Congress is struggling to pass a budget. President Biden, with a Democratic House and Democratic Senate, still hasn’t passed a budget or the huge infrastructure bill, with several key senators balking at this huge bill; they’ve good cause to balk.
The story now coming out of Washington, both the Speaker’s office and the White House, is that the infrastructure bill, at nearly $3.5 trillion, won’t actually cost anything. The White House Chief of Staff said that: “The net cost of ‘Build Back Better’ is zero…We have found a way to pay for every part of the spending with taxes.”
Got that? Taxes don’t cost anything.
First, you will be paying more: income taxes, social security, medicare; If you own any stock, more capital gains tax. And so on. But maybe that’s not a cost. So, what is a cost? Consider this from Professor Per Bylund of Oklahoma State University:
The cost of one action is the value you could otherwise have gained from taking another action. In other words, if you have $100 and you have the choice to buy two goods, each at a price of $100, you’ll naturally choose whichever is more important (valuable) to you. The cost of it is not the $100, which you give up to purchase it, but the value of the other good, which you can no longer purchase. That other good is the opportunity foregone by your action, the true cost of your action — the economic cost.
Yet, the government spin is that taxes don’t cost anything. I guess they know better how you want to spend your money.
Furthermore, there is a willful ignoring of the consequences of tax policy. Is it possible that various individuals and corporations will, rather than pay higher taxes, move themselves or their businesses to places where the taxes are lower? Of course. No one pays any more taxes than they have to.
Of course, some people like to suggest that they’d pay higher taxes gladly. They are, of course, free to give the government more money. There is, in fact, a way to pay more taxes, the Treasury provides it to all of us. Interestingly, not much shows up. The most money ever dropped into that fund is $5.1 million in 2014 (https://www.treasurydirect.gov/govt/reports/pd/gift/gift.htm ), but just $1.1 million so far this year. So much for billionaire altruists.
But, consider what $3.5 trillion cost really equates to: there are currently about 150 million people – employed – in the US. They generate a gross domestic product of about $23 trillion, or about $155,000 in goods and services per every employed citizen.
Stated otherwise, if you inject $155,000 into the economy you’ll create a job. That isn’t perfect, but it works out on the average. At the same time, that isn’t the average earned income. First, every company needs to deduct corporate taxes, interest payments, depreciation, dividends to the folks who own the company, etc. This normally runs to 30% or more of gross revenue. The company also needs to set money aside for workman’s compensation, retirement funds, etc. A worker who brings in $155,000 in gross revenue will be paid less than $100,000.
So, every $155,000 in taxes means one lost job. But how much does the government need to spend to create a $155,000 job? As it turns out, the administrative cost of the federal government – the handling charges, as it were – typically run in excess of 15%. Even if it were just 10%, that would mean the federal government would spend $170,000 to create a job producing $155,000, but presumably it would be a job that the market did not believe was essential – otherwise the market would have created it and there’d have been no need for the government to do so.
Said differently, for every $155,000 in tax collected, a job paying some close to $100,000 per year is destroyed, and then the Federal government will spend more than $170,000 to create a job the market didn’t want.
So, by taxing the economy an additional $3.5 trillion, “Build Back Better” will cost the nation 22 million jobs, and will create at most 20 million jobs, a net loss of 2 million jobs. (In fact, the government isn’t that efficient…)
Furthermore, the jobs lost will be jobs the economy created and therefore wanted, while the jobs created by government will be jobs that the market was not going to create, jobs that the government decided to create rather than jobs the marketplace identified as necessary. They are, therefore, of decidedly less value to the marketplace. Overall, that means fewer people employed, and employed at less worthwhile jobs.
That’s what “Build Back Better’ really costs.
Add on top of that is the issue of inflation. The Federal Resave and the Treasury have been trying to sell the story that there really isn’t any inflation, but they seem to be losing the argument. Gasoline prices are up, heating fuel prices are up, natural gas and propane are up. Food prices are rising.
And, we often choose to ignore a major component of inflation because it makes us all feel better. But consider our houses: a house purchased in 1999 for $250,000 may now be appraised for $500,000. Government documents reflect “current valuation,” suggesting that the house has increased in value.
But it hasn’t. The house has increased in cost, but the intrinsic value is the same. True, you can sell the house and buy a smaller house. Then you’ll pay a capital gains tax, which is sometimes less than your income tax rate, but, if you are not in the top income bracket, less often than you think.
Consider: [Using February 2020 as a reference point (the month before the economy dropped (March of 2020))]
Gasoline: 02/20 – $2.55 / gal 09/21 – $3.27
Natural Gas: 02/20 – $1.96 / MMBTU 09/21 – 5.87 / MMBTU
Food Basket: 4.7% higher August 2020 to August 2021
Rent: National average up 10.1% year to year
The inflation rate for September was listed at just over 5% but for those who remember inflation rates of the 70s or 80s or even the 90s, the numbers mean different things, as the federal government has changed exactly how they define inflation – mainly so they look good. The point is, it may feel like inflation to you but the folks in Washington will keep saying there is no inflation.
No costs, no inflation. Understand? As Groucho said: “Who ya gonna believe, me or your lyin’ eyes?”
Copyright 2021 Arrias
www.vicsocotra.com