$6,000,000,000,000.00

Remind Me Why We Pay Taxes Again

There’s an old rule of thumb in personal finance: don’t spend more than you make.

If the last 21 years of governance in the U.S. has taught us anything, it’s that this rule doesn’t apply to politicians. Politicians have a magic money machine at The U.S. Federal Reserve and can simply tap a few buttons and add a few trillion dollars in debt to the U.S. balance sheet whenever they’d like. And what’s most incredible is that U.S. Federal Reserve banks have an “unlimited ability to flood the system with money,” as Neel Kashkari, president of the Federal Reserve Bank of Minneapolis unabashedly stated:

So, if The Fed has an unlimited ability to print money and neither Republicans nor Democrats seem to have any issue with utilizing The Fed’s ability to do this,

Sven Henrich @NorthmanTrader

Americans have 2 political choices: Vote for a party that runs trillion dollar deficits or Vote for a party that runs trillion dollar deficits.

then I have a few questions:

• Why do we still pay taxes at all?

• Why do poor people still exist in America?

• Why has the inequality gap in America widened and not closed as we print all of this money?

Let me start by offering my thoughts on question number one. About a month ago, I wrote a piece in which I laid out my thoughts on Biden’s proposed capital gains tax. In the piece, I questioned the purpose of the proposed tax increase. I explained how the money brought in by such a tax would do little to nothing to offset the trillions of borrowed dollars that the government was currently spending. In this regard, the proposed tax seemed more punitive than productive. As I stated in the piece, let’s say the tax brought in $500 billion in revenue. Let’s say we gave $250 billion of that to the poor and we used $250 billion to pay down the national debt. Then, we would be $27,750,000,000.00 in debt compared to $28,000,000,000.00. Whew, if that doesn’t scream “road to financial recovery,” I don’t know what does. The point of my piece was that the money printed at the onset of the COVID-19 pandemic should have been given directly to people in need (and small businesses). Instead, it went to commercial banks and state and local governments and large, ill-managed businesses (artificially inflating their stock prices in the process). And I also stated that a capital gains tax would pose a danger to Biden’s keeping the centrists that voted for him on his side. The video below is meant to be comedic (I think), but if you don’t get the underlying point that this gentleman is hinting at, then you’ll likely be one of the people who is shocked when Biden loses to someone like DeSantis in 2024.

Ashtoshii @ashtoshii

This took me out 💀

Note: The one regard in which I do disagree with the gentleman above is the comment he made about how “Trump understands business”. I’m sorry, gentleman above, but the facts tell us otherwise, and Trump’s lack of ability as both a businessman and a leader are part of the reason the U.S. is in the current financial mess that it is.

There were a lot of new entrants into both legacy and digital asset markets this year. Some of these people made much more money in markets this year than they had ever made selling their labor. I, admittedly, am one of them (and I share this so that you understand the bias in this piece). Would I vote for someone like DeSantis as opposed Biden in 2024 just because of a proposed capital gains tax? As of right now, I can say “No”, but keep fucking with my money and the value of the dollar at large, Joey Moneybags, and we’ll see if you can get me to change my mind, especially given that you’ve still done nothing about the student loan crisis (and especially since it was the president under which you served as vice president that made the student loan crisis worse). (You can take that last comment with a grain of salt, as I have have little faith in the U.S. political system at large and even less in the U.S. dollar anymore.) Like most, I voted for Biden simply because he wasn’t Trump. And “not being Trump” is not a sustainable political platform, so we’ll see where we go from here.

Anyway, I write this piece as a follow-up to my piece on Biden’s proposed tax plan because I received multiple emails from people critiquing the article/sharing their thoughts on the article, and I am afraid that some people missed the point that I tried to make. Some people explained to me that Biden’s proposed increase in taxes isn’t “socialist” and that the government has to collect taxes to fund its programs. To this, I say, 1.) I never said it was “socialist”, 2.) I understand that the government needs money to fund programs, and 3.) Please believe me when I say that I understand that Biden is anything but a socialist. Joe Biden is a neoliberal crony capitalist. I would never give him credit for being anything other than that. His campaign was largely funded by investment banks and hedge funds. This is why I stated in my first article on this topic that I felt that the capital gains tax proposal was largely a pose. Also, I believe that terms like “socialist” and “capitalist” are relics of the Industrial Age. (The Atlantic actually published an interesting piece on this.) We need to start thinking differently about how we label politicians and how politicians label themselves as we move into the Information Age.

Some other people wrote me making the argument that increasing capital gains taxes will reduce the inequality gap. That may be true, but, in reality, the increase in taxes simply makes everyone poorer and funds larger government bureaucracy. I can’t get behind either of those ideas. My argument in the initial piece that I wrote was that the primary driver of inequality in the United States is The Fed and its ability not only to print money to no end, but to then use said money to increase the wealth of the wealthiest among us. If you want to reduce inequality, stop printing money as a means to artificially inflate asset prices. In other words, don’t make wealthy people wealthier in the first place. Stop privatizing gains and socializing losses. (I guess when we look at it this way, Biden is a socialist, at least by Dr. Martin Luther King, Jr.’s definition: “We all too often have socialism for the rich and rugged free market capitalism for the poor.”) You want to end inequality? Let the legacy markets fail, or at least stop intervening in them. Then, we can really “all be in this together” and politicians will have to make real decisions about how to remedy inequality, as opposed to running to The Fed for more money each time a new “crisis” arises. As of right now, we are not “all in this together”. We are all in the same storm, but some are weathering this storm in much nicer boats than others.

The great irony here, though, is that all of this money printing does help poor people in a way - just not the poor people who live in the U.S. The more we devalue the U.S. Dollar, the easier it is for developing countries/emerging markets to pay back their U.S. Dollar-denominated debt. (More on this dynamic here.) Most developing countries have had to borrow U.S. Dollars as a means to build the infrastructure necessary to compete in global markets. Many of these countries have, unfortunately, become enslaved to this debt (Read Confessions of an Economic Hitman, by John Perkins for more on this.) With the value of the dollar lessening each passing day, the easier it becomes for these countries/markets to pay off their debts. The more worthless the U.S. Dollar becomes, the better it is for developing countries/emerging markets, and, theoretically, the people who live in these jurisdictions. This is a small part of the reason that I think that countries in Africa, Southeast Asia, and Latin America will become great places in which to invest in the coming decade. I think digital assets will also play a role in this shift, but more on that in a future edition of the newsletter.

So, as Biden proposes his $6 trillion budget, please understand that there is almost no possible way he could tax all of us enough to pay for this. This “cheap credit” will come from private banks, the Federal Reserve banks of the United States, banks that have the ability to “flood the system with money to no end.” So, if it’s so easy and so much in the interest of the United States to take on this debt, why don’t we just take on more and completely eradicate poverty within our borders? And if this debt really doesn’t matter, why not just have Biden declare that we no longer need to pay taxes? The Federal Reserve has all the money that we could ever need. Utopia, here we come!

Best,

Frank

Twitter: @frankcorva

Nathaniel Whittemore @nlw

"Let's make it $6 trillion."