We literally printed $5 trillion to cover the spending. Unsurprisingly, inflation popped.
In order to offset his next massive $3.5 trillion stimulus spending bill, President Joe Biden is proposing to increase taxes on wealthy Americans, a bid to justify the influx of new spending, by claiming its “paid for.”
The proposals range from increasing the corporate tax from 21 percent to 28 percent, increase the death tax by charging capital gains on inherited equities, raising the current top income rate to 39.6 percent from the current 37 percent, doubling the capital gains tax rate to 39.6 percent from 20 percent and ending the carried interest deduction.
Here’s the dirty little secret: These tax hikes being will still do almost nothing to control consumer inflation, the real way that the spending bills are already being paid for, which will include another round of hundreds of billions of dollars of more helicopter money child tax credits and checks to U.S. households.
Going one by one. Increasing the corporate tax will likely only contribute to inflation, since the price of the tax will necessarily be passed on to consumers of the goods and services the corporation provides.
Charging capital gains on inherited equities will simply force the sale of those stocks in order for heirs to cover the cost of the tax, accomplishing little else.
Additionally, doubling the capital gains tax from 20 percent to 39.6 percent for those earning more than $1 million will trigger divestment out of equities from the largest holders of stocks. It eliminates the incentive of keeping more of what you earn.
This is a very big deal. Stock prices and thus everyone else who has their savings in 401ks and individual retirement accounts will be the ones who ultimately pay. Biden is taxing everyone’s retirement by attacking the very incentive to save in the first place, by making it more costly to save.
Importantly, none of the above will take much money out of circulation in reality compared to the gargantuan amounts of money that will be borrowed into existence as a result of the unbridled spending in the bill, including expanded paid family and medical leave, child care, universal pre-K and tuition-free community college, and more child and household tax credits.
That’s a lot of helicopter money. And the American people are already paying for it with higher prices, with the consumer price index up to 5.3 percent the past two months, the highest since July 2008 when it hit 5.5 percent.
That’s thanks to Congress’ Covid spending plans, including the $2.2 trillion CARES Act signed by former President Donald Trump, the $900 billion phase four signed by Trump and the $1.9 trillion Biden stimulus.
That was $5 trillion of new spending.
All told, the torrent of spending has already generated more than $5.2 trillion of new debt since Jan. 2020, much of it financed by the Federal Reserve’s digital printing presses. The M2 money stock measured by the Federal Reserve has increased $5.1 trillion from $15.4 trillion to $20.5 trillion.
We literally printed $5 trillion to cover the spending. Unsurprisingly, inflation popped.
Meanwhile, the $3.5 trillion of new spending proposed does not include the additional $1.2 trillion infrastructure bill that passed the Senate and included about $550 billion of new spending.
That is another $4 trillion in new spending that will be largely front-loaded, that is spent now, and “paid for” later. The reasons it will be spent right away are two-fold: 1) Democrats plan on losing control of the House and/or the Senate in the 2022 midterms and so don’t want Republicans to repeal spending that was set for a later date; and 2) the goal is immediate stimulus, which doesn’t come if you’re sitting around waiting ten years for monies to be spent.
So, even if the Congressional Budget Office and the Joint Committee on Taxation come back and say that the Biden $3.5 trillion stimulus — or even a more scaled back $1.5 trillion version preferred by Sen. Joe Manchin (D-W.Va.) — is “paid for” in future years will all the new tax hikes on the wealthy, the fact is, immediately there will be trillions of more debt, more helicopter money from a printing press and therefore more inflation.
In the end, we all will pay for the stimulus.
Robert Romano is the Vice President of Public Policy at Americans for Limited Government.
