Helicopter Money and the End of Taxes

Free money for everyone!

The system of collecting taxes and distributing the dough is a zero-sum game: each dollar of tax revenue paid by someone and given to someone else is one dollar that the taxpayer will no longer have to save or spend. Meanwhile, the recipient received a dollar that would not have been available without taxes.

State and local governments are still bound by this zero-sum game except for infrastructure spending funded by the sale of municipal bonds. These bonds are debt and must be paid back with interest. But as a general rule, the general funds of cities, counties and states are zero-sum: they can only spend what they collect in tax receipts.

As a result, the feeding frenzy at the public trough has winners and losers: taxpayers who receive fewer benefits than they pay in taxes are the losers, and residents / enterprises who get subsidies, tax breaks, entitlements, benefits in excess of what they paid in taxes are the winners.

Zero-sum: every corporate or individual welfare queen / king that mooches off the public trough as a result of skims and scams (gaming the system, lying, lobbying, legalized looting, etc.) deprives a legitimate recipient / program of scarce tax dollars, or deprives the taxpayers of a tax cut.

The federal government has no restraint. The federal feeding trough can be refilled by deficit spending, i.e. selling Treasury bonds and blowing the proceeds on essentially limitless skims and scams.

Taxpayers naturally resent the skims and scams their hard-earned tax payments fund. Politicos are dimly aware of this resentment (dismissed as evil populism by the status quo’s apparatchiks) and so they naturally seek to defuse this threat to their own skims and scams by giving free money to everyone and not just to their super-wealthy donors (in the form of bailouts, subsidies, tax breaks, no-bid contracts, etc.)

We’ve already had a taste of free money for everyone in the $1,200 giveaway earlier this year. There was also talk of dispensing with the individuals’ share of Social Security/Medicare taxes (7.65% of earned income) for a limited time, but this created confusion because it was unclear if this was a temporary measure that would be due later or an actual freebie.

Clearly, this was a trial balloon for eliminating the Social Security/Medicare tax for low and moderate income households. Why collect $1,200 in SSA taxes and then hand the household $1,200? Why not just eliminate the tax?

Most households pay very little federal income tax as it is. The bottom 50% pay 1% of all federal income taxes, and the top 10% pay the majority of all income taxes.

Declaring the first $50,000 or $60,000 of income per taxpayer as tax-free would not reduce tax revenues by much because the bottom 90% pay such a small percentage of income taxes.

If 90% of households don’t pay federal income taxes, then they have no beef with who’s feeding at the federal trough, as it’s no longer zero-sum. There will be “free money” for everyone: corporate welfare galore, no income taxes for the bottom 90%, permanent unemployment payments for the chronically unemployed, Universal Basic Income (UBI) for everyone, even the top 10% (so they get something for free)– helicopter money without limit.

As all the extremes of wealth/income inequality unravel, calls to “tax the rich” gain favor. The problem is that the super-rich have the political power to evade taxes, so the only people who will pay more will be the tax donkeys who aren’t rich enough to hire teams of tax attorneys and buy tax breaks from desperate-for-campaign-cash politicos.

The idea of countering inequality by giving everyone free money seems painless as long as the Federal Reserve can create trillions out of thin air. And the basic idea of MMT (Modern Monetary Theory) is the Treasury can create trillions without even selling Treasury bonds that accrue interest.

As I explained in The Silent Exodus Nobody Sees: Leaving Work Forever (9/23/20), all this free money (with a token giveaway to the remaining tax donkeys) will have unintended consequences:

1. The working poor who do the economy’s hard, low-pay work will find ways to leave their life of poorly paid toil behind forever.

2. The tax donkeys will have tremendous incentives to cut their work and income down to the tax-free level. Why kill yourself to pay 50% of what you earn as taxes?

What kind of economy will we have when all the hard work becomes optional and a consequential percentage of the tax donkeys effectively “lay down their burdens”? All the “free money” will go to consumption, not production, and so the purchasing power of the “free money” will erode very rapidly.

The intrinsic unfairness of the status quo is undermining the willingness to keep contributing to it. Rather than right the ship, the “easy fix” is to distribute “free money”–not just to billionaires and corporations but to everyone.

Simply put, work no longer pays. What pays is turning companies into debt-zombies to buy back shares and milking America’s monopolies. (Contributor A.P. outlined how the system really works: Our Wile E. Coyote Economy: Nothing But Financial Engineering (6/11/20)

All those who believe this is a permanent, stable system will get a nice hard chair at the banquet of consequences. The dominoes are falling but distractions abound.

Source: Of Two Minds

Bread and games!
  1. kierandsouza says

    the poor pay the bulk of indirect taxes, whom are you kidding. what is the proportion of direct to indirect taxes, that will give you an idea of the contribution of the poor who are the end consumers of services, utilities, goods produced all loaded with GST, VAT, levies, commissions, cesses and what not

    1. Saint Jimmy (Russian American) says

      Hard to know what’s considered “poor”, any more. What’s left of the working and middle classes pay quite a bit in taxes, too.

      1. kierandsouza says

        poor, lower and middle income groups all included. these classes constitute the maximum donkey tax payers as alluded by the article

  2. ke4ram says

    One of the original requirements of the Federal Reserve was to maintain the purchasing value of their, (the banks) currency. This alone would prevent the present massive printing.

    Most everything they’re doing today is illegal but they say Extraordinary measures in Extraordinary times.

    Although the banks money is the legal tender of the US it is not the Constitutional Dollar which is determined by a weight in precious metals.

    Each newly printed FRN dollar steals a bit of purchasing power from other circulating dollars. Those who spend it first get the full value but the laws of economics catches up quickly.

    They claim there is little to no inflation. Using the official definition of inflation,,, the increase in units of currency,,, they’re lying, big time. By using the layman’s version of inflation,,, they’re lying, big time.

    A 1960 dollar today has the purchasing power of $0.11 cents, and that’s using their inflation calculator which we can assume, they’re lying, big time!

    The income tax is supposed to be levied proportionately by the constitution. The 16th amendment although never ratified but rather decreed as ratified does not change that. That would mean that each individual should be treated the same. This does not hold true for the bracketed tax rates in place today regardless of reasons.

    The government uses the bracketed rates and the thousands of deductions as a power grab like everything else they do. Giving some tax breaks while others have to pay more is another divisional tactic. Subsidies like Musk gets for Tesla is/should be illegal.

    The only tax I see as constitutional would be a federal sales tax overseen by the sovereign States.

    You then only pay a tax on what you use. The States collect and forward to the Federales. The States hold the purse strings as it were and thus immune to Federal bribes of the likes it did with the 55mph national speed limit.

    Most would end up paying far less taxes than they do now. This would have the added benefit of starving the federal government eliminating its aggressiveness around the world. Any unnecessary wars, they would have to request a special tax. Of course the Federal Reserve would have to be eliminated to prevent them from money printing.

    Of course I am dreaming. But think about this as you watch the slow painful death of our country at the hands of a few bankers and politicians.

    1. joey n says

      They claim there is little to no inflation. Using the official definition of inflation,,, the increase in units of currency,,, they’re lying, big time. By using the layman’s version of inflation,,, they’re lying, big time.
      A 1960 dollar today has the purchasing power of $0.11 cents, and that’s using their inflation calculator which we can assume, they’re lying, big time!

      It’s bad enough that the currency has lost its value over the decades. It’s made worse when, after all these years, the USian monetary system has remained the same over the generations. To this day pennies and nickels are still being minted and used, the 1-dollar coin is still not popular, and 100 dollars remains the highest denomination of banknote. To me, it reflects the inefficiency and backwardness of the USian economy, and all the more reason for the whole world to stop using US dollars.

      Countries like Canada and Australia, to their credit, have successfully replaced their 1- and 2-dollar banknotes with coins. Now, if only they could go further and introduce larger banknotes as well…

    2. NightriderXP1 says

      The US$ hasn’t been gold or silver backed since 1973. The US uses a Fiat Currency. It would be interesting if you would cite what exactly you think the Fed is doing that’s illegal. This should be interesting…

      The purpose of Federal taxes is to maintain a healthy balance between the haves and have nots. If you believe that tax revenue runs our government, you’re naive. If you divide our current national credit card debt by the total number of Americans, you would quickly notice that the US government can’t tax away its national credit card debt, nor does it need to. The government continues to run and keep the lights on even though it can never collect enough tax revenue to pay off the debt. And it’s not bankrupt. That happens because we use a Fiat Currency. The US federal government literally owns a money tree…

      1. Kapricorn4 says

        The US federal government has to BORROW money from the member banks of the Federal Reserve, that are privately owned. This explains why the US Treasury is now $26 trillion in debt to the private sector.

        China on the other hand creates its money supply debt free.

    3. Josep says

      They claim there is little to no inflation. Using the official definition of inflation,,, the increase in units of currency,,, they’re lying, big time. By using the layman’s version of inflation,,, they’re lying, big time.
      A 1960 dollar today has the purchasing power of $0.11 cents, and that’s using their inflation calculator which we can assume, they’re lying, big time!

      Countries like Canada and Australia have managed to acknowledge inflation by replacing their 1- and 2-dollar bills with coins. At least with that, it’s easier to pay a laundromat $6 with three to six coins than it is with 24. Now, if only they could introduce larger-denomination banknotes beyond $100…

  3. plamenpetkov says

    As usual, some truths mixed with some lies.

    for example, Its NOT true that poor dont pay federal taxes. they do: gas has a federal tax(25 cents a gallon) and everyone pays it even if they dont use a car: the price of food has the tax added into it. The middle class and the poor pay the majority of taxes: property taxes are part of the apartment’s price.

    There are NO “welfare queens”; there havent been since reagan’s time. the biggest welfare queens in fact are the banks who enjoyed 75 billion given to them during 2008 from both Bush and Obama. The corporations get literally billions during 2020 also; the poor people get in fact crumbs. It would be very easy to give more money to the oor and the gov wont even miss the money; but why give it to the poor when you can give it to the rich instead? USA is Corporatism after all.

    As the author points out, since the Fed can create money at will, taxes are actually irrelevant. That is why the system now is upside down and USA isn’t “Capitalists anymore but has a centrally controlled economy, ie its Communism. Funny how things work out.

    1. DemocrapSocialistsSuck says

      I know a person, she has five kids, her husband works full time and lives in the house but she doesn’t report that. She receives a welfare check, over $1200 a month in SNAP, free healthcare for her and her kids, and SSI for two of them. She pays $47 a month in rent on a house, Section 8 pays the rest. They both drive brand new cars, all of them have the latest gadgets etc. There are probably hundreds of thousands if not millions getting over in the same way. You must be hitting the pipe with Hunter if you believe that there are no more welfare queens.

    2. Saint Jimmy (Russian American) says

      You were accurate until the statement about communism. What we have is NOT communism. The thought is ridiculous. What we have is an aggressive, oligarch and monopolist controlled, corporate fascist empire.

      1. Drapetomania says

        It is tiring listening to all the clones carry on about my political party or my form of government.

        They all work by taking from wealth creators and giving that to the predators and parasites that live off of them. It’s a legacy from the animal world and our animal past and there is no place for it in a civilized human world.

        Government has been a failure from its very inception. Time to depart from that aspect of the animal world and end the disaster that has been government.

        1. Saint Jimmy (Russian American) says

          You are completely out of touch with human behavior. You believe in fantasy.

          I have bad news for you. You’re a nut.

        2. disqus_3BrONUAJno says

          What other species of animal besides homo sapien ever had civil government?

    3. ke4ram says

      The problem is as I see it,,, government is broke and thus has no money to “give” anyone. I don’t imagine the power to borrow money on the credit of the US was meant to hand out $1200 dollar checks to the people or billions for airlines and other corporations.

      1. NightriderXP1 says

        How exactly can a government that can create an unlimited amount of money at any time for any reason be broke? The US uses a Fiat Currency, which literally means that money grows on trees for the Federal Government. It doesn’t have to behave the same as a business, family household, or State or local government. The US Federal government could pay off its entire national credit card debt tomorrow if it wanted to. Bankers who benefit from the interest paid on the debt would have a hissy fit though…

        1. Kapricorn4 says

          The US operates a privatized debt based currency; it is not created by fiat or edict of the US government. Therefore the US Treasury should create all US money debt free. Take a lesson from China if you want the economy to work for all Americans

  4. thomas malthaus says

    Alasdair Macleod describes the dollar’s imminent collapse.

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