Biden and Trump Offer Competing Tax Proposals, but Both Ignore Economic Reality

“In a world in which economic reality mattered to politicians, grandiose spending plans coupled with soaring government debt would pretty much preordain grim tax policy. But we don’t live in that world. In ours, tax and spending proposals are crafted based on their appeal to target audiences of voters, with no regard for balancing books or averting financial catastrophe.”

“It’s necessary, though probably pointless, to emphasize that neither Trump’s nor Biden’s tax plans come close to paying for the federal government’s anticipated spending spree in the years to come.”

Trump, Biden and the ‘f****** Germans’

“Berlin continues to fall short of NATO defense spending targets”

“Trump’s attacks on Berlin’s modest military spending may trigger outrage in Germany, but in the U.S., they are viewed as among his less controversial outbursts.
That might be because, like Obama before him, he has a point. Why should the U.S. continue to bear the financial brunt of protecting Europe’s richest country? That question becomes even tougher to answer when considering Germany’s continued engagement with Russia — such as via the Nord Stream 2 gas pipeline — despite the loud objections of the U.S. and other allies.”

Debt Reckoning

“In 2016, Trump had campaigned on eliminating the national debt in under a decade. Yet by June 2020, the federal budget deficit had reached $864 billion…for just the month. That was more than the entire budget gaps in either 2017 or 2018. By September, the nonpartisan Congressional Budget Office (CBO) was projecting a $3.3 trillion annual deficit in 2020. Federal debt levels, which equaled just 35 percent of the economy in 2007 and 79 percent of the economy in 2019, would reach 98 percent. The CBO had previously warned that persistently high debt and deficits would have consequences: slower economic growth, an ever-increasing share of the budget consumed by interest payments on the debt, and reduced capacity to act should a major crisis arise.

And yet as the virus consumed the nation, even many deficit hawks were recommending more spending, at least in the short term.”

“In the early ’80s, some lawmakers had come under the influence of a macroeconomic theory that would come to be known as “supply-side economics.” This theory held that tax cuts could, in budget parlance, “pay for themselves” by boosting economic growth so much that the federal government would actually raise more revenue if it reduced rates.

There was some trivial truth to this. Imagine a world in which loaves of bread are taxed at 99 percent. This is a world in which not many loaves of bread are produced or sold and thus not much revenue is raised from the bread tax. Reduce the rate to, say, 50 percent, and you would probably see a marked increase in the production and sale of bread—and higher bread tax revenues as a result. Reduce the tax further, and the bread market would probably expand even more. Supply-side effects are real, but they typically offset only a small percentage of lost revenue.

Some Republicans took this to mean that tax cuts of just about any kind would often, and perhaps even always, result in higher federal revenues. At some point, however, lowering rates does in fact end up lowering revenues. A 0.001 percent tax on bread might unleash a powerful market in artisanal breadmaking. It would probably not produce higher total levels of tax revenue than a somewhat higher rate would.

In reality, this simplistic version of supply-side orthodoxy was not a macroeconomic theory so much as a convenient excuse for Republican lawmakers to give their voters what voters tend to want: tax cuts without spending reductions, i.e., a government they didn’t have to pay full price for.”

“As with many diets, it worked—for a time. Bill Clinton began his presidency by raising the top income tax rate from 28 percent to 36 percent—an increase, but still far lower than the top rate at the beginning of Reagan’s presidency. And then, following the Republican takeover of Congress, Clinton negotiated with GOP lawmakers to lower projected federal spending—when politicians talk about spending “cuts” they are often referring to reductions of planned future spending—particularly on welfare assistance. Accordingly, the deficit dropped from $203 billion in 1994 to $22 billion in 1997.

Forced to work across the aisle, Clinton and the Republican Congress had done what their predecessors had failed to do: reduce the deficit. Federal spending dropped as a percentage of gross domestic product, which boomed under the first wave of internet-induced investments—the 1990s tech boom. The rapidly growing economy kept voters from revolting, and Clinton framed the budgetary contraction not as a reduction in government services but as an end to federal overreach.

“We know big government does not have all the answers,” he said in his 1996 State of the Union address. “We know there’s not a program for every problem. We have worked to give the American people a smaller, less bureaucratic government in Washington. And we have to give the American people one that lives within its means. The era of big government is over.”

In Clinton’s second term, the already shrunken deficit ceased to exist. By the year 2000, the federal government was running a $236 billion annual surplus. Finally, the deficit problem seemed to have been solved.

The trouble with diets is that even when they work, they’re hard to stick to. That is especially true when the diet must be renegotiated among a rotating cast of 535 lawmakers and a new president every four to eight years.

And so, under President George W. Bush, deficits returned”

“Simpson-Bowles consisted of 18 people—a bipartisan mix of a dozen members of Congress and six private citizens—tasked with producing a set of recommendations for deficit reduction. There were difficult choices ahead. The committee’s job was to suggest which ones should be made.

The commission was a classic Washington gambit in that, outwardly, it was an attempt to solve a policy problem, but in reality, it was a politically motivated attempt to avoid solving that very problem.

Nominally, the problem the committee was tasked with solving was how to reduce the deficit. But that wasn’t the actual problem it was trying to solve, because since the 1980s the solution had remained fairly obvious: To reduce the gap between outlays (spending) and revenues (taxes), Congress would need to either increase tax revenue, reduce spending, or do some combination of the two. To be genuinely effective, the tax hikes probably would have to hit the middle class and the spending cuts probably would have to hit entitlements.

The actual problem the committee was intended to solve, then, was that, despite occasional protestations to the contrary, neither congressional lawmakers nor the president wanted to do any of this.

In the end, Simpson-Bowles recommended cutting spending and increasing taxes. In particular, it recommended cutting spending on entitlements and raising some taxes on the middle class in order to broaden the tax base.”

“of course, neither the president nor congressional lawmakers agreed to any of it.”

“a problem with Congress—is that it can’t tell itself what to do. Not for very long, anyway. The 112th Congress in 2012 has no power to bind the 113th Congress, which means that if Congress in 2013 does not like the instructions passed down from its forebearers, it can tell the 112th Congress to go get stuffed.”

“Trump, like most Republicans, had run against the federal debt. His promise to eliminate it completely in eight years was deeply unrealistic, backed by no specific plan, and predicated in part on Trump’s confusion of the trade deficit (which measures inflows and outflows of goods between the United States and other countries) and the budget deficit (which measures how much more the federal government spends than it takes in). But it was, at least, a rhetorical concession to the Republican fiscal politics of the Obama years.

In early 2018, House Democrats negotiated a budget deal with Senate Republicans that suspended sequestration caps and authorized $300 billion in spending above previously allowed levels. The particulars were complex, as budget deals often are, but in broad strokes, the agreement was straightforward: Democrats got more funding for domestic spending, while Republicans got more funding for the military. Trump signed the bill, proclaiming, “We love and need our Military and gave them everything—and more.” The bill, he tweeted, would also mean “JOBS, JOBS, JOBS.”

For years, Democrats and Republicans had bickered over budget priorities. With the 2018 spending bill, they resolved their differences—by agreeing to spend more on everything.”

“What Democrats saw not only in the 2017 tax bill but in the decadeslong deficit wars was that Republicans had found a political advantage in arguing that tax cuts paid for themselves. There was a clear pattern to federal budgeting: Under Republicans, tax rates would go down, spending would increase, and the deficit would rise. Under Democrats, tax rates would rise slightly, spending would hold more or less steady, and the annual deficit levels would decline. The GOP, which had long branded itself the party of limited government and fiscal responsibility, was the party of neither.

To the party’s base, this didn’t just mean that conservatives were hypocrites. It meant they could pursue their priorities without pressure to make concessions or tradeoffs. They had an argument, a rhetorical strategy—or, at the very least, a convenient and self-serving pretext—that insulated them from the understanding of shared pain and shared responsibility.

To rectify that political imbalance, the left—particularly the young, online left, which increasingly favored aggressive spending programs far more expansive than even many lifelong Democratic politicians would dare contemplate—would need a pretext of their own. And they would get it, in the form of Modern Monetary Theory (MMT).”

“As with supply-side economics, the central insight of MMT is both true and trivial: The U.S. budget is not, strictly speaking, like a household budget or a business budget, because unlike a household or business, the federal government can print its own money. From this single observation, MMT theorists have constructed an entire macroeconomic worldview, which says explicitly that deficits don’t matter and, consequently, the government can and should print money to fund federal spending projects on a massive scale.

In this understanding of the economy, debt is not a constraint; nor are interest rates charged by bondholders. Debt can be paid down with a few congressionally authorized keystrokes on central bank computers generating new dollars. Bondholders will have little recourse but to accept these newly created dollars, because America’s currency is the global reserve.

The only real constraint MMT proponents recognize is inflation, which serves as a signal that there are too many dollars in the economy and that some should be recalled by the government. But inflation has been running low for years.

The upshot of all of this is a belief not only that current deficit levels are sustainable but that they are actually too low. Congress, MMT proponents argue, should be spending far, far more. Fears about accumulating a large national debt should disappear entirely.”

“The supply-siders had triumphed on the right, and the MMTers were winning crucial battles on the left. The deficit had always been a bipartisan problem. At last, America’s politicians had found a bipartisan solution. Lower taxes. Higher spending. And the biggest deficit ever. Finally, Washington had found its balance.”

Mission Creep and Wasteful Spending Left the CDC Unprepared for an Actual Public Health Crisis

“Over the past three decades, the Centers for Disease Control (CDC) has seen its taxpayer-funded budget doubled. Then doubled again. Then doubled again. And then nearly doubled once more.

But spending nearly 14 times as much as we did in 1987 on the agency whose mission statement says it “saves lives and protects people from health threats” did not, apparently, help the CDC combat the emergence of the biggest disease threat America has faced in a century. In fact, a new report argues, inflating the CDC’s budget may have weakened the agency’s ability to handle its core responsibility by giving rise to mission creep and bureaucratic malaise.”

“In addition to combating dangerous infectious diseases like HIV and malaria, the CDC now also studies alcohol and tobacco use, athletic injuries, traffic accidents, and gun violence. While those things can indeed be important factors to public health, Minton notes, they don’t seem to fall within the agency’s original mission.”

“when the coronavirus did hit, the CDC only confirmed that it should not be trusted to make important decisions by forbidding private labs from developing tests for COVID-19. The federal agency’s monopoly on testing supplies produced inaccurate tests that had to be discarded en masse.

The initial testing delay has certainly cost lives. It is also at least partially to blame for the severe quarantine policies that have tipped the American economy into a deep recession—without adequate testing, there was little else for policymakers to do except close the country in the hopes of slowing the disease’s spread.”

Are There Fiscal Conservatives in a Pandemic? The Club for Growth Says It Doesn’t Matter.

“Prominent conservative groups are refusing to criticize Republican lawmakers and President Donald Trump for the massive spending package, and polling shows fewer than 1 in 10 Republican voters disapprove of the measure’s passage.
That tells you something about the current state of the conservative movement. When the last Republican president signed the $700 billion Troubled Asset Relief Program (TARP), otherwise known as the 2008 bank bailout, polling from Gallup found that fewer than half of all Republicans supported it. When President Barack Obama signed the American Recovery and Reinvestment Act, the $833 billion stimulus passed in the wake of the last economic collapse, only about 30 percent of self-identified conservatives approved, Gallup found.

Now, we’re spending a whole lot more money with a whole lot less opposition.

As Reason Editor at Large Matt Welch put it last week: “There is no more politics of fiscal prudence in America, just a competition to see who can wag the biggest firehose.””

“If fiscal conservatism still held any cache among Republican lawmakers, voters, and activists, there would have been an outcry about President Donald Trump and Republicans in Congress inflating the deficit to record highs over the past three years. It wasn’t all that long ago that grassroots conservatives were toasting the toppling of high-ranking Republicans for lesser slights.”

The National Debt Is ‘Unsustainable’ and the Pentagon’s Finances Are a Total Mess, Federal Audit Says

“Measured as a share of the entire U.S. economy, the national debt has doubled in just 12 years and is on pace to grow to historical highs within the next decade. The federal government’s budget deficit—the gap between how much revenue it raises and how much money it spends—is expected to exceed $1 trillion this year.”

“Lawmakers from both major parties have worked together in recent years to pass budgets that exploded annual deficits and added to the debt. Democrats running for president are promising to hike federal spending by trillions of dollars to pay for free college, government-run health care, and the fight against climate change—and even though they are also promising to raise taxes, the math doesn’t add up. That means deficits will continue to grow. Meanwhile, President Donald Trump has abandoned any pretense of fiscal conservatism, and most of his party has followed suit.”

CPAC Promised To Take on Socialism but Couldn’t Even Take on Trump’s Spending

“Republicans have often criticized Democrats for their expensive policies and rallied behind spending cuts, but now that Trump is in the White House, many conservatives seem to have abandoned the idea entirely. Rush Limbaugh, the inflammatory right-wing radio host and recent recipient of the Presidential Medal of Freedom, regularly railed against former President Barack Obama for his reckless approach to fiscal issues. In July, he appeared to have changed his position.

“How many years have people tried to scare everybody about [the deficit]?” he said on his show. “Yet here we’re still here, and the great jaws of the deficit have not bitten off our heads and chewed them up and spit them out.””

Uncle Sam Doubles Down on His Spending Addiction

“This fiscal year, 2020, the federal government will collect $3.6 trillion in tax revenues. But due to its spending addiction, the government will expend $4.6 trillion. This means that the government will have to borrow $1 trillion this year alone, in order to cover a deficit of 4.6 percent of GDP. This is the first trillion-dollar deficit not due to a global recession.”

“Thankfully, the economy is doing well for now. This good performance is masking many of the ill effects, not just of the trade war but also of our overall fiscal situation. The reality, however, is that a growing economy during a time of peace should not be accompanied by growing deficits.”

The 2020s Will Be the Decade of Deficit Doomsday

“After piling up trillions of dollars in deficit spending during the last recession, the federal government took some modest steps towards reducing that red ink during the middle years of the 2010s. But after Republicans took full control in 2017, spending skyrocketed and the deficit inflated again.

Since Trump was inaugurated, Washington has added $4.7 trillion to the national debt—almost entirely the result of a gigantic spending binge, but with a small assist from the 2017 tax cuts, which reduced revenues without offsetting spending cuts.”

“”Debt threatens our economic health and hinders our ability to make important investments in our future. If we want to tackle big issues like climate change, student debt or national security, then we shouldn’t saddle ourselves with growing interest costs.””

“Compare all this with early 2001, at the end of the second-longest economic expansion in history. The federal government was running a surplus. The national debt was falling and amounted to only 31 percent of GDP. That’s what you’d expect to see now, since deficits typically fall when the economy is growing and grow when the economy is rotten.

Indeed, since the end of World War II, the U.S. has seen deficits greater than 4 percent of GDP only in years when the country was either deep in the throes of a serious recession or emerging from one.”

“If we’re running a trillion-dollar deficit in the good years, what happens when the next downturn occurs?”

“The Trump administration and current crop of Republicans in Congress have made the problem worse than it already was. Some of them—like former deficit hawk Mick Mulvaney and former House Speaker Paul Ryan, who made his name in Congress as the GOP’s budget-maker—deserve special ignominy for abandoning their fiscal conservatism when it was most needed. Trump came into office promising to eliminate the national debt in eight years, and that’s even more of a joke now than it was then.

Meanwhile, Democrats’ aversion to spending reductions and their refusal even to consider changes to entitlement programs—the biggest driver of the national debt—are equally large obstacles to any meaningful attempt at fixing this mess. The party’s progressive wing is pushing for Medicare for All and expanding Social Security benefits, while elevating economic theories that say we should ignore the deficit.”