What are the purposes of the federal gas tax, FICA and federal income tax?

Question: What are the purposes of the federal gas tax, FICA, and federal income tax?

Answers:

  1. The federal government and states both impose gas taxes, with much of the revenue raised going toward fixing highways and other infrastructure projects.
  2. The Federal Insurance Contributions Act (FICA) is a U.S. law that mandates a payroll tax on the paychecks of employees, as well as contributions from employers, to fund the Social Security and Medicare programs.
  3. Tax revenue allows the government to operate and provide goods and services for citizens. These goods and services include roads, bridges, national parks, education, research and national defense.

The answers to the questions can be summarized as: The purpose of federal taxes is to fund federal spending. You can find these answers at the indicated links and in thousands of places on the Internet, except . . .

. . . the answers are wrong. Federal taxes fund nothing. 

 

 

 

Status of Major Federal Trust Funds
Dates “trust funds” supposedly will exhaust their cash, except it’s all a lie. The “trust funds” are not real trust funds, and there is no cash. Congress and the President have total control over all spending, which is done with newly created dollars, ad hoc. The government never can run short of dollars.

State and local taxes stay in the economy (aka, the private sector). They are deposited in private banks and then are used to fund state and local spending.

But federal taxes are destroyed upon receipt. They no longer stay in the economy. They no longer are part of the money supply measure M2. They cease to exist.

This fact is not understood by the vast majority because of the erroneous communications sent every day.

I. The Purpose of the Federal Gas Tax

Biden says decision on gas tax holiday may come this week
Aamer Madhani and Josh Boak
Associated Press
REHOBOTH BEACH, Del. (AP) — The administration is increasingly looking for ways to spare the public from higher prices at the pump, which began to climb last year and surged after Russia invaded Ukraine in February.

The Biden administration has already released oil from the U.S. strategic reserve and increased ethanol blending for the summer, in additional to sending a letter last week to oil refiners urging them to increase their refining capacity.

Yet those efforts have yet to reduce price pressures meaningfully, such that the administration is now considering a gas tax holiday. Taxes on gasoline and diesel fuel help to pay for highways.

There it is, the Big Lie that federal taxes pay for things. 

The government, being Monetarily Sovereign, has the infinite ability to create its own sovereign currency, the U.S. dollar. 

The federal government never unintentionally can run short of dollars. Even if total federal tax collections equaled $0, the federal government could continue spending, forever. The federal government already has unlimited dollars to pay for highways.

Given that simple fact, there is no reason why the federal government would need to collect taxes for spending. The sole function of the federal gas tax is to discourage driving. It’s an effort to reduce gasoline usage.

And that is the fundamental difference between federal finances vs. state/local government finances. State and local governments can and do run short of dollars. Their taxes do fund spending.

Federal taxes have only one purpose: Taxes discourage what the government wants to limit, and tax breaks encourage what the government wants to grow.

The Penn Wharton Budget Model released estimates Wednesday showing that consumers saved at the pump because of gas tax holidays in Connecticut, Georgia and Maryland. 

Sadly, the state and local governments, which do not have the infinite ability to create dollars are doing what the federal government should have done.

In an interview Sunday on ABC’s “This Week,” Treasury Secretary Janet Yellen expressed an openness to a federal gas tax holiday to give motorists some relief.

Oil refiners say their ability to produce additional gas and diesel fuel is limited, meaning that prices could remain high unless demand starts to wane.

The gas tax holiday would encourage driving, but this would reduce supplies, thereby increasing prices. Clearly, Janet Yellen has no plan for reducing inflation.

In all fairness, however, reducing inflation requires reducing shortages of key goods and services, and that is Congress’s job, not the Fed’s.

Only Congress has the power to increase supplies of scarce goods and services.

The American Petroleum Institute and American Fuel & Petrochemical Manufacturers sent a joint letter to Biden on Wednesday that said refineries are operating near their maximum capacityalready and nearly half of the capacity taken off line was due to the facilities converting to renewable fuel production.

A gas tax holiday would make the scarcity situation worse, although there would be an economic benefit to not removing dollars from the economy.

“Today’s situation did not materialize overnight and will not be quickly solved,” the letter said. “To protect and foster U.S. energy security and refining capacity, we urge to you to take steps to encourage more domestic energy production,” including new infrastructure and reducing regulatory burdens.

That letter does indicate one of the steps the federal government should take to fight inflation: Take steps to encourage more domestic energy production,” including new infrastructure.

Last week, the Federal Reserve stepped up its drive to tame inflation by raising its key interest rate by three-quarters of a point — its largest increase in nearly three decades — and signaled more large rate increases to come.

The cause of inflation is shortages of gas, oil, foods, shipping, computer chips, lumber, housing, and labor. An increase in interest rates will not address any of those causes.

II. The purpose of FICA

The Federal Insurance Contributions Act (FICA) is a U.S. law that mandates a payroll tax on the paychecks of employees, as well as contributions from employers, to fund the Social ecurity and Medicare programs.

Wrong again. Federal taxes fund nothing.

The sole purpose of FICA, as told by President Franklin D. Roosevelt, was so that “no damn politician can ever scrap my Social Security program” (because it is an earned benefit ostensibly funded by the workers themselves.) FICA is not economics. FICA is psychology.

Sadly, rather than protecting Social Security, FICA and its fake “trust funds” have been an excuse for reducing benefits.

Social Security has undergone significant changes since Fuller received her first check, including the addition of disability benefits in 1956. Today, 59 million retired workers, spouses, disabled workers and survivors get monthly payments averaging $1,194.

The latest overhaul came in 1983, when Social Security was on the brink of insolvency. Congress increased payroll taxes, cut benefits and gradually extended the age when retirees can claim full benefits.

The changes shored up Social Security’s finances so it could absorb the initial wave of retiring baby boomers.

The preceding paragraphs demonstrate the lie about Social Security being paid by “trust funds.”

Social Security was “on the brink of insolvency” only because Congress and President Reagan wanted to cut benefits. Otherwise, they merely could have authorized additional federal payments to the program, just as they do when the Army needs more money.

In a real “trust fund,” the trustees (the government) could not arbitrarily add disability benefits. In a real trust fund, the trustee could not arbitrarily extend the age for claiming full benefits. In a real trust fund, the trustee could not arbitrarily invent new rules about working people receiving or not receiving benefits.

Social Security is nothing more than a government agency, and like all other government agencies, it rises or falls on the whim of Congress and the then-current President.

In that sense, it is no different from the military, NASA, or the FBI, except none of them are limited by a fake “trust fund.”

III. The purpose of federal income taxes.

You can spend your life searching sources, and the vast majority will tell you something like this one:

“Taxes (in all their various forms) are the revenue stream that a government needs to provide the services that its citizenry demand of it. If you want the government to perform some action, well, it needs some money to pay for it. Taxes are how we do that.”

The first clue that the author doesn’t know what he or she is talking about comes from the words, “a government.” The tacit assumption is that the finances of a monetarily sovereign government are the same as the finances of a monetarily non-sovereign government.

The former are money creators like the governments of the U.S., Canada, the UK, Mexico, Australia, et al. The latter are money users like the governments of Illinois, Chicago, France, Italy, et al.

Money creators cannot run short of their own sovereign currency, and for that reason they neither need nor use tax. 

Former Federal Reserve Chairman, Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

The U.S. government cannot run short of dollars. Similarly, the Canadian, UK, Mexican, Australian etc. government cannot run short of their currencies.

By contrast, money users like the Illinois and Chicago governments can run short of dollars, and the governments of France, Italy, etc. can run short of euros. So they need to collect taxes. That is the way they acquire euros.

In further contrast, the European Union is monetarily sovereign. It cannot run short of euros.

Press Conference: Mario Draghi, former President of the European Central Bank, 9 January 2014
Question: “I am wondering: can the ECB ever run out of money?”
Mario Draghi: “Technically, no. We cannot run out of money.”

Since federal taxes do not fund federal spending, why does the federal government collect them? 

The purposes of U.S. federal taxes are.

1. To narrow the gap between the rich and the rest. An overly wide gap gives the rich too much power in any economy, so tax rates take income into consideration, with increased rates for increased income.

Unfortunately, this purpose is followed more in the breach than in reality, because the rich have managed to distort tax collections in their favor. One outstanding example is Donald Trump, who despite being a billionaire, did not pay any federal taxes at all in 8 of the past 10 years.

2. To control the economy by taxing what the government wishes to discourage and giving tax breaks to what the government wishes to discourage.

A partial example is the gasoline tax which to a very small degree discourages gasoline usage. “Sin” taxes on cigarettes and alcohol fall into this category.

And then there is the real purpose of federal taxes:

3. To make the unwary populace believe that federal deficit spending is harmful so, federal benefits must be limited or taxes must be increased.

This is the insidious Big Lie promulgated by the rich, to widen the Gap between them and the rest of the people.

It is the reason why you repeatedly are told that the Social Security “trust fund” pays SS benefits, and the Medicare “trust fund” pays Medicare benefits, and both are running short of money. Neither of the so-called “trust funds” are real trust funds. Neither pays benefits and neither can run short of money unless Congress and the President want them to run short.

As with all federal agencies, the federal government pays for everything by creating new dollars, ad hoc.

In perhaps overly simple terms, it works like this for Social Security:

  • An agency of the federal government creates instructions (check or wire) from thin air and sends these instructions to your bank
  • Your bank is instructed to increase the balance in your checking account.
  • When your bank obeys those instructions, dollars are created and added to the M1 money supply. 
  • Your bank then “clears” (gets approval) the instructions through the Federal Reserve, which also is an agency of the federal government.

Thus, the circle is completed with one agency of the federal government’s approving the dollar-creation instructions by another agency of the federal government.

That is why federal checks don’t bounce. The federal government approves its own instructions.

Compare that to an agency of a state or local government. It too sends instructions to banks, and the banks obey those instructions. But when the banks try to clear the instructions through the Federal Reserve, the instructions will bounce unless the state or local government’s accounts have sufficient reserves.

For state/local governments, there is no self-approval system of dollar payments.

Actual dollar creation is done by banks at the instruction of the federal government. Those green paper Federal Reserve Notes printed by the Treasury are not in themselves, dollars. They are bearer titles to dollars.

Just as a house title document is not a title — it’s just a piece of paper — until it refers to a specific house, a dollar bill is just a piece of paper until it refers to a specific dollar on the government’s balance sheets.

Dollars are like laws.  They have no physical existence. You can’t hear, feel, smell, taste, or see a law or a dollar.

Dollars are only numbers on balance sheets. The Treasury provides banks with Federal Reserve Notes which merely are titles to dollars.

Banks use Federal Reserve Notes (dollar bills) as a substitute for increasing numbers in accounts. People use Federal Reserve Notes as titles to dollars that exist only as numbers on federal balance sheets.

For example, if you were to use dollar bills to purchase a car, you would exchange your title to dollars for the title to the car. The car seller then would own the dollar titles, proving he owned the numbers on the government’s books, and you would own the car title proving you own the car.

 

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

Why the cashless society? To track and control your life

Here are some excerpts from an interesting article in Bloomberg:

Could India Be the First to Get Rid of Cash?
JULY 20, 2016 By Mihir Sharma

“Black money” — the colloquial name for a vast network of off-the-book cash transactions and unbanked savings — is one of India’s biggest scourges.

Amounting to as much as $460 billion a year, bigger than the GDP of Argentina, all that money lies beyond the reach of the tax authorities, creditors, and anti-corruption investigators.

Half the country’s output comes from the small, informal sector, where cash transactions are the norm.

Meanwhile, taxes are cumbersome to pay and easy to avoid.

To collect revenue, India’s government has to rely on indirect levies such as sales and excise taxes, which are distortionary and regressive, rather than on income tax.

Direct taxes contribute only 35 percent of the take in India.

Tax evasion has been a hot-button political issue in India for at least a decade. The anti-corruption crusader Arvind Kejriwal — now chief minister of the Indian capital Delhi — made headlines when he accused top politicians and businessmen of having illegal offshore accounts.

Belgium, for example, which has the highest proportion of cashless transactions in the world — 93 percent, according to MasterCard — has banned cash payments of over 3,000 euros.

India’s many poor people and migrants still struggle to access its chronically inefficient banking system, despite the government’s efforts at reform.

If presented with an easy and frictionless way of transferring cash, there’s no reason to think consumers wouldn’t embrace it quickly.

As cash gets used for fewer and fewer transactions, it will become easier for authorities to crack down on tax evasion.

The “cashless society” is proposed as an innocent, money-saving convenience, especially for poor people, and as a way to reduce corrupt tax avoidance. Thus, the “cashless society” is described as a morally and economically good program.

But its real purpose, its insidious purpose, is control.

Consider that India is Monetarily Sovereign. Its currency is the rupee (worth about $.15).

Being Monetarily Sovereign, India has the unlimited ability to pay any bill denominated in rupees.

Even if India stopped taxing altogether, it could continue spending forever. It never would run short of rupees.

Monetarily Sovereign entities do not need income so long as their currency is widely accepted for payment and/or exchange. The rupee is such a currency.

The article gave the example of Belgium, as a nation where few bills are paid with cash. But because Belgium uses the euro, it monetarily non-sovereign. It does not have its own sovereign currency, so it does not have the unlimited ability to pay its bills. It needs income.

Similarly, our states, counties and cities are monetarily non-sovereign.  They too, need taxes to fund spending.

By contrast, India (like the U.S., Canada, Australia, China, Japan, and other Monetarily Sovereign nations) does not need to collect taxes for bill payment.

Yet all these nations collect taxes, not because they need the currency (They don’t), but for economic control.

Tax collection, together with harsh laws about tax evasion, provide a means by which a government can track and control the finances of every citizen. Tracking and controlling finances allows governments to track and control the lives of their citizens.

When you use credit cards or checks to pay your bills, you create a “paper” trail, easily followed by the government. Similarly, if you are a business that accepts credit cards or checks in payment, your finances can be tracked.

More importantly, if you fall into either of the above categories, your finances not only can be tracked, but controlled.

Having the power to levy taxes on various forms of income or purchase, allows the government to control much of your life. For instance, a simple gasoline tax can affect such decisions as: Will you drive to work, take a train, or decide to work nearby? Where will you vacation? Where will you live? What kind of vehicle will you own? Import taxes affect what you buy. Luxury taxes affect what you own. Inheritance taxes affect what you leave behind.

The arbitrary tax rates on various forms of income dramatically affect your investing and your saving. Taxes affect your charity giving and your healthcare.

The requirements to declare your income and much of your spending allow the government to trace what you do and where you go.

The operations of any business are controlled in part, by what forms of income are taxed and what expenses are tax-deductible.

Today, computerized “big data” collection, gives the government a permanent record of your life and the lives of every business. Tax laws run the world.

The tracking and control afforded by tax collections is why the federal government does not want you to understand Monetary Sovereignty.

It is why the government wants you to believe the “Big Lie” (i.e. “Federal taxes fund federal spending”). It is why you repeatedly have been told wrongly that federal obligations are taxpayer obligations, and that when the government spends, its spends “taxpayer dollars” — all part of The Big Lie.

In summary, the real effect of the “cashless society” is to ease tax collection. The real purpose of federal tax collection is to track and to control your life.

Rodger Malcolm Mitchell
Monetary Sovereignty

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Ten Steps to Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich afford better health care than the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE AN ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA, AND/OR EVERY STATE, A PER CAPITA ECONOMIC BONUS (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONEFive reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefiting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE CORPORATE TAXES
Corporations themselves exist only as legalities. They don’t pay taxes or pay for anything else. They are dollar-tranferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the government (the later having no use for those dollars).
Any tax on corporations reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all corporate taxes come around and reappear as deductions from your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and corporate taxes would be an good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

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

MONETARY SOVEREIGNTY

 

The effect of taxes vs. the purpose of taxes

Taxes have an effect and taxes have a purpose. There is a difference.

Humans are social animals. All social animals, whether they be ants, wolves or humans, operate on the same principle: A social animal gives to the group, and the group gives to the individual, what the individual cannot accomplish alone.

Humans give taxes and receive government services.

However, “local” (i.e. city, county, and state) taxes are different from federal taxes.

The federal government is Monetarily Sovereign. It has the unlimited ability to create its own sovereign currency, the dollar.

While local governments can and do run short of dollars, and need to collect taxes for spending, the federal government never can run short of dollars, so has no need to collect taxes.

LOCAL TAXES:
When you pay taxes, you have less money. So, the effect of local taxes, and indeed of all taxes, is to impoverish taxpayers.

Local taxing bodies are similar to you and me, in that they use their income (taxes) to fund spending. Your local taxes are deposited in bank accounts, from which the local governments pay for police and fire protection, roads, water, schools and myriad other services.

So though local taxes take away your money, you receive services in return, and the local tax dollars remain in the economy.

You, being monetarily non-sovereign, sometimes may find that your income is less than your spending, and over time, you run short of dollars. You then may borrow, which temporarily solves the shortage problem.

However, you must pay interest on the borrowing, and eventually must pay back the loan, which together places a greater burden on your income than had you not borrowed.

After you receive the loan, your future spending must decrease or your future income must increase, to pay back the loan and its interest.

Visualize your not being able to survive on your salary. So you don’t pay your full credit card bill. You make only the minimum payment.

Soon, you will have to pay off that loan, plus interest. But if you couldn’t survive on your salary before, how will you survive on your salary now, especially if you have the additional burden of loan payments?

You either must cut spending (which you should have done earlier) or find more income.

Borrowing to meet day-to-day expenses is a recipe for economic disaster.

(Paying for loans on large, infrequent purchases like a house or a car, should have been factored into your anticipated income).

When local governments borrow, it often is because taxes are not sufficient to pay for day-to-day expenses,. Because some tax money goes to lenders, future spending must decrease, or future taxes must increase.

But future spending seldom decreases.

The costs of police and fire protection, roads, water, schools and myriad other services provided by local governments continue to rise, so taxes must rise, and/or there will additional borrowing — an upward helix of spending, borrowing, more and more, until borrowing limits are reached, at which point taxing must increase.

The effect of this borrowing is to transfer interest dollars from taxpayers to lenders, ultimately from the middle class to the rich.

Local taxpayers would have been better served had the local governments never borrowed, but instead used a “pay-as-you-go” system, with taxes paying for spending as needed. In that way, no tax money would be diverted to lenders, and taxes long-term would be lower.

The underlying purposes of local borrowing are:
*To fool taxpayers into believing temporarily that their taxes are lower than they really are, which helps politicians be re-elected
*And to enrich lenders, who because of their wealth, are able to direct local governments.

In short, local borrowing to meet day-to-day expenses cheats taxpayers. Remember that the next time your town asks for approval to borrow.

FEDERAL TAXES:
As we stated previously, the effect of all taxes, local and federal, is to impoverish taxpayers.

But, unlike local governments, the federal government does not need income to pay its bills. The federal government creates dollars, ad hoc, every time it pays a creditor.

(The method is this: To pay a creditor, the federal government sends instructions, not dollars, to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. When the bank does as instructed, dollars are created. Because the federal government cannot run short of instructions, it neither needs to tax nor to borrow.)

What becomes of federal tax dollars? They are destroyed. They disappear from the money supply. Tax dollars are not part of M1, M2, M3 or any other measure of America’s money supply. They simply cease to exist, once received by the Treasury.

Search every possible source, and ask this question, “How much money does the federal government have?” and you never will find an answer. You can learn how much money your city, county or state has, but not the federal government.

In effect, the federal government has no money; it simply instructs banks to create dollars as it pays bills.

If the federal government doesn’t need to tax or borrow, why does it do both, tax and borrow?

The purpose of federal government taxes is economic control.

By impoverishing taxpayers, and then doling out dollars as it sees fit, the federal government exerts powerful control over the lives of taxpayers.

Because the federal government is controlled by the rich, tax laws are designed to widen the Gap between the rich and the rest.

The Gap is what makes the rich rich. Without the Gap, no one would be rich, and the wider the Gap, the richer they are. Thus, the fundamental purpose of federal taxes is to make the rich richer, and to help the rich control the lives of the rest.

FEDERAL BORROWING:
The federal government does not “borrow” and the federal debt is not “debt” as you may understand borrowing and debt.

The federal government issues T-securities (bills, notes, and bonds) the payments for which are deposited into holders’ T-security accounts at the Federal Reserve Bank — similar to bank savings accounts.

Unlike local governments, the federal government neither uses nor even saves these deposited funds. Instead, the funds remain in T-security, Federal Reserve Bank deposit accounts, earning interest for the holders of T-securities, until the accounts reach maturity and are paid off by the Federal Reserve Bank.

(As an aside, in a process known as “Quantitative Easing,” the Federal Reserve Bank buys T-securities from the holders, by transferring the dollars that exist in those accounts to the holders’ checking accounts.

The ostensible purpose is to add liquidity to the economy, as dollars in T-security accounts are less liquid than dollars in checking accounts.)

Federal “debt” (i.e. deposits in T-security accounts), is paid off by transferring dollars from the T-security accounts to T-security holders’ checking accounts.  No new dollars needed.

Contrary to popular myth and misleading “debt clocks,” there is no reason for the government ever to pay down the federal “debt,” because T-security accounts neither are a burden on the federal government, nor on taxpayers, nor on future generations of taxpayers.

By law, the federal government can issue platinum-based coins in any stated value. To counter the above-mentioned popular myth (that the federal debt is a burden), some people have suggested that the federal government issue one platinum coin with a face value of $20 trillion, and deposit this coin with the Federal Reserve bank.

That officially would end the so-called “debt,” and in fact, create a surplus. This process would demonstrate the meaningless of the federal “debt.”

The government has resisted that solution to the mythical problem of excessive debt, because promulgating the myth allows the rich to claim that social benefits (Social Security, Medicare, Medicaid, etc.) are “unsustainable,” thereby maintaining or increasing the Gap between the rich and the rest — exactly what the rich want.

The best solution simply would be to ignore the “debt” deposits, in the same way you ignore the size of total deposits in your local bank. (When was the last time you worried that your local bank had too many deposits?)

The government’s purpose for issuing T-securities is two-fold:
1. To provide wealthy investors with a risk-free place to invest dollars, especially amounts greater than are insured by the FDIC (Federal Deposit Insurance Corporation) and:
2. To assist in inflation control. Inflation is controlled via interest rates, and controlling the rates paid by T-securities is one method for setting a floor under rates. This allows the Fed to raise this floor at a moments notice, thereby cutting off inflation, quickly.

In summary:

  1. The effect of all taxes, local and federal, is to impoverish taxpayers.
  2. Local tax payments recirculate and never leave the economy’s money supply. Thus local taxpayers fund local government spending. To fund local government spending is the primary purpose of local taxes
  3. In effect, however, local taxes are regressive and therefore widen the Gap between the rich and the rest.
  4. Federal tax payments disappear from the economy’s money supply. The federal government creates new dollars by paying bills. Federal taxpayers do not fund federal spending.
  5. Federal debt is, in reality, the total of deposits in T-security accounts at the Federal Reserve Bank, and is not owed by present or future taxpayers.
  6. The rich run the federal government by bribing federal politicians (via campaign contributions), which is why tax laws favor the rich. The primary purpose of federal taxes is neither to pay for federal spending nor to prevent inflation, but rather to widen the Gap between the rich and the rest, thereby controlling the not-rich.
  7. Reducing all taxes, federal and local, would grow the economy and narrow the Gap.

Rodger Malcolm Mitchell
Monetary Sovereignty
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Ten Steps to Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich afford better health care than the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE AN ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA, AND/OR EVERY STATE, A PER CAPITA ECONOMIC BONUS (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONEFive reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefiting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE CORPORATE TAXES
Corporations themselves exist only as legalities. They don’t pay taxes or pay for anything else. They are dollar-tranferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the government (the later having no use for those dollars).
Any tax on corporations reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all corporate taxes come around and reappear as deductions from your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.)
Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and corporate taxes would be an good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.
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10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

THE RECESSION CLOCK

Recessions begin an average of 2 years after the blue line first dips below zero. A common phenomenon is for the line briefly to dip below zero, then rise above zero, before falling dramatically below zero. There was a brief dip below zero in 2015, followed by another dip – the familiar pre-recession pattern.
Recessions are cured by a rising red line.

Monetary Sovereignty

Vertical gray bars mark recessions.

As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.

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Mitchell’s laws:
•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.
•The more federal budgets are cut and taxes increased, the weaker an economy becomes..

•No nation can tax itself into prosperity, nor grow without money growth.
•Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
•A growing economy requires a growing supply of money (GDP = Federal Spending + Non-federal Spending + Net Exports)
•Deficit spending grows the supply of money
•The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
•The limit to non-federal deficit spending is the ability to borrow.

Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.

•The single most important problem in economics is the Gap between rich and the rest..
•Austerity is the government’s method for widening
the Gap between rich and poor.
•Until the 99% understand the need for federal deficits, the upper 1% will rule.
•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..

MONETARY SOVEREIGNTY