UE UNIT XIII The deadly false belief that taxes pay for spending

We must get this through our heads. At the Federal Level:


Whenever progressives or their leaders at the federal level thoughtlessly accept the false premise that taxes pay for government spending, they are effectively saying the Government of the United States of America has no money of its own and must go begging to the private sector for anything it wishes to fund. They are effectively saying the private sector is the source of the nation’s money. They are effectively saying our government can do nothing unless the billionaire class agrees to pay for it. It is the exact opposite of reality, the exact opposite of how our fiat monetary system actually functions, and the results are devastating for the working people of America.

Failure to comprehend that taxes do not pay for federal government spending sounds the death knell for any progressive agenda. It is the death knell for universal public healthcare, the death knell for fully and adequately funding social security. It is the death knell for public education, for free college tuition for our youth, for forgiving and ending student debt. It is the death knell for rebuilding our infrastructure, for replacing the lead water piping in our cities, for publicly supporting solar, wind, and other clean alternatives to polluting fossil fuels. It is the slow but steady death knell for democracy and any sense of community and common purpose.

The uber-wealthy are fully aware of how our monetary system works and they use it to great advantage in meeting their own agenda. When the blatant corruption and fraud of the richest of the rich caused the economic collapse in 2008, the private Wall Street banks and the private financial industry were broke. They had no money. Yet miraculously, the government that “has no money of its own,” that has to “tax and borrow” all of its money from the private sector, magically came up with literally trillions of dollars to bail out this same, moneyless, private sector.

Just where the government that “has no money of its own” suddenly got all of this money is apparently one of life’s great mysteries. But it isn’t. The rich class knew full well the US Treasury could create all the money needed to bail them out, and since this same rich class owns “our” politicians, congress wrote a blank check and our government paid the bills. No one asked who was going to pay for it, no one screamed alarm about the ballooning “debt” and “deficit,” no one asked which taxes would need to be raised to offset such huge government spending, no one asked which government programs would have to be cut to keep the budget “neutral.” The government simply created the money. It didn’t need a single taxpayer dollar.

Spending hundreds of billions of government dollars on the US Defense Department and trillion-dollar wars to make the billionaires in the arms industries ever wealthier receives the same treatment as bank bailouts. Congress approves, the Treasury creates the money, and the rich get richer. No questions asked. Corporate welfare funding is the same, tax cuts for the rich are the same. Our fiat monetary system effortlessly pays for all the rich desire.

But let a single individual suggest public healthcare, public funding for higher education, or public funding to replace lead water pipes poisoning our children, and the rules are changed completely. Suddenly tax dollars are required to pay for government spending. Suddenly the debt and deficit are out of control. Suddenly the government has no money of its own and can afford to pay for nothing.

Unfortunately, Progressive Democratic politicians fall for this trap every time. They refuse to believe that “NOT ONE PENNY OF TAXPAYER MONEY IS EVER NEEDED, OR USED, TO PAY FOR FEDERAL GOVERNMENT SPENDING” even though the Republicans and their wealthy donors demonstrate this reality every time they want government spending or tax cuts to benefit themselves. As such, these progressive leaders walk blindly into a no-win situation. They are forced to suggest either raising taxes on working people or cutting popular public programs to pay for any progressive agenda. It is a guaranteed fail. Senator Bernie Sanders of Vermont and New York Democratic candidate Alexandria Ocasio-Cortez are prime examples.

Sanders recently introduced a Medicare-for-All bill that has been endorsed by several fellow Democratic Senators. Rather than defining how our fiat monetary system creates money out of nowhere to bail out wealthy bankers or pay for endless wars – and that it can function in the same way to fund public healthcare – Sanders explains how his plan would be paid for by a 6.2% tax on employers, 2.2% on households, and higher tax rates on high income earners. He has fallen into the “government has no money and spending is paid for with taxes” trap. The bill will likely be dead on arrival.

Similarly, in a recent interview with CNN’s Jake Tapper, Ocasio-Cortez stumbled badly when explaining her support for Medicare-for-All. After presenting what has since been shown to be misleading figures regarding the cost of this program, Tapper uttered the killer question – “How are you going to pay for it?” Unable to articulate the functioning of our fiat monetary system, Ocasio-Cortez fell for the trap. “Taxes pay for government spending.”

Perhaps Cortez’s answer could have been – – –

“Mr. Tapper, how did our government pay for trillions of dollars to bailout corrupt banks in 2008? How does our government pay a trillion dollars each year to cover the defense budget and our endless wars? How will our government pay for the trillions of dollars in lost revenue resulting from the recent tax cuts for the rich and corporations?”

Mr. Tapper, I’ll explain: The US Government monetary system is based on a sovereign fiat currency. The US Treasury is the creator of the nation’s money. It is the source of all private sector money. The Treasury never needs to tax or borrow to pay for anything congress authorizes. We are going to fund universal healthcare, infrastructure repair, ending student debt, and all other programs needed by the people of America, the same way we funded bank bailouts, wars and defense budgets, and tax cuts for the rich. We are going to pay for them with public, government money. Not taxpayer money. Public money. In addition to this, we are going to abolish payroll taxes. They are entirely regressive and fall on those who can least afford it.

Mr. Tapper, there is not time for me to elaborate on the functioning of a sovereign fiat monetary system in the few minutes you have allowed for this interview. If you would truly like for your listeners to understand how the US Treasury, the US Federal Reserve Bank, and the US monetary system actually function, CNN will need to give me 2 full hours of air-time. I’ll will bring in Professors Stephanie Kelton, Randall Wray, Michael Hudson and William Black* from the University of Missouri, Kansas City, along with financial expert Warren Mosler. We will conduct an in-depth presentation on how our monetary system factually works. There is little CNN could possibly do that would be more beneficial to our democracy and the people of America. Thank you.”

*Black was the federal prosecutor during the Savings and Loan scandal back in the 1980’s. Unlike the corrupt Wall Street bankers in 2008 who were awarded publicly funded multimillion dollar bonuses for their fraud, Black saw to it that many of the top Savings and Loan managers who committed financial crimes served prison terms. It is an indicator of how badly big money had corrupted our political leaders by 2008.

Please take the time to read Jim Kavanagh’s excellent article “Taxpayer Money” Threatens Medicare-for-All (And Every Other Social Program) He is extraordinarily articulate and goes far more in-depth explaining the harm in continuing to believe tax dollars fund government spending.