President Biden finally released his budget on Thursday, more than a month after the Budget Act’s statutory deadline. The document should have come with a five-word warning attached: “Hold on to your wallet.”
The budget includes thousands of pages of arcana and technical details, all of which will come to light further in the coming days. But a preliminary review of the budget’s main summary tables illustrates a familiar pattern among Democrats — a tax, spend, and borrow vision designed to expand government further. Here are some of the “highlights” (more like lowlights) from the summary document.
Taxes Too Much
Overall, the administration says the budget proposes $4.7 trillion in tax increases — a staggering sum in any season, but particularly when the economy faces recession risks. Among the highest profile revenue hikes:
$437 billion from “a minimum income tax on the wealthiest taxpayers”
$493 billion from changes to the “global minimum tax regime”
$238 billion from increasing the tax on stock buybacks
$306 billion from applying Medicare taxes to pass-through income — a “loophole” that President Biden himself spent the past six years exploiting
$344 billion from increasing the rate of said Medicare tax from 3.8 percent to 5 percent for those earning over $400,000
$1.3 trillion from increasing the corporate tax rate from 21 percent to 28 percent
$200 billion from other “reforms” to business taxation
$549 billion from adopting the undertaxed profits rule regarding international taxes
$66 billion from “reform[ing] taxation of foreign fossil fuel income”
$37 billion from “modify[ing] energy taxes”
$235 billion from increasing the top marginal rate for high-income earners
$214 billion from higher taxes on capital gains
$23 billion from higher taxes on the retirement plans of “high-income taxpayers”
$77 billion from changes to estate and gift taxes
$50 billion from “clos[ing] loopholes”
$105 billion in revenue assumed by extending the IRS enforcement money included in last year’s Inflation (Reduction) Act. The proposal to extend and expand the IRS’ ability to audit and potentially harass taxpayers comes shortly after an analyst at the Tax Policy Center admitted that the Service let President Biden off the hook for failing to pay his own taxes.
Whatever anyone thinks about the merits of these individual proposals, they cumulatively would have a significant — and negative — impact on the economy. Taxing energy producers in particular would lead to less exploration and higher prices at the pump, at a time when American families are still suffering from high inflation.
These tax increases come with the added irony that Biden himself did not “pay his fair share” of Medicare taxes, according to numeroustax experts. On a budget preview call with reporters Thursday, Office of Management and Budget Director Shalanda Young refused to recognize Biden’s hypocrisy — but the American people will.
Spends Too Much
Where will all the budget’s new tax revenue go? In many cases, to more spending and an expansion of the welfare state. Among the proposals included are several from Biden’s failed Build Back Bankrupt agenda:
$200 billion for a government-run health program in the states that have not expanded Medicaid to the able-bodied under Obamacare
$96 billion to double the Pell Grant
$90 billion for “free community college”
$104 billion for housing subsidies
$150 billion for home and community-based services in Medicaid
$325 billion for “national, comprehensive paid family and medical leave”
$429 billion for an expanded child tax credit. However, according to Treasury’s revenue explanations, the higher credit would apply for 2024 and 2025 only. In December 2021, the Congressional Budget Office estimated the 10-year cost of a permanent extension of this policy at $1.6 trillion, or almost four times the amount included in the budget.
$156 billion for an expanded Earned Income Tax Credit
$76 billion for behavioral health care
$1 billion to “make permanent the income exclusion for forgiven student debt.” While this number seems like a comparatively small amount, in reality it would pave the way for a future administration to pass another massive giveaway in student “loan forgiveness,” without triggering federal income taxes on the amount of debt canceled.
Over and above the details of the specific proposals, the budget ignores the inescapable fact that subsidizing programs increases rather than decreases their costs. The proposals will encourage colleges, child care providers, insurance companies, and others to jack up their rates, knowing that the federal government will pay the difference. To put it another way, the budget’s spending will raise inflation, even as its tax increases will kill economic growth.
Borrows Too Much
Even with all the tax increases Biden has proposed, it still won’t begin to make up for the new spending he plans, and the cost of servicing the debt from Washington’s Covid spending binge the past several years. The budget also proves how the debt has worsened under this president:
Table S-2 of the budget states that, if enacted in full, the budget would reduce 10-year deficits by $2.857 trillion. But last month, the Congressional Budget Office released its analysis of the 10-year budget, which showed that since last May, the projected 10-year deficit has increased by $3.082 trillion. In other words, even if all the Biden “deficit reduction” gets enacted, our nation will still be $200 billion worse off fiscally than it was just 10 short months ago.
The budget as proposed would lead to deficits of at least $1.5 trillion in every year of the 10-year budget window. By the last year of the budget window, they would total $2 trillion — and rising.
By the time President Biden intends to leave office in 2029 (assuming he gets reelected), interest on the debt will total over $1 trillion per year. By that point, we will be devoting more than 10 percent of the federal budget just to pay the interest on our debt.
Deficits will remain near or above 5 percent of GDP for the foreseeable future — much faster than our economy can grow, meaning that debt will continue to rise and rise as far as the eye can see.
To say this budget ignores reality is putting it mildly. Here’s hoping lawmakers can finally restore some sanity to a perpetual Washington spending spree that has grown completely out of control.
Arecession is coming in 2023, concluded more than two-thirds of the economists at big financial institutions recently surveyed by The Wall Street Journal. Inflation is also likely to remain high. Measuring year-over-year inflation by the U.S. government’s 1980s methodology put it at 15.23 percent in November 2022 instead of the government’s claimed 7.11 percent, according to economist John Williams.
Many commentators, including me, were wrong when we previously claimed our grandkids will be paying off America’s massively unaffordable welfare state. We are all paying for it right now and are likely to be for much of our lives in inflation and other economic devastation.
Nobel Prize-winning economist Milton Friedman’s maxim that “inflation is always and everywhere a monetary phenomenon” — meaning, inflation is always caused by government overspending — predicts continued inflation for at least the next five years, if not longer.
That’s because government entities are continuing to engage in seriously inflationary actions. They’re doing this partly because of ideology, partly to buy votes, and partly because they prefer eating away Americans’ savings to paying off the unprecedented government debt that politicians have accumulated in the last 70 years enriching their friends and buying off voters.
Inflation Means Politicians Stealing from You
A 2021 Politico profile of a former U.S. Federal Reserve member noted, “Between 2008 and 2014, the Federal Reserve printed more than $3.5 trillion in new bills. To put that in perspective, it’s roughly triple the amount of money that the Fed created in its first 95 years of existence. Three centuries’ worth of growth in the money supply was crammed into a few short years.”
That dissenting former Federal Reserve committee member, Thomas Hoenig, “was worried primarily that the Fed was taking a risky path that would deepen income inequality, stoke dangerous asset bubbles and enrich the biggest banks over everyone else,” the profile says. “He also warned that it would suck the Fed into a money-printing quagmire that the central bank would not be able to escape without destabilizing the entire financial system.”
Essentially, the Federal Reserve has been helping Congress manufacture money to buy up the public debt they contracted by promising Americans more stuff than we can pay for. That’s been ongoing since the 1960s Great Society, which basically paid Americans with unaffordable entitlements to shut up about the steady loss of their constitutional freedoms, according to scholar Christopher Caldwell.
The Borrowing Will Go On Until It Can’t
In 2021, 41 percent of federal spendingdependedon borrowing. In 2022, 22 percent did. This means raising the cost of debt by hiking interest rates, as the Fed is now doing, could provoke a crisis because it would make Congress’s unsustainable behavior even more painful.
As a Manhattan Institute analysis by economist Brian Riedl notes, “rising interest rates risk pushing government interest costs, annual budget deficits, and total government debt to unsustainable levels … once the debt surges, even modest interest-rate movements can impose stratospheric costs.”
This would call years of government bluffing about the state of federal finances and institutions. It would require Congress not only to stop spending but to cut programs, which means angering voters. It would usher in the unavoidable and painful new era of managing America’s decline.
“Once a debt-and-interest-rate spiral begins, it is nearly impossible to escape without drastic inflation or fiscal consolidation,” Riedl notes.
However this ends, it is likely to include a lot of economic pain, one way or another. Here are just a few of the many indicators that inflationary times are not going away fast.
1. ‘Covid’ Overspending Continues Until at Least 2024
The funds for the sixth waste-packed “Covid relief bill” will be distributed to big-government donors, states, and local governments through the end of presidential election year 2024. Yes, the American Rescue Plan Act from Covid-tide sends states and local governments $350 billion that is still being rolled out — by design.
That law’s total spending comprises more than 100 times states’ 2020 budget shortfalls, and many state and local governments can hardly figure out what to do with all the money. As they take years to spend it, that money will keep juicing inflationary pressure. A similar effect is occurring with all the so-called Covid relief bills, which together sent $6 trillion spinning through the economy, devaluing our currency. Much of this wild inflationary deficit spending has been electronically printed through the Federal Reserve.
Together, 2020s federal spending allegedly in response to Covid was more than double the inflation-adjusted federal response to the 1930s Great Depression. We’re already seeing the inflationary effects of all this so-called Covid spending, and it’s not over yet.
2. Democrats and Republicans Recently Went on Even More Inflationary Spending Binges
In conjunction with Democrats’ mega-spending “infrastructure” and “green energy” bills soon after Covid that also helped them win Congress and the presidency in 2020, all this extra spending is projected to increase the federal debt by an unprecedented $6.5 trillion, costing more than the 20 years of U.S. occupation of Iraq and Afghanistan, according to Riedl.
“In other words, the U.S. government is in the early stages of what is projected to be the largest government debt binge in world history,” Riedl notes.
That doesn’t even include the massive federal spending expansions to support a large army of grifters profiting off the human suffering of the Russia-Ukraine war in 2022. Congress spent more on the first four months of Ukraine’s war than it did on the first five years of its undeclared war in Afghanistan.
Atop all this, more deficit spending is likely to come. In August 2022, Democrats confirmed yet again that historic levels of inflation that year were no impediment to their big-spending aims when Biden announced that he’d force taxpayers to assume up to nearly $1 trillion in student loans taken on by largely higher-income professionals. That spending is tied up in court and could be allowed at any time.
This all means that the source of inflation — government overspending — is at an unprecedented rate and pace, and even with the House Freedom Caucus’ negotiated limits on congressional spending activity, trillions in new spending is already locked in.
3. Build Back Bankrupt Shoveled Yet More Out the Door for Years to Come
In 2022, the Biden administration managed to get its top-priority grab-bag of increased government spending signed into law. By spending more money the government does not have and imposing more taxes, the ridiculously named Inflation Reduction Act is likely to increase inflation, said a Tax Foundation analysis.
“By increasing spending, the bill worsens inflation, especially in the first four years, as revenue raisers take time to ramp up and the deficit increases,” the foundation’s analysis says. “We find that budget deficits would increase from 2023 to 2026, potentially worsening inflation.”
Continuing to shovel money to cronies while ignoring major structural problems in the U.S. economy and federal budget process has become a hallmark of Congress in the 2000s. This has to end at some point, but until that point comes reasonable people can only expect such legislation to continue to pass, and to continue to worsen inflationary pressures.
Given how reckless both parties have been for decades on fiscal matters, it is likely this norm of spending money Congress can’t actually appropriate will continue until a major disaster ends their ability to fake.
4. Federal Officials Are Destroying the People’s Trust
Inflation happens “When money is no longer a trustworthy measure of value,” note Steve Forbes, Nathan Lewis, and Elizabeth Ames in their 2022 book, “Inflation.” Inflation is at least partly about a crisis of confidence in government — a warranted one, usually, because major inflation occurs as a result of politician malfeasance. Unfortunately, U.S. government officials are doing nothing to restore the people’s lost confidence in them — in fact, just the opposite.
In 2022, federal officials spent months denying inflation was happening. They also denied the United States was in a recession, insisting the traditional definition of two economic quarters in contraction was false when it was applied under Democrat rule. They’ve switched how they measure inflation to hide a large part of it.
U.S. leaders also refuse to stabilize our currency, instead taking actions that further erode Americans’ ability to put food on the table and get ahead through legitimately productive honest labor (as opposed to bullsh-t jobs). This does the opposite of what is needed: restore confidence in our markets by announcing strong steps to strengthen the U.S. dollar. They are also engaging in other activities that only erode confidence in the U.S. financial system, such as monetizing the federal debt and refusing to stop massive deficit spending.
Because politicians have created this situation and keep refusing to actually address it, Americans increasingly don’t trust their government or our debt-driven financial system. Polling shows public trust repeatedly hitting new record lows for every social and political institution. That’s an economic problem as well as a political and cultural problem, because a lack of confidence in markets can trigger economic growth, recession, and panics.
Usually, such crises build under the surface for a long time and then burst out into the open all of a sudden. As Hoover Institution economist John Cochrane said during a panel discussion, “Debt crises are like the Spanish Inquisition; no one expects them to come. If you knew they were coming, they would have already happened.”
5. The U.S. Federal Government Is Effectively Bankrupt and Inflation Helps It Hide That
The on-books U.S. national debt of $31.5 trillion is just the tip of the iceberg. Our entitlement systems are about to start going bankrupt, adding trillions in additional financial burdens on taxpayers. Riedl notes, “The U.S. government is projected to run a staggering $112 trillion in budget deficits over the next three decades, driven mostly by Social Security and Medicare commitments that are already set in law.”
If one adds unfunded and other liabilities that government officials keep off the books such as Federal Reserve debt, the amount the U.S. national government owes is more than $200 trillion. That doesn’t include what state and local governments owe, and many of them are also bankrupt or getting there.
“No matter what interest rate you use, the U.S. needs to immediately and permanently raise every federal tax by at least one third to pay, through time, for what our government plans to spend,” Boston University economist Laurence Kotlikoff wrote with fellow economist John Goodman in 2021. “The alternative? Massive spending cuts. And, no, the Federal Reserve can’t make this problem go away by printing the money needed by the Treasury. This would end where it always does — in hyperinflation.”
U.S. debt, deficits, and unfunded liabilities — which together form a total picture of U.S. national economic entrapment — are the largest ever measured in world history. Besides Japan, which isn’t spending the majority of its debt on entitlements like the United States is, “Greece and Italy are the only other OECD countries with a total government debt exceeding that of the United States,” Riedl notes. Greece and Italy have had major sovereign debt crises that have destroyed their standards of living and brought their economies into long-term decline.
“When you look at these numbers, you realize we’re Argentina in 1910,” Kotlikoff told CNBC in 2018, before the alarmist Covid response and Biden presidency made things much worse. All it will take for these scary structural problems to become visible and impossible to ignore is a financial panic or another major event like a war. Oh, look, Congress is also pushing us ever-toward open war with Russia instead of toward peace. Brilliant.
6. Child Scarcity Will Drive Higher Prices
In March 2022, The Wall Street Journal reported the opinion of retired British central banker Charles Goodhart that global structural factors will drive higher inflation for years to come. Goodhart helped Prime Minister Margaret Thatcher break inflation in the 1980s. He told the Journal that the rising global crisis of child scarcity will also push inflation up for decades.
As labor becomes more scarce, he maintained, workers will push for higher wages, in turn driving up prices. At the same time, businesses will manufacture and invest more locally to help offset both labor shortages and the nationalist and geopolitical pressures curbing globalized supply chains. That will increase production costs and local workers’ bargaining power. Global savings will fall as older people consume more than they produce, spending particularly on healthcare. All that will push up interest rates, he predicted.
A meeting of global central bankers in Jackson Hole, Wyoming, in August 2022 for the first time since 2019 found the bankers publicly reflecting a similar assessment, the Journal reported. “I don’t think that we are going to go back to that environment of low inflation,” European Central Bank President Christine Lagarde said on a panel.
7. The People Who Did All This Are Still in Charge
This reality applies to nearly every major political problem: The same people who have created these messes are the same people who largely retain the power to respond to them. The same people writing massive spending bills that divert our economy away from productive labor and into rent-seekers’ pockets are still largely in charge of government spending.
There might have been a slight shift of power in the House, but there hasn’t in the Senate, nor in the presidency. The same guy who claims the power to “pen and phone” a trillion dollars in student loan bailouts is in office, and all his K Street and Wall Street buddies still have gleefully effective access. You can be sure this cabal of crooks isn’t going to be looking out for your best interests now that we’re about to have a potentially dangerous recession.
That may be the most significant systemic reason to expect our markets to be heading for an even rougher ride in 2023 than we’ve had from 2020 to 2022.
U.S. Treasury Secretary Jacob Lew chairs the Financial Stability Oversight Council, which grew out of the 2010 Dodd-Frank law. (AP File Photo)
(CNSNews.com) – How can you talk about vulnerabilities in the U.S. financial system without mentioning the $18-trillion-and-growing U.S. debt, Rep. Blaine Luetkemeyer (R-Mo.) asked Treasury Secretary Jacob Lew on Wednesday. “I don’t think it is the most pressing concern today because we have controlled the rate of growth,”Lew told the House Financial Services Committee.
“I don’t think right now that debt 20, 30 years from now is the thing that’s holding our economy back,” Lew told the hearing focusing on the annual report of the Financial Stability Oversight Council (FSOC).
Lew chairs the FSOC, a body formed in 2010 to respond to emerging risks to the U.S. financial system. “I think if you look at the risks to our economy from federal spending and debt, we are in a much better position now than we were six and a half years ago,”Lew told Luetkemeyer. Lew later noted that “debt as a percentage of GDP has stabilized for this period of time. We have made enormous progress, it was climbing, and it has stabilized.”
Luetkemeyer pointed to a June 16 Congressional Budget Office report that warns: “If current laws remained generally unchanged, federal debt held by the public would exceed 100 percent of GDP by 2040 and continue on an upward path relative to the size of the economy — a trend that could not be sustained indefinitely.”
But Lew said that CBO report “makes clear that over the next ten years, we’re in a pretty stable place.”
The report projects that under current law, federal debt held by the public would decline slightly relative to GDP over the next few years…After that, however, growing budget deficits — caused mainly by the aging of the population and rising health care costs — would push debt back to, and then above, its current high level. The deficit would grow from less than 3 percent of GDP this year to more than 6 percent in 2040. At that point, 25 years from now, federal debt held by the public would exceed 100 percent of GDP.”
Lew told Congress, “I think the thing in that report that people are concerned about is the long-term. And obviously there are still long-term issues.” … “I think if you look at where we were, where we were in 2008, 2009, we were careening towards a very treacherous place. We’ve stabilized it and it’s improving. We still have long-term challenges and–“
Luetkemeer interrupted, telling Lew, “The point I’m trying to make is, CBO points out the debt is a problem for our economy, and yet your report does nothing, says nothing about it, and you are supposed to be an agency that points out these problems. Why is — my question is, why did you not point out that debt is a problem for our economy?”
“I — our report appropriately looks at the threats to financial stability,” Lew responded.
“So you don’t consider it a threat?”the congressman asked.
“I think that if you look at what we have — where we are today versus six years ago, the federal deficit has been brought under control for the next decade. We are in…a period where we need to get the economy growing. I totally agree with you, our conversation should be about what can we do to grow the economy,” Lew continued. “And we know there are things we could do. We could have an infrastructure program in place. We could have immigration reform. There’s lots of things we could do to grow our economy. I don’t think right now that debt 20, 30 years from now is the thing that’s holding our economy back.”
Luetkemeyer said he thinks Lew has “missed the boat…We’ve dropped the ball on this.”
Rep. Robert Pittenger (R-N.C.) asked Lew several times if he sees the debt as a threat: “Is it a vital concern to you today?”
“I don’t think it is the most pressing concern today because we have controlled the rate of growth,”Lew replied.
“So $18 trillion, that’s not a concern?”Pittenger followed up.
“As a percentage of GDP, we’ve stabilized the deficit and the growth of the debt,” Lew said. “In the next ten years, we have a stable debt and deficit situtation.”
Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, noted that the national debt is $18 trillion and counting.He called it “perhaps one of the greatest existential threats that we face,”and he noted that more debt has been incurred under President Obama than in the nation’s first 200 years.
“This is beyond negligent, it is beyond egregious. It is dangerous and, frankly, it is offensive,” Hensarling said.
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