Policy Options to Improve Economic Resiliency
House Budget: Strengthening Our Fiscal Toolkit: Policy Options to Improve Economic Resiliency, October 16, 2019 - 10:00am
The Committee backgrounder is absolutely correct. We are quite certain how the witnesses will respond to it. Our comments will address what is missing, the role that increased taxation can have as part of the fiscal toolkit.
The Tax Cut and Jobs Act has done nothing for the economy, despite claims to the contrary. Its main goal, increasing plant and equipment investment, is impossible to achieve through the asset inflation it was designed to spur. Real growth in Gross Domestic Product has come from the Balanced Budget Act of 2018. It will be continued by the recent passage of the Bipartisan Budget Act of 2019. Both of these create enough of a deficit to allow bond purchases to offset, at least in part, the asset inflation that the TCJA was designed to produce.
The budget legislation has added certainty to the budget process, yet even then a foolhardy President was able to shut down parts of the government to fund a border wall. That he blinked first is a testament to bipartisanship. It also shows that bipartisanship is not enough. Process reform is needed. We have addressed the foregoing previously. These discussions are repeated in the attachments on the TCJA and the Budget Process.
It would have been better to have simply increased taxes to correct underfunding designed to offset making the Bush Tax Cuts permanent for the bottom 98%. It makes little sense to cut taxes on the same economic strata we must then borrow from, at interest (which is also debt financed). While such borrowing adds safety to retirement portfolios for the middle class, it is mainly another subsidy to the wealthy.
The irony is that the national debt, both public and private, is backed by the ability to tax high income individuals. The implication is that the liability for the debt is not distributed on a per capita basis. Instead, it must be borne by the children and grandchildren of those who most benefited from the TCJA.
The current ratio is $13 of debt liability for every dollar of taxes owed. See our third attachment for more explanation. Our recent calculations show that a normal dent to income tax ratio of 6 to 9.
Tax revenue is too low to sustain our current debt load. The fault is not increased spending. It is decreased revenue caused by tax cuts for the wealthy and secular stagnation as the result of rent seeking by CEOs whose taxes are too low to discourage such behavior.
Higher taxes on the wealthy are beneficial to the economy, now and in the next recession, because they take money out of asset inflation in the savings sector and can then be used to increase spending on the elements of GDP: government purchases, household consumption, net exports and plant and equipment investment (which is not part of asset speculation, as supply side economists falsely assert) . See our attachment on tax reform to see the essential items in our fiscal tool kit.
A recession is inevitable, as monetary policy is fueling asset speculation while fiscal policy is not. The current speculative toy is crypto-currency, especially Bitcoin. Bitcoin is starting to attract poor people. Coin collection machines now allow being paid in Bitcoin rather than in store credit or cash. Criminals also love it too. It is being sold as a way to invest and grow rich. There is even a fancy name for it: quantum finance.
The differential between wage taxes and capital gains taxes, as well as quantitative easing by central banks are the air which fills these bubbles until they burst. Dealer claims that Bitcoin has big rises and smaller crashes simply proves the point that we are dealing with a legal Ponzi scheme. When the top of the food chain cashes out and everyone else realizes that they own a worthless product.
I suggest holding hearings as soon as possible to deflate this cancer before it kills the economy.
Attachment One – TCJA
Attachment Two – The Budget Process
Attachment Three – The Debt
Attachment Four - Tax Reform, Center for Fiscal Equity, September 13, 2019
The Committee backgrounder is absolutely correct. We are quite certain how the witnesses will respond to it. Our comments will address what is missing, the role that increased taxation can have as part of the fiscal toolkit.
The Tax Cut and Jobs Act has done nothing for the economy, despite claims to the contrary. Its main goal, increasing plant and equipment investment, is impossible to achieve through the asset inflation it was designed to spur. Real growth in Gross Domestic Product has come from the Balanced Budget Act of 2018. It will be continued by the recent passage of the Bipartisan Budget Act of 2019. Both of these create enough of a deficit to allow bond purchases to offset, at least in part, the asset inflation that the TCJA was designed to produce.
The budget legislation has added certainty to the budget process, yet even then a foolhardy President was able to shut down parts of the government to fund a border wall. That he blinked first is a testament to bipartisanship. It also shows that bipartisanship is not enough. Process reform is needed. We have addressed the foregoing previously. These discussions are repeated in the attachments on the TCJA and the Budget Process.
It would have been better to have simply increased taxes to correct underfunding designed to offset making the Bush Tax Cuts permanent for the bottom 98%. It makes little sense to cut taxes on the same economic strata we must then borrow from, at interest (which is also debt financed). While such borrowing adds safety to retirement portfolios for the middle class, it is mainly another subsidy to the wealthy.
The irony is that the national debt, both public and private, is backed by the ability to tax high income individuals. The implication is that the liability for the debt is not distributed on a per capita basis. Instead, it must be borne by the children and grandchildren of those who most benefited from the TCJA.
The current ratio is $13 of debt liability for every dollar of taxes owed. See our third attachment for more explanation. Our recent calculations show that a normal dent to income tax ratio of 6 to 9.
Tax revenue is too low to sustain our current debt load. The fault is not increased spending. It is decreased revenue caused by tax cuts for the wealthy and secular stagnation as the result of rent seeking by CEOs whose taxes are too low to discourage such behavior.
Higher taxes on the wealthy are beneficial to the economy, now and in the next recession, because they take money out of asset inflation in the savings sector and can then be used to increase spending on the elements of GDP: government purchases, household consumption, net exports and plant and equipment investment (which is not part of asset speculation, as supply side economists falsely assert) . See our attachment on tax reform to see the essential items in our fiscal tool kit.
A recession is inevitable, as monetary policy is fueling asset speculation while fiscal policy is not. The current speculative toy is crypto-currency, especially Bitcoin. Bitcoin is starting to attract poor people. Coin collection machines now allow being paid in Bitcoin rather than in store credit or cash. Criminals also love it too. It is being sold as a way to invest and grow rich. There is even a fancy name for it: quantum finance.
The differential between wage taxes and capital gains taxes, as well as quantitative easing by central banks are the air which fills these bubbles until they burst. Dealer claims that Bitcoin has big rises and smaller crashes simply proves the point that we are dealing with a legal Ponzi scheme. When the top of the food chain cashes out and everyone else realizes that they own a worthless product.
I suggest holding hearings as soon as possible to deflate this cancer before it kills the economy.
Attachment One – TCJA
Attachment Two – The Budget Process
Attachment Three – The Debt
Attachment Four - Tax Reform, Center for Fiscal Equity, September 13, 2019
posted by Michael Bindner at 10:00 AM
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