Borrowing to pay operating expenses is a bad idea whether you’re talking about a family or a country. Road repair, health care, elder care, and child care are all operating expenses. If you’re committed to the idea that they should be funded by the federal government, that should be completely paid for through tax dollars. If you can’t pay for them through tax dollars, they shouldn’t be within the province of the federal government.
Or a business. It’s called funding losses.
But government abandoned this discipline in the 60s in favor of free beer for all.
Debt for 2021 will amount to `15% of GDP, and accumulated debt will reach 127% of GDP. It will exceed 130% of GDP next year.
In April, 1980, inflation rose to 14.76% (apr), largely due to the oil crisis. In response, Volker raised interest rates dramatically. Mortgages hit 21% (apr). Only adjustable rate mortgages could be had. Those rates dropped inflation dramatically and squeezed people out of their homes.
If current deficit spending does trigger runaway inflation, which is possible, will the fed raise interest rates? If interest rates hit, say, 10% (apr), what happens to the federal budget?
And what happens to the stock market? The stock market went from 386 on Sept. 3, 1929 to 41 on June 28, 1932, a nearly 90% drop. The economy didn’t recover until WW II. Today’s market depends on historically low interest rates and qualitative easing.
For the examples cited, the Fed cannot raise rates — even if inflation was mildly out of control.
The economic costs of a foreclosure crisis, bank crisis, state and local government solvency crisis, with many corporate bankruptcies from the required “medicine” to control inflation would be viewed as far outweighing the costs of inflation of 3-5%.
On the other hand, the non-productive debt the federal government piles up has a deflationary effect, up till the point there is an active effort to default or inflate it away by direct monetization; then the debt will be hyper-inflationary.
I saw a twitter comment on one of the packages proposed yesterday had outlays of 2 trillion counterbalanced by tax hikes of 1.7 trillion. Taking the numbers at face value it is not too bad; until the commenter listed the line items. What raised my eyebrow was Biden is projecting $700 billion of the tax hikes is from improved IRS enforcement. It is like a dual to “fraud and waste” on the spending side.
It has also been pointed out that the $700 billion increased tax revenues through stronger enforcement is predicated on old assumptions that are no longer relevant. Many of the “loopholes” they want to close were closed in the 2017 tax reform.
On the subject of subsidizing consumption, labeling it as investment, financing it using unrealistic revenue projections and accounting gimmicks, read this article from the WSJ about federal student loans.
https://www.wsj.com/articles/is-the-u-s-student-loan-program-in-a-deep-hole-one-banker-thinks-so-11619707091?mod=hp_lead_pos10
It makes for amusing reading.
A perfect example of “non-productive loans”. It raises the further question of unforeseen adverse outcomes. It seems obvious that the significant jump in law school enrollments that took place between 2000 and 2010 is not unrelated to changes in student loan policy. Would the debt have been undertaken at all in the absence of such policies?
My own view is that, although I don’t oppose student loan guarantees as such, I think they should be much more narrowly tailored than at present and should be limited to specializations in which there was some prospect of a job, something to be revisited annually by a bipartisan commission and require consensus to change to reduce politicization. That’s consistent with my general view: good policy is hard work.
So much of what big government does (gets away with) is, at the same time, an unacceptable business model or behavior for the common citizen to practice. After all, outrageous spending, at the expense of others, is considered graft in the private sector, or a sure pathway to bankruptcy. Also, Biden’s speech was so full of BS and political hype, while being void of common sense, bipartisan solutions, I eventually had to turn his strange State of the Union address off — described by some as being in the “Twilight Zone.â€
…..awful man spouting disastrous, distressing policies.
“Many of the “loopholes†they want to close were closed in the 2017 tax reform.”
I thought most of it came from starting audit wealthy people again. As we know, rich people hide a lot fo their income.
Steve
The estimate of enhanced revenues ($700 billion) is predicated on old assumptions. It makes a lot of difference as to whether the number is $70 billion or $700 billion.
Cant find anything about those old assumptions. What I can find shows that we used to admit about 10% of people making over $1 million/year. Now we audit about 2% of those people. Estimates are the wealthy hide 20%-25% of their income. Math looks pretty good, or are you saying it is an old assumption and rich people dont hide money anymore?
https://www.businessinsider.com/irs-tax-enforcement-wealthy-biden-700-billion-treasury-evasion-audits-2021-4
Steve
What I’m saying is that it’s harder to hide money in misreported deductions than it used to be. The question becomes what the focus of the audits will be—uncovering undeclared income which can be extremely difficult or incorrectly reported deductions which has become harder.
“most of it came from starting audit wealthy people again…. rich people hide a lot fo (sic) their income”
There’s a lot of assumptions there.
My assumption is taxpayers without wealth to hire CPA’s and tax lawyers are the ones to utliize a strategy of “hiding” or not reporting income to the government. Taxpayers that have money have lawyers, CPA, investment advisors working to shelter their income using legal strategies (probably validated through precedents in the courts). These wealthy taxpayers report their income, and their deductions and tax-minimizing strategies to the government.
A pithy way of saying this is the IRS could audit Bill Gates tax return for past 10 years with their best auditor. I bet at the end the IRS wouldn’t get any more money from Gates — despite probably having a tax rate significantly lower than 40% or even 20% — because he used the legal strategy of getting deductions for donating to his foundation.
Another data point. Foreign bank accounts; the Government broke foreign bank secrecy in 2008 with FATCA. Then they instituted an amnesty program for taxpayers to come clean. In the end, 52000 taxpayers went into the amnesty program and the IRS collected 10 billion dollars. 10 billion dollars is money but foreign bank accounts is the way to hide income for the truly rich; and the IRS is expecting find 70X that amount??