Rather than debating how much tax the rich should pay, perhaps a more appropriate question is why should an individual pay income tax?
Over the past 12 months, the US Treasury has borrowed $ 4 trillion to fund various COVID assistance programs. The new relief plan (signed March 11) will add an additional $ 1.9 trillion to the national debt. Using the magic of the central bank’s open market operations (don’t even try to figure this out), the Federal Reserve has created an additional $ 3.4 trillion in COVID-related stimulus money. And this week, the Biden administration announced plans for a $ 3 trillion infrastructure and economic program, which would essentially result in additional federal debt.
That’s $ 12.3 trillion in new money, none of which comes from tax revenue. Individuals pay just $ 1.6 trillion a year in federal income taxes. With $ 12.3 trillion in money created, we could eliminate personal income taxes for the next 7 years.
This government bias towards debt over taxation has not only happened in response to COVID. It has been like this for decades. Over the past 10 years, the federal government has collected $ 13.9 trillion in personal income taxes, almost the equivalent of the $ 13.4 trillion in new debt it has incurred. Adding an additional $ 7 trillion in newly created Federal Reserve money makes the federal government almost 50% more dependent on new debt and Federal Reserve money than on taxpayers.
So why are we even considering a tax hike – especially as the economy continues to come out of lockdown?
The breaking point for being in the top 1% of taxpayers was more recently $ 515,000. While that’s more than the $ 400,000 level the President promised rates would increase to, it’s as close as it gets with the data provided by the IRS. If people reporting more than $ 515,000 in annual income paid 50% more in income taxes, the government would collect an additional $ 308 billion, or about 3% of what it borrowed or printed over the course of the year. last year. In Washington, where a less than expected increase is called a decrease, 3% is a rounding error. It has no practical budgetary impact.
Don’t spoil my fun by reminding me that someone has to pay off this debt from the treasury. The collective wisdom of our federal policymakers ignores this fact, or at least assumes that it will be so far into the future that it is irrelevant to their re-election campaigns.
So why propose a tax hike that has no real effect on the budget? We basically fund all new government spending with borrowed money, so the purpose of any new tax is not to fund the government. And if that’s not their goal, what is it?
David Moon, President of Moon Capital Management, can be contacted at [email protected]