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The dirty little secret of federal finances is even revealed on your tax return.

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Inflation (blue line) is caused by shortages of oil, leading to price increases (red and green lines).

Let’s set the stage for that secret with a typically misleading article.

The following is THE WEEK magazine’s summary of an article that appeared in the Washington Post.

See whether you can locate the two words that are not just misleading but utterly wrong:

Taxing “the rich” won’t suffice, Henry Olsen, The Washington Post

“Progressives are afraid of taxes,” said Henry Olsen. To pay for trillion-dollar stimulus and infrastructure plans and expand the social safety net, Democrats always say they’re limiting their tax hike to “the rich.’

But “the trouble for the Left is that you can’t pay for the government they want by taxing only the rich.”

Every social democracy in the world has far higher tax rates for the middle class than the U.S. Canada pays for its single-payer health-care system and an extensive social safety net with a national 5 percent sales tax, provincial sales taxes of up to another 10 percent, and a top income tax rate in Ontario of 46.13 percent on income of more than $175,000.

In the U.K., taxpayers get hit with a 40 percent tax on incomes of just $52,100, and 45 percent at $208,600. That comes on top of a 20 percent value-added tax on all goods and services , and a $3-per-gallon gas tax.

In Denmark, the top tax rate of 55.9 percent kicks in at $86,500, and there’s a 2.5 percent falue-added tax.

If progressives want “a social democratic utopia,” tehy’ll have to persuade middle-class Americans “to pony and pay for it.”

O.K., I made it too simple for you clever readers. The words, of course, are “pay for,” because:

Federal taxes do not pay for federal spending.

As former Federal Reserve Chairman Alan Greenspan said,

“There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”

And Greenspan wasn’t the only one. As former Federal Reserve Chairman Ben Bernanke said,

“The U.S. government has a technology called a printing press (or its electronic equivalent) that allows it to produce as many U.S. dollars as it wishes, at essentially no cost.”

So, since the U.S. government can create as much money as it wants, at essentially no cost, and pay it to somebody, why in the world would the government use tax dollars for that purpose?

Not only do federal taxes not pay for federal spending, but no form of federal government income pays for anything. 

For instance, when you or your accountant filed your tax return, did you notice this little box? You, having a reasonable command of English, may think this means there is something called a “Presidential Election Campaign” fund, and by checking the box(es) you are directing the government to send $3 to this fund.

Notice that you are told, “Checking a box below will not change your tax or refund.

“Hey, wait!” you cry. “Even if such a fund exists, where would the $3 come from? If it won’t come from me, and if it won’t come from my taxes. So where?”

Answer: It comes from the same place all federal payments come from: The federal government creates all payments from thin air by arbitrarily first creating a bookkeeping line, in this case called “Presidential Election Campaign,” and then, also arbitrarily increasing the total on that line, whenever it wishes.

You see, money is not a physical thing. All dollars are created by arbitrary laws, and merely are numbers on someone’s books, most often owned by a financial institution like a bank, a securities brokerage, a credit card company, etc.

Federal dollars are numbers on the federal government’s books, over which the federal government uniquely has 100% control.

No, those green pieces of paper in your wallet are not dollars. They are dollar bills. Dollar bills are titles to dollars. They are evidences that you own dollars, which are numbers on federal balance sheets.

Just as a house title is not a house, and a car title is not a car, a dollar bill is not a dollar. It is just a title, a form of contract between you and the federal government which essentially says, “The bearer of this bill owns one dollar.”

Laws forbid banks, brokerages, and credit card companies from arbitrarily entering any notation on their books at whim. But no law restricts our Monetarily Sovereign federal government from doing exactly that.

It’s what the word “Sovereign” means. Why? Because the federal government “owns” all laws regarding its sovereign currency, the U.S. dollar.

Remember Alan Greenspan’s phrase, “creating as much money as it wants”?

Remember Ben Bernanke’s phrase, “as many U.S. dollars as it wishes”?

That’s Monetary Sovereignty. The federal government, being the inventor and issuer of the U.S. dollar, can do anything it wishes on its books.

So, with no “by your leave,” it can create an account called “Presidential Election Campaign,” and put whatever number it wishes next to that name. And that is the dirty little secret:

The federal government has absolute control over all aspects of federal finance.

It can’t run short of dollars because it creates them at will.

After you ponder that a bit, you might ask, “If the federal government creates dollars at will, why am I paying taxes?”

Good, legitimate question. You probably thought (because you were told) that the federal government collects taxes in order to pay its bills.

That’s what Henry Olsen, of the Washington Post, seems to, or pretends to, and wants you to, think. But no, your federal taxes fund nothing.

In fact, they are destroyed upon receipt by the U.S. Treasury. The day your tax dollars are removed from your checking account, they cease to exist in any money-supply measure. Gone. Poof!

This is completely different from your state and local government tax payments. When those dollars are taken from your checking account, they are added to the state/local government’s account at a private bank. They continue to exist as part of what’s known as the M1 money supply.

The U.S. federal government is not constrained by anything regarding U.S. dollars. It can create them and destroy them at will. It can revalue or devalue the dollar, whenever it wishes. It can change the terms of its contract with you, the bearer of dollar bills, simply by passing a law.

The federal government has the legal power to do anything it wishes regarding U.S. money.

Compare that with the monetarily non-sovereign states, counties, cities, villages, and businesses. They don’t have that legal power, nor do you.

GOP leader John Boehner famously said, “We are broke,” referring to the U.S. debt.  He was lying. But, even those who dismissed his lie, did so with another lie that “federal debt is projected to shrink.”

That is not the reason we aren’t “broke.” Federal debt has nothing to do with the federal government’s ability to pay its bills. The reason we aren’t broke is that we create dollars, ad hoc, every time we pay a bill.

And by the way, the federal “debt,” isn’t even a debt. It’s more like a safe-deposit box, where dollars are held in accounts that never are touched. So when President Obama said the following, he either was ignorant or lying:

We need to reduce the deficit by $4 trillion. So what choices are we going to make to reach that goal?

Either we ask the wealthiest Americans to pay their fair share in taxes, or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both.  

Either we gut education and medical research, or we’ve got to reform the tax code so that the most profitable corporations have to give up tax loopholes that other companies don’t get. We can’t afford to do both.  

It’s math. The money is going to have to come from someplace. And if we’re not willing to ask those who’ve done extraordinarily well to help America close the deficit and we are trying to reach that same target of $4 trillion, then the logic, the math says everybody else has to do a whole lot more:

We’ve got to put the entire burden on the middle class and the poor. We’ve got to scale back on the investments that have always helped our economy grow.

We’ve got to settle for second-rate roads and second-rate bridges and second-rate airports, and schools that are crumbling.

I will veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share. 

Ignorant or lying? I personally believe the man was lying through his teeth. He must have known this line, “We can’t afford to do both,” was an outright lie.

After all, Ben (“. . . produce as many dollars as it wishes”) Bernanke was the Fed Chairman during Obama’s term. Are we to believe these men didn’t communicate?

State and local government taxes fund state and local government spending. But, the sole financial purpose of federal taxes is to help the federal government control the economy, not to obtain spending money for the government.

The government can tax what it wants to discourage, and it can give tax breaks to what it wants to encourage. Period.

There is one other purpose — a not directly financial purpose — for federal taxes, and it is the reason the politicians, the media, and the economist try to keep secret from you: The very rich run America, and the very rich do not want you to narrow the income/wealth/power Gap between you and the very rich.

The wider the Gap, the richer they are, but your receiving federal benefits would narrow the Gap. The rich want you to believe the government can’t afford to give you things like Medicare for All, Social Security for All, College Education for All, better housing, better food, better neighborhoods — all the things that separate the very rich from you.

It’s called Gap Psychology: The desire to distance oneself from those below you on any social scale.

So the rich bribe politicians via political contributions and promises of lucrative employment.

And the rich bribe the media via advertising dollars and outright media ownership.

And the rich bribe the university economists via donations to universities and lucrative jobs on think tanks.

Almost all your sources of information are either bribed by the rich or are brainwashing those who are not bribed.

They lie, to make you think the government is short of dollars.

They lie, to make you think the federal “debt” is, like real debts, a burden on the government and will be paid by you and your children.

They lie, to make you think the federal deficit is something other than a benefit to you.

And now, as you read this, President Biden wishes to pump another $2 trillion into the economy, while the GOP wishes to cut back the amount you receive — for no good reason — and both lie that taxes will have to pay for it.

And on top of those lies, they also lie that federal spending causes inflation, when in fact the only thing that causes inflation is shortages, most often shortages of oil or food.

It’s all a dirty little secret, a lie, the Big Lie.

And so long as you and the public believe it, the Gap between you and the rich will continue to widen.

Now that you know the dirty little secret, what are you going to do about it?

I asked, What Are You Going To Do About It?


Rodger Malcolm Mitchell [ Monetary Sovereignty, Twitter: @rodgermitchell, Search: #monetarysovereignty Facebook: Rodger Malcolm Mitchell ]


  • Monetary Sovereignty describes money creation and destruction.
  • Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. 

Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps: Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually.
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.



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