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Federal Taxes Don't Pay For Anything

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Potomac Oracle
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How often has President Obama said or suggested that, "we will go broke" or commented on this nation's inability to pay for all the programs and services we know we need? Or, we have to share the tax burden to pay for government services benefiting all Americans.

Answer: Too often.   And worse, he's misinformed about monetary policy.

None of our elected officials, their economic advisers, and few financial wizards, including those who advise President Obama, leave me to believe that they understand the real significance of deficits and taxation and the simple mechanics involved in reserve accounting with a sovereign fiat currency. 

What this leads to is that these "leaders" and "advisors" have it all backwards when they talk and write about deficits, and taxation because they have not, intellectually and operationally, made the transition from fixed exchange rates and gold standard principles, to flexible exchange rates and sovereign fiat currency principles.

Nor are they asking the right questions during this recession. The leadership class needs to ask "what is the purpose of deficit spending?" This question gets to the crux of the dilemma of our national recession.

Deficit spending needs to address public purposes. It needs to eliminate costly unemployment given insufficient private sector investment which continues to prolong and exacerbate this recession.  

Where's My Job
Where's My Job
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How can those on the right and left protest providing net assets to the private sector to employ all who want to work?

Only government sector deficit spending remains as the source through which 25 million Americans can begin to receive incomes.   How much deficit spending will be needed?   As much as it takes to reach full employment. How much in percentage terms will taxes need to be increased to reach full employment deficit spending?  


That's right. No increase in taxes or borrowing needed.   Instead, taxes on income need to be significantly reduced to allow immediate (next 12 months) and broad based economic benefits.

Is this irresponsible?   Not if our leaders take the time to understand that in a modern monetary system federal income tax collections don't support spending.   Among the operational axioms of modern monetary operations in America is this, "Federal Taxes Are Not Needed Only To Adjust Aggregate Demand."

Levying taxes on the rich, non-rich individuals or corporations to raise revenue is nonsense.   Continuing taxation of income, during a recession with 25-30 million unemployed, is counterproductive where the objective  is attaining full employment through deficit spending. Moreover, because the federal government (Treasury & the privately owned Federal Reserve) is the sole issuer of our currency, there is no need to raise revenue.

Think about this!

For 41 years we have believed, and our "leaders" have led us knowingly or unknowingly to accept, the road signs proclaiming, "Your Federal Taxes at Work."  

If you could create all the currency you needed to fund whatever you needed, why would you have to raise revenue through taxation? You wouldn't.   Moreover, you'd have to spend your currency/dollars first, before you could tax or borrow.

So why does the Federal government tax?   It taxes to manage spending, in other words to control inflation and deflation. That's it. It borrows for the same reason. They're automatic stabilizers.   However, there's a real downside during recessions which our erstwhile leaders don't understand.   The more they tax the more likely the economy will fall into recession and deflation. However, once full employment is achieved it may be necessary to resume income taxation to cool off a hot economy.

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Retired ('92)after working for every Administration since Truman, with the exception of the last 3 administrations. Mainlining golf is a major addiction, along with grandchildren, travel, great books, and the leisure to really absorb it all. A (more...)

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