FICA: The trillion dollar millstone around the neck of the American economy

The Ten Steps to Prosperity, listed at the end of this post, are introduced by Step 1., Eliminate FICA. It is, by far, the easiest to implement Step.

According to the Brookings Institution: Payroll taxes are levied to finance Social Security, the hospital insurance portion (Part A) of Medicare, and the federal unemployment insurance program.

Revenue totaled just over $1.1 trillion, or about 6.1 percent of gross domestic product, in fiscal year 2017.

Of course, the first paragraph is completely false. It comprises “The Big Lie” that federal finances are like personal finances.

Because our federal government is Monetarily Sovereign, and so creates new dollars ad hoc, each time it pays a bill, federal taxes fund nothing. They are destroyed upon receipt.

Therefore, FICA does not “finance Social Security,” and comparing tax revenue to GDP is senseless. While monetarily non-sovereign entities (state/local governments, businesses, you, and me) need income in order to fund outgo, the U.S. government neither needs nor uses income.

Here is a graph published by The Motley Fool:

The gold colored box at the top of the 2nd column was given the negative term, “Deficit.” It more properly should be given the positive title, “Net Dollars Added to the Private Sector By the Federal Government.”

Why is this important?

Remember how President Obama sent each family up to $500 to help end the Great Recession? And remember how President Trump boasted about how cutting taxes would stimulate the economy?

Obama was correct to send dollars to families — because that adds dollars to the private sector. And Trump was correct that tax cuts are stimulative — simply because they leave more dollars in the private sector.

A growing economy requires a growing supply of money in the private sector.

Now think of the federal government ripping more than a trillion dollars per year from the private sector. Think of what that does to economic growth. That is tantamount to the Federal government making a giant, trillion dollar bonfire out of your FICA dollars.

That is the negative effect of FICA.

But it gets worse. The government’s FICA bonfire mostly consumes dollars belonging to the middle- and lower income groups — salary dollars.

Image result for millstone on the neck — FICA: A giant millstone around the neck of the middle- and lower-classes

The rich have made sure that interest and capital gains are not subject to FICA — only salaries of employees.

All those millions and billions the rich make in the stock market or on real estate deals or as partners in a partnership — those are not subject to FICA.

But it gets even worse. The Social Security tax rate is 12.4%; 6.2% is withheld from each of the employer and employee. But, the employee really pays the full 12.4%, because employers figure that in as a cost of salary.

The maximum taxable earnings for Social Security withholding for 2018 were $132,900. (Medicare withholding — 2.9% from salaries — has no maximum.)

If you make, say, $75,000 a year, your entire paycheck is subject to the 15.3% FICA tax, for a total of $11,475.

But, if you earn $1,00,000 a year, of which $250,000 is salary and the rest is stock market and real estate gains, you will pay $16,479 (12.4% x 132,900 for Social Security) plus $7,250 (2.9% x 250,000 for Medicare) for a total of $23,729.

In short, the middle-class sucker pays 15.3% of his paycheck, while the rich guy pays only 2.4% of his paycheck.

But it gets even worse, yet. If you’re making millions a year, you have accountants who set up partnerships and offshore deals to shelter you (not only from FICA but from income taxes).

But, it gets even worse and worse. Incredibly, the federal government levies income tax on your Social Security benefits.

So here you are, ostensibly paying for your Social Security benefits via FICA, and then the government taxes the benefits you ostensibly paid for. (I say “ostensibly,” because FICA doesn’t actually pay for anything. No federal tax pays for anything.)

In summary, FICA is a giant scam, designed to widen the Gap between the rich and the rest. It’s classic Gap Psychology, the human desire to distance oneself from those below on any income/wealth/power scale, and to come closer to those above. It is the popular belief that people below us on the income/wealth/power scale are inferior and to be disrespected, while people above us are superior and to be admired.

Will allowing the middle class to keep its trillion dollars cause inflation? Let’s look at a bit of history:

Index scale value=100 for 2008. Blue: Federal Debt. Red: Inflation.

In the ten years since the “Great Recession,” federal debt rose $10 trillion, nearly a trillion a year (191%) while inflation rose a total of only 17%.

And even that modest increase in inflation could have been lower. Because it was below the Fed’s target of about 2.5%, the Fed kept interest rates artificially low, trying to increase inflation.

Had inflation threatened higher, the Fed would have controlled it by raising rates, as it has begun to do recently.

In summary, FICA is the most unfair, regressive, useless tax in America.

It pays for nothing.
It reduces economic growth by taking a trillion dollars out of the economy, and destroying them, every year.
The benefits it supposedly funds are taxed — a tax on a tax.
It impacts the middle-classes and the poor far more than the rich, widening the Gap between the rich and the rest.
It is the most easily implemented Step of the Ten Steps to Prosperity, requiring no bureaucracy; it could be done instantly.
It would save time and effort for businesses, which no longer would have to make the calculation and the deduction from every employee’s pay.

FICA is a trillion dollar millstone around the neck of America’s economy. Eliminating FICA is the easiest, fastest, fairest way for the federal government to stimulate economic growth.

The heavy burden called “FICA” should be eliminated, now.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

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The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

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 The Ten Steps To Prosperity can 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. Provide a monthly economic bonus to every man, woman and child in America (similar to 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 you.

MONETARY SOVEREIGNTY

Good news and bad news for the economy

Today’s Chicago Tribune published a short article containing some good news and some bad news for the economy.

Here are some excerpts:

NEWS BRIEFING
Staff and news services
U.S. budget deficit has jumped 77% so far in this fiscal year

WASHINGTON — The federal government recorded a budget surplus in January.

Federal budget surpluses always are bad news for the economy (the private sector). A federal surplus is an economic deficit.

The federal government, being Monetarily Sovereign, produces all the dollars it needs, simply by the process of paying creditors.

The economy does not have this ability, so it suffers from federal surpluses.

But so far this budget year, the total deficit is 77 percent higher than the same period a year ago.

The Treasury Department said Tuesday that the deficit for the first four months of this budget year, which began Oct. 1, totaled $310.3 billion. That’s up from a deficit of $175.7 billion in the same period a year ago. The surplus in January was $8.7 billion.

The higher deficit reflected greater spending in areas such as Social Security, defense and interest payments on the national debt.

As we said, the January surplus was bad news, because the federal government removed $8.7 billion from the private sector, i.e. from the economy.

But the increased deficit so far this year is good news, as the government added 310.3 billion growth dollars to the private sector.

Meanwhile, the government collected lower taxes from individuals and corporations, reflecting the impact of the $1.5 trillion tax cut President Donald Trump pushed through Congress in 2017.

The GOP $1.5 trillion tax cut was good news for the economy as a whole, though of course, most of the immediate benefits went to the “haves” and very little to the “have-nots.”

The additional dollars eventually will spread through the economy, but the Gap between the richer and poorer will grow, which is a strong negative.

Individual income taxes withheld from paychecks total $818 billion for the October-January period, down 3 percent from the same period last year. Corporate income taxes total $73 billion over the four-month period, down 23 percent.

Both of the above are good news.

Revenue, however, is up in tariffs — border taxes collected on imports — which totaled $25 billion in the October-January period, up 91 percent from the same period a year ago.

This reflects the higher tariffs the Trump administration has imposed on China and other nations in various trade disputes.

The border taxes are not paid by the countries where the goods are being produced but rather by the U.S. companies importing the products into the United States.

Those cost increases are generally passed on to American consumers.

That is terrible news. The issue is not just that the “cost increases are generally passed on to American consumers” but rather that the tariff’s cost increases always are passed on to the American economy.

Ultimately, American consumers and American businesses pay for all tariffs. This has the same effect as an overall tax increase.

The Trump administration rightfully boasts that its tax cuts will stimulate economic growth and jobs growth, but at the same time, it institutes tariffs that will do the opposite.

Further, the ones hurt most will be the middle and lower income groups, as they are more subject to the costs of tariffs and less rewarded by the tax cuts.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Implementation of The Ten Steps To Prosperity can 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. Provide a monthly economic bonus to every man, woman and child in America (similar to 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 you.

MONETARY SOVEREIGNTY

Yet another economics writer who doesn’t understand the fundamentals.

A fundamental truth of economics: A Monetarily Sovereign nation never unintentionally can run short of its own sovereign currency.

The nation does not need to tax and does not need to borrow. It creates its sovereign currency at will.

To not understand that fact is to not understand economics, for it is the absolute foundation of economics.

THEWEEK Magazine recently published the article, “The big question about Modern Monetary Theory everyone is missing,” by Ryan Cooper.

Modern Monetary Theory (MMT) and Monetary Sovereignty (MS) share many characteristics regarding money in today’s economies.

Here are a few excerpts from the article, together with my comments.

Economists are in the midst of one of the periodic debate flare-ups over Modern Monetary Theory.

On the pro-MMT side we have economists like Stephanie Kelton and Randall Wray, while on the other we have the odd bedfellows of The New York Times’ Paul Krugman and the People’s Policy Project’s Matt Bruenig.

Professor Kelton has been a “pen pal” of mine for several years. I met Professor Wray years ago, when I gave a talk to his class at UMKC.

This intricate debate is about the main merits of MMT, an economic school of thought which has received wide attention for its dismissal of the need for taxes to pay for new spending.

Both MMT and MS agree that unlike state and local taxes, which do pay for state and local government spending, federal taxes do not pay for federal spending.

The reason is that the U.S. federal government is Monetarily Sovereign. It is sovereign over U.S. dollars, which it creates ad hoc, every time it pays a creditor.

Even if the U.S. government collected zero taxes, it could continue spending, forever.

However, there is an important question which has to this point not been raised. The MMT advocates say that inflation should be controlled through fiscal policy, instead of monetary policy conducted by the central bank as is current practice.

In other words, if prices start rising, we can keep them in line by raising taxes.

But does that actually work?

No, it doesn’t work, cannot work and never will work.

Raising taxes is too slow and too political (waiting for Congress), too undirected (which taxes?), not incremental enough (raise taxes how much?), and too damaging to economic growth (taxes reduce the money supply).

Unfortunately, MMT takes incompatible positions. It says correctly, that federal taxes do not fund federal spending, but incorrectly that federal taxes are necessary to cause demand for U.S. dollars.

During times of recession and economic slack, a state borrowing in its own currency has unlimited capacity to spend, because printing money or borrowing to spend on public works and so on will not cause inflation so long as there are unemployed workers and idle capital stock.

Think, Mr. Cooper. If a state has the unlimited capacity to spend and to “print” money, why would it need to, or even want to, borrow? Think.

Contrary to popular wisdom, the U.S. does not borrow dollars. Instead, it accepts deposits into T-security accounts, the purpose of which are:

To provide the world with a safe place to park unused dollars. This helps stabilize the dollar.
To assist the Fed in controlling interest rates, which control inflation.

But if there is full employment, taxes are needed for new programs — to fund them for the former, or to stave off inflation for the latter.

Here, Cooper reveals he doesn’t understand the differences between monetarily non-sovereign state and local government financing (where borrowing is necessary), vs. Monetarily Sovereign federal financing (that requires no borrowing).

The federal government levies taxes, but not to obtain dollars. It freely produces all the dollars it needs.

The purpose of federal taxes is to control the economy by discouraging certain activities with higher taxes and by encouraging others with tax reductions.

The effect of federal taxes (as opposed to the purpose), is to reduce federal deficit spending which reduces the money supply.

All federal taxes do this — income taxes, FICA, sales taxes, import duties, etc. They all reduce the money supply. Just as tax cuts are economically stimulative, tax increases are recessionary.

And just as increased federal deficit spending helps cure recessions, decreased federal deficit spending causes recessions, and worst case, depressions.

U.S. depressions tend to come on the heels of federal surpluses.

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.

Now, it should be noted that MMT’s style of argumentation seems to have dented the brainless pro-austerity mindset that dominates much of elite discourse, which is very much to its credit.

Remember the above comment, because later in his article, Cooper unknowingly supports the very austerity he calls “brainless.”

He discusses the key objection to MMT (and MS), inflation:

The way tax-side inflation control is supposed to work is through supply and demand.

Since taxation will leave buyers with less money in their pockets to spend, market competition will force suppliers to cut prices and workers to accept lower wages.

But if markets have become dominated by a few big firms, then business can resist this pressure, because buyers have nowhere else to go.

Taxation reduces the supply of money. Though taxation can support the demand for money, it is not necessary for that purpose.

Interest is a more effective device for supporting the demand for money. While taxes depress an economy, interest stimulates the economy by increasing federal dollar interest input.

Money growth grows an economy.

A good test of this prediction came in the late 1970s, when inflation was at its postwar peak.

Economist John Kenneth Galbraith argued for price controls, but conservative “monetarists” like Milton Friedman argued that (with) a steep hike in interest rates, inflation would come down quickly and easily.

The Fed tried Friedman’s policy, but it turned out Galbraith was right.

The Fed hiked interest rates to an eyewatering 20 percent, creating the worst recession since the Great Depression up to that time.

But inflation only came down very slowly — partly through Keynesian-style spending effects, but partly by badly damaging the labor movement, which cut unionization.

In the past 50 years, since President Nixon took the U.S. off a gold standard, inflation has not been caused by America’s massive federal deficit spending. See: Inflation has been caused by the price of oil.

The Fed wisely has not recommended controlling the price of oil, an action that would lead to an oil shortage, and a recession, if not a depression. That is what price controls do: Lead to shortages.

And what do shortages lead to? Hyperinflations.

So, Cooper writes that Galbraith was right about price controls?? Where did that come from? He provides no evidence.

The true effect of price controls is to reduce economic growth by reducing supply and profits — the economic necessities for growth.

Price control is a feature of the “brainless, pro-austerity mindset” that Cooper properly criticized a few paragraphs ago.

And do increased interest rates really lead to recessions? Or is it simply that recessions lead to decreased interest rates?

Interest rates (red); deficit spending increases (blue); recessions (vertical gray bars)

The above graph shows that sometimes interest rates peak at the start of recessions, sometimes they peak in the midst of economic growth, and sometimes they decline at the start of recessions.

One cannot say that increased interest rates historically have caused recessions.

The real pattern is that decreased deficit spending causes recessions and increased deficit spending cures recessions.

Why? Because a growing economy requires a growing supply of dollars, and deficit spending adds stimulus dollars to the economy.

Federal deficit spending and debt don’t cause inflation.

Since the U.S. went off the gold standard in 1971, the federal debt (blue) has risen massively, while inflation (red) has been moderate.

Most inflations and nearly all hyperinflations are caused by shortages, usually shortages of food, and often shortages of oil.

For instance, Zimbabwe, an oft-mentioned hyperinflation victim, had its hyperinflation begin with a food shortage. (Farmland was stolen from farmers and given to non-farmers.)

One reason inflation control is delegated to the central bank is that it can work quickly, adjusting interest rates in response to economic conditions several times per year.

Congress works extremely slowly at the best of times, and control is usually split between the two parties.

The Fed may have performed poorly over the last decade, but do we really want Mitch McConnell having to sign off on inflation policy?

Exactly. Now that Cooper belatedly has confirmed why price controls and tax increases don’t work and can’t work, we come to the:

SUMMARY

Modern Monetary Theory (MMT) and Monetary Sovereignty MS) describe the realities of economics similarly.

They agree that a Monetarily Sovereign nation, such as the U.S., cannot run short of its own sovereign currency, and neither needs nor uses tax dollars to fund spending.

They differ in many other areas however, one of which has to do with controlling inflation:

Three inflation controls were discussed, only one of which is effective:

Price controls which cut profits and thus cut economic growth, lead to recessions and ultimately cause inflations by causing shortages. They don’t work, and neither MMT nor MS supports this approach.
Tax increases, which are too slow, too political, not incremental, and cause recessions by decreasing the money supply. They don’t work, though MMT supports this approach.
Interest rate increases, which actually increase the money supply (by causing the federal government to pay more interest into the economy, and work by increasing the value of dollars (by increasing the demand for dollars). Works, and has been working since the end of WWII. MS supports this approach.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Implementation of The Ten Steps To Prosperity can 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. Provide a monthly economic bonus to every man, woman and child in America (similar to 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 you.

MONETARY SOVEREIGNTY

Why cut the state tax deduction?

If you begin with the wrong assumptions, you come to the wrong conclusions.

Here are excerpts from an article in Bloomberg, where the author mistakenly assumes that federal taxes pay for federal spending.

Image result for burning dollars — **Your federal tax dollars are destroyed upon receipt.**

While state and local taxes do fund state and local spending, federal taxes do not fund federal spending. Your federal tax dollars are destroyed upon receipt.

Not understanding the difference between federal and state finances, (the federal government uniquely is Monetarily Sovereign), the author offers wrong conclusions:

Get Rid of the State-Tax Deduction Altogether
High-income taxpayers in high-tax states don’t deserve special treatment.By Michael R. Strain, February 28, 2019

(Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and resident scholar at the American Enterprise Institute. He is the editor of “The U.S. Labor Market: Questions and Challenges for Public Policy.)

The 2017 tax law capped at $10,000 the amount of state and local tax payments a household can deduct from its federal income taxes. Previously, people could deduct the entire amount they paid in state and local property taxes, and either the state individual income tax or state sales tax.

According to a Treasury Department estimate released Tuesday, this cap will stop 10.9 million tax filers from writing off these payments from their federal income taxes, with the largest bite felt in high-tax states like New York, New Jersey and California.

Though politicians from these states are howling — New York Governor Andrew Cuomo recently met with President Donald Trump to discuss his concerns — limiting this deduction was the right thing to do.

Congress should go all the way and repeal what remains of it.

Importantly, just because 11 million people may lose this popular tax break — which has been in the federal code since the income tax was created a century ago — does not mean that all of them will be paying a larger share of their income in federal taxes.

An analysis by the Tax Policy Center in December 2017 found that 80 percent of households would receive a tax cut in 2018, while only 5 percent will face a tax increase. (As temporary provisions of the 2017 law expire, more households will face a tax increase in future years.)

An initially appealing argument in favor of this deduction is that it reduces an individual’s marginal income tax.

That’s only part of the story. By shrinking the federal income tax base relative to what it would be without the deduction, raising any given amount of revenue requires higher tax rates.

This likely offsets the deduction’s marginal rate reduction.

Mr. Strain reveals his belief that our Monetarily Sovereign government, which creates dollars by spending dollars, and never can run short of dollars, needs to increase taxes when spending increases. He is wrong.

The federal debt itself demonstrates that federal taxes don’t fund federal spending.

Let me remind you of what two experts in the field have said:

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

Ben Bernanke: “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.”

Could anything be clearer? Nothing “requires higher taxes.” In fact, nothing requires federal taxes at all.

So why does a government, having the unlimited ability to create its own sovereign currency, levy taxes?

The primary reason is economic control. Things they wish to encourage (i.e. charity, business investment, etc.) are tax deductible. Things they wish to discourage (i.e. smoking, alcohol, gambling, etc.) are heavily taxed.

And most importantly, the people the politicians wish to reward (i.e. rich donors) are given the lowest tax rates on what matters: Asset growth, long-term capital gains, dividends, and delayed taxes on various sorts of income.

The state and local deduction also encourages taxpayers to itemize their deductions rather than take the standard deduction.

This leads people to use other deductions more as well, amplifying the harm done from much less defensible tax breaks, like the one for mortgage interest payments.

The government made mortgage interest deductible in order to encourage home ownership.

There is no “harm done” by this deduction. On the contrary, the “harm done” is the taxing of mortgage payments. Tax dollars are taken from the private sector and given to the federal government, where they are destroyed.

Again, the U.S. Treasury destroys your hard-earned tax dollars upon receipt, and creates brand new dollars by spending. That is the government’s method for “printing” dollars.

The destruction of dollars impoverishes the economy, just as all federal taxes do.

For the reasons I mentioned above, we should want a broader base and lower rates, not a smaller base and higher rates.

The above sentence makes no economic sense. The federal government could get along quite nicely, thank you, if it collected, and then destroyed, zero taxes.

Meanwhile, the economy, i.e. the private sector, would flourish by the additional money that remained in consumers and businesses pockets.

In addition, the state and local deduction is a subsidy to states with large numbers of high-income individuals.

Because they face higher marginal income tax rates, deductions are relatively more valuable to this group of taxpayers.

The above sentences are mathematically correct but in practice, wrong.

The state and local tax deductions benefit residents, not the state governments, which receive no direct dollars from that tax deduction.

And it is not the rich who benefit most The rich pay for their homes via business expenses and other tax avoidance schemes. It is the middle and upper-middle classes in these states, that pay the penalty.

These are the people who have homes in higher-tax locations, and perhaps summer homes as well, but are not in the hundreds-of-millions or billions category.

Bottom line, everyone, rich and poor in America, is punished when the private sector must send dollars to the federal government.

Residents of lower-tax states should not be on the hook for spending decisions of governments in higher-tax states.

Of course, higher-income households (many of which are located in higher-income states) do pay relatively more income tax, which is used to finance federal spending programs and transfer payments, some of which benefit citizens in other, lower-income states.

Again, Mr. Strain demonstrates ignorance of federal financial reality.

Residents of one state never are “on the hook” for spending in other states, neither with regard to federal taxes or to taxes in the other states. Residents of a state are “on the hook” for taxes in that state.

And federal income tax is not used to “finance federal spending programs and transfer payments.” The federal government destroys tax dollars, and creates new dollars to finance all spending.

State and local spending finances some public goods, like education. And there is a role for government to subsidize education, because the benefits of an educated citizenry extend beyond the individuals enrolled in school.

It would be better to directly subsidize education than to use a roundabout state and local deduction to achieve that goal.

I agree that the federal government should finance education. See: Ten Steps to Prosperity: Step 4: Free education for everyone and Ten Steps to Prosperity: Step 5: Salary for attending school.

But this has nothing to do with the useless, indeed harmful, tax on mortgage payments and other state taxes.

Importantly, the $10,000 cap mitigates some of these concerns. For example, the cap and the larger standard deduction — another feature of the 2017 tax law — will lead many fewer households to itemize.

It doesn’t eliminate them, however. And the remaining deduction is significant. According to the Joint Committee on Taxation, 16.6 million tax filers will still claim the state and local tax deduction in 2018.

Because of this subsidy, the federal government is estimated to have lost $20 billion in revenue last year.

” . . . will lead many fewer households to itemize, but allow the richest to continue itemizing charitable and business-related deductions.

And read carefully what Mr. Strain is saying. He thinks of not taking your tax dollars from your pocket as a “subsidy,” as though the government were giving you something rather than you not giving the government something.

Next time you fail to give your neighbor a gift, Mr. Strain suggests you thank them for the “subsidy.”

Congress should get rid of the deduction entirely. To minimize disruption, the deduction should be set on a gradual glide path toward zero over a number of years.

Doing so might mean that high-income people leave high-tax states, although the benefits to them of living in major urban centers makes me suspect that relatively few will do so.

Even if this does happen to a significant degree, it would not be something to bemoan. Households should decide where to live based on their preferences, not on tax policy.

Oh really, Mr. Strain? Is that what households “should” do? I have news for you. Not all of the population increase in Florida is due to the weather. Much of it is due to Florida’s low taxes.

Many thousands of people live in Florida at least six months out of the year, just to take advantage of its low taxes.

And now comes Mr. Strain summarizing his own economic ignorance:

The real change would be in the behavior of states.

Some would still choose to provide more services than others — this key feature of the U.S.’s federalist system would remain.

But they won’t be relying on a subsidy from the federal government — from taxpayers in other states — to pick up part of the tab.

No, Mr. Strain. Taxpayers in other states do not pick up the tab for better schools, better healthcare, better support for the impoverished, etc. that you seem to feel should be cut.

That is the right-wing, anti-poor, pro-rich theme. You should be ashamed.

Here is a good idea for everyone:

To contact the author of this story: Michael R. Strain at mstrain4@bloomberg.net

To contact the editor responsible for this story: Katy Roberts at kroberts29@bloomberg.net

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Implementation of The Ten Steps To Prosperity can 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. Provide a monthly economic bonus to every man, woman and child in America (similar to 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 you.

MONETARY SOVEREIGNTY

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