Tag: Economics

–How soon will Medicare run out of money?

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

Today (8/11/10), the Chicago Tribune editors asked, “How soon will Medicare run out of money?” The Tribune editors asked that question because payroll taxes, specifically collected for Medicare, are projected to be less than Medicare spending.

The Tribune editors did not ask, “How soon will the Pentagon run out of money?” Presumably, the Pentagon faces a worse “crisis” than does Medicare. After all, the Pentagon spends billions, with zero payroll taxes specifically collected for the Pentagon.

The editors also did not ask, “How soon will the Supreme Court, Congress and the White House run out of money?” Here again, zero taxes are collected for these three federal institutions, though they spend quite a bit.

The editors did not ask, “How soon will the following agencies run out of money money?”:

The Bureau of Prisons
The Centers for Disease Control and Prevention
The Coast Guard
The Department of Justice
The Department of State
The Department of Labor
The Department of Transportation
The Department of the Treasury
The Department of Health and Human Services

All of these federal agencies, and many more, have huge budgets, but none collects a singe penny in taxes. Surely, they must be teetering on the brink of bankruptcy! But the Tribune editors seem unconcerned.

Why do the Tribune editors focus on Medicare, and often on Social Security, both of which supposedly do collect taxes, when no other Federal agency collects any taxes at all?

I’ve never seen the editors ask, “When will the National Weather Service run out of money?” Nor have I seen any graphs purporting to show the exact year when OSHA will go broke. Nor have I heard dire predictions of imminent bankruptcy for the Army Corps of Engineers.

Have you?

I’ve asked the Tribune editors this question numerous times, and never have received an answer. Perhaps you’ll have better luck. You can contact the Tribune editors at: ctc-tribletter@tribune.com. Let me know what they tell you.

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

No nation can tax itself into prosperity

–Quick prediction for the next two years

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

Here is a quick, overly simplistic prediction about what is likely to happen in the next two years. If you disagree (or even agree), feel free to add your own predictions.

1. The Democrats, fearing the weak economy will cost them the House and Senate, urgently will try to stimulate the economy before November.

2. However, stimulating the economy requires federal spending and/or reduced taxes, both of which add to the federal debt. Republicans, not wanting the economy to recover before the November elections, will object to any increases in the federal debt, falsely claiming it’s “unsustainable” and “our children will pay for it.”

3. Every stimulus plan put forth by the Democrats will be met with the threat of a Senate filibuster, plus objections by the media, the Tea Party and all others who have been hypnotized by the debt hawks.

4. The Democrats, paralyzed with fear about the federal debt, then will talk about increasing federal taxes on the “rich,” so as to be revenue neutral. This will add to the Democrats’ stigma as the “tax and spend party.” Small business owners, the primary economic engine in America, will find themselves defined as “rich,” so will become even more reluctant to hire and invest. Worse, because revenue neutral plans do not add money to the economy, they will not prove to be stimulative.

5. The economy will not recover significantly, and may even regress. The voters and the media will blame the Obama administration for not creating more jobs, but will offer no non-debt solutions, as there are none. Voters, wanting stimulus without deficits (in other words, magic), will vent their frustration on incumbents, giving Republicans enough representation in both Houses to stifle any Democratic initiatives, but not enough representation to advance Republican initiatives. Further, since the Republicans have been vociferous about deficits, they will have left themselves no way to stimulate the economy.

6. Within two years, President Obama will blame the lack of economic growth on Republican recalcitrance, thereby setting the stage for a Democratic comeback in 2012.

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

No nation can tax itself into prosperity

–Why Medicare and Social Security are not “adequately financed”

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

–Debt madness in the media

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

The media have made America’s voters insane. Any program designed to stimulate the economy is rejected because it would “add to the debt” (which is the only way to stimulate the economy) or would “be paid for by our grandchildren” (a monstrous lie).

Thus we have the ridiculous situation in which banks are criticized for not lending enough (i.e., for giving the private sector too little debt), while the federal government is criticized for having too much debt. Think, people! Do you really believe the solution to our problems is for the private sector to take on more debt, while the federal government reduces its debts?

On the one hand we have the private borrowers, already overburdened with bad debt, and falling into bankruptcy every day. On the other hand we have the federal government, which can support a debt of any size, and which does not even use tax money to support spending, and which as a monetarily sovereign nation, cannot go bankrupt. Which do you think should take on more debt to stimulate our economy?

It is absolute madness to ask for more private deficit spending and less federal deficit spending. Yet, that is what the media, the politicians and the obsolete economists do.

In the post, Is federal money better than other money, I demonstrated that while reductions in federal debt growth immediately precede recessions, increases in private debt growth also lead to recessions. The media and the politicians, who want more private debt growth and less federal debt growth have it exactly backwards.

Rumor says the Obama administration soon will suggest Fannie and Freddie give “upside down” mortgage holders a break, paid for by the federal government. If true, you will hear a great protest that this will increase the falsely termed “unsustainable” federal debt. The protesters prefer that the private sector bear this debt, which for the private sector, truly is unsustainable.

I’m not sure when it became more “prudent” for the private sector to suffer bankruptcies, than for the federal government to create money, but I pray, for the sake of America, that the media, politicians and sleeping economists come to their senses. This backwards thinking has caused terrible misery, as backwards thinking always does.

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

No nation can tax itself into prosperity