I’ve warned that the budgetary impact of the coronavirus may trigger another fiscal crisis in Europe.
Especially Italy.
But what about the United States? Will we reach a point, as Margaret Thatcher famously warned, of running out of other people’s money?
We probably still have a couple of decades before that happens, as I speculated at the end of a recent interview, but that doesn’t mean we should continue down our current path.
The Wall Street Journal opined on this topic yesterday, citing newly released estimates from the Congressional Budget Office.
Friday’s Congressional Budget Office report on the federal fisc for April…usually a surplus month as tax payments roll in, but the Treasury postponed tax day this year until July 15. We are grateful for such small government favors.
Spending more than doubled in April from the year before and revenue fell by 55%. …we are all apparently supposed to be converts to Modern Monetary Theory. This is the view that governments can spend whatever they like because the Federal Reserve can monetize it without economic harm. We may get to test this proposition. …the damage from so much spending will come in two ways. First, in resources misallocated to government rather than into private hands to invest. Second, in the tax increases that the political class will eventually impose, perhaps starting as early as 2021.
As is so often the case, the WSJ is correct in its analysis.
The fiscal crisis won’t be too much red ink. That’s merely the symptom of the real disease, which is that government is getting far too big.
As the editorial warns, this undermines prosperity because resources get diverted from the economy’s productive sector.
And as that spending burden increases, it means more and more pressure for tax increases, which further penalize growth. I’ve already noted that politicians will try to exploit the crisis by imposing a wealth tax, but I think the real prize – in the mind of statists – is a money-gobbling value-added tax.
I’ll close by sharing a chart from Brian Riedl of the Manhattan Institute, which estimates the per-capita burden of inflation-adjusted federal spending in the United States.
The red portion of the chart is coronavirus-related spending, plus future interest payments on the additional borrowing for all that spending, and the blue portion is spending in prior years plus estimates of future spending (already on an upward trajectory because of poorly designed entitlement programs).
That chart does not paint a pretty picture, but Brian’s numbers may be too optimistic. He assumes that the coronavirus-related emergency spending is just temporary and that additional interest on a bigger debt is the only long-run impact.
But if politicians make some of that spending permanent (which will be in their self-interest), then we’ll be traveling even faster in the wrong direction.
All the more reason to impose a spending cap, which is the only major fiscal reform with a track record of success.
[…] are spending more money. A lot more. As shown in the accompanying chart, this has caused a huge spike in per-capita outlays. And the crowd in Washington wants to make the red portion much […]
[…] this webinar, I explain how fiscal policy is being affected by coronavirus, and then explain why a spending cap is the way to restore fiscal […]
Reblogged this on Boudica BPI Weblog.
perhaps we should examine the flow of money to and from persons and organizations engaged in the battle against the COVID-19 pandemic… it might provide some enlightenment… follow the money……………
Here is something you need to report on.
https://plandemicmovie.com/
Dave@gscsigns.com
The virus has shown how inadequate our “safety-net” is. Prior to the virus, we were spending $2.7T on “Mandatory Spending”, most of which is distributed by individual “need”, requiring a huge bureaucracy (nannies) to administer (and they’re now overwhelmed). In addition, we spend another $1.2T on “tax expenditures”, 70% of which goes to the rich, and that requires another huge bureaucracy to monitor.
We could get rid of 1 M bureaucrats, by doing it a better way. You’ll agree that a flat tax would cut compliance time. We currently spend 7 billion manhours on compliance. I estimate that it could be easily cut to 2 billion. Which would add 5 billion manhours back into the labor force, of highly productive workers (they pay taxes) or +2% to national growth (even taking out leisure time).
But a flat tax is a political loser.
A citizen UBI, set at the Federal Poverty Limit, could add progressivity (more than current), costing $2.4T. We could eliminate tax expenditures for $1.2T, and $0.9T of the safety-net to pay for it. The remaining amount could come from 2% growth, not higher marginal taxes on the rich. For the poor a UBI would replace $ for $ support, so nothing would change (other than motivation, with no means testing). For tax payers, a UBI would replace tax deductions, effectively capping deductions for the rich.
The federal amount would be only adjusted for inflation. Additional growth would come from 0.9% annual growth in citizenry. (Easy for annual US growth, which is also adjusted for inflation, to beat.)
Liberal states could add as much as they are willing to pay for.
Legal immigrants and minors could deduct up to the UBI amount from their taxes, with one simple form.
Businesses would file taxes for all employees. NO ANNUAL TAX FILINGS FOR EMPLOYEES.
Or, we can continue to ratchet up whack-a-mole spending. It would be better economically, not to have redistribution, but would it be compassionate; and is there any chance in hell that could happen?