Gongol.com Archives: January 2023

Brian Gongol

January 31, 2023

Business and Finance Taxed enough? Not yet, apparently.

Americans like our acronyms a little too much. We like them so much that people often contort themselves to instill a word with meanings by creating retroactive acronyms ("backronyms", in the words of some). ■ When it was new, the "Tea Party" movement adopted its name in honor of the Boston Tea Party. Later, people retroactively instilled the word "Tea" with a backronym: "Taxed Enough Already". ■ While the movement itself went through a predictable life cycle and has mainly been subsumed into other identities, the "taxed enough already" attitude has persisted. Unfortunately, this is entirely untrue. If anything, the American public is plainly not taxed enough already -- certainly not enough to cover the costs of the things we demand that our elected officials deliver at the Federal level. ■ States and local governments are different: Without the power of the printing press, they're forced to observe a lot more fiscal discipline than Congress is. Virtually all of the states have balanced-budget requirements. Not so at the Federal level, where the budget deficit is a trillion dollars. ■ Accumulated deficits result in debt, which is now at more than $31 trillion. And because the government has a statutory debt ceiling, we're in a dangerous political spot: Congress has already run up the spending, and now it has to account for the fact that deficits create debt, and the world expects us to pay for what we borrow. ■ Reasonable people can disagree about particular spending choices, but it's plain that the far right wing is daffy when it claims we can fix the deficit by cutting discretionary spending (we cannot; the biggest spending categories are basically untouchable entitlements), and the far left is nuts when it claims that we just need to tax "millionaires and billionaires" more (most tax revenues come from ordinary people paying income and payroll taxes, and there aren't enough of "the rich" to soak enough to make up the gaps). ■ There's nothing wrong with persistent budget deficits of a small amount that remains less than the rate of economic growth. We could easily get by with a Federal deficit of 1% or 2% of GDP, especially if some of that spending goes towards productive activities that could enhance economic growth, like building infrastructure. It's the chronic habit of overspending by 5% of GDP that gets us into trouble. ■ And we need to keep some borrowing capacity in reserve for occasional surprise events that require emergency spending -- like wars and pandemics. An emergency is no time to get stingy, especially if the consequences could be existential. And we have been faced with more than a couple of those emergencies, even in recent memory. ■ Nobody wants to admit it, but the truth is that we either have to radically reel back what we expect from our government, or we need to show the maturity to realize that there isn't a magical pot of gold at the end of any rainbow, just waiting for us to raid it. Persistent (and preferably accelerating) economic growth is the best possible way to put our debt to rest, but that growth will be badly threatened if we don't demand an adult resolution to the problem. ■ The debt exists because the deficit already created it. We need to pay what we owe, then set about correcting course and talking about our budget like adults. And unfortunately, we have shown by our voting choices that we are not quite taxed enough, regrettably.

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