It appears that there is one thing Democrats, Republicans and Independents can agree upon: No one likes or wants to pay taxes. This mantra of forever “lower taxes” and “don’t tax you, don’t tax me, tax that fellow behind that tree,” has become part of the American psyche. Of course this outlook is completely unrelated to our public needs and desires for governmental benefits and programs. What we have discovered over the past few years is that there is no real connection between income and spending by most individuals, households, businesses, banks or governments. Why should we start to require such linkage now?
Many economists (over 90% have been proven completely wrong in all their predictions and theories during the past 2 years) are warning that continually having annual federal budget deficits exceeding $1 trillion are not sustainable over the short or long terms. Why not?
It has been argued that with excessive deficit spending, a currency tanks or interest rates go up – according to some economists who have never proven that from real life facts. With the demand for goods and services in the private sector (families and businesses) and at the State level almost nil or declining, the Federal Government is stepping into the void to prop up overall demand in the economy. Economists also warn that once private borrowing increases, governmental borrowing should decrease, or else the competition for credit will increase interest rates. However, with the massive private debt being carried by families and businesses, it will be some time before the private sector can qualify yet absorb more debt. Where does that leave the nation?
Compare this national situation to a typical American household. A typical family took out (1) a mortgage to finance its home, (2) a few car loans, (3) some student loans for higher education, and (4) several credit cards to pay for the many wants and needs in life, such as vacations, new electronic and computer equipment, furniture and appliances, new clothing and everything else that is part of the consumer society that drives about 70% of the entire nation’s and world’s economies. While going hog wild into debt, did that household consider the possibility of a job loss lasting over a year, a serious illness not fully covered by insurance, or major home or auto repairs not covered by insurance or warranties – OF COURSE NOT. They just borrowed to meet those needs and that family’s debt was only limited by its current and anticipated cash flow.
Why have the prior Administration and current Administration been so adamant and desperate to save the financial sector at any cost in order to resume its lending to every sector in the economy? Because that is the only way we can get out of this current recession and possibly pay for any of our future needs and wants as families, businesses and a nation. No one really expects us to turn into a nation of frugal vegetarian bicyclists. 50 years of wild abandon in our consumer society is not going to be changed or replaced anytime soon.
No one really expected that any of those consumer or business debts would actually have to be paid now and in full. The mistake everyone has made so far in the bailouts is requiring any security for any lending – If real estate values cannot support the mortgages originally xtended on them, why require that linkage any more? If real estate prices are still tanking across the U.S. and are not likely to significantly increase for at least 5 to 15 years, we might as well secure all home mortgages on designated 1-acre parcels located on the dark side of the moon.
For those who can’t pay their bills to the financial institutions, a better bailout would be to let those households borrow even more money to keep paying off the debts – ensuring we keep up this massive Madoff-Ponzi scheme until we are all dead in the long term. It might be most effective to just give every U.S. citizen a new credit card with a $25,000 limit if we are really serious about getting out of this recession quickly.
We should simply stop collecting all federal taxes and then have the Federal Government borrow for all our public needs. For the past 8 years we essentially financed 2 foreign wars and a significant part of our public spending on pure borrowing – all the while cutting taxes – and we’re still doing it. Now why not go all the way? Both Liberals and Conservatives are essentially cowards – some for not cutting all taxes and others for not borrowing to finance every need, want and desire of the American people. The word “moderation” disappeared from public policy a long time ago. It didn’t work for this country in the past and it certainly won’t work now.
All those endless debates about tax incentives, breaks, cuts, increases, credits, deductions, safe harbors, exemptions, deductions, dependents, and the AMT, will simply disappear. If no individual, family or business has to pay any federal taxes, then the tax laws can be completely repealed in their entirety – a step towards complete simplicity. (We can keep the 16th Amendment in case of some future emergency.) State governments may have to keep some of their taxes as they are generally prohibited by their State Constitutions from running deficits – but the U.S. Federal Government has the greatest power in the world – the ability to print money and issue public debts in a denomination that everyone on the planet still wants and needs.
It may become inevitable that interest rates on Treasury Notes, Bonds and other debt instruments will have to rise a little or a lot, but that would turn those instruments into a good investment since they certainly would pay better than real estate, the stock markets, banks or all other former bubbles, around the world. Investors would flock to U.S. Treasurers with even higher rates of return.
Some economists might say that the reasons the US dollar is not worthless, that interest rates are still low, and that the Federal Government can continue to pay off such huge accumulated public debt, are because investors around the world and in the U.S. believe that Uncle Sam will find the tax revenues to pay off those debts. Oh really – what a nice fantasy.
The only real way to realistically pay off those debts (someday) is to issue even more debt. Now that we have broken through the formally unfathomable level of $10 trillion dollars in accumulated public debt, why not go for $100 trillion? No one on the planet is going to actually demand any part of the accumulated federal debt to be immediately paid in full – it’s always been and it will always be an issue for the remote future – and we know in the long run, we’re all dead. The annual federal deficits and the accumulated federal debt are large enough to take care of themselves without us worrying about them – and God knows we have far more important things to worry about.
China and other countries can get themselves all in a huff, demand a new global currency, or even stop buying our Treasury debt instruments. So who the hell is going to buy all that crap they produce and export to the U.S.? The only reliable engine driving the entire planet’s economic system is the American consumer. If the U.S. returns to spending levels of the 1930’s and 1940’s, it will certainly mean a complete collapse of the entire world’s economy – including taht of China, Western Europe and every developing and undeveloped country.
Some people were destined to be the world’s consumers and others the world’s producers. Life’s not fair, but what’s a couple trillion dollars among people stuck in the same leaky lifeboat, except to stuff into the holes? If others don’t like this arrangement, they are free to find and move to another planet.
This proposal will finally end the pointless political and economic debates that have wasted too much time concerning (1) how low taxes should go and (2) who should actually pay them. The simple answers would be (1) zero and (2) no one.
The country needs the stimulus benefits of more spending by consumers and businesses so a complete tax elimination would work wonders. Now combined with massive borrowing to improve our transportation, energy and educational infrastructures, pay for universal healthcare, and ensure all those social security checks keep coming in the mail, we just need to keep borrowing at even greater amounts than we ever imagined were possible.
Americans are a “can-do” people and we are an essentially optimistic nation. When people have told us that something cannot be done, we generally prove them wrong. Since most economists have been completely discredited, no one really knows what might work or not. To listen to their meaningless and meritless debates, to be repeated mindlessly by most Republicans and Democrats, is tiresome and a waste of precious time. Our country needs action – not more debate.
Let’s not permit silly fears of the unknown dictate our current and future public policies. We have to seize the moment and do something extremely unpredictable, creative and bold: just cut all taxes and borrow even more to pay for everything. We can always modify, tinker, and fix things later. That’s been our country’s overarching policy for more than 200 years.
These times demand new and exciting actions, not more trepidation and timidity. As they say in New Orleans “Laissez les bons temps rouler” – “Let the good times roll.”
5/22/09 by Marc Pascal in Phoenix, AZ