Republican Tax Plan (a nothingburger with cheese)

[Azalin]

Taxes aren't necessary to fund the government.

 

 

The USD is a free floating fiat currency. Whether you like it or not the Government can create money by spending it into existence. Money is not created by taxation. In fact taxation destroys currency. If a government were to tax more than it spends it is destroying money while expecting the economy to grow.

 

 

MMT won't go over well with the conservative bent on this board...

 

 

Simply stating how money is created in the U.S., the Treasury, Fed, and Congress all play a role in how money is created (spent) and destroyed (taxed).

 

If taxes aren't necessary to fund the government, then

 

A) why do we have them?

 

and

 

B) why do you not advocate taxes be abolished?

[grinreaper]

And by "government," I assume you mean the "Federal Reserve..."

The only thing missing from this thread is gator's keen insight.

[Dr.Sack]

 

 

 

 

 

 

 

If taxes aren't necessary to fund the government, then

 

A) why do we have them?

 

and

 

B) why do you not advocate taxes be abolished?

A) Taxes are a fiscal policy set forth by the Congress, & collected by the Treasury. From a Monetary perspective, in a fiat currency system taxes are only payable in the national currency, so a government has a self-interest in having monopoly power over creation of the money supply. Same goes for US Treasuries as debt instruments. Any nation that holds US T-Bills is paid back in USD.

 

B) If the government abolished taxes and stopped collecting revenue that could result in a huge spike in aggregate demand to the point where inflation occurs as excess capital drives up costs. For that reason taxes have often moved counter-cyclical to agregate demand.

[GG]

Simply stating how money is created in the U.S., the Treasury, Fed, and Congress all play a role in how money is created (spent) and destroyed (taxed).

Oh good, I thought the answer was going to be, The Jews

[Dr.Sack]

Oh good, I thought the answer was going to be, The Jews

I'll leave that to Professor Bannon.

[GG]

I'll leave that to Professor Bannon.

The guy who's had two ultra conservative Jews as his editors?

[Joe Miner]

 

You're definitely not getting a Christmas card now.

Kwanzaa card still on the table?

[Dr.Sack]

The guy who's had two ultra conservative Jews as his editors?

Professor Bannon is an EOE.

[TPS]

If taxes aren't necessary to fund the government, then

 

A) why do we have them?

 

and

 

B) why do you not advocate taxes be abolished?

at any point in time, there are finite resources, and Taxes reduce private sector claims on resources. So, for example, if government is currently spending $3 trillion on goods and services and collecting $2.5 trillion in taxes, the net claim on real resources is only $0.5 trillion--the size of its deficit. If you eliminated the taxes, and government maintained its $3 trillion in spending, that would inject another $2.5 trillion of income into the economy. With unemployment close to 4%, the result would be inflation.

 

Taxes aren't necessary to fund the government, they are necessary to ensure government spending isn't inflationary. And The more unemployment there is, government can run bigger deficits without causing inflation. Just like it did from 2008 to 2012.

[Azalin]

at any point in time, there are finite resources, and Taxes reduce private sector claims on resources. So, for example, if government is currently spending $3 trillion on goods and services and collecting $2.5 trillion in taxes, the net claim on real resources is only $0.5 trillion--the size of its deficit. If you eliminated the taxes, and government maintained its $3 trillion in spending, that would inject another $2.5 trillion of income into the economy. With unemployment close to 4%, the result would be inflation.

 

Taxes aren't necessary to fund the government, they are necessary to ensure government spending isn't inflationary. And The more unemployment there is, government can run bigger deficits without causing inflation. Just like it did from 2008 to 2012.

 

 

I'm a pretty simple guy. I'm a telecom tech by profession and a musician by preoccupation. I work, I pay rent, I pay bills, and I buy food. In order to keep a roof over my head, my belly full, and my lights on, I pay money to do so. It's a simple existence, but it works for me.

 

If my government wants to supplement the military, pay our representatives, or build roads and bridges, then they require money to do so, just like I need money to supplement my own life. That money needs to come from somewhere. As of this weekend, I have had just under ten thousand dollars taken from my paychecks in federal taxes alone, ostensibly because the feds need the money to do their thing.

 

You know money and economic better than I do. I understand and accept that. That being said, I have to admit that any claims that state that the feds do not need to tax us sounds a great big pile of abstract textbook horsesh!t that out of touch, obstinate elitists might spout. Especially when it comes from people who lean to the left, the group that holds dear the mantra that we need to tax the rich, corporations, or any one else who might be earning and creating wealth on their own.

 

The notion that the feds do not need to tax us in order to pay their own bills is laughable to the vast majority of people. If that's indeed not the case, then I would love to see people such as yourself and Mr Sack put forth a viable plan for Washington to realize their expenditures while removing the tax burden from your fellow citizens. If you could do that, not only would you guys have statues commissioned in your honor, nobody would demand they be taken down.

[Dr.Sack]

 

 

I'm a pretty simple guy. I'm a telecom tech by profession and a musician by preoccupation. I work, I pay rent, I pay bills, and I buy food. In order to keep a roof over my head, my belly full, and my lights on, I pay money to do so. It's a simple existence, but it works for me.

 

If my government wants to supplement the military, pay our representatives, or build roads and bridges, then they require money to do so, just like I need money to supplement my own life. That money needs to come from somewhere. As of this weekend, I have had just under ten thousand dollars taken from my paychecks in federal taxes alone, ostensibly because the feds need the money to do their thing.

 

You know money and economic better than I do. I understand and accept that. That being said, I have to admit that any claims that state that the feds do not need to tax us sounds a great big pile of abstract textbook horsesh!t that out of touch, obstinate elitists might spout. Especially when it comes from people who lean to the left, the group that holds dear the mantra that we need to tax the rich, corporations, or any one else who might be earning and creating wealth on their own.

 

The notion that the feds do not need to tax us in order to pay their own bills is laughable to the vast majority of people. If that's indeed not the case, then I would love to see people such as yourself and Mr Sack put forth a viable plan for Washington to realize their expenditures while removing the tax burden from your fellow citizens. If you could do that, not only would you guys have statues commissioned in your honor, nobody would demand they be taken down.

Sounds like you make in the ballpark of $5-7k a month.

 

Outside of OASDI, Medicare, State, and local taxes that the elimination of federal taxes on your income level is totally doable.

[TPS]

 

 

I'm a pretty simple guy. I'm a telecom tech by profession and a musician by preoccupation. I work, I pay rent, I pay bills, and I buy food. In order to keep a roof over my head, my belly full, and my lights on, I pay money to do so. It's a simple existence, but it works for me.

 

If my government wants to supplement the military, pay our representatives, or build roads and bridges, then they require money to do so, just like I need money to supplement my own life. That money needs to come from somewhere. As of this weekend, I have had just under ten thousand dollars taken from my paychecks in federal taxes alone, ostensibly because the feds need the money to do their thing.

 

You know money and economic better than I do. I understand and accept that. That being said, I have to admit that any claims that state that the feds do not need to tax us sounds a great big pile of abstract textbook horsesh!t that out of touch, obstinate elitists might spout. Especially when it comes from people who lean to the left, the group that holds dear the mantra that we need to tax the rich, corporations, or any one else who might be earning and creating wealth on their own.

 

The notion that the feds do not need to tax us in order to pay their own bills is laughable to the vast majority of people. If that's indeed not the case, then I would love to see people such as yourself and Mr Sack put forth a viable plan for Washington to realize their expenditures while removing the tax burden from your fellow citizens. If you could do that, not only would you guys have statues commissioned in your honor, nobody would demand they be taken down.

This is why I've shied away from discussing "modern monetary theory" (MMT) here, as even reasonable people have a difficult time with it. Before I try to explain a bit more, a little history. Money is a creature of the State--the Sovereign, which has always controlled its minting/printing, by law. More often than not, the State abused its money printing monopoly, especially when it needed to fund wars. Over the past century, most advanced countries moved to a model of separating their Treasury and Central Bank in order to prevent the State from over-spending, and causing inflation. We've enacted laws to ensure the state is restrained: the Fed can't buy new treasury securities issues (which would directly fund government), rather they must buy in secondary markets; the Treasury is required to issue bonds equivalent to its annual deficit; and the most extreme, a debt ceiling.

 

You tend to conflate money and income. Money is the thing the State declares as the unit of account and what is accepted as payment. Money is simply the thing we use to buy other things--it represents claims on real things. Your income provides you with a flow of money that allows you to make claims on current resources (goods and services). When you save any part of your income, you are putting your "money" into a form that provides a return and access to future resource claims--financial (paper) wealth represents future claims on real things. The more you save today, the less you consume of today's resources, increasing your claims on future resources.

 

For any short period of time, there is a maximum amount of output (goods and services) the economy can produce, and only labor and capital equipment can produce real things. Money is simply the thing we use for payment of real things--goods and services, labor and capital. Since those real things are finite in the short run, if government did not tax the private sector, all its spending ($3 trillion) would inject more money--claims on real things--into the economy greater than what it can produce in the short run. Taxes transfer private sector claims to the government (your $10k), and they are necessary to ensure that government spending of $3 trillion doesn't put undue demand on the current supply of output, which would cause inflation. By collecting taxes of $2.5 trillion, government reduces the private sector's claims, so that it is only adding net new claims on resources equal to its deficit of $0.5 trillion. By law, the government has to "sell" bonds equivalent to its deficit, and doing so also ensures that the private sector reduces its current claims by the same amount--a voluntary reduction through saving/investing in bonds.

 

Now the tricky part. Suppose the government wants another half trillion (more claims on current resources) to fund its Afghanistan war without increasing taxes.

Suppose it starts by spending a billion dollars on Blackwater mercenaries. Blackwater's demand deposit goes up by $1 bil, and, at the Federal Reserve, there is a transfer of $1 bil from the Treasury's account to the reserve account of Blackwater's bank, let's say BofA. Since we don't allow the Treasury to print money any more, as it spends, it has to replenish its bank account at the Fed, so, at its weekly auction, it increases bond sales by a billion dollars. As one of the Fed's 21 primary dealers, BofA is required to "make the market" (ensure that all bonds are bought) for US treasuries, and it has the necessary "money" to "finance" the new bond issue because of the government expenditure.

 

The end result is that the government increased its deficit spending by a billion which appears to be financed by selling a bond, borrowing. The way the system actually works is government spending in excess of taxes creates the "money" used to purchase bonds from its auction and the 21 largest banks in the world are required to buy the Treasury's bonds, if other private investors or foreign governments fail to. Even if the billion dollars somehow left the banking system, the Fed and primary dealers have a symbiotic relationship: the PDs must make the auction--buy up all treasuries issued, and, if they lack the liquidity--the available funds, then the Fed stands ready to lend it to them. There is no financing constraint on Government other than those self-imposed.

 

If this happened under current circumstances (very low unemployment), it would cause inflationary pressures. Government is injecting new spending, and therefore new money, into the system equivalent to the increase in its deficit of half a trillion which increases current demand, putting more strain on current resources. Wars typically help push the economy to full employment and increases inflation.

 

You can call this abstract academic horseshit, but this is how the system works. The only constraints on achieving full employment are self-imposed. Usually, as we approach full employment, the Fed starts raising interest rates to reduce private sector spending which reduces inflationary pressures. I hope you understand that this doesn't mean government can spend without limit; it's spending is limited by the availability of real resources and the competing claims on those by the private sector. Gotta run.

[ALF]

They can't pass anything that is not revenue neutral.......so good luck

 

The first Trump budget starting Oct 1

 

Large defense spending increase

 

Massive cost for Hurricane Harvey

 

Tax cuts

 

Massive spending for infrastructure

 

Stay revenue neutral ?

[B-Large]

 

Republicans are all about tax cuts and spending cuts when they're out of power. Once in power they enjoy spending as much as Democrats

 

 

they face the same reality Democrats do when they are in power, except Democrats have embraced the reality- without articulating very meaningful changes to CMS, SS and the War Department, you simple nibble around the edges of the US spending problem. Cutting outlays for these 3 sacred cows is a vote killer, and both parties know it.

 

I guess you could argue the Tax Code could be included as well- but that is more about shifting and shell games, not as much outlays.

[Chef Jim]

Sounds like you make in the ballpark of $5-7k a month.

 

Outside of OASDI, Medicare, State, and local taxes that the elimination of federal taxes on your income level is totally doable.

Great. Tax evasion advice now.

[Azalin]

This is why I've shied away from discussing "modern monetary theory" (MMT) here, as even reasonable people have a difficult time with it. Before I try to explain a bit more, a little history. Money is a creature of the State--the Sovereign, which has always controlled its minting/printing, by law. More often than not, the State abused its money printing monopoly, especially when it needed to fund wars. Over the past century, most advanced countries moved to a model of separating their Treasury and Central Bank in order to prevent the State from over-spending, and causing inflation. We've enacted laws to ensure the state is restrained: the Fed can't buy new treasury securities issues (which would directly fund government), rather they must buy in secondary markets; the Treasury is required to issue bonds equivalent to its annual deficit; and the most extreme, a debt ceiling.

 

You tend to conflate money and income. Money is the thing the State declares as the unit of account and what is accepted as payment. Money is simply the thing we use to buy other things--it represents claims on real things. Your income provides you with a flow of money that allows you to make claims on current resources (goods and services). When you save any part of your income, you are putting your "money" into a form that provides a return and access to future resource claims--financial (paper) wealth represents future claims on real things. The more you save today, the less you consume of today's resources, increasing your claims on future resources.

 

For any short period of time, there is a maximum amount of output (goods and services) the economy can produce, and only labor and capital equipment can produce real things. Money is simply the thing we use for payment of real things--goods and services, labor and capital. Since those real things are finite in the short run, if government did not tax the private sector, all its spending ($3 trillion) would inject more money--claims on real things--into the economy greater than what it can produce in the short run. Taxes transfer private sector claims to the government (your $10k), and they are necessary to ensure that government spending of $3 trillion doesn't put undue demand on the current supply of output, which would cause inflation. By collecting taxes of $2.5 trillion, government reduces the private sector's claims, so that it is only adding net new claims on resources equal to its deficit of $0.5 trillion. By law, the government has to "sell" bonds equivalent to its deficit, and doing so also ensures that the private sector reduces its current claims by the same amount--a voluntary reduction through saving/investing in bonds.

 

Now the tricky part. Suppose the government wants another half trillion (more claims on current resources) to fund its Afghanistan war without increasing taxes.

Suppose it starts by spending a billion dollars on Blackwater mercenaries. Blackwater's demand deposit goes up by $1 bil, and, at the Federal Reserve, there is a transfer of $1 bil from the Treasury's account to the reserve account of Blackwater's bank, let's say BofA. Since we don't allow the Treasury to print money any more, as it spends, it has to replenish its bank account at the Fed, so, at its weekly auction, it increases bond sales by a billion dollars. As one of the Fed's 21 primary dealers, BofA is required to "make the market" (ensure that all bonds are bought) for US treasuries, and it has the necessary "money" to "finance" the new bond issue because of the government expenditure.

 

The end result is that the government increased its deficit spending by a billion which appears to be financed by selling a bond, borrowing. The way the system actually works is government spending in excess of taxes creates the "money" used to purchase bonds from its auction and the 21 largest banks in the world are required to buy the Treasury's bonds, if other private investors or foreign governments fail to. Even if the billion dollars somehow left the banking system, the Fed and primary dealers have a symbiotic relationship: the PDs must make the auction--buy up all treasuries issued, and, if they lack the liquidity--the available funds, then the Fed stands ready to lend it to them. There is no financing constraint on Government other than those self-imposed.

 

If this happened under current circumstances (very low unemployment), it would cause inflationary pressures. Government is injecting new spending, and therefore new money, into the system equivalent to the increase in its deficit of half a trillion which increases current demand, putting more strain on current resources. Wars typically help push the economy to full employment and increases inflation.

 

You can call this abstract academic horseshit, but this is how the system works. The only constraints on achieving full employment are self-imposed. Usually, as we approach full employment, the Fed starts raising interest rates to reduce private sector spending which reduces inflationary pressures. I hope you understand that this doesn't mean government can spend without limit; it's spending is limited by the availability of real resources and the competing claims on those by the private sector. Gotta run.

 

Thanks - I appreciate you taking the time to explain. I admit that my lack of detailed understanding gives me a simplistic view of the subject.

 

What I have trouble with is an ongoing political argument where one side uses taxation as a wedge issue - a way to appear to be champions of the downtrodden by campaigning for increased taxes on wealthy individuals and corporations, and promoting the belief that both are little more than scoundrels who attained their wealth by cheating honest Americans, then seeing someone from that political point of view say that we don't even need to tax anyone to fund our government. The two notions are completely contradictory to me.

[Dr.Sack]

 

Thanks - I appreciate you taking the time to explain. I admit that my lack of detailed understanding gives me a simplistic view of the subject.

 

What I have trouble with is an ongoing political argument where one side uses taxation as a wedge issue - a way to appear to be champions of the downtrodden by campaigning for increased taxes on wealthy individuals and corporations, and promoting the belief that both are little more than scoundrels who attained their wealth by cheating honest Americans, then seeing someone from that political point of view say that we don't even need to tax anyone to fund our government. The two notions are completely contradictory to me.

That's why both parties seem to lack a cohesive argument.

 

In TPS & my summation, Government can and should be spending much more, or taxing much less. Inflation of 0.0-1.9% which is what we've had per annum the last decade is not high enough to maximize our resources: full employment, labor & capital.

 

This is the great fallacy of the political paradigm; that you must either tax and spend more, or tax less and spend less. We are advocating for spending more and taxing less.

 

Let's look at one example of the Government spending more. By implementing Medicare-for-All, this would be a highly deflationary event. Right now the U.S. spends 17% of GDP on healthcare. Private health insurance operates at a 25-30% overhead compared to Medicare 5-7%. Some of this cost is inefficient medical billing on the insurance side and medical office side. Needless to say there is a lot of 'hole diggers & hole fillers' in the healthcare industry.

 

In a more efficient healthcare system, you would see tens of thousands of unemployed from the inefficient system such as; medical billing 'coders' out of a job - a highly deflationary event. At the same time businesses would save on the HR expense of no longer managing health insurance policies and paying for their employees healthcare.

 

These factors are the reason why you wouldn't raise taxes: higher short-term unemployment, and worry about deflation. You would want to encourage businesses to re-hire and the best way to do that is to lower their expenses (healthcare - ✔️) and taxes.

[Joe Miner]

 

http://www.the-lighthouse.net/debunking-modern-monetary-theory-mmt-understanding-it-first/

[TPS]

http://www.the-lighthouse.net/debunking-modern-monetary-theory-mmt-understanding-it-first/

you can read the comment section of that piece to learn why it's not a debunking and error-filled. Interesting, through the first part he mentions most critics say it's technically correct, but then HE will show why it's not...

I'll briefly mention some of the problems with the article.

1. He says government can't borrow if it doesn't have willing lenders. He obviously doesn't know about the function of primary dealers, which Are required to make the market for treasuries.

2. He seems to hold some rigid view of money when it serves him. Money is created when government spends, but that money is an electronic credit to a demand deposit and simultaneously an increase in bank reserves. It may take different forms once created--invested in short term securities, for example. Related to this, he doesn't understand the basic accounting identity. Annual government deficits = private sector surplus + foreign sector surplus.

3. He says mm that ignores the Fed. I explained the relationship between the treasury and the Fed, so he obviously is creating a straw man there.

4. MMT suggests a flexible exchange rate. If a country has a fixed or targeted exchange rate, then the central bank must counter the actions of the treasury when money is created. He creates a straw an here, as well as when he discusses historical defaults.

 

The problem and fear of MMT is it's implications for policy. Government's ability to spend puts private sector resources to work, which creates wealth. Low unemployment gives workers more bargaining power over wages, and business doesn't like that...

[Joe Miner]

http://www.businessinsider.com/weekender-the-trouble-with-modern-monetary-theory-mmt-2011-1