Latest inflation reads show entrenchment, Fed will have to go higher and stay higher for longer but Congress must cut spending and raise revenues

 The Fed can do only so much, but a Fed Funds Rate of 4.83 is hardly adequate for current conditions.

The fiscal side in this, however, has been completely ignored.

Outlays for 2020-2022 alone have topped $19 trillion vs. receipts south of $12 trillion.

$2.2 trillion Build Back Butter bill Democrats insisted would cost nothing CBO estimates would cost $367 billion over ten years

 

 

 

 

 

 

So-called Democrat moderates in the House voted for it anyway, 220-213, undermining Republican claims their votes could be peeled away once the infrastructure bill had been passed separately.

Between the $250 billion cost of the infrastructure bill and the $367 billion cost of the Build Back Better bill, the optimistic CBO estimated combined ten year costs will dig a $617 billion hole in addition to the $6.8 TRILLION in fiscal year deficits for 2020 and 2021 spent since the onset of the pandemic to alleviate it.

The pandemic spending orgy, which was bipartisan, makes this all seem like a kerfuffle about relatively little.

Already pared back from $3.5 trillion or more in spending, the BBB faces an uncertain future in the Senate. The wild spending dreams of progressives may have been dashed, but anyone who pretends any of this makes any sense is crazy.

The country is currently holding at $28.9 TRILLION in debt, and is set to explode higher pending the raising of the debt ceiling. 

From the story: 

The final outcome wasn't much in doubt after centrist Democrats' deficit concerns largely melted away.

The vote came hours after the Congressional Budget Office issued its official cost estimate of the sweeping legislation, which moderate Democrats eagerly awaited to ease their concerns over the fiscal impact. The Biden administration and Democratic backers of the bill have insisted it would pay for itself and not add to federal deficits.

The nonpartisan CBO, the official scorekeeper, offered a cost estimate with a little wiggle room. It said the measure would increase deficits by $367 billion over 10 years — but that doesn't count additional revenue that could come from increased IRS tax enforcement.

How much new revenue that effort would yield has been hotly debated. The White House has said increased enforcement, aided by an additional $80 billion in IRS funding, would produce $480 billion in new revenue over a decade. The CBO took a more cautious view, saying the effort might produce $207 billion.

Sum Ting Wong: Low top marginal tax rates since 1986 have NOT delivered

Low top marginal tax rates have NOT delivered since 1986.

The average top marginal rate has been 38% for the last thirty years, 49% lower than the average rate of 75% which prevailed from 1956 until the Reagan tax reform of 1986.

After the reform, stocks have done little better than before, but gross public debt has increased at a rate 21% higher than before, growth of current dollar GDP has plunged by 66%, and growth of household net worth has slowed by 48%.

Where did the gains from the Reagan tax cuts go?

You know the answer. The number of US billionaires has exploded from just 41 in 1987 to 536 in 2015, up 1,207%. The money has gone into the pockets of the few, instead of into investment. From 1960 to 1986 net domestic investment grew 846% whereas in the 30 years since 1986 the metric has grown by only 117%, a contraction of 86% under the more favorable personal income tax regime.

The lesson seems clear.

Higher marginal income tax rates force the wealthy to invest in business and derive their income from investments taxed at the preferred lower long term capital rates. Lower marginal personal income tax rates, however, entice them away from going through all the trouble, in turn depriving the economy of growth, employees of growing incomes and wealth, and the government of revenue.

Like the formerly sound public policy which invented the 30-year mortgage to force people to save for the future in the housing piggy bank, the time has come to reincentivize business owners to invest more in their businesses by making the personal income option less attractive.

Neither Republican tax bill does this. 

  

How to tax the rich and only the rich as originally intended in 1913, and solve a lot of problems

In 1913 when the average Joe made about $800 a year, the first income tax under the 16th Amendment didn't worry him because he didn't pay it and probably thought he never would. The personal exemption for a married couple in the original tax code was $4,000.

Today that $4,000 personal exemption adjusted for inflation using the Consumer Price Index amounts to about $100,000.

Even in 2016 that kind of income is made by fewer than 10% of individual wage earners. Under the original income tax of 1913, 90% today wouldn't have to worry about paying the dreaded income tax either.

Is there a way to return to this golden age of taxation?

I'm here to tell you that I think so, and I say that as a conservative. We could easily simplify the tax code by returning to the status quo which prevailed before the First World War, pay all the bills, abolish Social Security and Medicare taxes, the corporate income tax and all the other little irritating taxes and reduce income inequality in the process. We'd also save a lot of time and money wasted in complying with the tax code's myriad baroque features.

Here's the math.

In 2016 according to the Bureau of Economic Analysis personal income in the United States was $15.9287 trillion.

Social Security's Office of the Chief Actuary tells us that in 2016 there were 163.5 million individual wage earners. If you exempt the first $100,000 of everybody's individual wage income in 2016, including from the rich, you're talking about $6.213 trillion of individual wage income which would be tax-free.

That leaves $9.7157 trillion of personal income left in 2016 to tax, to pay all the bills.

According to The Tax Policy Center, the bills were the total estimated federal outlays of $3.9513 trillion in 2016.

So, the tax is 40.67% (9.7157 X .4067 = 3.9513) on all personal income in excess of $100,000 a year, no itemized deductions, no credits of any kind (this is where they all came from in the first place, because the rich pissed, moaned and complained and bribed the politicians to carve out privileges for them to escape paying).

The rich, all 14.9 million of them, will still have $7.2544 trillion to play with ($1.49 trillion from their first $100K tax-free, just like everybody else, and $5.7644 trillion left over after taxes from the income in excess of $100K).

The rest of us, 148.6 million, won't pay any federal income tax, Social Security or Medicare tax, gasoline tax, or any other kind of federal tax on our $4.723 trillion. The only taxes we'll have to pay will be State and Local Income Taxes, property taxes, sales taxes and the like. Of course rich people will have to pay those too, but that's a problem for all of us and for a different level of politics.

I summarize:

$15.9287 trillion personal income 2016 (BEA)

-  3.9513 trillion federal taxes, all from those making $100,000+ per year @40.67%

-  7.2544 trillion left over for the 14.9 million making $100,000+ per year (top 10%)

-  4.7230 trillion left over for the 148.6 million making less than $100,000 per year (bottom 90%)

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And the budget balances.   

What a hypocritical gasbag Rush Limbaugh is about Trump's spending plans

Why, Donald Trump could be another FDR!, he says today. He could consolidate Republican rule for decades if he spends the money correctly!

Rush doesn't have a clue about the Obama stimulus, let alone have any principles. He thinks the stimulus was $1 trillion or so, when it was actually nearly $5 trillion, so far. I say so far because the damn thing was built into the outlay train. And look what we've gotten for it. A big fat nothing-burger. Crummier economic growth than under Bush, full-time jobs over 6 million behind trend, and a big fat national debt of nearly $20 trillion.

But Trump's version is going to be successful! Sure it is. $1 trillion or $5 trillion or $10 trillion under Trump isn't going to do anything it couldn't do under Obama.

The February 2009 Obama stimulus got added to Bush's 2009 fiscal year spending, and to every frickin' year thereafter. The fiscal 2008 baseline outlays were $2.9825 trillion.

And here are the annual outlays thereafter in excess of that baseline:

2009: $535.2 billion

2010: $474.6 billion

2011: $620.6 billion

2012: $554.5 billion

2013: $472.1 billion

2014: $523.6 billion

2015: $776.1 billion

2016: $1.017 trillion.

The giant joke on the American people here is that Republicans went right along with this charade the whole time Obama was president.

And now that Trump is running the show, an even bigger joke is about to be played on the American people.

Conservatives give thanks for the achievements of John Boehner, libertarians, the ignorant and the stupid just snarl

• Saved taxpayers $762 billion over ten years by making the Bush tax rates permanent for 98% of all filers beginning at the dawn of 2013
• Saved taxpayers $1.8 trillion over ten years by finally fixing the Alternative Minimum Tax for all victims of bracket-creep
• Saved taxpayers $339 billion over ten years by maintaining the 15% capital gains tax rate for incomes below $450,000
• Saved families $354 billion over ten years by maintaining the child tax credit
• Cut average annual federal deficits of $1.3 trillion 2009-2012 by 57%, to $556 billion on average 2013-2016 by ending the emergency Social Security Tax reductions and instituting the sequester spending cuts
• The S&P 500 immediately responded with total returns in 2013 of 32.39%, the fifth best year since 1970  
• The moribund US Dollar rose 19%, from below 80 to 95 today as overall fiscal rectitude improved
• Causing oil prices to plummet from an average of $95/barrel 2011-2014 to $52/barrel on average in 2015 
• Causing average US gasoline prices to fall from $3.34/gallon one year ago to $2.28/gallon today
• Helping to keep the all-items consumer price index year-over-year nearly flat, rising just 0.2%

How The 2009 Stimulus Has Hidden The Obama Decline

As everyone knows by now, when the Democrats swept into power in the 2008 election one of the first things they did was pass the stimulus spending bill in February 2009, five years ago this month.

The passage of the stimulus has been a boon to Democrats and their program. One, the added spending for fiscal 2009 got charged to George Bush's account, not Obama's, making Bush's spending record look worse than it was. Two, the added spending became the new baseline for spending in every year since, keeping government big, its most insidious affect. Three, because Republicans retook the House in 2010, spending in 2011 and 2012 has had to hew more closely to what it was in 2009 because of Tea Party demands to put the brakes on spending, allowing Obama to brag that he's kept government spending increases low for a longer period of time than has been usual. This is sort of like how Obama takes credit for our oil production boom, which happens in spite of him on private lands, not because of him.

What's so disturbing about the increase to baseline spending is that over 75% of the GDP gains for 2009 through 2012 can be attributed to that, not to anything real in the US economy. In other words, GDP growth from government spending has been propping up reported GDP and masking the severity of the current economic depression in which millions of homeowners remain underwater, similar millions remain without work after five years, and those still working suffer under a real multi-year decline in their earnings because of stagnant wages and increased costs for food, energy, clothing, healthcare and taxes. The middle class is being pushed inexorably downward. Like the infamous Climategate emails which showed an effort by scientists to hide the decline in global temperatures over the last decade, US government spending has been doing the same for the decline of GDP.

The figures are startling.

Using 2008 as the baseline from Table 3A of the Bureau of Economic Analysis's summer 2013 comprehensive revision of GDP ($14,720.3 billion), the net increase to GDP in nominal dollars for each year 2009 through 2012 relative to 2008 was $2.8782 trillion:

2009    -302.4 billion dollars

2010   +238.0

2011   +813.5

2012 +1524.3.

Similarly, using 2008 as the baseline for federal outlays as tracked by the Tax Policy Center using figures from the OMB ($2,982.5 billion), the net increase to federal spending in nominal dollars for each year 2009 through 2012, again, relative to 2008, was $2.1841 trillion:

2009 +535.2 billion dollars

2010 +473.7

2011 +620.6

2012 +554.6.

Thus the nominal gain in GDP relative to 2008 for all four years apart from nominal increases to government spending has been all of $694.1 billion, for a gain overall of 4.71% since 2008, 1.17% per annum on average, one of the most appalling records in all of American history because that figure is not adjusted for inflation. The all items CPI has risen 19.388 seasonally adjusted between January 1, 2009 and January 1, 2013, an increase of 9.1% which completely wipes out the nominal GDP gain of 4.71%.

So GDP has actually been negative for the whole of Obama's first term, but completely hidden from view by the increase to baseline spending caused by the 2009 stimulus. If it has felt like a depression, it's because it is one.

Real Federal Spending Growth Since 2000 Has Outstripped Real GDP 3 To 1

Your government in action

People who keep saying government should spend more to grow the economy more don't want to confront the fact that despite the growth in real federal outlays between fiscal 2000 and fiscal 2012, real GDP growth has lagged far behind by a ratio of 2.77 to 1.

Federal outlays in fiscal 2000 (in 2005 dollars) were $2.0406 trillion, and $3.2125 trillion in 2012, according to the Tax Policy Center, here. That's an increase in real spending of 57.4% over the period.

Contrast that with real GDP. On October 1, 2000 real GDP stood at $11.325 trillion. Twelve years later it was only $13.6654 trillion, an increase in real GDP of only 20.7% over the same years.

If federal spending counts just as much as private spending for GDP, it's not self-evident from these numbers that the higher rate of spending is doing anything to boost real GDP. Quite the opposite.

A more prudent way to look at would be to say that maybe all those federal expenditures in excess of the 20.7% of real economic growth were wasted, even destroyed, and that in fiscal 2012 real federal spending should have been $750 billion less than it was.

Meanwhile the bureaucrats scream bloody murder over a lousy $85 billion across the board spending cut for 2013.

Cutting off a drunk is never pretty.

On the other hand, he probably won't remember who last put a foot in his ass, either.

The House Should Pass A CR Of $2.983 Trillion And Drive The Blade Home

Now that Republicans have Democrats off balance with a small spending cut, the up-coming vote on a continuing resolution to fund the government for the remainder of the fiscal year presents an opportunity to drive the blade home.

I propose going back to the status quo ante in 2008 when outlays were at $2.983 trillion, and freezing spending at that level until revenues have in fact caught up. In 2013 revenues are estimated to be just under that level, at $2.902 trillion.

Since it was Democrats who abandoned the statutory budget process after 2009 and funded the government through continuing resolutions at the new much higher level laid down that year, nearly 18% higher in 2009 than in 2008, two can play at that game.

If Democrats in the Senate, and Obama, don't like the new diet of $249 billion a month, they can say no and be responsible for shutting down the government.

Just don't telegraph the plan. Keep Democrats off balance as before, demanding Senate action on a budget. We all know they won't pass one, and when they don't, just pass a continuing resolution to fund the government at the last second and adjourn. The procedure will probably have to be done monthly, and probably indefinitely.

There will be wailing, weeping and gnashing of teeth.

Table of federal receipts and outlays here. 

Wily Democrats Ramped Up Spending Baseline Almost 18% In 2009

The Tax Policy Center here provides a useful history in pdf format of federal outlays and revenues going back to 1940.

After taking complete control of the federal purse strings in January 2009 with the election of President Obama, the Democrat-controlled House and Senate proceeded to ramp up federal spending almost 18% in 2009 compared to 2008, from $2.98 trillion to $3.52 trillion. You can see from the chart that expenditures have continued at that new, higher level ever since, despite the fact that revenues have not recovered. Is this the height of irresponsibility, or what? It certainly is one of the more baneful consequences of one party Democrat rule. Now you understand why Democrats won't pass budgets. Continuing this excess using continuing spending resolutions keeps their names out of the papers.

You'll notice on the revenue side for 2008 and 2009 that the government's income from taxes of all sorts declined almost 17% while these expenditures were being dramatically increased at nearly the same rate, opening up a gigantic fissure in the government fiscal landscape. Revenues declined by $419 billion between 2008 and 2009 while expenditures increased $535 billion. The revenues declined due to the bursting of the housing bubble, the ensuing financial panic and the massive unemployment which followed. Nearly 11.31 million Americans lost their full time jobs between November 1, 2007 and December 1, 2009. People who don't work don't pay taxes. With federal outlays already running over $450 billion in excess of revenues, you can understand why the deficit in 2009 swelled to over $1.4 trillion, and continues elevated at that level every year since. Deficits for fiscal years 2009-2012 will top well over $5 trillion in the end. At the Bush-level of deficit spending, the number would have been closer to $3.5 trillion.

In exchange for that astounding liability we have fat bankers not prosecuted for their crimes; bigger banks more dangerous than ever; fat government salaries at every level compared to the private sector; crony capitalism in banking, autos and healthcare; 5 million homes repossessed in seven years; over 12 million officially unemployed; over 2 million per year leaving the labor force for Social Security disability, reduced lifestyles, poverty, or retirement; nearly 48 million on food stamps; GDP struggling to average 1% per year under Obama, the worst performance in 65 years; interest rates near zero destroying returns on retirement capital; an exploding wave of reduced work in the form of impermanent contract and part-time labor; and on and on.

And what's hot on the web right now?

"Where's my refund?" 

Annual Percentage Increases To Federal Spending Since Fiscal 1999

Fiscal Year / Percentage increase to outlays over prior year

1999 /  3.0%

2000 /  5.1

2001 /  4.1

2002 /  7.9

2003 /  7.4

2004 /  6.2

2005 /  7.8

2006 /  7.4

2007 /  2.8

2008 /  9.3

2009 / 17.9

2010 / (1.8)

2011 /  4.3

2012 /  5.3

Average annual increase over the last 14 fiscal years: 6.2%.

At that rate, the rule of 72 says outlays will double in fewer than 12 years. Outlays for 2012 are estimated to finish at $3.8 trillion. Half of that is $1.9 trillion. Actual outlays in 2001, eleven years prior, were $1.9 trillion.

So in 2023, eleven years from 2012, expect outlays to reach $7.6 trillion.

$11,480 Was Your Fair Share Of The Taxes For 2011. How Come You Didn't Pay It?

For fiscal 2011, federal spending came to $3.6 trillion, and US population came to 313.85 million people.

If we taxed everyone equally as the US Constitution called for originally (you know, "direct taxes shall be apportioned among the several states according to their respective numbers", which is one reason why we must have a census every ten years to begin with), all that federal spending in 2011 divided by all those millions of people comes to . . . wait for it . . . $11,480 owed per person.

The actual paid in tax revenues, for everything? $2.3 trillion, divided by 313.85 million people is . . .

. . . just $7,328 per person.

So pay up you deadbeats.

Quit Complaining: Here's How Social Security Taxes Have Increased Over The Years

View the table here.

You got a break for two years, now your rate goes back to what it was starting in 1990.

Quit complaining.

Annual Cost to the Taxpayers of Earned Income and Child Tax Credits is $109 Billion

So admits the liberal Tax Policy Center, here:

Each year the earned income tax credit (EITC) and the child tax credit (CTC) deliver more than $109 billion of cash assistance, mostly to families with children.

There's corporate welfare, and then there's . . . well . . . welfare!

By contrast, the mortgage interest deduction costs the Feds about $88 billion in lost tax revenue annually.

And the rich don't pay Social Security taxes on any compensation beyond $107,000 in wages and salary each year. I estimate that loss to the Treasury at about $100 billion annually.

So, Solomon, which is worse?

The Biggest Tax Loss Expenditure Benefits the Rich: $150 Billion for Social Security

In 2008, the AGI of the top 10 percent of earners was $3.9 trillion, represented in just 14 million tax returns, as reported here.

Assuming these are individuals (which cannot be true because only 140 million returns in total were filed that year but let's make the assumption anyway), about $2.4 trillion of that money would have escaped Social Security taxation above the threshold limit, rounded, of $107K of income per year.

About $1.5 trillion of the $3.9 trillion would have been taxed for Social Security purposes. Again, I'm using adjusted gross income which is also not going to be an accurate measure, but it'll have to do for this back of the envelope calculation.

6.25 percent of the remaining $2.4 trillion comes to $150 billion in lost revenue for Social Security in 2008, way ahead of the top tax loss expenditures, medical insurance at $131 billion, pensions at $117 billion, and your mortgage interest at $88 billion. See the data here.

The Super Committee, aka The Gang of Twelve, is interested in all proposals to raise revenues by closing "loopholes," like your mortgage interest deduction. Yet that's only fourth on the list of "lost" government revenues. The biggest loophole goes to the richest 10 percent of earners.

We're taxed enough already. Cut the spending instead. 

Government Revenues in 2008 were $2.5 Trillion

Government revenues in 2008 came from the following taxes:

Individual income taxes -- $1.14 trillion; (IRS data is slightly different at $1.03 trillion)

Social insurance taxes -- $0.9 trillion; (earnings beyond $107,000 or so are not fully taxed for this)

Corporate income taxes -- $0.3 trillion; (think GE!)

Other -- $0.1 trillion; (think?)

Sales and excise taxes -- $0.06 trillion; (think gasoline)

Total -- $2.5 trillion. Not enough by a long shot, under Obama, Pelosi and Reid.

So whattayawannado? Raise taxes to pay for the new spending under these bums, or get rid of the bums?

(source)