Deficit Reality Therapy

 

                 Deficit Reality Therapy

 

We are constantly bombarded with massively misleading rhetoric and outright lies by those of the far right. On the one hand we are treated to bitching and moaning related to the “debt ceiling.” If it were just that simple, I would tend to agree on the principle that spending more than you bring in is unsound fiscal policy. It doesn’t work on the microscopic scale (personal family finance), and it is a dangerous concept in the macroscopic (national policy) as well. 

        One of the recent key differences, with which Adam Smith was non-conversant, is what has become known as “Modern Monetary Theory (MMT), which holds that, as long as an entity can just make (print) more money, they can never run out. The problem with that is that the concept of “full faith and credit” on which MMT relies, is intangible, based on consumer and borrower expectation, not tangible assets, of which we hold some (gold) but nowhere near enough to cover our debt obligation.

 Fort Knox currently holds roughly 147 million troy ounces (4,580 metric tons) of gold bullion, while the Federal Reserve vault in New York houses an additional 6,190 tons. At today’s gold price that means the value of the US gold reserve is about $700 billion. The projected federal deficit or 2023 alone is $1.2 trillion. For the math challenged, that means that we will borrow more than the value of all that gold in storage, and that would still mean an increase in the federal debt, which currently stands at about $31.4 trillion.  Just the annual interest obligation on this monstrous debt as of December 2022, was $210 billion, or 15% of the total federal spending!   

The odd part is that typically, the national debt resulting from deficits usually surges in times of national recession, or war time spending. As an example, in 2008, when the housing bubble collapsed due to grossly underregulated and financially disastrous financial sector operations, Gross National Product decreased as foreclosures spiked unemployment and the outgoing Bush administration enacted a $700 billion “bailout” bill. (remember “too big to fail?”) This coupled with greatly increased unemployment compensation and social service demands led to three years of significant deficits. By the end of the second Obama term, the deficit was back down to a lower level than 2008.

        Enter Donald Trump. While touting the “greatest economy ever” the deficit and, accordingly the debt, soared. In consecutive years the deficit rose, spiked by decreased federal revenues due to Trump’s tax cut, which was a valentine to the wealthy, just to peak at a deficit of $984 billion in 2019, just in time for Covid.  Tax Foundation analysts stated that the tax cuts would cost $1.47 trillion in decreased revenue while adding only $600 billion in growth. In other words, reduce taxes, increase deficit and debt. Which brings me to my second big lie.

The second mammoth falsehood being purveyed by the Right is that the Biden administration request for funding for more IRS agents is aimed at the average taxpayer (read that as “voter”) instead of its actual intent, which is to improve the function of the IRS as specified by law. Understand this:  thwarting the legitimate efforts of the IRS is of essentially no positive consequence to the “average” taxpayer and of none to any honest one. So, what’s the point?

While none of us enjoy paying taxes, as responsible citizens we do so because a free lunch is chimerical. Roads, social services, national defense, etc. all cost money and all are necessary. Oddly enough and overlooked by the “laissez faire” unregulated economy crowd, is the fact that even Adam Smith, himself, opined that those who make more from the economy should pay more for the privilege. While he didn’t use the term “graduated tax,” he implied it, way back in 1776, in “The Wealth of Nations”.

The real focus of current GOP anti-IRS fiction is that maybe, just maybe, those one-percenters who avoid anything close to their fair share (such as paying zero income tax [Trump] for several years while claiming to be wealthy) might actually be held accountable for honestly honoring the tax code. Think I’m kidding?

 Congress has systematically underfunded the IRS. Today, the IRS has as many employees as they had in 1970, and the technological system that they're using to drive tax processing was built in the 1960s before we went to the moon. As a result, wealthy individuals have all of the capacity to be able to try and avoid their taxes, and the IRS has few resources to be able to go after them. They also have armies of lawyers who can help them avoid taxes.

        This also affects the honest taxpayer, but in much the opposite sense.  Last tax year (2021), the IRS received 230 million phone calls and only had 15,000 people to answer those calls, which meant that each person had to answer 16,000 calls. Trust me, the “one-percenters” aren’t those calling the IRS for help. While many Americans, who don’t have tax lawyers, feel that every day, what Congress has actually done is to starve the IRS of the resources it needs to enforce legitimate tax collection from many of the wealthiest Americans, who are the least likely to pay their taxes.

The United States currently collects less tax revenue as a percentage of GDP than at most points in recent history, in part because owed but uncollected taxes are so significant. The so-called tax gap has surged in the last decade. The last official estimate from the I.R.S. was that an average of $441 billion per year went unpaid from 2011 to 2013. Current estimates are more than double that. Most of the unpaid taxes are the result of evasion by the wealthy and large corporations. In short, we don’t need more tax legislation, we simply need all of us to pay their fair share under present laws. This has essentially no negative impact on the average honest citizen, but then we don’t have paid lobbyists greasing the palms of sleazy GOP legislators.

The tax gap also has meaningful implications for fiscal policy. These unpaid taxes mean policymakers must choose between rising deficits, lower spending on important priorities, or further tax increase to compensate for lost revenue—which will only be borne by compliant taxpayers. According to Charles Rettig, the Internal Revenue Service commissioner, The United States is now losing at least $1 trillion in unpaid taxes every year, Mr. Rettig further states that the agency lacks sufficient resources to catch tax cheats. Referring back to the beginning of this essay, that uncollected $1 trillion would essentially erase the annual deficit. Add to that allowing Medicare to negotiate drug prices, which could save about $300 billion annually and the deficit is a memory.   

        Of course, the GOP doesn’t want to do the first, (rigorously enforce tax codes) because fat cat donors would have to pay their fair shares, or the second, because Pharma companies spend much more on advertising and lobbying than on research and development, thus their extortionate pricing. Want to reduce the pain on US consumers as well??  Void the Trump China tariffs, which in addition to supply chain issues are costing the average US household about $800 annually for a total of around $93 billion.

 Note: no social service or “people programs” were injured during the proposal of these measures.