GOPTaxScam – Democrats are shooting at the wrong targets

The #GOPTaxScam has finally brought up the subject of economics into the mainstream. People are paying more attention to that dreary science. And in 95% of the stories most people hear or write about the #GOPTaxScam they are wrong about it, whether they like the policy or not. Nearly every MSM and the MSM wannabes review places the impact that the policy will have on our debt and our deficit. The other common denominators are calling the policy a transfer of wealth, or a boon to corporations. From the plan’s detractors you hear how this policy is going to crash the economy and trash the Republican chances of holding their majority in Congress. From it’s supporters you hear how the lower taxes on wealth will spur investment, add jobs, increase salaries, and maybe even balance the budget. Both sides are wrong, and even worse on many points both sides are lying.

But they also both speak some truths. The supporters note that the Middle Class especially will see lower taxes. And that is true. But it is also true that taxes on wealthy people and corporations will be lowered even more, by any mathematical measure. The detractors point out that the higher tax rates return in 2025 for the Middle Class and that the Middle Class will lose some deductions, which are not tied to inflation effectively raising their tax rates at a proportionately higher rate than on wealthy people.

Here is what that means. Initially the Middle Class and to a lesser extent, the poor will have more money to spend, businesses who already have enough reserves to meet the increased demand will likely expand, add jobs, and even increase pay. Still the vast bulk of their tax savings will go to shareholders and offshore untaxed accounts. As the effective taxes on the Middle Class increase each year, there will be slower growth until by 2025, growth will be back to our current level of stagnation. That is, unless inflation such as we have not seen since the Nixon years takes hold; and this plan puts the US at risk for that to happen.

Additionally, there will be so-called deficits. This is the lie that both sides agree on. These deficits will be used by supporters as an excuse to cut back nearly every single social benefit funded by the US government. Again, the initial boom will make it appear that the deficits are not as bad as predicted, but by after 2019 election, the deficit numbers will put pressure on Congress to impose austerity. This is an actual lie which is at the heart of the #GOPTaxScam.  That initial boom potentially could kick off a round of inflation since there are no tools that I am aware of in this plan for managing that risk.

There is no deficit, there hasn’t been since Richard Nixon took us off the Gold Standard. Money is created into existence. Taxes serve two primary purposes, and neither one is to fund the federal government. Money is created by the US spending. It is not recycled as revenue, it is destroyed. When we, the users of money spend, the money is recycled so it’s value to the economy is greater that its nominal value. That is why tax cuts for the wealthy are useless, their money is not recycled rapidly if at all. But the Poor and the Middle Class spent nearly all their income. Taxes force the US Dollar to have value and be universally accepted. Taxes also remove excess money from the economy to regulate inflation. More money does not create inflation but less money slows inflation.

Last of all, there is no such thing as taxpayer money. All taxes are destroyed, not used to pay for wars, not used to pay for Presidential vacations, legislators benefits, or even your Social Security. #LearnMMT

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Hung Upside Down – It Ain’t How to Design Tax Reform

The Senate Tax Reform package will eventually become the text book model for how to do all the right things wrong. Reducing taxes is a good way to increase economic output, the Republicans accomplished that. Modifying deductions and using progressive tax rates as a tool to reallocate income distribution. Done. Using taxes or lack of taxes to discourage or encourage certain behaviors? They do that as well.

Sound, economy boosting tax reforms would have all of the attributes of the Senate tax plan. Reducing taxes does do exactly what Republicans say it does. It allows more money to remain in circulation, thereby increasing economic activity. Individual deductions are part of the income tax code to account for living expenses, increasing personal deduction moves us somewhat towards that goal, but any improvements on that intention were erased when state and local taxes became limited on the amount that could be deducted from gross income. Likewise many deductions such as homeowner mortgage interest, charitable contributions, and medical deductions were further limited than they had been in the Reagan era. These events ultimately impact middle class taxpayers from seeing any significant decrease in their tax bill; which by the way the tax rates are all scheduled to expire. And lets not forget that by eliminating the Health Insurance mandate only increases the cost of living for those that have insurance. that made up,were given limits they did fail to add a metric for it to keep pace with a hopefully rising. Very little will come from the Middle Class to help stimulate the economy, except for maybe in the 2019 tax season in 2020.

Progressive tax rates is one of the best tools that the managers of macroeconomic policy have to make certain that individuals that are living below the cost of living are not taxed, and persons whose incomes are exorbitantly beyond the cost of living, even after considering that a higher pay scale usually means a higher cost of living, pay a share of their excess income in order to totally remove that money from circulation. The harm to the individual is close to nil, since it is money they were not ever planning on returning into circulation. In other words, they are hoarding.

But, if the Republicans put in place a tax plan that eliminated any taxes on persons that earn the cost of living, with unlimited and unrestricted itemized deductions for those earning less than the average wage, higher taxes that eventually exceed 50% of income on the wealthy and restricting the amounts that they can itemize, we got a plan that will make America into a haven for the middle class, the poor will not be held back by the use of wage slavery and virtual poorhouses, and the wealthy will still earn outrageous sums.

So please do not talk about the Federal Debt, or deficits, keep your eye on the prize. The plan passed by the Senate is a great start, but it is upside down, and will work that way in the economy. What will happen is this; trickle down has never worked, it won’t this time. Austerity will spread like a disease throughout the entire economy forcing entire populations into poverty, all the wealth generated will remain at the top and coalesce there.

Republicans Have No Fear of the Underdog

What is wrong with the Republicans finally getting to implement the agenda they have been carping about ever since Ronald Reagan left office? In a word, everything.

Of course, even though they have not gotten everything they wanted since Reagan, the economic policy followed by Bush I, Clinton, Bush II, and Obama still adhered to the general themes laid out during the Reagan years. Minimal taxation for the wealthy and corporations, decreasing overall deductions for the middle class, expanded deductions for corporations with lowered tax rates for capital gains. There has been an on-going outsourcing of government services at all levels of government along with a near total deregulation of banking. And last of all a new common denominator for how government structures trade agreements and government projects, both are designed to improve the profitability of corporations.

The new tax plan proposed by Republicans is built on the foundation of the above Reagan era economic thinking with exactly zero thought about what the problems are in our economy that need to be addressed. And how can the tax code be used to help solve the problems.

Our economic problems are multiple, but the most pressing problem is our debt. Not the nation’s debt. The debt of the people who live here. Is there any provisions to reduce debt. especially the debt owed by the 99%? Nothing, in fact the plan exacerbates individual debt. Wage stagnation is a huge problem. For the 99%, their wages have stagnated, for the 95% their real wages have actually dropped when measured against inflation. There is a tool that has been used in the past to help wages keep pace with inflation, it’s called taxes on the wealthy and corporations. Employers would rather raise wages and pay a lower tax rate than pay lower wages and pay a higher tax rate. These two issues, personal debt and wages, combine to keep our economy on a dual track where the wealthy and the corporations are gathering up all the available money supply. They are not investing in expansion, because the demand is not there. Demand is not increasing enough to push up wages and add jobs. And, at the end of the day, demand drives the economy. We increase demand by putting more money in the pockets of the 98%, the people who will by necessity spend it all.

Flipping the GOP tax plan on it’s head, restore full medical deductions for everyone and restore full interest deductions for everyone. Dramatically increase taxes on the wealthy. End lower tax rates on capital gains. Introduce a job guarantee, free public college tuition, tax deductions for all post high school education in the private sector, a living wage for a minimum wage, increase SS retirement payments and eliminate family ceilings, and of course Medicare for All.

These things and more will fix our economy so tat it can grow organically. Instead of thinking about the Federal debt, think about the debt of families all across the nation. If their debt is lowered, if their wages are increased, if their opportunities for jobs and education are real, then maybe, just maybe we can have resurgence of a Middle Class.

Resources and Wealth

Resources. It’s a word we all hear and use every single day. In the office a manager tells the VP that without more resources (people) the project won’t get completed on time. In geopolitics we learn about natural resources such as gold, oil, trees, fertile land, fresh water and so forth. The more natural resources within a nation’s borders, the wealthier that nation is. But resources are much more than able bodies or abundant quantities of gold. Resources can be cultivated and increased. It is implicit in the definition of resources I gave above. There are finite resources such as precious metals and fresh water, but there are infinite resources as well. People, for instance, can procreate to the point where there are too many people than there are jobs for them to fill. Fresh water can be contaminated in so many, many ways that diminish the already finite available fresh water. And gold can be hoarded by individuals or nations. But ideas are infinite and ideas are made into reality by an educated populace, which is one of the reasons Ben Franklin, Thomas Jefferson, and Abraham Lincoln were all strong supporters of free public education, including college level.

What we can see is that by measuring a nation’s resources including the investment made into cultivating those resources we can fairly evaluate not how much wealth a nation has, but how it can improve that wealth in order to benefit all it’s citizens. Long term wealth is achieved by maximizing the value gained from scarce resources that are not infinite and by guaranteeing that potentially infinite resources are cultivated so that their wealth producing potential is not put at risk.

We have a way to measure the resources available to any nation, its called money. That was why we had a gold standard at one time. We used gold to represent the comparable resources of America against another nation’s resources that were also on some precious metal money standard. In reality though, using a commodity resource did not fairly represent the sum total of any one nation’s wealth.  Yet the idea that backing a currency with gold or some other commodity makes a currency more worthy than a currency based solely a nation’ resources. But the truth is exactly the opposite. The problem with gold is that one must trade existing resources to obtain more gold and thereby enhance their wealth or initiate a war which drains resources and the gold obtained may not equal the resources expended. By evaluating a nation’s wealth solely on its resources, then a nation can grow it’s internal wealth solely by nurturing it’s resources. Our dollar is backed by the nearly inexhaustible resource potential and by not recognizing this, we are at risk of losing that nearly infinite potential.

MMT Discussion – Part 3 – My taxes paid for That!

BRADFROMSALEM

If you have not read Part 1 and are unfamiliar with the concept of Modern Money Theory [MMT], click here for a brief introduction. In Part 2 I cover 4 of the 5 reasons taxes are still necessary even though MMT explains that taxes do not fund Federal spending, click here to read about the first 4 reasons. Below, is the 5th reason for collecting taxes in an economy that honors the MMT economic descriptions.

The most popular feature of the MMT description of how money is created, circulated into the economy, and then ultimately destroyed is undoubtedly the approach to taxes. In the previous entry I described 4 reasons why taxes are collected even though the MMT description does not require tax receipts to fund government activities. Instead government activities are funded by money creation and taxes are ultimately destroyed. But MMT’s description of money creation limits that act to funding government expenses that serve a public purpose. Currently, in the news we have an expenditure that cannot be described as providing a public purpose. I use the example of the cost of maintaining a lavish and separate lifestyle for Mr. Donald Trump and his wife more for its notoriety than its dollar amount.

If we were funding government expenditures solely by creating whatever is required to pay for everything that is an expense, what is the public recourse? While there is little truth to the near myth that printing money will cause inflation, there is as my language indicates a path to that occurring. Also as I noted in the previous blog, should inflation start to accelerate, then raising taxes would brake that situation. To take the Trump example a little further, without a lever that the public can exercise to prevent extravagant spending by not just the President, but by all elected officials; who would gladly use that power to enrich each other along with their friends and others as well. It becomes evident that eventually the power will be abused and even with a remedy at hand (raising taxes) a better approach would be to allow tax receipts to be “allocated” as an accounting trick to certain government expenses.

This will allow taxpayers the right to proclaim, as they do now, that they do not want to pay taxes for Trump’s lifestyle choices. Taxes to serve the public purpose of maintaining citizen sense of ownership. In fact it’s more than a sense of ownership, it is real ownership. Something that rounds out the public purpose of spending. The question is then, how are public purpose expenditures separated from operational expenses that will not enhance serve the public purpose? One possible way is to fund all maintenance costs from tax collections. This would be items like road repair, upkeep of National Parks, along with salaries and expenses of Federal office holders and their direct staff. One critical expense would be all military spending, unless there is a true declared war.

Spending via money creation would be on all capital expenses. New infrastructure, Health Care, Social Security, Federal Job Guarantee, Basic Income Guarantee, and Public Education come to mind immediately. These are all items that serve a public purpose. Under the present arrangement these are the costs that are deferred, cut back or never even considered because it is believed we cannot afford it.

There are political advantages to restricting some expenses to be budgeted according to tax revenues. Using the model of assigning maintenance costs to those revenues is not perfect. There will be public purpose spending happening, but since the maintenance areas are the ones people care about the most means there is less push back from taxpayers when they have well maintained parks, roads and power grids.

There is one last caveat to the capital expenses that must be understood. The MMT descriptions only apply to the Federal government’s expenses, states, counties along with city & towns still must collect taxes to pay their bills. With an MMT model we do get more done with less taxes, but as I have shown taxes are a necessary and critical component of a healthy economy and a component essential to a dynamic democracy.

(I plan to write some more on other MMT aspects such as the Basic Income and Job Guarantee along with why it describes money so well and other descriptions are lacking.)

Modern Money Theory – Part 1 – Not a Theory, It’s a Description

BRADFROMSALEM

We all know that the US collects taxes and then uses those tax dollars to pay for whatever expenditures the US has. We also know that for nearly every single year of this nation’s existence, the taxes, tariffs, fines and fees collected were not enough to pay for those expenses, so the US borrowed money by issuing Treasury notes, to cover the difference. That is the annual deficit. Of course the deficit borrowing gets paid back with interest from taxes, tariffs, fines and fees [TTF&F] or new borrowing as each Treasury note matures.

All pretty well known and nearly universally accepted. Except, it does not represent fiscal reality. That reality is neatly described in an economic philosophy called “Modern Money Theory” [MMT] which posits that since all US Dollars originate from the US government (a legal fact, try to print your own US Dollars!) and all TTF&F must be paid in those same US Dollars. Then as those dollars come back to the Treasury where they were first created, each one of those dollars are effectively destroyed. That means that every dollar spent by the US is created by the Federal Reserve, an agency that was created for that purpose. The amount of money it creates is not in any manner solely dependent upon any part of the TTF&F collected. I suggest obtaining J.D. Alt’s book on Amazon that explains how this all works with simple language and drawings of bathtubs and other plumbing artifacts by clicking here.

But even though the US does not need your tax money to pay its expenditures, it still must collect taxes. In fact there are 5 reasons it needs to levy and collect taxes. I will cover those 4 of those reasons in a blog to be published in the next day or two, followed by a blog covering the 5th reason a day or two after that.

Propose Don’t Oppose

BRADFROMSALEM

Republicans, free of any serious opposition, have revealed their unverified template to reinvigorate the American economy, dissolve government’s role in any matter not connected to protecting the US from foreign entities real or imagined, and enhance government’s role in enforcing moral choices connected in any manner to sexual or other personal activities.

That’s a large agenda, and to be fair, not all Republicans are on board with every line item in the two major proposals, Mr. Ryan’s Health Care bill and Mr. Trump’s Budget proposal. The party as a whole, however, will define these two critical items with next to no alternatives coming from the Democrats in office. Democrats will pushback against the Republican plans and instead of responding to criticisms of the ACA, most elected Democrats respond entirely by defending the ACA, when all the solutions to the problems with the ACA can be corrected. It is called Medicare for All. The Republican idea that a budget and any legislative proposals reduce annual deficits is universally accepted as the “gold standard” of economic virtue and that guarantee to growing the American economy is never opposed by elected Democrats. This leaves little room for proposed legislation such as infrastructure growth, free higher education and expanded Social Security, all items that will grow the economy organically based on historically verifiable precedent.

The Republican assumptions cannot be accepted by anyone that is opposed to their vision of America. The debate can no longer be about presumed truths, presumed enmities (that include both Russia and China), who talks to who or any metric that is not measured against doing what is moral and right. Amorality has become America’s real enemy and both party’s establishment fully endorses and legislates on amoral standards. Changing the paradigm will break down the political monopoly trust that is stagnating the US. Yes, Trump has got to go, because doing so will start to establish that the American people are ready for the change to a moral standard; a goal much, much larger than firing a single incompetent President.