Readers of this blog are familiar with the “ticking time bomb” series; examples are here, here, here and elsewhere.
The point of this endless series is that since 1939, the media, politicians, and economists have been wringing their hands about the so-called federal debt, explicitly claiming it is a “ticking time bomb.”
That’s 84 years of “the-world-is-about-to-end” predictions that demonstrably have been wrong, and the predictors have learned nothing from their ongoing failures.
In 1939, the gross federal debt was $39 billion. Last year it was $27 TRILLION. If my math is correct, that’s a 30,000% increase, not even a firecracker.
Are the doomsday shouters embarrassed by failure? Nah. The New York Post just keeps vomiting up the garbage.
Worse yet, they combine that turd of ignorance by conflating the fake federal debt-that-isn’t-debt with real, private-sector debt.
Stephen Moore
America’s ticking time bomb: $66 trillion in debt that could crash the economyBy Stephen MooreDecember 4, 2022, 6:29pm Updated
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 detonating and crashing the US economy.
The “national debt” is not the “federal debt.” It is Moore’s strange amalgam of all sorts of things he lumped under the word “debt,” perhaps to make them look huge.
Federal debt is deposits into Treasury Security accounts, similar to safe deposit boxes. The federal government never touches those dollars. It merely safeguards them.
And when the accounts mature, and depositors want their money, the government merely sends them the dollars from their accounts.
This return of dollars is not a burden on the government or taxpayers. It’s significantly different from the federal government’s paying for goods and services.
In that case, the federal government creates new dollars ad hoc, which it has the infinite ability to do.
The federal government is Monetarily Sovereign, meaning it made (and still creates) the laws that create U.S. dollars. Because it has the infinite ability to create rules, it has the endless ability to create dollars.
You can’t do it. I can’t do it. Businesses and local governments can’t do it. That is why it makes no sense to lump federal finances with non-federal finances. The two bear no relationship. But that fact doesn’t stop the NY Post writers.
Businesses, consumers, and especially the federal and state governments have become hooked on red ink as if it were crack cocaine.
The federal government has scant red ink. It pays all its bills by creating new dollars. It cannot run short of dollars unless some damn fool politician decides not to allow the federal government to pay its bills (i.e., the so-called “debt limit).
Two factors have fueled this borrowing binge: an era of low-interest rates (that’s coming to an end) and falling real wages thanks to the 15% rise in prices of Bidenflation.
In addition to merging two different situations into one make-believe situation, the Post writer falsely claims the federal government’s non-existent “debt” comes from borrowing.
The federal government never borrows dollars. Given the infinite ability to create dollars, why would it borrow dollars? The writer, a senior advisor to Donald Trump (of course), thinks T-bills, T-notes, and T-bonds, are like personal notes and bonds.
They aren’t. You, your business, and your local government borrow when you need dollars. Not only does the Monetarily Sovereign federal government never need dollars – – it creates them at will — but it never touches the dollars invested in T-securities.
As Fed Chair famously said, “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.”
Why would such a government need to borrow dollars?
Let’s review the borrowing up-escalator that accelerated during COVID but hasn’t subsided.
The King Kong of borrowing is Uncle Sam. The national debt is $31 trillion when including Social Security’s and Medicare’s unfunded liabilities.
No federal obligations are “unfunded.” All are funded by the U.S. federal government’s full faith and credit, which includes the infinite power to create dollars.
That’s getting close to 150% of our national gross domestic product of $22 trillion.
The “debt”/GDP ratio is meaningless. It has neither predictive nor evaluative worth. It tells you nothing about the financial health of a Monetarily Sovereign government.
“Debt” is a many years measure of deposits. GDP is a one-year measure of spending. The two comprise the ultimate in an apples/anvils comparison.
Some $5 trillion has been added in just the past three years. Balancing the budget seems like a pipe dream these days.
More confusion from the Trump writer. First, he talked about state governments. Now it’s unclear what he is talking about- federal or national finances?
In any event, balancing the federal budget would be a disaster for the U.S. economy. A growing economy (as measured by GDP) requires an increasing money supply. But “balancing the budget” implies no growth.
No growth is “recession,” and the word for no growth with population growth plus inflation is “depression.”
Next, add state and local government debt and unfunded liabilities. The American Legislative Exchange Council estimates that at just under $6 trillion.
State and local governments are part of the private sector, including businesses and people. When state and local governments levy taxes, one segment of the private sector ships dollars to another segment of the private sector.
There is no net money growth for economic growth. The sole source of net money growth is the federal government, which has the infinite ability to create dollars.
Now, what about American households? The latest estimate for consumer debt is $16.5 trillion, per the New York Federal Reserve. Most of that debt is mortgages, but increasingly Americans are taking on debt for routine expenses to pay monthly bills like groceries and gas at the pump. Thanks, President Biden.
The federal government easily could ameliorate private debt by enacting Social Security for All, Medicare for All, and other social benefits. Of course, Mr. Stephen Moore would hate that because . . . well, just because.
Then we have corporate America and small businesses. Their debt burden, according to the Federal Reserve Board, just surpassed $10 trillion for the first time. Business borrowing can be a good thing — indicating economic optimism. But we have to wonder how many more FTX-type bubbles are out there inflated by low-interest rates and all that helicopter money from Washington.
Then we have the National Enquireresque’s “we have to wonder” phrasing. He doesn’t know, so he wonders.
So add it all up, and American society now owes $66,000,000,000,000 of debt! That’s roughly three times our annual GDP.
You have just read perhaps the most misleading piece of nonsense you ever will encounter. Moore adds Treasury deposits to personal and business debt, most of which comprises the private sector owing the private sector.
What does he recommend? No mortgages? No business borrowing? If less, how much less?
If that phony “$66,000,000,000,000” is too much, what is the right amount? $0?
Moore never says because he is clueless about federal financing.
Another danger sign: With wages (5% growth) falling behind consumer price inflation (7.5% growth), American families are borrowing more just to maintain their current living standard. Americans on average have lost $4,000 in purchasing power and some $30,000 in 401(k) plans in the Biden era.
It’s not “the Biden era.” It’s the COVID era. Inflation is caused by COVID-related shortages. Prices go up when goods and services become scarce.
COVID, which Trump denied, caused scarcities of oil, food, transpiration, computer chips, and many other products. Staying home with COVID caused service shortages.
By far the biggest debtor has been Uncle Sam — which has created a national culture of living beyond our means.
An entity with infinite ability to create dollars has no “means” to live beyond. That national culture has existed for over 80 years, during good times and bad.
During COVID, President Donald Trump pumped $2 trillion of “stimulus” red ink into the country when the private economy was shut down. But then, in an act of near-criminal financial negligence, Biden entered office and shoveled out $4 trillion more in green-energy giveaways, state bailout funds, student loan bailouts and welfare handouts to families with no one working.
First, Moore complains about people having lost $4,000 in purchasing power and $30,000 in 401(k) plans. Then, incredibly, he complains about the government giving these people money to help with their finances.
That is the kind of idiocy one expects from a Trumpist graduate of the Heritage Foundation.
And now we come to Moore’s virtual admission that he knows nothing about economics.
A new-wave economic strategy called Modern Monetary Theory facilitated this borrowing blowout.
The loony idea is predicated on the notion that because the US dollar is the world reserve currency, we can run up the federal credit card by trillions and still feel good about ourselves in the morning.
Until that is, interest rates start to rise.
OMG! Modern Monetary Theory has nothing to do with the U.S. dollar being the most popular reserve currency. A reserve currency is a currency banks hold in reserve to facilitate trade among nations. It has nothing to do with U.S. borrowing.
While the dollar is the most commonly held reserve currency, other currencies also are held in reserve. The euro, the yen, the lira, and others are reserve currencies. Moore is clueless about this.
Further, using a credit card implies borrowing, which the federal government doesn’t do.
Finally, rising interest rates have nothing to do with the federal government’s ability to pay its bills. It has the infinite ability to pay bills, no matter how high interest rates go.
Consumers are now engaged in the same reckless monkey-see, monkey-do behavior. The latest Federal Reserve Bank of New York report says credit card debt has skyrocketed by 16% this year to above $1 trillion.
The Christmas season is witnessing even more debt to buy Yuletide gifts. Low-income Americans are taking on debt at the fastest pace of all. Come January, don’t be surprised if Americans look at their credit card debt and suffer severe buyers’ remorse.
People may be borrowing more, which could bite them, but it has nothing to do with the federal government spending more. Moore is just lashing in all directions at anything involving more money.
For now, defaults and delinquencies are low, but we should have learned financial seas can shift on a dime. Meanwhile, the feds keep feeding the debt surge by increasing taxpayer mortgage insurance for million-dollar homes.
There is no such thing as “taxpayer mortgage insurance.” Federal taxpayers do not fund anything. All federal tax dollars are destroyed upon receipt by the U.S. Treasury.
The purpose of taxes is not to fund federal spending. Taxes help the government control the economy by punishing what the government doesn’t like and rewarding (tax breaks) what the government wishes to encourage.
You pay your taxes with dollars in the M2 money supply, and when they hit the Treasury, they cease to be part of any money supply measure. They effectively cease to exist.
Debt isn’t necessarily a bad thing. It depends on what we’re getting for it. When we borrow for roads or factories or homes or to finance our military to win wars, borrowing can be necessary and appropriate.
If you know what this last paragraph is supposed to mean, please feel free to let me know.
Stephen Moore is a senior fellow at the Heritage Foundation. He served as a senior economic adviser to Donald Trump. His latest book is “Govzilla: How the Relentless Growth of Government Is Devouring Our Economy.”
Quite a combination: Heritage Foundation + Donald Trump. That says it all.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
Who are America’s most dangerous people? What’s your opinion?
You might be tempted to name the white supremacists who attacked Congress and attempted to overthrow the U.S. election. Had they succeeded, the America you know and love would be gone.
Or you might list the Trump Republicans who encouraged, then excused, the attempted coup and who still are in our government.
But I offer you another choice:
These are the leaders of an organization called “The Committee for a Responsible Federal Budget” (CRFB).”
They did not cause or join a riot. They did not crash Congress. They did not cry, “Hang Mike Pence.” They are far more clever and subtle.
And that subtlety is what, in my opinion, makes them so dangerous. Even the group’s name, including the words “Responsible federal budget,” makes them sound so . . . responsible.
But the pen is mightier than the sword, and therein lies the real danger.
The CRFB doesn’t march or attack. They write. They talk. They reason. They influence other influencers like politicians, economists, and the media.
The group speaks to the public’s ignorance of federal financing. It draws false parallels between federal funding and personal financing. It even draws false parallels between federal financing and state/local government financing.
The general public does not understand that the parallels are false. So, when the CRFB people say, in essence, “If you do this, the federal government should do it too,” that sounds reasonable to the uninformed mind.
“If you must live within your means, the federal government should live within its means.” “If you can’t afford to borrow, you don’t borrow. The federal government should do the same.” “You have to pay off your debts. So should the government.”You can’t argue with such logic — unless you understand it’s all a lie.
Federal financing is nothing like your financing, nothing like state/local government financing, and nothing like business financing. It is unique.
The Federal government is Monetarily Sovereign. It is the creator of the laws that created the U.S. dollar. It cannot run short of laws, so it cannot unintentionally run short of dollars. It can give the U.S. dollar any value it chooses.
No amount of federal spending is “unsustainable.” it does not need tax income or any income. Even if the federal government stopped collecting taxes, it could continue spending forever.
(The purpose of federal taxes is to control the economy by taxing what it wishes to limit and giving tax breaks to what it wishes to encourage.)
The government creates dollars ad hoc when it pays bills.
Even the language describing personal finances and federal finances can be different:
The federal government never borrows dollars (It accepts deposits into accounts, the contents of which are privately owned. The government never touches the contents — similar to safe deposit acounts.)
Federal debt is not a debt of the federal government. It is the total of the abovementioned accounts.
Add to the debtmeans to add money to the economy. To reduce the debtrequires that money in the economy be destroyed.
A federal surplus is a deficit for the economy (aka “the private sector”). Similarly, a federal deficit is a surplus for the economy.
A trade deficit is money flowing out, with goods and services flowing in. Since trade is assumed to be an equal exchange, the trade deficit also could be called “goods/services income.” For a government having the infinite ability to create dollars, goods flowing in are more important than dollars flowing out.
The notorious “debt limit” does not limit debt; it limits paying for existing debt. It is the equivalent of insolvency.
The federal government cannot unintentionally become insolvent. That means no federal government agency (Medicare, Social Security, the military, etc.) can become insolvent unless Congress and the President want it to.
Federal “trust funds” are not real trust funds. They merely are record-keeping lines on a balance sheet. They too cannot become insolvent unless Congress and the President want that result.
In any economy, scarcity leads to higher prices. Inflation is a general increase in prices caused by an increase in the scarcity of goods and services.
Most inflations boil down to a scarcity of oil. Today’s inflation has been caused by COVID-related scarcities of oil, food, lumber, steel, rare earths, supply chains, labor, etc.
Federal deficit spending (red) does not cause inflations (blue). The peaks and valleys do not correspond. Reduced deficit growth leads to recessions (vertical gray lines).Inflation is caused by shortages of key goods and services, primarily shortages of oil (gray line), which translate into shortages of food, transportation, and virtually all other commodities.
Federal deficit spending does not cause inflation. In fact, it could cure inflation if the spending focused on obtaining and distributing scarce resources.
Keep in mind the above facts while you read what the CRFB says:
What Would It Take to Balance the Budget?
It’s encouraging that many in Congress are focusing more on our unsustainable fiscal situation and want a plan to improve the nation’s fiscal outlook.
At no time does the CRFB tell why the fiscal situation is “unsustainable.” The federal government has run a deficit (taxes lower than spending) almost every year since 1940.
The net total of those deficits approximates $25 trillion. The CRFB has been wrong every year of its existence, and neither it nor its followers have learned anything from these failures. Yet here we are. Sustaining.
Unfortunately, due to continued borrowing over the past several years, the desirable fiscal goal of budgetary balance has become much more difficult to reach, and it is doubtful it could be achieved in a decade or less, notably if revenue, defense, and other parts of the budget are excluded from the solution.
The federal government does not borrow money. Why would it, when it has the infinite ability to create the laws that create U.S. dollars? It can’t run out of laws or dollars.
What the CRFB incorrectly terms “borrowing” is the acceptance of deposits into T-bill, T-note, and T-bond accounts, which are owned by depositors, not by the government.
The government never touches those dollars. It “pays off” the so-called “debt” by returning the dollars to their owners, the depositors.
And why is budgetary balance a “fiscal goal” when it invariably causes recessions and depressions? (See the first graph above.)
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.
In order to achieve balance within a decade, all spending would need to be cut by roughly one-quarter and that the necessary cuts would grow to 85 percent if defense, veterans, Social Security, and Medicare spending were off the table.
Economic growth is measured by Gross Domestic Product (GDP), one formula for which is:
GDP = Federal Spending + Non-federal Spending + Net Exports
Your elementary school algebra should show you what happens to economic growth when federal spending declines. Growth declines.
RECESSION: a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters
DEPRESSION: a prolonged and severe recession in an economy
By definition, the CRFB’s “fiscal goal” is a recession or a depression.
These cuts would be so large that it would require the equivalent of ending all nondefense appropriations and eliminating the entire Medicaid program just to get to balance.
And is that supposed to be a good thing?
Balancing the budget has become increasingly challenging over the past 15 years.
Efforts to show balance too often rely on unrealistically aggressive cuts, unspecified savings, rosy economic assumptions, and other budget gimmicks as a result.
Successful budget actions in recent years have come mainly from more targeted deficit reduction efforts than from trying to meet overly aggressive fiscal goals.
“Successful budget actions in recent years”? One is left to wonder what the CRFB considers “successful.” The only spending reduction in the past 80 years came in the 1998 – 2001 period, the reduction President Clinton is so proud to boast about.
It caused the recession of 2001, which was cured by increased deficit spending.President Clinton’s reduced deficit spending led to the recession of 2001, which was cured by increased deficit spending.
When the CRFB refers to “targeted deficit reduction,” they mean less money was spent on specific projects. The CRFB doesn’t explain how those mini-reductions were deemed “successful.”
And with deficits on course to reach $2.4 trillion (6.6 percent of GDP), balancing the budget is now harder than it has ever been.
Balancing the budget is problematic because it damages the economy. The CRFB is aware of this but pretends there is some way to cut Federal Spending while not cutting GDP — a mathematical impossibility.
The exact amount of savings needed for full budget balance is uncertain and will depend both on budget projections in the Congressional Budget Office’s forthcoming ten-year baseline as well as the path of any proposed policies.
In the recent CRFB Fiscal Blueprint for Reducing Debt and Inflation, we estimated achieving balance would require roughly $14.6 trillion of deficit reduction through 2032, including over $2 trillion of policy savings (and nearly $400 billion of interest savings) in 2032 alone.
To achieve these savings without more revenue, we estimate all spending in 2032 would need to be cut by 26 percent; this figure rises to 33 percent if defense and veterans spending is exempted from the cuts.
Cut all spending by “only” 26 or 33%? Think. How would that affect GDP? Then think of the definition of “depression.” The CRFB wants to cause a recession or depression as a “cure” for the non-existent evils of federal spending.
The true purpose is to make the rich richer by widening the Gap between the rich and the rest.
For a sense of magnitude, applying this cut across the board would mean reducing annual Social Security benefits for a typical new retiree by $10,000 to $13,000 in 2032.
It would also mean laying off 1.1 to 1.4 million federal employees (more than two-thirds of the civilian workforce if the military were exempted) and removing 20 to 25 million people from Medicaid eligibility.
Reducing Social Security and firing 1.1 to 1.4 million so that the federal government, which has infinite dollars, is not how to run an economy, though it is a great way to make the rich richer.
Excluding Social Security and Medicare from cuts would make the task of balance even more unrealistic. Without touching spending on defense, veterans, or Social Security, all other spending would need to be cut by 51 percent. Also, excluding Medicare would mean that the remaining spending would need to ultimately be cut by 85 percent.
It gets dumber and dumber, but the CRFB favors these draconian cuts to benefit the rich.
The figures above do not include additional savings that might be necessary if policymakers choose to extend $3 trillion worth of tax cuts that have expired or are set to expire in the coming years.
To give a sense of just how challenging achieving balance in 2032 by controlling spending is, it would require doing one of the following:
*Eliminating virtually all defense and nondefense discretionary spending programs; *Cutting Medicaid spending in half while eliminating all other mandatory spending outside of Social Security and Medicare; *Eliminating all nondefense discretionary spending and ending the entire Medicaid program; *Repealing Medicare, all income security programs, and all refundable tax credits; or *Discontinuing all Social Security retirement and survivors’ benefits.
Did you notice what is missing from the above list? Anything that would take from the rich. Because the CRFB is a tool of the rich, something like a 90% tax rate (which America had in 1941 is not even discussed. In 1941, in fact, Roosevelt proposed a 99.5 percent marginal rate on all incomes over $100,000. )
Wanting to balance the budget is an admirable and desirable goal.
No, it is a stupid goal. It would cause a recession if we are lucky, but most likely, a deep depression that only could be cured by massive federal deficit spending. The CRGB goal is based not on economic need but on making the rich richer. That is the CRFB mission.
The first step, of course, is to avoid actions that would worsen our already unsustainable fiscal situation.
The irony is palpable. Here are people recommending taking trillions from the private sector but claiming they want to “. . . avoid actions that would worsen our fiscal situation.” It would be laughable were it not so harmful.
We commend the adoption of a specific and realistic fiscal target.
The realistic target should be to narrow the Gap between the rich and the rest and to provide more human benefits to the populace. The federal government has all the tools it needs to create a paradise on earth, so long as these most dangerous people in America don’t hold sway:
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
The GOP, America’s “Party of the Rich,” will love this.
D’SOUZA
First, some background:
The United States Attorney for the Southern District of New York announced today that DINESH D’SOUZAwas sentenced in Manhattan federal court to five years of probation, with eight months during the first year to be served in a community confinement center.
He pled guilty to violating the federal campaign election law by making illegal contributions to a United States Senate campaign in the names of others.
Manhattan U.S. Attorney Preet Bharara stated: “Dinesh D’Souza attempted to illegally contribute over $10,000 to a Senate campaign, willfully undermining the integrity of the campaign finance process.
Like many others before him, of all political stripes, he has had to answer for this crime – here with a felony conviction.”
This extreme right-winger was one of the many crooks pardoned by Donald Trump. The irony is that he broke campaign laws and produced a phony movie blasting Democrats for — you guessed it — breaking campaign laws.
Now he has a suggestion for the GOP, America’s “Party of the Rich,” they are bound to love, for it combines the two things they most desire. Ending the IRS and taxing the lower income more.
Dinesh D’Souza on Twitter:
“The House GOP should pass a bill basically wiping out the IRS and the tax code and instituting a flat tax of 15%.
The rich pay more, but they pay at the same rate.
This won’t become law now, but it can become a central plank for Republicans in the 2024 presidential election.”
The notion of “wiping out the IRS” has some merit. Our Monetarily Sovereign government neither needs nor uses the tax dollars (or any other dollars) that come into the Treasury.
In fact, federal taxes begin in the M2 money supply measure, but upon reaching the Treasury, they cease to be part of any money supply measure. They are effectively destroyed, disappearing into the Treasury’s infinite money supply.
The IRS is not on anyone’s list of favorite federal agencies, but no one dislikes them more than the rich do.
If you’re salaried, there’s not much you can do about income taxes and virtually nothing you can do about payroll taxes. The rich continually try to game the system by stretching the meanings of tax laws to the breaking point.
I’m pretty well off, but even I can’t begin to imagine the Byzantine translations of tax laws that the wealthy use.
You undoubtedly have read that you paid more taxes in the past 15 years than did billionaire Donald Trump. We all did because he paid virtually none.
Now he is being investigated and may even have to pay a bit. You can be sure he and his fellow billionaires despise the IRS.
The main problems with felon D’Souza’s recommendation are:
He believes (or only claims) federal taxes are necessary, and
He advocates a flat tax to replace the current graduated tax.
Number 1 is false. Federal taxes do not fund federal spending. Federal tax dollars are destroyed upon receipt.
The non-funding purpose of federal taxes is to control the economyby taxing what the government wishes to limit and by giving tax breaks to what the government hopes to encourage.
This could be accomplished without taxes simply through rewards and non-tax penalties.
Number 2 reflects the very rich’s desire to widen the income/wealth/power Gap between them and those below them.
The flat tax is the anti-equalization version of the graduated tax. The ostensible purpose of our graduated tax system is to narrow that Gap.
Sadly, it has been perverted by the numerous tax breaks afforded to the rich that are not available to the rest of us.
As weak as our graduated system is, the flat tax is worse. It is the ultimate dream of the rich and their lackeys, the Republicans.
The reality would be that tax breaks would not disappear, but the published tax rates on the rich would decline to 15%.
In short, a convicted felon, “right-wing conspiracy wingnut,” and mouthpiece for the rich has made two suggestions for further enriching the rich. We now await his applause from the GOP.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.
Your federal tax dollars are taken from the economy and are destroyed upon receipt.
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.
IN SUMMARY
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.
These are the leaders of an organization called “The Committee for a Responsible Federal Budget” (CRFB).”
They did not cause or join a riot. They did not crash Congress. They did not cry, “Hang Mike Pence.” They are far more clever and subtle.
And that subtlety is what, in my opinion, makes them so dangerous. Even the group’s name, including the words “Responsible federal budget,” makes them sound so . . . responsible.
But the pen is mightier than the sword, and therein lies the real danger.
The CRFB doesn’t march or attack. They write. They talk. They reason. They influence other influencers like politicians, economists, and the media.
The group speaks to the public’s ignorance of federal financing. It draws false parallels between federal funding and personal financing. It even draws false parallels between federal financing and state/local government financing.
The general public does not understand that the parallels are false. So, when the CRFB people say, in essence, “If you do this, the federal government should do it too,” that sounds reasonable to the uninformed mind.
“If you must live within your means, the federal government should live within its means.” “If you can’t afford to borrow, you don’t borrow. The federal government should do the same.” “You have to pay off your debts. So should the government.”
You can’t argue with such logic — unless you understand it’s all a lie.
Federal financing is nothing like your financing, nothing like state/local government financing, and nothing like business financing. It is unique.
The Federal government is 
#Monetary Sovereignty - Mitchell 