If you saw the Drudge headline about some sort of global wealth tax, I’d like to add my two cents (with 0.63¢ of that going to the government). Here’s the nutshell version:
In his November investment commentary for bond giant Pimco, Mr. Gross asks the “Scrooge McDucks of the world” to accept higher personal income taxes and to stop expecting capital to be taxed at lower rates than labor. As for the IMF, its latest Fiscal Monitor report argues that taxing the wealthy offers “significant revenue potential at relatively low efficiency costs.” The context for this argument is the IMF’s expectation that in advanced economies the ratio of public debt to gross domestic product will reach a historic peak of 110% next year, 35 percentage points above its 2007 level.
The short version of this argument is: You must be forced to pay for my profligacy. Which is nice work if you can get it, I suppose.
But government profligacy is now in theory infinite — no amount of taxation can ever pay for it. I’ll move now from the global scale of this story and focus instead on our domestic problem to explain what I mean. But given that the US produces about a quarter of the world’s wealth and a jillion percent of its debt, that seems fair.
I’m not kidding, being facetious, or even exaggerating when I say that there’s no longer any kind of theoretical limit on what Washington can spend. “Entitlement” spending — now bigger than defense — must by law go up every year and the checks must by law go out as scheduled. These items are not a part of our budgeting process, assuming in an age of endless Continuing Resolutions that there still is a budgeting process. Why did we get an $857,000,000,000 stimulus in 2009? Because that’s how much Congress figured it could get away with. But some future Congress might not feel such nobel restraint.
The Fed is injecting $85,000,000,000 a month into the economy. That’s up from $40,000,000,000 because the Fed found that $40,000,000,000 wasn’t creating enough jobs. Well, I think it’s safe to say that $85,000,000,000 hasn’t done a whole lot in that regard, either. So why not pump $150,000,000,000 a month? A trillion? A whatever-comes-after-a-trillion. “Don’t tell Obama what comes after a trillion,” goes the old joke; but I’m pretty sure Janet Yellen already knows.
There’s no limit on what Washington can spend, not in the Age of Entitlements. And there’s no limit on what the Fed can print, because they say so.
Let’s take an Enemy of the State bad guy billionaire like Sheldon Adelson. There aren’t many like him, what with him being the 11th richest man in the world according to Forbes. His net worth is estimated to be $28,500,000,000. Let’s pretend you could get that much in cold, hard cash if you forced him to liquidate his assets in a rush. On Sheldon Adelson — and there are only ten richer than him — could pay for one-thirtieth of the Stimulus. Or he could cover about ten days worth of the Fed’s multi-year cash pump.
“You’re gonna need a bigger billionaire,” would be Brody’s message to the IMF.
You can’t tax the rich nearly enough to cover what government can spend, so they’ve got to come after the middle class. But between the Fed’s pump and Washington’s foot, the middle class is having the life squeezed out of it — so where will they go for the money?
We’re $17,234,000,000,000 in debt which was supposed to make the economy grow, and yet still the debt grows faster (5.5% this year) than the economy (maybe 2.5% this year if we’re lucky).
So if you want to know where the money will come from, the answer is: They already spent it.