To the editor:
The budget deficit and national debt have cozily found their way back into the national discussion. With the release of President Trump’s tax plan, the blue moon has arrived and both parties have come together to discuss bipartisan concern over what the plan will do to our debt and deficit.
Twenty-one out of 26 economists surveyed by Bloomberg News agreed that the tax plan will increase the budget deficit. By how much is a more nuanced answer. The Committee for a Responsible Federal Budget (CFRB) estimates that the plan would increase the debt by $2.2 trillion within the next decade, but there have been other projections.
But contrary to mainstream liberal belief, the exploding deficit isn’t a reason to oppose the plan.
There’s a vast array of reasons to oppose the administration’s tax proposal.
First — the average American will only see their taxes cut by 15 percent, while most of the plan’s tax cuts would go to individuals with much higher incomes. This will do little to raise consumer spending, which is what allows businesses to make a profit, create jobs and make investments.
Second — the estate tax repeal. This tax only affects 0.2 percent of households, and is a much needed policy tool to fight against the dangerous trend of growing wealth inequality.
That’s why you reject the plan. It’s a bad plan. Not because of the deficit.
Here’s why I say we shouldn’t use an increase of the national debt as justification to reject this already ineffective plan: The national debt isn’t real. It’s more of an illusion.
Now, before you close this newspaper and dismiss what I say, let me walk you through something. How do most people think government finance operates? Government taxes us, and if they don’t collect enough revenue for what they wish to spend on, they’ll borrow the rest. Right?
Wrong. That’s not how it works.
Think about it for a moment. Where does the United States dollar come from? I’ll give you time to think. Got it? Okay. If you guessed anything other than the United States government itself, you’d be wrong.
In 1971, when President Nixon took us off the gold standard (a monetary system where we pegged the value of the dollar to gold) the United States government became the monopoly issuer of the United States Dollar. All other dollars issued elsewhere, are counterfeit. So why would we need taxes to raise revenue? The dollars in your pocket and in your bank account that you will use to pay taxes did not even exist until the government issued or “printed” them into existence.
The truth is, we don’t need taxes for revenue. We did under the gold standard, but now that dollars originate from the government itself, it must spend before it taxes, not the other way around.
In other words you could argue that in 1971, the national debt, became the national debit. In today’s monetary system, the deficit is an accounting identity indicating how much more money the government put into the economy, than it took away in taxes.
In 2016, our budget deficit was $585 billion, and the net increase in financial assets to the economy was, you guessed it, $585 billion.
Professor Scott Fullwiler, the James A. Leach Chair in Banking and Monetary Economics at Wartburg College, discovered in his research that the net savings/financial wealth of the economy equals the government deficit to the penny. The balance sheet is to exact too be a coincidence.
In fact, getting rid of the national debt would bring the money supply to zero. Imagine the disaster that would follow if not a single person in a country of over 300 million in population, had even a penny to their name.
So why do we have taxes then? This is a topic for a different discussion. But to summarize, taxes are still needed to drive demand for the currency. Since it’s not backed by gold, governments must use taxes to create an incentive for people to use the dollar.
In rare occasions, like right after the first World War, the economy can be doing so well that we max out our capacity and inflation follows. Then, we use taxes to directly remove money from the money supply, therefore lowering inflation.
The Trump tax plan is bad. A lot of his ideas are bad. And that’s all we need to oppose something. If it’s a good idea, support it. If it’s a bad idea, don’t support it.
But the United States and its government need to wake up, stop thinking about economics through the lense of the system we had before 1971 and start investing in its people.