Tracking the Trillions

Biden promises to pay for his ambitious plans with tax hikes. What about the stuff we're already supposed to be paying for?

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Losing track of the trillions? It is easy to do in the spending frenzy now underway in Washington. Even budget veterans are finding it hard to keep up, and it appears most in Congress stopped counting some time ago. But obliviousness is no excuse for steering into a budgetary dead end. Before going any further, the nation’s leaders need to take stock of the fiscal implications of recent decisions and their planned initiatives to ensure future taxpayers are not overwhelmed by debt.

Downplaying budgetary reality is a bipartisan affliction. For two decades, Democrats and Republicans have prioritized ideological ambitions over fiscal prudence. But the confluence of the pandemic response and Democratic control of government has created an environment that might supercharge the deterioration.

President Biden’s first big achievement was the $1.9 trillion COVID response plan, passed by Congress with no offsetting spending cuts or tax hikes. It is stacked on top of $4 trillion in emergency legislation approved in 2020. 

The president’s next push is for a 10-year, $2.7 trillion infrastructure bill, which he is tying to a $1.6 trillion 10-year tax increase. If approved, the combined package would add more than $1 trillion to cumulative federal debt through 2031, although the administration says the plan would begin cutting annual deficits after 15 years.

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  1. Avatar photo
    Jason Gibson

    glad someone is talking about it

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  2. Mathew A

    Overall good article and agreed.

    One note though, Total government revenue did continue to go up after the Trump tax cuts. Spending as always is the problem.

    But I think the only way to get that under control is raise taxes on everyone until we balance that budget. Make EVERYONE start to feel the pain, stop foisting more debt on our kids and grand kids.



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  3. Avatar photo
    CoArch

    So.. are we supposed to believe that Jeff Bezos has "turned a corner" and is now in favor of corporate tax hikes because he's seen the light and it'll be for the good of the country? Or should we be more concerned that he jumped all over it approvingly? What are we not seeing here? I doubt either answer is correct but I get pretty wary when a CEO endorses tax hikes. I want to know what he sees that we don't. I guess it could be that he has so much money that it just doesn't matter what happens. But I guess I'm too cynical.

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    1. Avatar photo
      Victor Clairmont

      He has not.

      He should stop pretending to want to give money to the government and give a raise to us, his workers that have worked throughout the whole pandemic instead.

      It’s a joke as an Amazon worker myself.

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    2. Avatar photo
      Pat Riot

      If you want to be cynical, believe this: Bezos knows that he's won capitalism. He knows that his progeny six generations from now will still be set for life based on his winnings. This will still be true if taxes go up, even drastically.

      His "angle" here is to make sure there's a civilization, a free society and relative world peace for the long haul so he and his family can continue to be comfortable.

      In other words, after you've won the game, the new game is to make sure that there's still a game.

      I'm not saying all CEOs act this way, but I suspect most in the decabillions of net worth think this way. They may not be on the right side of any issue, and may well be positively evil in their intentions (viz. the Uihleins), but they probably aren't doing it **for the money**.

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      1. Avatar photo
        Victor Clairmont

        I have a more cynical twist.

        Amazon removed the hazard pay increase 3 months into the pandemic (an extra 2 dollars and extra overtime bonuses) when we still were not sure about what Covid was doing. People were not showing up for work in those first months, that’s why the supply chain needed 75k more workers, then up to 125k, not just because of demand. I arrived (and was proud to help, still am) to a sea of new hires and barely any managers at the distribution warehouse.

        Because not many/no one really wanted to take a chance at dying for a starting rate of 15.60 (17.60 with the hazard pay).

        Once the supply chain was secure, Beezos (who said he wanted to protect workers by cleanings, temperature checks, etc), started to throw us under the bus with this move.

        He will give money to the government, billions over the years through tax increases, which is ironic since the government will not always be Democratic and spend the money against Amazon’s wishes, instead of giving more money to his workers or give extra paid leave?

        The workers who stuck through the whole pandemic and are still there?

        We have had whole warehouses get shut down because of Covid outbreaks (makes the local news for the state it’s in, not national evidently. Happened in my state for a whole week with over 300 Covid cases).

        He might have stepped down as CEO, but he’s a jackass. Sure, his company, but he’s a jackass of the highest order and hypocrite.

        Speaking as someone who works there. He’s doing this for his own vanity is my take.

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        1. Avatar photo
          Pat Riot

          I guess we'll see what happens with the unionization then. Hopefully that will help.

          I think it's a tragedy about what happened to American labor unions. They were knocked to the floor by the one-two punch of criminal infiltration and Chinese (et. al.) slave labor. Politically, they are also where the sausage is made: labor rules in large organizations are always going to be bureaucratic and subject to a bunch of "80/20 rules" that are overall good but produce ridiculous results in some cases.

          My hope is that unions will make a comeback over the coming years, and this time do it without the mob or China screwing it up.

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          1. Avatar photo
            Victor Clairmont

            It failed in Alabama just now, looking at the counts...

            https://mobile.twitter.com/jamieson/status/1380289834045018122

            Not saying I am for or against it, but I don’t think those that would want it will get it.

            Another state would have to give it a go.

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  4. Avatar photo
    Pat Riot

    Here's a repost of a comment many found helpful about the infrastructure bill...

    ***********

    I think both sides are getting the "infrastructure" question wrong, so let's break down what's in the bill and use a good standard on how we define that term.

    I think most people would agree that "infrastructure" means *investing in something that is meant to pay off in the long run*. In business terms it's the difference between CapEx and expense charges (very roughly). Did the money buy something we will be using in 20 years? If so, it's infrastructure.

    The current proposal is broken down this way:

    1. Transportation: $621B

    2. Housing and related infrastructure: $650B

    3. Fund medicaid to pay for more home care etc.: $400B

    4. R&D: $300B

    In the broad strokes, #'s 1 & 2 are *definitely* infrastructure, and even if you drill down to the details of those buckets, they are all about *building* and investments.

    #3 is absolutely, positively, *not* infrastructure, but instead is bolstering an existing entitlement program. You can argue about whether this money is a "good investment" etc. but it doesn't jibe with the definition most people use for the term.

    #4 is certainly infrastructure in the business sense (you would account for it that way), but it's *speculative* which means the answer to the question about about whether it will be useful in 20 years is, "maybe".

    So there you have it, the current iteration breaks down like so:

    - 65% "infrastructure", no question

    - 20% expense program

    - 15% R&D

    The Republican narrative that, "it's not really infrastructure" is false, but this bill certainly goes beyond infrastructure.

    ***

    Btw, here's the best infographic I found on the plan:

    https://www.usatoday.com/in-depth/news/politics/2021/04/01/2-trillion-infrastructure-bill-charts-detail-bidens-plan/4820227001/

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    1. Mathew A

      a good portion of that housing money is stuff like

      213 billion for affordable housing

      Not what people really think of for a federal infrastructure bill

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      1. Avatar photo
        Pat Riot

        You can certainly drill down into the details and decide what sort of things our government should and shouldn't be doing (I am not a fan of that line item), but insofar as the money is used as CapEx e.g. to build more permanent units, then it's an investment in the future of a program.

        I've learned two things since originally writing the above analysis:

        1. That Democrats are cramming several bills into one because of the filibuster rule wherein they only be able to pass this and on other bill this term (which have been reinterpreted so this may no longer be necessary).

        2. That the clearly non-infrastructure portion of elderly care is **wildly popular**, polling in the high 60s **among Republicans** so Republicans are walking into a trap if they chose that hill to die on (which to be clear they probably will).

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        1. Mathew A

          "but insofar as the money is used as CapEx e.g. to build more permanent units, then it's an investment in the future"

          fair enough


          As to point 2, yes there's always plenty of wildly popular programs for giving away money we don't have

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    2. Mathew A

      a good portion of that housing money is stuff like

      213 billion for affordable housing

      Not what people really think of for a federal infrastructure bill

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    BrettH

    My bet is the spending train keeps rolling until it all just falls apart. Pretty appalling what 4 administrations have managed to fiscally accomplish; one of which is just getting started. I remain skeptical of modern monetary theory.

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  6. Avatar photo
    DougAz

    In 50 years, not one Conservative economic prediction has ever been proven correct. Including Milton Friedman.

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    1. Mathew A

      Really, not one??? Here's an easy example.
      2008 financial crisis

      Fed provides too much money, that combined with lax lending standards almost melts down the whole system.

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      1. Nickson

        The root cause was the lax lending standards, such as NINJA (no income, no job) mortgage loans. It was thereafter the packaging of such poor quality loans into collateralized mortgage obligations (CMOs) which were sold and bought widely in search of yield and “insured” by credit default swaps (CDSs) where the “counterparty” (the “insurer”) lacked the ability to cover the credit default losses.

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        1. Mathew A

          Lending standards were part of it as I already said. But the bigger problem was excess liquidity provided by the Fed.

          When the fed pumps in too much money it has to go somewhere. It can either go into consumer prices, or asset prices.

          Neither is good. In this case it helped to push up asset prices (home prices) WAY too high.

          The high prices made it so that many home buyers simply couldn't afford the homes.

          Note, that was not the first nor will it be the last bubble caused by easy monetary policy. I would argue that we are in the upwards trajectory of another right now.

          PE prices no longer make sense for a lot of stocks. Bond prices are also sky high, with resulting low interest rates. And of course too much debt is being taken on.

          This will assuredly result in another great recession, or depression when prices come back to reality.



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        2. Nickson

          Oh, and CDSs were routinely issued to parties with no insurable interest as a form of pure speculation. If I can buy “insurance” on whether you default on your mortgage that I have no interest in, bad things are likely to happen through the moral hazard presented, and also the fact that the CDSs issued for a given tranche of CMOs often amounted to many multiples of the total value of the underlying mortgage securities.

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    2. Raincheck

      I read this somewhere before.

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      1. Avatar photo
        DougAz

        https://paulkrugman.substack.com/p/cooling-it-on-overheating in part. And other analysis

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  7. Avatar photo
    DougAz

    In 50 years, not one Conservative economic prediction has ever been proven correct. Including Milton Friedman.

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    George.Skinner

    The problem with tax hikes is that politicians always look for ways to hide them. Tax increases on the rich and corporate tax hikes are ideal for their purpose because the effects are not immediately obvious to the majority of taxpayers. The problem is that they're the least effective tax hikes. They can disincentivize economic activity, and their targets have the most ability to avoid them by restructuring their finances and/or residency. Instead, tax increases should be applied to the broadest group of people possible. People want their government to spend more; they need to understand that there's no such thing as a free lunch. Europeans bear much higher levels of taxation for their social spending (often still not enough to cover the cost, though.) However, in better governed places like Denmark, people also start to demand efficient and effective delivery of the services they pay for. A founding principle of America was no taxation without representation. However, a necessary condition for the financial health of the nation is that those given representation have to bear the burden of that taxation. It's too easy to demand spending when you can fool yourself into thinking somebody else will pay the bill.

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    1. Mathew A

      Very much agreed. That's why I support broad based consumption taxes. Something like the Fair Tax would make sure that everyone pays, and make it much harder to avoid. Basically if you buy goods or services here, you pay.

      It would also make US made goods more competitive as it would remove embedded payroll tax costs from the goods.

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        Pat Riot

        I definitely agree that the ideal would be taxation that would maximize revenue and minimize market distortion, but consumption taxes could distort... consumption. This goes doubly for targeted consumption e.g. luxury taxes and (absolutely worst case) taxes on specific goods.

        That said, insofar as there is an increased burden put on taxpayers from people making unhealthy choices, it seems fair and useful to try to place a dollar value (however approximate) on that behavior and tax it accordingly, e.g. taxes on cigarettes. But of course this gets tricky when it comes to things like foods and alcohol which are usually fine in moderation and deadly as a habit.

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        1. Mathew A

          I'm actually very much in favor of sin taxes. For example, I would be fine with a pretty large tax on sugar, with the money going to pay for obesity related healthcare.

          It's true that all taxes will cause distortions. The question then is what causes the least distortion. And what is the most efficient.

          I think a consumption tax is WAY better than income taxes. Consumption taxes tend to be much more stable than income taxes. And it's harder to avoid those taxes.

          Take big tech companies like Google. Currently they are able to offshore much of their income, and thus avoid income taxes.

          But if there was a consumption tax on each add they sell in a given country that would be much harder to avoid.

          Side note, I'm an economist and CPA, so this happens to be a topic that I'm very interested in.

          But I don't have much hope of a solution. There's a huge vested interest in maintaining the current system.

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            Pat Riot

            Sin taxes are another one of those devices that seem great but are often more limited than you think and can create all sorts of unintended consequences. That's not to say we shouldn't do them (in my opinion), but there's lots of criticism on them that's quite valid. For instance, they tend to make people substitute one sin for another that isn't taxed as high--and the substitution can be even more unhealthy.

            Certainly on the high-level I would love for there to be a VAT instead of my income taxes (cha ching!) but it would be insanely unpopular.


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  9. Nickson

    Once again, I sure hope Modern Monetary Theory is right. If it’s not, well, hopefully 🙏 that fact won't really become apparent until the “long run.” And as we all know, *in the long run we’re all dead* anyway.

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      Pat Riot

      I would update that old Keynesian line to read, "in the long run, your models will be blown away from external factors there's no way go could have predicted".

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  10. Avatar photo
    Pat Riot

    So to summarize, you can't raise taxes now to cover some new expenses because that will make it harder to raised taxes in the future, at which point you won't be able to raise taxes because it will be harder to raise taxes in the future, at which point you won't be able to raise taxes because it will be harder to raise taxes in the future, at which point you won't be able to raise taxes because it will be harder to raise taxes in the future, at which point you won't be able to raise taxes because it will be harder to raise taxes in the future, at which point you won't be able to raise taxes because it will be harder to raise taxes in the future, at which point you won't be able to raise taxes because it will be harder to raise taxes in the future, at which point you won't be able to raise taxes because it will be harder to raise taxes in the future, ..............

    Isn't this the kind of logic that makes the apps crash on your computer?

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    1. Michael

      That is an odd take away from this article. My take away is that he’s saying if you raise taxes for unnecessary/inefficient spending (which in this case for spending normally paid for by states), then you are not going to have the room to tax more for those things that are necessary, for instance, keeping our country solvent.

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