[R-G] [BillTottenWeblog] Change You Can Suspend Disbelief In

[Bill Totten]

ClubOrlov (April 22 2009)

This is a guest post by Publius III. I am happy to see that guest posts
are becoming a venerable institution here at ClubOrlov. Long live Samizdat!

Comprehensive tax relief is America's surest route to effective economic
stimulus and genuine recovery. Elimination of all US income taxes would
offer irresistible incentives to every American to go out and shop,
swiftly restoring hope, confidence, and economic stability. For the US
government, this policy shift would produce greater benefits at lower
cost than any rescue package that has been tried or even considered.

How I learned to stop worrying and love the deficit

Over the last thirty years, the world has learned that deficits are a
boon to any economy that is wise enough to use them appropriately.
Indeed, perennial deficits have become a useful predictor of a nation's
economic health and growth. It is government deficit spending that has
created the jobs that have kept our little home planet glowing so
brightly in the darkness of interstellar vacuum. The value of economic
growth stimulated by each year's deficit invariably exceeds the nominal
cost of the deficit itself. Budget deficits are also desirable on their
own merits, because government borrowing provides a risk-free financial
safe haven where the world's economic winners can place their winnings.
These facts compel us to recognize that a perpetually growing total debt
is highly desirable. The Obama administration certainly recognizes this
key fact, and has been doing all it can to push public finances into the
red as far and as fast as possible. It has also been working hard to
"get the banks lending again", in order to promote rapid debt expansion
in the private sector as well. Although most of this new debt would
never be repaid, the massive wave of defaults will present a perfect
opportunity for more government bailouts of insolvent financial
institutions, further enhancing the deficit.

American redux

In 1835, the debt of the adolescent American republic was an
unimpressive $34,000. But decade after decade the federal debt continued
to expand, along with American power and influence. By the middle of
April 2009, America's federal debt stood at $11.2 trillion. Current
projections suggest that the total is on track to make $13 trillion
before the end of the 2009 fiscal year.

Coincidentally, this figure is close to the one Bloomberg gave toward
the end of March for the costs of the US government's various rescues,
backstops, and guarantees in the current crisis. Bloomberg's tally so
far shows the American public with $12.8 trillion in such spending and
promises. Realistically, the odd war here and there will add another $3
trillion to America's deficit spending in the relatively short term.
Neil Barofsky, the Treasury Department's Special Inspector for oversight
of the first $700 billion allocated by Congress to help ease the pain on
Wall Street, asserts that an additional $2.3 trillion will be needed for
that purpose, taking the visible banking tranche to about $3 trillion,
for now.

Meanwhile, a different branch of the US Treasury - the Office of the
Comptroller of the Currency - catalogs $170 trillion in derivative
exposure among five large US banks. A commonly accepted estimate of the
failure rate of these derivative instruments is twenty percent. If the
government is to continue to bail out the country's major financial
institutions, the American public should expect this exposure to yield
at least $34 trillion in new obligations. America's federal housing
lenders Fannie Mae and Freddie Mac will no doubt want to pitch in as
well, contributing another $5 trillion of their own exposure.

Finally, estimates of the present value of the unfunded entitlements of
Social Security, Medicare, and Medicaid involve much guesswork but
generally tend to fall in the range of $50 trillion to $150 trillion.
For the sake of this analysis, let us accept the mean value of $100
trillion as gospel.

And so, in round numbers, we are looking at somewhere around $180
trillion in total American public debt. No other single parameter could
better indicate America's full spectrum dominance in world affairs. Now,
contrast this majestic sum with America's net income-tax receipts in
2008: a mere $1 trillion. The idea that such a paltry sum can defray the
nation's public debt is simply laughable, and yet the economic damage it
inflicts is no laughing matter at all. Its continued existence is
nothing less than an insult to America's hard-working men and women.

Although the notion that income taxes could be eliminated altogether
might seem shocking at first glance, the logic for doing so is deeply
reassuring. Our $1 trillion in tax receipts is trivial. It would never
be missed by the American government. Yet it remains a drag on consumer
behavior. While the tax represents less than 0.6% of America's debt
being amassed as you read these words, it represents 217 times America's
disposable income. That is, the abolition of the federal income tax has
a benefit-to-cost ratio of more than 36,000 to 1. A negligible increase
of existing debt would translate promptly into a massive and continuing
stimulus as taxable earnings are transformed into disposable income.

Deficit attention disorder

In an environment where $12.8 trillion can be conjured and deployed in a
matter of weeks, and where expressions of dollar-denominated public
obligations require fifteen digits, America's income-tax revenue is a
mere rounding error in terms of government finance. Furthermore, as
Federal Reserve chairman Ben Bernanke revealed in his recent "60
Minutes" interview on CBS television, the money being spent to rescue
the American economy costs taxpayers nothing, because "it's much more
akin to printing money than it is to borrowing". And so Bernanke should
find no problem with printing an extra trillion each year to make up for
the loss of federal income tax receipts. Although it may superficially
seem like an increase in government obligations, rest assured that it
will not cost taxpayers a thing. Banish the thought of eventual
repayment! We know full well that deficits just make America stronger!
History now demands bold, decisive action from all of us!

Don't take it to the bank

No other program could produce an equivalent psychological or economic
impact. For every individual US taxpayer, the abrupt and overwhelming
relief of tax absolution would trigger an avalanche of consumer spending
dwarfing all previous exuberances, irrational and otherwise. The
benefits would extend to every wage earner and to all who are
self-employed. Even those who pay no taxes today would indirectly
benefit from the inevitable tsunami of prosperity. Stop thinking of it
as debt; think of it as free money. Repeat after Chairman Bernanke:
"it's much more akin to printing money". And if that money is printed in
sufficiently large denominations, then printing a lot of money at once
becomes very economical. Let's roll!

http://cluborlov.blogspot.com/2009/04/change-you-can-suspend-disbelief-in.html


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