% of GDP growth in the second quarter, according to the BEA. In 2022, government sources accounted for just over 45% of healthcare spending, according to the Congressional Research Service.
The healthcare industry has also underpinned recent U.S. job gains, accounting for 49,000 of the 206,000 nonfarm payroll jobs added in June, and approximately 29% of all jobs added in the last twelve months, according to the Federal Reserve Bank of St. Louis (FRED).
In short, the government is spending heavily on transportation and healthcare, which in addition to helping people be healthy and get around, is creating jobs in these fields.
Is that supposed to be a problem?
“All — or nearly all — the apparent growth in the economy has really just been pulling future growth forward to today, at the expense of future growth,” Antoni told the DCNF. “It’s like when a consumer goes deeply into credit card debt to get a higher standard of living today, only to be drowning in debt payments tomorrow.”
No, Mr. Antoni, federal finances are not like personal finances. Not one word of the above paragraph is true. And really, how does today’s growth pull growth from tomorrow? It is nonsensical.
The federal government has been “drowning” in so-called “debt” since 1940, and here has been the result of all that deficit spending:
Real (inflation adjusted) GDP per person has moved up, up, up.
Americans as a group, are wealthier in real terms than ever. If this is what our government “drowning in debt” produces, please toss me in the pool.
The trick is to narrow the Gap between the rich and the rest, which the debt worriers seem to forget when they talk about cutting benefits and increasing taxes.
SUMMARY
Everything in economics eventually devolves to understanding Monetary Sovereignty. Our leaders either don’t understand the difference between Monetary Sovereignty and monetary non-sovereignty, or they don’t want you to understand.
In the latter category are those who want to widen the income/wealth/power Gap between the rich and you.
Your benevolent friend.
The AARP is the self-anointed protector of the aged. Its website says:
“AARP represents the needs of the more than 100 million older Americans with lifestyles and political views as diverse as any group in the United States.
“We concentrate on the issues most important to those in the 50+ community as they age: economic security; health care; access to affordable, quality long-term care; creating and maintaining livable communities; consumer protections; caregiving; and ensuring that our democracy works better for all.”
Unfortunately, AARP has long published articles claiming that the Medicare and Social Security trust funds are running short of dollars and soon will need to cut benefits or increase taxes – specifically FICA – which supposedly supports those trust funds.
It’s all wrong:
1. The so-called “trust funds” are not real trust funds. They are merely bookkeeping notations that track dollars coming and dollars going out.
The federal government can raise, lower, or erase those numbers whenever it wishes.
2. Those “trust funds” don’t pay for anything. The government pays for Social Security and Medicare benefits like it pays for everything else: the military, roads, dams, Congress, the Supreme Court, the White House, NASA, etc.
It signs legislation that approves the creation of dollars and then pays for things with those newly created dollars. It can do this endlessly.
Here is a sample — a direct quote, actually — of what AARP has been telling people:
The trust funds from which Social Security benefits are paid won’t run short of money until 2035 — a year later than was predicted in last year’s report.
And, the Medicare trust fund for part A, which helps pay for inpatient hospital visits will cover all its bills until 2036 — five years longer than forecast last year.
And here’s the key paragraph. It contains facts you seldom are told by any of the media:
Other Medicare programs, including Part B doctor’s services and outpatient care and Part D prescription drugs, will have enough money indefinitely because premiums and federal contributions are automatically adjusted each year to cover costs.
That is the phrase to remember: ” . . . federal contributions are automatically adjusted each year to cover costs.”
It states very simply and clearly that the government pays whatever is needed to keep Part B viable forever. It is a tacit admission that at least some part of Medicare is not beholden to “trust funds” or to tax collections.
This begs the obvious question: If the government pays for some of Part B, why doesn’t it pay for all of Part B and Part A?
I asked the Copilot AI this question, and this is what it said: ”
“The reason Part A is not fully funded by the government is likely due to the historical structure of Medicare and the way it was initially designed.
Greenspan
“Part B is partially funded by monthly premiums paid by beneficiaries and general tax revenue. The rationale behind this split may be to ensure that beneficiaries contribute to the cost of outpatient services while still receiving essential coverage.”
Those monthly premiums come out of your Social Security benefits. You need the money; the federal government doesn’t.
The inevitable conclusions are:
1. Since federal contributions are automatically adjusted each year, no calculation is made about whether the federal government can afford these contributions; affordability is assumed.
2. When Medicare and Social Security were created (1935 and 1965, respectively), the U.S. was still on a form of gold standard. Its money-creation ability was limited by its gold supplies. It was only partially Monetarily Sovereign.
This ended in 1971, when the government became fully Monetarily Sovereign. As Alan Greenspan said during a 1985 congressional hearing,“There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”
Bernanke
3. Thus, the federal government can pay for Social Security and Medicare without levying any taxes. Ben Bernanke said during an interview with Scott Pelley on March 12, 2009, when asked if the money the Federal Reserve (Fed) spends is tax money, “It’s not tax money… We simply use the computer to mark up the size of the account.”
4. From an affordability standpoint, the federal government could afford to fully fund a comprehensive, no-deductible Medicare and a far more generous Social Security—for all Americans of any age—without ever levying taxes.
This fact leaves doubters with two objections, both unmoored from fact:
Objection: Federal funding of Medicare and Social Security is Socialism.
Fact: Socialism is government ownership and control, not just spending. The above proposals would change nothing regarding ownership and control, so they would not move us any closer to Socialism.
Objection: Federal funding of Medicare and Social Security would cause inflation.
The most recent inflation was caused by COVID-related shortages of oil, food, computer chips, lumber, metals, labor, and other necessities, not by low interest rates or excessive federal spending.
The shortages and inflation are being cured by additional federal spending to acquire and distribute the scarce goods.
Summary
AARP acknowledges the easily and often proven fact that although state and local taxes fund state and local spending, federal taxes do not fund federal spending.
The federal government easily could fund Medicare and Social Security for all and forever.
The claims about the imminent need to limit benefits or raise taxes do not comport with reality, which is that the government should increase benefits and eliminate FICA forever.
If you are tired of the dire warnings that serve only to widen the income/wealth/power Gap between you and the very rich, tell this to your Congressional representative.
Do it today and every tomorrow, and tell your friends to do it too.
As Galileo taught us, some truths take a while to be accepted.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: 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.
The U.S. federal government is not like state/local governments, not like euro governments, not like businesses, and not like you and me.
It uniquely is Monetarily Sovereign. It cannot, unwillingly, run short of its own sovereign currency, the U.S. dollar. As real experts have said:
Former Federal Reserve 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.”
Statement from the St. Louis Fed: “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.”
Press Conference: Mario Draghi, President of the Monetarily Sovereign ECB, 9 January 2014 Question: can the ECB ever run out of money? Mario Draghi: Technically, no. We cannot run out of money.
Because the U.S. federal government has the infinite ability to create its sovereign currency, the U.S. dollar, it never borrows dollars.
Contrary to popular wisdom, T-bills, T-notes, and T-bonds do not represent borrowing. They simply are deposits, the purpose of which is to provide a safe place to store unused dollars and to help the Fed control interest rates.
The government never touches those dollars, which remain the property of the depositors. Not only can our Monetarily Sovereign government not run short of dollars, but federal deficits are necessary to grow the economy, as evidenced by the formula: GDP = Federal Spending + Nonfederal Spending + Net Exports.
When we don’t have sufficient federal deficits, we have depressions and recessions:
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.
Periodically, we publish yet another shrieking claim that the U.S. federal debt is “unsustainable”and a “ticking time bomb.”
This lie has been told to you every year (really, almost every day) since 1940, and that bomb has never exploded, nor will it.
Rather than repeat the entire list of the thousands of lies to which you have been subject, I will list samples here as a reference and add periodically, at the end, new “federal debt is a ticking time bomb“ lies as I encounter them.
Read these and see that even respected economists replace facts with intuition:
September 26, 1940, New York Times: The federal budget was a “ticking time-bomb which can eventually destroy the American system,” said Robert M. Hanes, president of the American Bankers Association.
By 1960, the debt was “threatening the country’s fiscal future,” said Secretary of Commerce Frederick H. Mueller. (“The enormous cost of various Federal programs is a time-bomb threatening the country’s fiscal future, Secretary of Commerce Frederick H. Mueller warned here yesterday.”)
In 1984: AFL-CIO President Lane Kirkland said. “It’s a time bomb ticking away.”
In 1985: “The federal deficit is a ticking time bomb, and it’s about to blow up,” U.S. Sen. Mitch McConnell. (Remember him?)
Later in 1985: Los Angeles Times: “We labeled the deficit a ‘ticking time bomb‘ that threatens to permanently undermine the strength and vitality of the American economy.”
In 1987: Richmond Times-Dispatch – Richmond, VA: “100TH CONGRESS FACING U.S. DEFICIT’ TIME BOMB‘”
Later in 1987: The Dallas Morning News: “A fiscal time bombis slowly ticking that, if not defused, could explode into a financial crisis within the next few years for the federal government.”
In 1989: FORTUNE Magazine: “A TIME BOMB FOR U.S. TAXPAYERS“
In 1992: The Pantagraph – Bloomington, Illinois: “I have seen where politicians in Washington have expressed little or no concern about this ticking time bomb they have helped to create, that being the enormous federal budget deficit, approaching $4 trillion.“
Later in 1992, Ross Perot said, “Our great nation is sitting right on top of a ticking time bomb. We have a national debt of $4 trillion.”
In 1995: Kansas City Star: “Concerned citizens. . . regard the national debt as a ticking time bombpoised to explode with devastating consequences at some future date.”
In 2004: Bradenton Herald: “A NATION AT RISK: TWIN DEFICIT A TICKING TIME BOMB“
In 2005: Providence Journal: “Some lawmakers see the Medicare drug benefit for what it is: a ticking time bomb.”
In 2006: NewsMax.com, “We have to worry about the deficit . . . when we combine it with the trade deficit, we have a real ticking time bomb in our economy,” said Mrs. Clinton.
In 2007: USA Today: “Like a ticking time bomb, the national debt is an explosion waiting to happen.“
In 2010: Heritage Foundation: “Why the National Debt is a Ticking Time Bomb. Interest rates on government bonds are virtually guaranteed to jump over the next few years.
In 2010: Reason Alert: “. . . the time bomb that’s ticking under the federal budget like a Guy Fawkes’ powder keg.”
In 2011: Washington Post, Lori Montgomery:”. . . defuse the biggest budgetary time bombs that are set to explode.”
June 19, 2013: Chamber of Commerce: Safety net spending is a ‘time bomb’, By Jim Tankersley: The U.S. Chamber of Commerce is worried that not enough Americans are worried about social safety net spending. The nation’s largest business lobbying group launched a renewed effort Wednesday to reduce projected federal spending on safety-net programs, labeling them a “ticking time bomb” that, left unchanged, “will bankrupt this nation.”
On June 15, 2014: CBN News: “The United States of Debt: A Ticking Time Bomb“
On January 27, 2017: America’s “debt bomb is going to explode.” That’s according to financial strategist Peter Schiff. Schiff said that while low interest rates had helped keep a lid on U.S. debt, it couldn’t be contained for much longer. Interest rates and inflation are rising, creditors will demand higher premiums, and the country is headed “off the edge of a cliff.”
February 16, 2018 America’s Debt Bomb By Andrew Soergel, Senior Reporter: Conservatives and deficit hawks are hurling criticism at Washington for deepening America’s debt hole.
April 10, 2019,The National Debt: America’s Ticking Time Bomb. TIL Journal. Entire nations can go bankrupt. One prominent example was the *nation of Greece which was threatened with insolvency a decade ago. Greece survived the economic crisis because the European Union and the IMF bailed the nation out.
SEP 12, 2019, Our national ticking time bomb, By BILL YEARGIN SPECIAL TO THE SUN SENTINEL | At some point, investors will become concerned about lending to a debt-riddled U.S., which will result in having to offer higher interest rates to attract the money. Even with rates low today, interest expense is the federal government’s third-highest expenditure following the elderly and military. The U.S. already borrows all the money it uses to pay its interest expense, sort of like a Ponzi scheme. Lack of investor confidence will only make this problem worse.
JANUARY 06, 2020, National debt is a time bomb, BY MARK MANSPERGER, Tri City Herald | The increase in the U.S. deficit last year was about $1.1 trillion, bringing our total national debt to more than $23 trillion! This fiscal year, the deficit is forecasted to be even higher, and when the economy eventually slows down, our annual deficits could be pushing $2 trillion a year! This is financial madness. there’s not going to be a drastic cut in federal expenditures — that is, until we go broke — nor are we going to “grow our way” out of this predicament. Therefore, to gain control of this looming debt, we’re going to have to raise taxes.
February 14, 2020, OMG! It’s February 14, 2020, and the national debt is still a ticking time bomb! The national debt: A ticking time bomb?America is “headed toward a crisis,” said Tiana Lowe in WashingonExaminer.com. The Treasury Department reported last week that the federal deficit swelled to more than $1 trillion in 2019 for the first time since 2012. Even more alarming was the report from the bipartisan Congressional Budget Office (CBO) predicting that $1 trillion deficits will continue for the next 10 years, eventually reaching $1.7 trillion in 2030
August 29, 2020, LOS ANGELES, California: America’s mountain of debt is a ticking time bomb The United States not only looks ill, but also dead broke. To offset the pandemic-induced “Great Cessation,” the U.S. Federal Reserve and Congress have marshalled staggering sums of stimulus spending out of fear that the economy would otherwise plunge to 1930s soup kitchen levels. Assuming that America eventually defeats COVID-19 and does not devolve into a Terminator-like dystopia, how will it avoid the approaching fiscal cliff and national bankruptcy?
April 16, 2021, NATIONAL POLICY: ECONOMY AND TAXES / MARK ALEXANDER / The National Debt Clock: A Ticking Time Bomb: At the moment, our national debt exceeds $28 TRILLION — about 80% held as public debt and the rest as intragovernmental debt. That is $225,000 per taxpayer. Federal annual spending this year is almost $8 trillion, and more than half of that is deficit spending — piling on the national debt.
Now, the national debt is approaching $31 trillion,which is $12 trillion more than when Donald Trump took office in 2017 and more than half of that debt was tacked on in his final year. Then we’ve had the disastrous year and a half of Joe Biden.
Now, the Fed is now hiking its rates and that spells even more trouble for the national debt and the economy at large.
December 4, 2022 America’s ticking time bomb: $66 trillion in debt that could crash the economy By Stephen Moore, The national debt is $31 trillion when including Social Security’s and Medicare’s unfunded liabilities. Wake up, America.
That ticking sound you’re hearing is the American debt time bomb that with each passing day is getting precariously close to detonatingand crashing the US economy.
With the U.S. reaching its debt limit of $31.4 trillion on Jan. 19, Treasury Secretary Janet Yellen urged lawmakers to increase or suspend the debt ceiling.
April 22, 2023The Debt Ceiling Debate Is About More Than Debt, Jim Tankersley, WASHINGTON — Speaker Kevin McCarthy of California has repeatedly said that he and his fellow House Republicans are refusing to raise the nation’s borrowing limit,and risking economic catastrophe, to force a reckoning on America’s $31 trillion national debt. “Without exaggeration, America’s debt is a ticking time bomb that will detonate unless we take serious, responsible action,” he said this week.
November 3, 2023 The Fuse on America’s Debt Bomb Just Got Shorter,J Antoni Heritage Organization. The Treasury is now on track to borrow almost as much in just six months as it did in the previous 12 months. That’s nearly a doubling of the deficit. Because the federal debt is $33.7 trillion, just a 1 percent increase in yields adds $337 billion to the annual cost of servicing the debt over time. Absent spending reform, eventually no one will be willing to hold the bomb anymore, and the yields on U.S. debt will begin to resemble those in Argentina.
February 2, 2024How Florida can help defuse the nation’s debt bomb By BARRY W. POULSON,professor emeritus of economics at the University of Colorado Boulder and DAVID M. WALKER,former comptroller general of the United States. Washington’s out-of-control spending, combined with fiscal and monetary policies have resulted in trillion-dollar-plus annual deficits, over $34 trillion in federal debt, over $125 trillion in total federal liabilities and unfunded obligations, and excess inflation. Excessive spending and loose monetary policy increase inflation in the short term, and mounting debt burdens serve to reduce future economic growth and shift the economic burden and consequences of mounting debt burdens to future generations.
February 8, 2024Legendary investor Paul Tudor Jones says a ‘debt bomb’ is about to go off in the U.S.: ‘We’re fast-pouring consumption like crazy’. The U.S. economy may seem like it’s firing on all cylinders, but underneath the surface, a “debt bomb” could be on the verge of exploding, according to billionaire hedge fund manager Paul Tudor Jones. The esteemed investor said in an interview with CNBC that he couldn’t deny the economy was strong, but that it was actually “on steroids” due to massive government spending and borrowing.
Jones is not the only one to call attention to the growing deficit issue in the U.S. On Sunday, Federal Reserve Chairman Jerome Powell took a rare dive into politics, telling CBS’s 60 Minutes that the national debt was “growing faster than the economy,” and calling for lawmakers to get the federal government “back on a sustainable fiscal path.” Meanwhile, U.S. Treasury Secretary Janet Yellen has said she is not yet worried about the increasing national debt as long as the government keeps in check the net payments it makes on its debt relative to GDP.
Those payments are projected to rise from 2.5% last year to 2.9% next year, according to the Office of Management and Budget—below their level in the early 1990s. Jones told CNBC that the strong economy could postpone the effects of the government’s deficit spending, but only for a little while. “The only question is … when does that manifest itself in markets?” he added.
“It could be this year, it could be next year. Productivity may mask and it might be three or four years from now. But clearly, clearly we’re on an unsustainable path.”
June 21, 2024 My Weekly Column: Our debt crisis is a ticking time bomb by Randy Feenstra: On June 18th, the nonpartisan Congressional Budget Office (CBO) – the government agency tasked with monitoring our nation’s fiscal health – confirmed my serious concerns with President Biden’s reckless spending agenda.
His administration’s fiscal policies have not only caused cumulative inflation to skyrocket by over 20% since he took office, but they have also accelerated our accumulation of debt to levels that are beyond unsustainable. Instead of changing course, he recently released his budget for Fiscal Year 2025, which has a $ 7.3 trillion price tag and looks to raise taxes on our families, farmers, and businesses to the tune of $5.5 trillion.
The CBO estimates that his debt “cancelation” policies will cost taxpayers nearly $400 billion over the next ten years. I strongly oppose these bailouts. Iowans who never attended college entered the workforce early or helped put their kids through school should not be forced to pick up the tab for President Biden’s costly and unfair executive orders.
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The latest installment contains the same old lies (“unsustainable,” “cost taxpayers” 0they’ve been telling since 1940.
They have been wrong for all those years. If we wait long enough, something will happen to prove them right, perhaps in a thousand years?
Today, this makes “only” 84 years of the debt nuts be ignorant.
The federal deficit yields economic growth year after year. When deficits are insufficient, we have had recessions, which were cured by increased deficits.
When deficits decline, we have recessions (vertical gray bars), which are cured by increased deficits.
If respected economists keep predicting something terrible is imminent year after year, yet exactly the opposite happens, at what point do they reexamine their beliefs?
At what point does the public say, “Fool me once; shame on you. Fool me repeatedly for 84 years; shame on me”?
Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
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.
#Monetary Sovereignty - Mitchell 