–How to flush your money down the toilet and other newspaper recommendations.

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Please read the flush-your-money-down-the-toilet instructions from my favorite hometown newspaper, the Chicago Tribune, recommended on 8/7/11:

(Here are some of) the top federal tax expenditures and, ballpark, how much they (tax deductions) save taxpayers every year:

*Employer payments for health insurance premiums and other health benefits: $131 billion
*The home mortgage interest deduction: $96 billion
*Capital gains and dividends: $80 billion
*Pension contributions and earnings: $60 billion
*Earned-income tax credit for low-income people: $53 billion
*Charitable contributions excluding education and health: $36 billion

These tax breaks deplete the federal treasury, penny for penny, just as much as does spending on defense, Medicaid or ethanol subsidies. If Congress and President Barack Obama scaled them back, tax rates could plummet.

In the Chicago Tribune editors’ world, all your money belongs to the federal government, and any tax you and I don’t pay becomes a “tax expenditure” and should be eliminated. The Tribune quotes that economic genius Sen. Tom Coburn, “Tax subsidies are socialism.”

Oh really? Socialism is government ownership of resources. So by the correct definition, when the government collects tax dollars, it gains ownership of those resources, which is socialist, and when it allows the public to keep ownership of its money, that is anti-socialist. Ah, details, details.

More important is the Tribune’s belief that taxes and tax rates are related to spending. They aren’t. There is zero correlation between federal spending, which has gone up over the years, and tax rates, which have gone down over the years. As always, the Tribune editors simply do not know what they are talking about, nor do they want to know. They’d rather parrot popular wisdom than check facts. It takes less effort.

Aside from tax rates, tax dollars also are unrelated to federal spending. Unlike the states, counties and cities, the U.S. is Monetarily Sovereign, meaning it has total control over its sovereign currency, the dollar. If federal taxes fell to $0 or rose to $100 trillion, neither event would affect the federal government’s ability to pay any bills of any size any time. (The local governments are monetarily non-sovereign and so do depend on taxes for spending. The Tribune doesn’t understand the difference between Monetary Sovereignty and monetary non-sovereignty.)

Then most importantly, the Tribune wishes to take money out of your pocket and give it to a government that doesn’t need it. A tax on employers for health insurance translates into a tax on you. Either your employer could afford fewer employees or would have to cut salaries or charge consumers more for goods and services. The money has to come from somewhere.

(As an aside, businesses really don’t pay taxes; people pay taxes. The tax money that ostensibly comes from a business actually comes from employees and/or customers — in short, you. All taxes ultimately come from people’s pockets, no matter who or what initially pays them.)

Reduce the home mortgage interest deduction and you take money from homeowners. Tax pension contributions and you take money from those who hope to retire. Reduce the earned-income tax credit for low-income people and you take money from the pockets of the poor. Reduce the tax credit for charitable contributions and you take money from contributors and charities.

So considering the fact that the federal government, being Monetarily Sovereign, does not need or even use your money (It pays bills by crediting bank accounts), whose pocket would you like to raid for no reason at all?

Lest you think all of the above is typical Tribune-ignorance, you ain’t seen nothin’ yet. Read this:

Both (political) groups discussed trimming tax expenditures and dropping the top income tax rate to perhaps 25 percent

How does that translate into economic growth? Broaden the tax base, lower the rate, and you’re closer to having market forces–rather than politicians–determine how individual and companies spend their money. Suddenly they’re investing their resources to gain efficiencies, profits and expansions, rather than tailoring decisions to what the tax code rewards or punishes.

Let me translate that into English: “Broaden the tax base, lower the rate. . .” means: “Make the lower income groups pay more, and let the upper income groups pay less.” Of course, the Tribune editors are in the upper income group, but I’m sure that is just a coincidence.

Then there is this Tribune comment about its recommendation to tax mortgage interest:

If you rent, you get nothing. If you have reasons not to itemize deductions, you get nothing. If you pay off our mortgage to live debt-free, you get nothing. Borrow a fortune for a McMansion, however, and the Internal Revenue Service provides a big discount, at the expense of every other taxpayer.

Gosh, the Tribune must really be for the small mortgage payer and small taxpayers, right? Well, no. Most small mortgage payers and small taxpayers would pay more taxes under the Tribune plan. The money goes to the federal government, which the Tribune thinks should be given to the richest taxpayers by cutting the top tax level.

And the ignorance continues:

The federal purse is so threadbare that the only way to spend more is to borrow more.

Say, Tribune editors, exactly how much is in that “threadbare” purse? You have no idea? Of course not, because such a number does not exist for a Monetarily Sovereign government. There is no “purse” and the government creates dollars ad hoc, as it pays its bills.

And as for having to “borrow more,” that could be stopped tomorrow. Just eliminate the law requiring the Treasury to issue T-securities in the same amount of the federal deficit. No T-securities = no debt = no problem.

Then there is this final Tribune gem:

Twenty-five years ago, members of Congress from both parties joined with President Ronald Reagan to reform the nation’s tax scheme.

We hope today’s Congress has enough debt realists to do the same with President Obama.

I almost, but not quite, am embarrassed to remind the Tribune editors that not only did President Reagan and his Congress run the biggest deficits outside of WWII, but those big deficits led to a period of strong economic growth — until President Clinton ran his surplus, which led to a recession.

But heck, who needs facts when you can just reprint all the popular myths and fairy tales of the day? Isn’t that what a great newspaper is supposed to do?

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings


–Worried about your children and grandchildren paying the federal debt?

An alternative to popular faith

     The debt hawks claim to be concerned about your children and grandchildren, but their proposals actually will punish your heirs. The debt hawks say future taxpayers will pay for today’s federal deficit spending. This is factually wrong. Unlike state and local governments, the federal government does not spend tax money. It, in fact, destroys the tax money sent to it, and it creates new money, ad hoc, when it credits the bank accounts of creditors. Federal spending is not limited by, or related in any way to, federal taxes. Thus, taxpayers never have, nor ever will, pay for federal spending.

    What the debt hawks fail to mention is that their solutions (raising taxes and cutting federal spending) to this non-existent problem will impoverish you, your children and your grandchildren. Here is a sampling of debt hawk proposals. Read them carefully, and think about each proposal’s effect on current and future generations.

    Raise the normal retirement (Social Security) age to 68
    Reduce scheduled Social Security benefits
    Reduce Social Security spousal benefits
    Increase taxes on Social Security benefits

Health care:
    Tax insurance benefits
    Tax employees for employer-paid premiums
    Cut Medicare payments
    Cut Medicaid payments
    Raise Medicare premiums
    Cut spending on graduate medical education
    Raise the Medicare retirement age (again)
    Cut federal Medicaid funding to states

    Do not enact a new jobs bill

More taxes; higher taxes
    Raise taxes on higher incomes
    Increase the inheritance (“death”) tax
    Increase the gas tax
    Enact a VAT tax
    Increase the payroll tax (FICA)
    Eliminate the mortgage interest deduction
    Eliminate state and local tax deductions
    Tax life insurance benefits
    Eliminate EITC (Earned Income Tax Credit for low and moderate income workers
    Eliminate the $400/person making-work-pay credit
    Eliminate the “American Opportunity” college tax credit
    Add and excise tax on high-cost health plans

Military and Security:
    Reverse the “Grow the Army” initiative (fewer paid soldiers)
    Reduce purchases of weapons systems
    Reduce veterans’ income security benefits
    Reduce Homeland Security spending

Aid for the poor:
    Cut food stamps
    Cut average unemployment benefits
    Cut temporary assistance to needy families (TANF) program
    Cut funding for adoption and foster care

    Cut federal funding of K-12 education
    Cut school breakfast programs
    Cut funding for the education of disadvantaged and disabled children

    Cut federal highway funding
    Cut funding for bridge repair

Research & Development:
    Cancel NASA missions to the moon and Mars

States and Cities:
    Cut mass transit funding
    Cut federal funding to the states and cities

This is the world — a world of higher taxes and fewer benefits — the world the debt hawks propose for you, your children and your grandchildren.

And what is the federal debt the debt hawks worry over? The federal government spends by crediting the bank accounts of its vendors. Every credit demands a debit, and this debit on the government’s balance sheet is called “debt.” It more properly should be called, “money,” because the way the government creates money is by crediting bank accounts. That balance sheet merely is a score sheet, showing how much money the government has created.

You don’t owe it, nor do your children and grandchildren. It’s just a score sheet.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity