Welcome to the future of debt and a lower standard of living
Out-of-control government spending will lead to higher taxes, cuts in social spending, a lower standard of living, and eventually a socialist paradise for those who believe in fairy-tale economics.
Alexander Fraser Tytler (Lord Woodhouselee) remarked 235 years ago that democracy would last only until voters discovered that they could vote themselves generous gifts from the public treasury and so bankrupt their country. America is moving along that trajectory. Bondage and chaos will follow once it becomes obvious that growing debt and deficit spending cannot continue indefinitely. Cuts in social spending and higher taxes will burst the balloon of illusory prosperity, the result of overspending and debt accumulation.
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years. These nations have progressed through this sequence: From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to apathy; From apathy to dependence; From dependence back into bondage” – Alexander Fraser Tytler (circa 1787).
The Democrats have adopted a strategy of a “national guaranteed income” whether Americans work or not. The result is a record-low labor-force participation rate — meaning fewer Americans working and higher taxes for those who do work.
Due to Covid-relief funds, tax credits, and stimulus, 57% of American households paid no federal income tax in 2021 – more takers than makers and the government is mortgaging our children’s and their children’s futures. A family of four can receive over $100,000 annualized equivalent in cash and benefits in three States and over $80,000 in 14 States. This is a higher wage than the national median wage of a secondary school teacher, electrician, trucker, machinist, and others.
In 24 states, unemployment benefits and ACA subsidies for a family of four with both parents not working are the annualized equivalent of at least the national median household income. These subsidies exceed the value of the salary and benefits of the average firefighter, truck driver, machinist, or retail associate in those states.
A family of four with an income over $227,000 qualifies for ACA subsidies in all states and families earning over $300,000 a year still qualify for ACA subsidies in 40 states and DC.
The expansion of food stamps, health insurance subsidies, and unemployment benefits, along with the relaxation or elimination of work requirements, kept millions of people from returning to the workforce in 2021-2022. The extension of ACA subsidies and high levels of standard unemployment benefits produce precisely the same effect, although with a reduced magnitude.
Howard Gleckman, a senior fellow at the Tax Policy Center, said Covid-related job losses led to a decline in incomes, which stimulus checks and tax credits largely made up. The expanded child tax credit was also a significant factor, substantially reducing the income tax liability of more than a hundred million households and temporarily turning many payers of small amounts of federal income tax into non-payers.
The Tax Policy Center estimated that a plan calling for all Americans to pay at least $100 in income taxes would raise $100 billion in revenue in 2022. Yet such a plan, by nature, would be highly regressive: more than 80% of the tax increase would be paid by households making about $54,000 or less, and 97% would be paid by those making less than about $100,000.
States that reduced unemployment insurance maximums and provided more targeted benefits would reduce unemployment and the duration people remain unemployed. Likewise, the federal government should, at a bare minimum, roll back the extension of ACA subsidies to keep premiums from rising further.
Since most workers pay payroll taxes, the share of American taxpayers who pay neither payroll nor federal income taxes was 19% in 2021, slightly higher than the 17% rate before the pandemic. “The tax code is quite progressive,” Gleckman said. “There may be some cases where someone with a lot of wealth has little income, or they realize gains and offset those with losses or a charitable deduction. But that’s unusual.”
Because of inflation, standards of living are already falling. Since President Biden took office in January 2021, Americans have faced higher prices for food, gasoline, and other common household items. And while prices have been going up, wages have been going down, placing additional stress on family finances.
Real disposable income is down 11.5%
Homeownership affordability is down 33%
Credit card debt is up 24%
Monthly savings are down 84.9%
A new study, “It Pays Not to Work in Biden’s America” by Steve Moore, Casey Mulligan, and E. J. Antoni, makes the case that too many Americans are on the dole.
Why work?
In a 2021 study, the authors estimated that supplemental unemployment benefits of up to $600 a month, food stamp expansions, child tax credit payments, and other special Covid-related benefits to families without anyone working in the household could exceed $120,000 in many states. Those extra benefits had a highly negative effect on employment, particularly in states with the highest benefits.
While those temporary benefits have expired, the study finds that even with existing unemployment benefits and the dramatic recent expansion of ObamaCare subsidies, a spouse would have to earn more than $80,000 a year from a 40-hour-a-week job to have the same after-tax income as some families with two unemployed spouses receiving government benefits. In these states, working 40 hours a week and earning $20 an hour would mean a slight REDUCTION in income compared to two parents receiving unemployment benefits and health care subsidies.
The U.S. is “missing” more than three million workers of working age who could be working and were working before Covid. Many factors help to explain their disappearance, including continuing fears of Covid, early retirement, “long Covid,” and the decision by many not to return to work. But this study shows that one factor contributing to the dearth of workers is the generous benefits paid to families without workers.
$31 trillion in debt
$41 trillion in 10 years
$1.7 trillion in deficit spending in 2023.
Long-term real GDP growth of between 1.5%-1.8% (Fed estimate), or about half the rate since the Second World War – and well below potential.
This debt will have to be paid, and Americans’ standard of living will inevitably decline. Interest on the national debt soars to $1.2 trillion from about $400 billion. The higher number will account for about 25% of discretionary spending if memory serves. Higher taxes, cuts in social spending, and a lower standard of living will follow as night follows day. Government spending is out of control, and it can only end badly.
Welcome to the future – America’s idiocracy, which will lead inevitability to a ‘progressive’ dystopia, an authoritarian [welfare] state of the elites, by the elites and for the elites.
Out-of-control government spending will lead to higher taxes, cuts in social spending, a lower standard of living, and eventually a socialist paradise for those who believe in fairy-tale economics.
Casey Mulligan is a Professor of Economics at the University of Chicago, who served as Chief Economist at the White House Council of Economic Advisors. E.J. Antoni is a Research Fellow for Regional Economics at The Heritage Foundation’s Center for Data Analysis. Both are Senior Fellows at the Committee to Unleash Prosperity. Steve Moore, a former member of the Wall Street Journal editorial board, is an American writer and television commentator on economic issues.