Tax Cuts Are An Expense To The Federal Government

[_.sokoa]

Let’s examine your “mathematically possible” scenario. A tax rate of 29% on $100 of X gets you $29 of tax revenue. It would take about $132 of X (32% more) in order to get $29 of tax revenue at a tax rate of 22%.

That shows it would take about a 32% growth of the tax base (a tall order indeed) for a tax rate of 22% just to break even with a tax rate of 29%.

Thanks again.

 

[eohrnberger]

It was the supply chain issues that caused the inflation.

True. Largely COVID, and also the Democrat's spending spree which made that inflation needlessly worse, historic levels in fact.

It was the COVID payments (which I think were handled poorly) that kept people off the street and businesses from closing.

I'm on record here stating my position that the COVID relief was overly generous. I still stand by that positon.

I have correctly explained the mechanics of deficit spending (which you did not know), and I have also explained why your fears have not and will not come to pass. You have provided nothing in the way of evidence or historical precedents to back your claims.

See post #449, where interest on the debt is second only to SS payments.

Clearly you don't understand how money gets into circulation.

Firstly you claim I'm blaming the Fed for 'any and all economic hiccups', I'm not , and rather defend this baseless assertion, divert off into another topic.

The last time that the Fed did more "money printing" than normal was QE, and QE didn't have any of the disastrous effects that a lot of economists were worried about. That was 16 years ago; it's about time you figured that out for yourself.

Ahem. The value of the dollar did exactly what I said it would when there's more money put into circulation.

QE Programs and Dollar Value
The Federal Reserve implemented several rounds of QE, primarily QE1 (2008–2010), QE2 (2010–2011), QE3 (2012–2014), and QE4 (2020–2022). The value of the dollar is often measured by the U.S. Dollar Index (DXY), which tracks the dollar's strength against a basket of major currencies (e.g., euro, yen, pound). A decline in the DXY indicates a weaker dollar.

1. QE1 (November 2008 – March 2010):
   • Context: The Fed announced QE1 in November 2008, purchasing $1.25 trillion in mortgage-backed securities, $175 billion in agency debt, and $300 billion in Treasuries. This increased the Fed’s balance sheet from $882 billion in 2007 to over $2 trillion by 2010.
   • Dollar Impact: The DXY fell from a peak of around 88 in March 2009 to approximately 74 by mid-2010, a decline of about 15.9%. This weakening was partly due to increased money supply and lower interest rates, which made the dollar less attractive to investors. However, the decline was also influenced by global financial instability and recovery dynamics, not solely QE.
     
2. QE2 (November 2010 – June 2011):
   • Context: The Fed purchased $600 billion in long-term Treasury securities. The balance sheet grew further, reaching around $2.8 trillion.
   • Dollar Impact: The DXY dropped from about 78 in November 2010 to a low of 73 in April 2011, a decline of approximately 6.4%. The dollar weakened as QE2 increased liquidity and lowered yields, encouraging investors to seek higher returns in riskier assets or foreign currencies.
     
3. QE3 (September 2012 – October 2014):
   • Context: The Fed committed to monthly purchases of $40 billion in mortgage-backed securities and $45 billion in Treasuries, expanding the balance sheet to $4.5 trillion by 2014.
   • Dollar Impact: The DXY fluctuated but showed relative stability, ranging from about 80 in September 2012 to 79 by late 2014, a modest decline of around 1.3%. The dollar’s value was less affected during QE3, as global economic conditions and expectations of Fed tapering mitigated the impact of increased money supply.
     
4. QE4 (March 2020 – Spring 2022):
   • Context: In response to the COVID-19 pandemic, the Fed announced an unlimited QE program in March 2020, purchasing $700 billion initially and expanding the balance sheet from $4 trillion to nearly $9 trillion by 2022.
   • Dollar Impact: The DXY fell from a high of 102.8 in March 2020 (at the onset of the pandemic) to around 89.4 by January 2021, a decline of approximately 13%. This weakening was driven by massive liquidity injections, near-zero interest rates, and global demand for dollar-denominated assets during the crisis, though the dollar later strengthened as the Fed signaled tightening in 2022.

The value of the dollar fell. Its purchasing power diminished. Goods and services got more expensive for the customers.

I didn't say that you said "end the Fed." I just said that you are adopting the same arguments as those who say "end the Fed." You both blame the central bank for inflation.

 

[JohnfrmClevelan]

Highlighting: "net interest costs on the federal debt reached $881 billion, surpassing most other federal budget categories except Social Security"
Sorry, but you've just blown any credibility you might have had on the topic.

Name one time where the government needed money and couldn't come up with it. Go ahead and ask Pete Peterson if you need help.

 

[JohnfrmClevelan]

True. Largely COVID, and also the Democrat's spending spree which made that inflation needlessly worse, historic levels in fact.

Hardly historic, unless you carefully choose parameters to frame it that way. There was no way to avoid inflation when the pandemic shut large parts of the economy down.

I'm on record here stating my position that the COVID relief was overly generous. I still stand by that positon.

It was overly generous to businesses, and hucksters, because our government caters to businesses. People without work were struggling to get by. European countries were smarter; they picked up large portions of businesses' payrolls directly and paid people to stay home.

See post #449, where interest on the debt is second only to SS payments.

That's only evidence of a budget item, not of the mechanics of federal finance. Point to a time when the government needed money and couldn't come up with it, and you might have something. Until then, not funding other things is still a political choice.

Firstly you claim I'm blaming the Fed for 'any and all economic hiccups', I'm not , and rather defend this baseless assertion, divert off into another topic.

You said this: "Its not 'any and all economic hiccups' when the fed clicks its mouse, fabricates more currency in circulation, devaluing the currency..." Again, deficit spending does not add dollars, it adds bonds.

Ahem. The value of the dollar did exactly what I said it would when there's more money put into circulation.

Deficit spending does not put more money into circulation.

QE Programs and Dollar Value

The value of the dollar fell. Its purchasing power diminished. Goods and services got more expensive for the customers.

QE programs are a different question, and were put into place for different reasons. Off topic, but I don't really mind.

COVID era inflation was a worldwide phenomenon. How did the dollar do against other currencies?

Things got more expensive in the U.S. largely because companies took the opportunity to raise prices. At first out of necessity, and later out of opportunity.

 

[eohrnberger]

Name one time where the government needed money and couldn't come up with it. Go ahead and ask Pete Peterson if you need help.

This pointing out the problem with government spending the Congress' apparent attitude that the American tax payers are little more than an bottomless ATM machine to them.

Further, your premise is demonstrably incorrect.

• U.S. Capitol Police (Post-January 6, 2021)
  Complaint: Following the January 6, 2021, Capitol riot, the U.S. Capitol Police (USCP) repeatedly cited insufficient funding as a barrier to improving security and addressing staffing shortages. Acting Chief Yogananda Pittman testified before Congress in February 2021, stating that the agency’s budget was inadequate to meet new threats, lacking funds for hiring, training, and equipment upgrades. The USCP union echoed this, noting a $37 million shortfall in 2021 for officer overtime and protective gear.
  
  
• Veterans Affairs (VA) Health Care (2023–2025)
  Complaint: The Department of Veterans Affairs has consistently cited insufficient funding to meet rising demand for veterans’ health care, particularly after the 2022 PACT Act expanded benefits for toxic exposure. VA Secretary Denis McDonough warned in September 2023 that a $16 billion shortfall for fiscal year 2024 would force delays in hiring 52,000 staff, clinic expansions, and mental health services. In 2025, the VA requested $369 billion for 2026 but projected a $12 billion deficit, per Stars and Stripes.
  
  
• Federal Emergency Management Agency (FEMA) (2024–2025)
  Complaint: FEMA Administrator Deanne Criswell warned in October 2024 that the agency’s Disaster Relief Fund (DRF) faced a $7 billion shortfall, limiting response to hurricanes Helene and Milton. In March 2025, Criswell told Congress that flat funding ($20.3 billion for 2025) was insufficient for escalating climate-driven disasters, projecting a $10 billion deficit by 2026, per Reuters.

I mean I could go on and on, this is only a sample.
Your assertion "the government needed money and couldn't come up with it" specific to government programs has been demonstrated as being false.

In the larger context, the US federal government over all, yes, its come up with money, by mortgaging our children's future, burdening them with unsustainable levels of federal debt.

The current US national debt is almost $37 trillion and represents over 120% of US gross domestic product. Pre-pandemic in 2019 the debt was $27 trillion.​

​

The news gets worse. Even when the American economy performs strongly, often despite the efforts of the political class, the debt continues to rise. That has been the case since 2001. Moreover, servicing the debt is becoming increasingly expensive with the costs driven by both the higher level of debt and the higher interest rates that the Federal government must pay. Given the short-term nature of much of the US national debt, there will be further increases in the 2.97% average interest rate paid in 2023, at least in the next year or so. The Federal government is currently having to borrow additional money to pay its interest bill. Books on financial literacy do not recommend that type of behavior.​

Mortgaging America’s Future - Nicholas Hoffman and Company

Short term drama tends to distract attention from long term thinking. There is no current shortage of short-term drama when it comes to American daily life. So, we should ask: what long-term issues are being downplayed, or outright ignored, as our attention is grabbed by bizarre and tragic...

nhoffmanandco.com

 

[rahl]

I've shown it to be mathematically possible and you're just restating what you said before, now for anyone reading through this besides you would pretty much understand how you haven't did anything besides talk about history which isn't relevant in this case and restate the same things I've been debunked. But you can go by what you believe I guess...

Refuted this. 22% will always be less than 29%. This is a mathematical fact. Belief has nothing to do with it. It’s mathematical fact.

The Republican fantasy that tax cuts cause a magical increase in economic output, therefore tax cuts pay for themselves, is a proven lie. It has never happened in the 4 decades they have been doing it. All that has happened is deficits and debt has exploded because revenue collected decreased.

 

[_.sokoa]

Refuted this. 22% will always be less than 29%. This is a mathematical fact. Belief has nothing to do with it. It’s mathematical fact.

The Republican fantasy that tax cuts cause a magical increase in economic output, therefore tax cuts pay for themselves, is a proven lie. It has never happened in the 4 decades they have been doing it. All that has happened is deficits and debt has exploded because revenue collected decreased.

Okay rahl...

 

[AZRWinger]

Some countries have campaign finance laws.

America should try it.

In Canada you have to actually get out and meet the public. Maybe if you crippled the lavish campaign financing and made them actually get out and meet the voters....

Maybe you wouldn't end up with "rich and stupid" anymore

The US has extensive campaign finance laws under the administration of the FEC. We also have a public financing option for Presidential candidates. Public financing has effectively been crippled by Barack Obama who broke his promise to use public financing exclusively when he found he could raise more in private donations.

In the 2020 campaign President Trump made mass rallies the core of his campaign. Joe Biden famously ran for President from his basement. The 2020 election delivered a brain damaged, life long corrupt politician as the victor.

 

[JohnfrmClevelan]

Okay rahl...

Best to leave it here. Rahl's method is to relentlessly repeat dumb stuff until you go crazy.

 

[JohnfrmClevelan]

This pointing out the problem with government spending the Congress' apparent attitude that the American tax payers are little more than an bottomless ATM machine to them.

Further, your premise is demonstrably incorrect.

I mean I could go on and on, this is only a sample.
Your assertion "the government needed money and couldn't come up with it" specific to government programs has been demonstrated as being false.

In the larger context, the US federal government over all, yes, its come up with money, by mortgaging our children's future, burdening them with unsustainable levels of federal debt.

The current US national debt is almost $37 trillion and represents over 120% of US gross domestic product. Pre-pandemic in 2019 the debt was $27 trillion.​

​

The news gets worse. Even when the American economy performs strongly, often despite the efforts of the political class, the debt continues to rise. That has been the case since 2001. Moreover, servicing the debt is becoming increasingly expensive with the costs driven by both the higher level of debt and the higher interest rates that the Federal government must pay. Given the short-term nature of much of the US national debt, there will be further increases in the 2.97% average interest rate paid in 2023, at least in the next year or so. The Federal government is currently having to borrow additional money to pay its interest bill. Books on financial literacy do not recommend that type of behavior.​

Mortgaging America’s Future - Nicholas Hoffman and Company

Short term drama tends to distract attention from long term thinking. There is no current shortage of short-term drama when it comes to American daily life. So, we should ask: what long-term issues are being downplayed, or outright ignored, as our attention is grabbed by bizarre and tragic...

nhoffmanandco.com

You cited what is basically an advertisement for a financial planning firm.

Further, the shortfalls you noted were exactly what I described - political decisions to underfund things. NOT emergency situations where politics is not the main issue.

"American tax payers are little more than an bottomless ATM machine to them"

This is why I take pains to explain federal funding in terms that normal people should be able to understand. The government does not use private-sector generated money in order to deficit spend. There is no borrowing from banks, and there is no borrowing from the private sector. The government issues bonds, which are assets to the PS. They exchange these bonds for pre-existing reserves because reserves are what they need to spend, and then they spend those reserves right back into the economy. (An analogy I have used before - it's like me giving you a paper dollar and a dime in exchange for four quarters that I need for an old-school vending machine. You have lost nothing in the deal, and even gained a dime.) The PS as a whole has lost nothing, and has in fact gained bonds. The PS is just as able to spend as they were before they bought the bonds. And the government is just as able to spend later even though they have taken on more financial obligations. That is not a debt situation. That is a self-funding government funding themselves.

"Even when the American economy performs strongly, often despite the efforts of the political class, the debt continues to rise."

True. You might want to think about why that is.

 

[aociswundumho]

There is no borrowing from banks, and there is no borrowing from the private sector.

When the government issues bonds, somebody buys them, whether it's a bank, a pension fund, or China. Even if reserves are exchanged in the process, the government is still increasing liabilities - that’s borrowing. Saying the government doesn’t borrow because it issues bonds in exchange for reserves is like saying I didn’t borrow money, I just gave someone an iou in exchange for cash.

That is not a debt situation. That is a self-funding government funding themselves.

If the government is issuing bonds it must repay with interest, it is debt by any meaningful definition. Calling it "self-funding" sidesteps the fact that obligations have been created and must be serviced, just like any other debt.

You people are downright dangerous.

 

[rahl]

Best to leave it here. Rahl's method is to relentlessly repeat dumb stuff until you go crazy.

I’m sorry that your ideological beliefs ran face first into the brick wall of reality.

 

[JohnfrmClevelan]

When the government issues bonds, somebody buys them, whether it's a bank, a pension fund, or China. Even if reserves are exchanged in the process, the government is still increasing liabilities - that’s borrowing. Saying the government doesn’t borrow because it issues bonds in exchange for reserves is like saying I didn’t borrow money, I just gave someone an iou in exchange for cash.

Well, that's your (narrow and close minded) definition of "liability." Dollars directly issued (we used to do this) are liabilities as well - would you call those "debt" just because they are also liabilities?

If the government is issuing bonds it must repay with interest, it is debt by any meaningful definition. Calling it "self-funding" sidesteps the fact that obligations have been created and must be serviced, just like any other debt.

See above. Not all liabilities are debt, and not all debts are alike. You servicing a debt takes real resources - your limited labor. The government uses no real resources to service their "debt." They can never run out of what they need to service those bonds. They never need to extinguish the pile of bonds. There are a lot of differences here, if you just open your eyes and start thinking.

You people are downright dangerous.

What, the ones who understand this stuff? Knowledge is dangerous? You are the caveman who wants to keep your tribe safely in the cave, so you tell them scary myths about what would happen to them if they got out into the sunlight. But you will remain cave-dwellers forever that way.

 

[_.sokoa]

True, but irrelevant, because MMT gives political cover to do exactly that.

Phew, almost thought you were going against MMT and not the politicians.

the temptation to spend becomes politically irresistible

The temptation.... that always existed?

because every special interest group claims "underused resources."

It's almost like the role of policy isn't to abolish competing interest and instead to adjudicate between them based on actual data.

MMT assumes a benevolent, rational state. The reality is a bunch of idiot politicians who do what benefits themselves.

Actually it describes what the state can do if it understands its own monetary sovereignty. That's a difference between prescriptive and descriptive economics. However I would like for you to pinpoint me to where in MMT it is saying, "Politicians are angels who will always spend money on perfect social programs and never waste a dime." I mean going by your logic I could say every economic theory is invalid.

 

[aociswundumho]

Actually it describes what the state can do if it understands its own monetary sovereignty.

All governments understand monetary sovereignty. Here's a short list of some of them, but by no means all of them:

 

[JohnfrmClevelan]

All governments understand monetary sovereignty. Here's a short list of some of them, but by no means all of them:

View attachment 67575465

It was only a matter of time before you fell back on the ol' hyperinflation stuff.

OK. Which of these examples had no underlying economic problems that were the real cause of their inflation?

 

[aociswundumho]

You servicing a debt takes real resources - your limited labor. The government uses no real resources to service their "debt."

Paying interest injects money into the economy, correct? That money buys real goods and services, drawing on real resources. If it didn’t, there would be no risk of inflation.

They can never run out of what they need to service those bonds.

Sure, it can create more dollars. Can the government guarantee those dollars will always buy the same amount?

 

[aociswundumho]

OK. Which of these examples had no underlying economic problems that were the real cause of their inflation?

Name a government that has no underlying economic problems.

"The fire only got out of control because the house was made of wood."

 

[JohnfrmClevelan]

Paying interest injects money into the economy, correct? That money buys real goods and services, drawing on real resources. If it didn’t, there would be no risk of inflation.

Paying interest is like any other expense item - it injects bonds into the economy. Interest payments basically just add more treasuries to the pile.

Government spending, even though it adds no dollars to the economy, does add demand, which comes with some inflationary pressure, because it draws on real resources. So does all commerce.

Government funding, which was what I was talking about before, costs the government nothing and does not draw on real resources. That was an argument about why govt. debt is not true debt.

Sure, it can create more dollars. Can the government guarantee those dollars will always buy the same amount?

Nope. But they are doing a pretty good job so far.

 

[JohnfrmClevelan]

Name a government that has no underlying economic problems.

Governments that have no hyperinflation-inducing kinds of problems? The U.S., U.K., Europe, Japan, Canada, Australia, etc.

It's easier to simply look at your list of hyperinflation episodes and ask what big problems those countries faced at the time. Lots of wars in there. Political upheaval, etc. We've been over this stuff before. It takes a large dropoff in production or some other cataclysmic event that stops the economic wheels from turning.

"The fire only got out of control because the house was made of wood."

Not all wood homes end in fire.

 

[rahl]

Government funding, which was what I was talking about before, costs the government nothing and does not draw on real resources. That was an argument about why govt. debt is not true debt.

right. Which if this were actually true, we can then stop all tax collection and the government can simply print and spend as much as needed to cover whatever expenditures it desires.

 

[aociswundumho]

It was only a matter of time before you fell back on the ol' hyperinflation stuff.

Genuine question: If governments already struggle with restraint, how exactly does MMT make hyperinflation less likely to happen?

 

[Bullseye]

Tax Cuts have the common sense effect on the federal register. The lower the rate, the lower the revenue. Any burst of consumption seen on the lower end, by a relaxation of the tax burden, is rendered beyond negligible by missed revenue on high income earners. In order to maximize the government's available resources, we need to reform our tax policy. I'm open to ideas, as long as they include raising taxes on the rich and raising capital gains.

Trump is set to propose some new tax policy anytime. All the old worn out talking points will be dusted off. They are going to lie boldly, unapologetic, and knowingly right to your face. "Tax cuts create jobs" "Tax cuts boost revenue" They are going to credit tax cuts for growth, that would have existed independent of the tax cut. When the top percentiles get even more money than they need, they do not reinvest it or spend it. They save it, which has no broader impact on the economy, it has an insular impact on the lucky bank account.

Some ideas floated by Trump regarding tax policy in the past...

Ending the Estate Tax...
3 tax brackets...
Lower taxes for everyone...
Lower business taxes...

We know from history that the strategy that conservatives use to sell tax cuts to the general milieu, is that tax cuts are reinvested into the economy. History has told us this is a lie. Massive tax cuts are about transferring money to the top. High income earners don't need the extra money and they save it. A massive tax cut results in the top percentiles of income earners, keeping large chunks of money, while the lowest of percentiles keep crumbs. Allow me to demonstrate.

Let's use the top marginal tax rate of 39% for income earners of $450,000... in this small sample:
(.39)(450,000)=$175,500

We know this hypothetical person actually pays a lower effective rate than 39% through deductions available to people who can afford savvy accountants.

Let's use the same tax rate on someone who made $2,000,000. I'm going to use two million because it is a large amount of money, that will illustrate my point later on, but, it is by no means even in the ballpark of what some Wall St. and silicon valley gurus make.

(.39)(2,000,000)=$780,000, once again we should note, that this hypothetical person pays a far lower effective rate after their accountant is through.

Let's look at how much someone in the middle class pays in taxes. Median income in the United States is $51,000. The current middle class tax bracket is 25%.

(.25)(51,000)=$12,750

Let's run a hypothetical.. Let's say legislation is introduced, like Trump has proposed in the past.. which lowers the tax rate across the board. Let's say everyone gets 5 points lobbed off their marginal rate.

That brings our middle class wage earner down to 20% and our twice times millionaire down to 34%.

(.2)(51,000)=$10,200. Not bad, a 5 point reduction in his rate saved him $2,550. That's a starter car for a son or daughter, or a nice family vacation. But, let's look at how much revenue the government loses when we knock 5 points off the $2,000,000.

(.34)(2,000,000)=$680,000.. 780,000-680,000= $100,000 That's a $100,000 dollar break, on an income of $2,000,000. The sheer size of those numbers compels me to favor, giving up my extra $2,550 dollars per year, if it means we have to sacrifice that much revenue.
Yu
When you see the numbers illustrated for you, can you understand the lie? Extra consumption in the middle class can be beneficial. However, excusing the absence of important federal revenue, in the name of the middle class, is a lie as plain as day. The truth is tax cuts give extra money to people who don't need it, at the expense of deficits which reinforce the conservative favorite: cutting spending. Tax cuts are a brainchild of the right, because they disrupt the government's books, which they can then use to manufacture a debt crisis, to cut programs they disagree with ideologically, and then call Democratic programs failures. If people are genuinely for cutting taxes. They must also be for cutting spending. This includes the DoD.

So, when Donald Trump and the rest of them, tell you that they are cutting taxes for you, you'll know they are lying to you. They're cutting taxes for the rich. That is who benefits here. The Republican never introduces legislation that does not include a major win for high income earners. That is a requisite of every piece of legislation. Look at the AHCA. They outright lied to you about the AHCA and disguised tax cuts for the rich, in warm and fuzzy language, like "access" and "choice".

You neglect the increased economic activity and the tax it generates when people have more money left from their paycheck.

 

[aociswundumho]

Nope. But they are doing a pretty good job so far.

Here's what a pretty good job looks like:

 

[JohnfrmClevelan]

Genuine question: If governments already struggle with restraint, how exactly does MMT make hyperinflation less likely to happen?

Hyperinflation is not caused by a lack of restraint in government spending.

Hyperinflation is less likely to happen to well-developed, diversified economies. When most of your eggs are in one basket, like Venezuela, a steep drop in oil prices were enough to tank their economy. The same drop in oil prices affected U.S. oil companies, but the effect on our economy was negligible.

MMT doesn't make hyperinflation more or less likely to happen. But it correctly frames sovereign debt for what it is, an addition of financial assets to the PS and not a debt that must be repaid later by the PS. That changes the whole cost/benefit analysis of government deficit spending, which is a good thing. It's a good argument against the case for austerity. More government spending means more demand, and more demand, up to the point of too much, is a good thing for almost any economy.