Will President Joe Biden’s $1.9 trillion America Rescue Plan Act decimate the nation’s finances? That ship sailed a long time ago as the country’s fiscal reckoning was already penciled in by the grim reaper in accounting. Republicans, many of whom abandoned the cause of balancing the books of the last four years, are wringing their hands about the price tag and the paucity of coronavirus-related funding. Senator John Kennedy (R-LA), prone to making hilarious analogies, said the legislation is “like calling Harvey Weinstein a feminist.” It turns out that the GOP may not need to feign its outrage over the cost because the previous administration put together a rainy-day fund through capital markets during the pandemic.
The Trump War Chest
In the weeks and months following the first wave of the COVID-19 public health crisis, the Treasury Department, helmed by then-Secretary Steven Mnuchin, amassed a rainy-day fund. Rather than leaning on today’s taxpayers to foot the bill, President Donald Trump and his team auctioned off inflation-protected securities, floating rate notes (debt instruments with variable interest rates), and nominal coupon auction-size increases. Before the start of the economic collapse, Mnuchin also sold the 20-year Treasury for the first time since the 1980s.
Put simply, the U.S. government flooded the market with hundreds of billions of dollars worth of bonds to fund excessive spending. In total, the U.S. borrowed $2.999 trillion to pay for virus-related outlays. After covering some of the budget, Trump left behind a $1 trillion war chest. The previous administration understood that the world’s largest economy would likely need another enormous injection of stimulus and relief to cushion the blow from the coronavirus-induced financial crisis.
“Early on in the Covid crisis, I made sure we always had ample funds on hand to be prepared for any needed economic response,” Mnuchin told Politico in an email.
Indeed, the Treasury Department is required to possess ample reserves to fund immediate government obligations. These deposits are held at the Federal Reserve. Thanks to Trump’s efforts, the Treasury’s funds quadrupled, from $400 billion in 2019 to $1.6 trillion last year. In 2021, the Treasury is projected to consume between $600 and $1 trillion of the borrowed funds to cover President Joe Biden’s stimulus and relief package. This means that Treasury Secretary Janet Yellen can sit back and relax since she does not need to employ too many new instruments to raise some quick cash. Most of the heavy lifting has been performed by her predecessor.
Bidenomics: Tax ‘Em
What is one of the chief tenets of Bidenomics: tax, borrow, or print? It could be the Democratic way: Tax ‘em. During the 2020 election campaign, Biden revealed that he would repeal Trump’s tax cuts, which led to incredible economic growth across the board, on day one. While he has yet to pull the trigger on this pledge, Biden might be getting the wheels in motion to start engaging in legalized larceny.
Bloomberg, citing unidentified sources, is reporting that Biden is planning to introduce the largest increase in federal taxes in about 30 years to fund his aggressive economic programs. According to the report, this would be the state of his proposal:
- Raise the corporate tax to 28%.
- Boost the income tax rate for individuals earning more than $400,000.
- Increase the estate tax.
- Expand the capital gains tax for individuals making at least $1 million.
It is estimated that Biden’s plans would generate approximately $2.1 trillion over ten years. But would this be necessary considering that the 45th president left behind most of the funds to cover a significant percentage of COVID-19 relief? Only if Biden plans to use new revenues to pay for other progressive goodies, such as universal child care, social justice equity endeavors, and the Green New Deal. If that is the case, the current White House needs to add trillions to coffers before tapping capital markets and the central bank’s printing press again. No matter what, this will hardly put a dent in the $28 trillion national debt.
Can America Afford Tax Hikes?
The government’s shutdown of the U.S. economy led to widespread financial destruction, worse than what transpired during the 2008-2009 Great Recession. For many Americans, a lifetime’s wealth generation was eviscerated, businesses closed their doors, and retirees lost a considerable sum of their investments. And this does not include the health and social consequences of placing the nation under house arrest. The United States is facing bankruptcy after decades of reckless abandon of the public purse, thanks to politicians pretending to be coquettish mistresses who can shower the people with complimentary pleasure. Unless they put their stimulus checks into AMC and GameStop shares, it will take millions of Americans years to recover from statists’ odious desires to imprison the population. A tax hike at this time will only exacerbate their plight.
Read more from Andrew Moran.