The Pandora Box: Your taxes and your charities

The problem is this: Federal taxes are unnecessary.

They do not fund federal spending. Because the U.S. federal government (unlike state/local and euro governments) is Monetarily Sovereign, it has the unlimited ability to create its sovereign currency, the U.S. dollar. It never unintentionally can run short of dollars.

Rather than spending tax dollars, the federal government creates brand new dollars, ad hoc, every time it pays for something. Your Medicare and Social Security benefits, indeed every dollar coming out of Washington, are newly created.

What becomes of your tax dollars? They are destroyed upon receipt by the U.S. Treasury. They begin in checking accounts as part of the M1 money supply measure, and as soon as they hit the Treasury, they cease to exist in any money measure.

Not only are federal taxes not spent, but they are a terrible drag on the economy. The estimate is that this year, nearly $4 trillion will be taken from the U.S. economy by useless federal taxes.

That is a gigantic, and unnecessary, loss for the U.S. economy.

While politicians lie about you and your children owing some percentage of the federal debt (You don’t), your real debt is what you owe in federal taxes. Your federal tax dollars are lost forever.

(Perhaps ironically, your state/local taxes are recirculated into the economy, so they do wind up in someone’s pocket.)

If all federal tax collections were eliminated, the U.S. economy would be boosted by about $4 trillion, which calculates to an approximate 18% gain in annual Gross Domestic Product.

Federal taxes are the single biggest deadweight on U.S. economic growth. Nothing else comes close.

So we should get rid of those unnecessary taxes — except for two problems:

First, taxes theoretically help the federal government control certain aspects so the economy, by taxing what it wishes to discourage and giving tax breaks to what it wishes to encourage.

Second, by taking more from the rich than from the poor, federal taxes theoretically help narrow the Gap between the rich and the rest.

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.

The love of money isn’t the root of all evil. Gap Psychology — the desire to widen the Gap below and to narrow the Gap above — is the root of all evil.

Those are the theories. Here is the reality:

A growing worry for charities: Tax havens for the rich
By Haleluya Hadero , AP Business Writer

A spotlight that has been thrown on how many of the rich and powerful shield their wealth is also intensifying a fear among philanthropy experts: That the tax havens being used by the wealthy will increasingly siphon money away from charitable causes.

Wealthy Americans have long sought to use charitable contributions to reduce their tax burdens.

That is how the federal government encourages charitable giving.

(Because much charity is religiously based, it could be argued that those tax deductions are unconstitutional, but that is a separate issue,)

But the “Pandora Papers” report, issued last week by the International Consortium of Investigative Journalists, revealed how world leaders, billionaires and others have stashed trillions of dollars out of the reach of governments by using shell companies and offshore accounts, which are considered legal.

One maneuver described in the report, a “dynasty trust,” can exist in perpetuity in states like South Dakota. Using these trusts, Americans can legally shield themselves from estate and other taxes — and thereby remove a major incentive for charitable giving.

When the wealth of an American individual or couple exceeds a threshold — $11.7 million or $23.4 million, respectively — each dollar value above that level, once bequeathed, is subject to a federal estate tax of up to 40% for each generation.

But a carefully crafted dynasty trust helps succeeding generations avoid those taxes. And the longer the trusts last, the longer the user can avoid taxes and the longer he or she may lack a financial incentive to donate to a charity.

Experts note some Americans are also legally able to avoid state income taxes on revenue generated by their assets by setting up trusts in states that don’t levy income taxes. One of them is South Dakota, which also doesn’t have its own estate, capital gains or inheritance tax, thereby making it an especially attractive destination to park wealth.

Of course, that is not the only way the rich avoid paying taxes. For example:

President Trump Defends Himself Against Report He Did Not Pay Taxes For 8 Years
May 8, 2019, Heard on All Things Considered
Jim Zarroli

Trump lost so much money during the decade that he was able to completely avoid paying taxes in eight of the 10 years from 1985 to 1994, but Trump noted in a tweet this morning that big losses on paper, at least, were common in real estate at the time.

He said developers got massive write-offs that allowed them to declare a loss in most cases. It was sport, he said. It’s called tax shelter.

Tomasz Piskorski, who teaches real estate at Columbia Business School, says that was pretty much true. Real estate developers had lots of legal ways to avoid paying taxes.

Think of it. You and I paid more federal taxes than did billionaire Donald Trump.

There are dozens of ways in which the rich can avoid paying taxes — ways not available to the average taxpayer.

In fact, the U.S. tax code, rather than helping to narrow the Gap, actually widens the Gap, and not just for today’s taxpayers, but for the rich taxpayer’s children and grandchildren, into perpetuity.

That is how dynasties are built, and how relative poverty is maintained.

“There’s every reason to think that the ultimate effect of this type of wealth being put into these vehicles will also be a long-term loss in revenue for charitable organizations,” said Ray Madoff, a professor at Boston College Law School who teaches philanthropy policy and taxes. 

Tax policy, after all, consistently affects charitable giving. After the tax law changes pushed through Congress by President Donald Trump in 2017, charitable donations dropped 1.3% in 2018compared with the prior year, the Treasury Department reported. 

According to a recent study by the consulting firm CCS Fundraising, 25% of donors cited the tax deduction as a motivation for their charitable giving.

A joint study from Bank of America and the Indiana University Lilly Family School of Philanthropy found that 22% of the wealthy donors surveyed would reduce their donations if tax deductions for charitable giving were eliminated.

The same study found that 51% of wealthy donors said they sometimes contribute to charity to receive a tax benefit.

In summary, the dilemma is this:

  1. Federal taxes do not provide the federal government with spending money. Being Monetarily Sovereign, it creates all its spending money, ad hoc.
  2. Federal taxes are harmful to economic growth by removing dollars from the economy.
  3. Federal taxes, as currently written, widen the Gap between the rich and the rest.
  4. But, federal taxes help the government control the economy.
  5. For example, federal taxes encourage charitable giving.

If we want our government to encourage economic growth and to narrow the Gap between the rich and the rest, while maintaining federal control over the economy, including encouraging charitable giving, what should we do?

Because The federal government has no need for tax dollars, it should begin to:

  • Eliminate taxes on what it wishes to encourage
  • Spend on what it wishes to encourage
  • Tax only what it wishes to discourage

The first taxes that should be eliminated are FICA taxes and taxes on Social Security benefits. These taxes are the most regressive and senseless taxes in America.

The fundamental purpose of government is to improve and protect the lives of the governed. That is why people create governments.

A good government would aid the poor and middle classes before retirement and encourage retirement security. The FICA tax and taxes on Social Security benefits are in direct opposition to those goals.

A good government would provide healthcare to its governed. It would spend money on comprehensive medical insurance plans. It would not require deductibles. It would pay for education, grades K-12+.

A good government would encourage charitable giving by offering income-scaled benefits to contributors as a reverse income “tax” on money contributions to legitimate charities, with low-income contributors receiving more benefits.

A good government would eliminate tax laws and loopholes that primarily benefit the rich.

Because the rich run America via bribery, we cannot obtain a “good government” until the populace understands Monetary Sovereignty.

When the people stop believing The Big Lie that federal taxes are necessary to fund federal spending, and that federal debt should be reduced, only then will the rich no longer continue to amass greater and greater power over the rest of us.

Is this really too much to hope for?

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. 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. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY