I think a lot of the reason for the war on taxes is the exorbitant privilege [1] of owning the world reserve currency. It lets America print as many dollars as it wants, and borrow in a currency it controls entirely. In a normal country this would result in severe inflation, but because America borrows and prints a currency that is necessary abroad to conduct international trade, it is able to "export" a large part of its inflation.
In such a system, it is rational to cut taxes as much as possible and instead rely on borrowing and monetization of debt. It allows America to limit the load on its own citizens, who in turn enjoy "exorbitant privilege" in the colloquial rather than economic sense, and then have the costs spread amongst the billions of people who don't live here. Privatize the gains, socialize the losses.
The flip side is that if the U.S. dollar ever loses its reserve currency status, that is literally the end of the United States. It will no longer have the ability to fund the government, which is fed by debt that is largely snapped up by foreigners who need a place to park the dollars that move abroad from the persistent trade deficits needed to sustain reserve currency status. It will also no longer have a citizenry or economy capable of doing anything other than moving capital (finance) and jobs (tech) around in the global economy, since in the current reserve currency economy, those are the only sectors that are profitable to go into. If it happens, expect basically a collapse of society and multi-sided civil war.
> It lets America print as many dollars as it wants... its own citizens enjoy "exorbitant privilege" and have the costs spread amongst the billions of people who don't live here.
This is a popular and tearful story of privilege but it's untrue today. In order for the "privilege" to exist, the foreign holdings of US debt must increase every year by amounts equal to the yearly US shortfalls... however, since around 2015, foreign holdings of US debt have been falling to flat. Nowadays, not only there isn't any "exorbitant" privilege, there isn't any privilege at all.
The shortfalls are funded by the US population at large via internal debt and inflation.
There's a slight uptick of foreign holdings this year due to instability but any public benefit from that is dwarfed by the losses caused by inflation and tariffs.
The yearly data for foreign holdings of US debt are easily found online.
Foreign debt doesn't have to increase by the U.S. deficit if US currency used in foreign trade makes up the difference. The U.S. approach since 2009 has generally been to monetize the debt [1], having the Federal Reserve buy it and issue new money in its place. Normally this would result in inflation per the money equation PQ = MV; if you hold velocity V roughly constant, an increase in the money supply M either needs to be backed by an increase in real goods transacted Q, or it results in a higher price level P. Per the FRED graph, M2 money supply has been growing significantly faster than real GDP, and so we should've been seeing significant inflation over this time period.
But the dollar is used for 60-80% of international trade [2]. Many dollars don't stay in the U.S. to be transacted among the locals; they go abroad, and are held as foreign currency reserves or transacted between other nations for international trade. Under these conditions, the relevant Q in the money supply equation is the value of international trade denominated in dollars, which has been growing close to the increase in money supply. The dollars are getting soaked up for international transactions, preventing severe inflation at home.
I'm trying to model out what happens if the volume of dollar-denominated international trade declines, which seems to be the situation we're entering now and is the stated policy of the Trump administration. Certainly one consequence is that the stock market would crash by ~70-80%, which is the component of major S&P 500 companies earnings that are earned abroad. I suspect that this would trigger major chaotic effects (like WW3 or a revolution in the U.S.), that make future economic predictions irrelevant.
Ah your comment finally makes me understand the premise of MMT[1], which seems to presuppose that the US will always have this special status. Makes the current administration's geopolitical recklessness even more terrifying.
Going down that list, the first 9 are all tech (the "Mag 7" plus Broadcom). The first non-tech is Berkshire Hathaway at #10, but that is financial services. The top 10 together are 38.63% of the index. Then you have Walmart at #11 and 1.57% of the index, then 2 financials (JP Morgan Chase and Visa) and a pharmaceutical (Eli Lilly). The rest of the top 30 includes 6 more tech companies (Micron, Oracle, AMD, Netflix, Palantir, and Intel) and 2 more financials (Mastercard and Bank of America).
Your claim wasn’t that many of the biggest US companies by market cap are in finance and tech, but rather than nothing else is profitable. Do you see the difference?
It is even more dominated by finance and tech: the list is Alphabet, NVidia, Apple, Microsoft, Amazon, Berkshire, Meta, JP Morgan Chase, Bank of America, and then the first non finance/tech comes in at #10 with Exxon. Exxon's earnings are less than 1/4 of Alphabet's.
The reason to prefer market cap over earnings is that market cap includes investors' view of the company's future earnings power, but they both tell the same story.
I would be open to paying higher taxes if I believed it would help address the deficit and debt (instead of just enabling more spending) and if I believed that the money was being well spent.
Earlier in my adulthood, I would happily vote for almost any tax or levy, because I had faith that that money was turning directly into societal good.
In other cases, it is going to real nonprofits that are tasked with solving problems that never seem to get better, no matter how much money is spent.
In yet other cases, the money goes to building transit (something else I was previously very bullish on), but that, once built, seems to be governed by principles of limitless permissiveness (an example from a few days ago: https://komonews.com/news/local/only-8-metro-fare-enforcemen...)
It's hard to feel invested in the programs that my taxes pay for when it doesn't feel like they reflect my values.
We developed chronic overspending habits when interest rates were historically low. This made servicing the debt cheap and deficit spending reasonable. Why wouldn’t the government borrow at 0.14% (!!!) with GDP growth at say 3-4%.
Now the math doesn’t work with a federal fund rate of 4-5%. And now as our debt rolls over it gets refinanced at the higher rates. Debt servicing is roughly 20% of the government budget and will soon be 25-35% in ~10 years assuming we don’t further accelerate deficit spending (which seems unlikely).
US govt needs to cut dramatically to avoid this and the otherwise likely “solution” otherwise is inflation to make the debt effectively less expensive which also raises interest rates.
We can’t tax our way out of this. Only 60% of US households earn enough to pay federal income tax. The top 1% of earners already pay roughly half of all tax revenue, top 10% is roughly 75%. Furthermore, there is profligate waste in government, inefficiency, no matter where the taxes came from even if we could materialize them.
The government needs to shrink dramatically. This type of change is best done gradually but immediately to avoid later shocks (eg: Medicare suddenly disappears)
The income tax needs to be replaced with a consumption tax. The income tax is a terrible system for an internet based economy.
To ensure that the consumption tax doesn't hit the poor too hard the govt can determine how much someone at the poverty line would pay, on average, in monthly taxes ie$200. The govt then deposits $200 monthly in to every US citizen's USG debit card.
It started with Regan tax cuts and trickle down voodoo economics.
High corporate taxes incentivized business investment that built the middle class.
Another stupid move was legalizing stock buybacks that was previously considered stock manipulation.
Doesn't even touch that the tax code is purposefully complicated to have zillions of loopholes so the very rich pay little to no taxes while everyone else funds an out-of-control military-industrial complex and socialism for the rich.
The wildest thing to me about the 2010s, was that the war on taxes got framed as a "class war". And everyone didn't understand that to mean "a war on anyone who is not the top 1%" Even reading through this comment section, people mistrust that Taxes are useful to prevent undue power gathering in the hands of a small number of people. They also then help fund programs which can help the underclass.
But the fear and dislike of taxes has clearly been weaponized by the ruling class to wage war on minimum wage workers and immigrants, in order to funnel as much wealth and power to the elites as possible.
The war on taxes was never "America vs Taxes" it was "The Wealthy vs. The Poor" and the wealthy were able to leverage the media to trick the poor people into reacting in fear that "The gov't is coming for your money." By just parroting their own fears about the gov't coming for their money and saying "it could happen to you too."
TBF, the Media really let/fueled this happening, likely because they were captured by corporate interests.
Taxes, if not quite the price of civilisation, do give citizens a reason to care about efficient and effective government. Severing that connection, and leaving large chunks of the electorate as mere recipients of state largesse, risks deepening America’s political dysfunction.
We can't have nice things without paying for them. People who believe they are self-sufficient seem to ignore all the public infrastructure that keeps society and the economy moving (e.g. roads, emergency response/firefighters, schools, parks, libraries, etc).
Imagine how much more entrepreneurial people could be if taking big big financial risks didn't have dire consequences like not having access to health care.
No one loves paying taxes, especially when you don't agree with ways it's spent, but that means we need to fix politics and spend money better rather than denying that society needs financial contributions from almost everybody to function.
As much as I agree with the benefits of taxes, the Trump admin is showing one of the severe flaws with the American tax system. If the president can just freely choose how and where funds are allocated, then we don't have any actual representation for our taxes. Half the country can vote for a president whose policy is to illegally deny funding to states they don't like.
I think the only solution realistically is going to be continued balkanization of the states as they take up more of the tax burden. Which is not going to lead to the outcomes said voters want. It's a shame since I think we really need a proper national healthcare program but if the president can just shut it down on a whim then there's no point.
we need to tax (update: sorry, not wealth) income.
90% tax on all income over $100 million. That would mean anyone making $500 million would still be bringing in $40 million a year. If you need more than $40 million a year you are just greedy and want to be some kind of king.
This would also mean the power of wealth would be neutralized.
The New Deal effective tax rates on individuals and corporations plus subsidies for public college created the greatest middle class in history. It also barred banks from loaning Wall Street money for speculative and risky adventures.
In 1980 Reagan began unraveling all of the pillars of that middle class success.
46 years later you can see the damage. Housing is unaffordable even for professional couples. Public colleges are gated to the upper classes.
I really want to see (good, competitive) candidates making the case for government, and taxes to support it. Most of what people value in public life is supported by taxes (in the sense it would be impossible without them).
But the other side has been allowed to criticize taxes and government unfairly with little to no effective opposition. IMO, there is a strong case to be made that waste and corruption is quite low (as a %), and that almost all non-defense spending is spent well and has a positive impact on society, benefiting everyone.
I see a growing narrative that successful people "earned" everything they have on their own. People think "I paid my way through university, no one gave me anything", obviously complete nonsense. "I built my business from nothing, with no help from the government", and so on.
140 comments
In such a system, it is rational to cut taxes as much as possible and instead rely on borrowing and monetization of debt. It allows America to limit the load on its own citizens, who in turn enjoy "exorbitant privilege" in the colloquial rather than economic sense, and then have the costs spread amongst the billions of people who don't live here. Privatize the gains, socialize the losses.
The flip side is that if the U.S. dollar ever loses its reserve currency status, that is literally the end of the United States. It will no longer have the ability to fund the government, which is fed by debt that is largely snapped up by foreigners who need a place to park the dollars that move abroad from the persistent trade deficits needed to sustain reserve currency status. It will also no longer have a citizenry or economy capable of doing anything other than moving capital (finance) and jobs (tech) around in the global economy, since in the current reserve currency economy, those are the only sectors that are profitable to go into. If it happens, expect basically a collapse of society and multi-sided civil war.
[1] https://en.wikipedia.org/wiki/Exorbitant_privilege
> It lets America print as many dollars as it wants... its own citizens enjoy "exorbitant privilege" and have the costs spread amongst the billions of people who don't live here.
This is a popular and tearful story of privilege but it's untrue today. In order for the "privilege" to exist, the foreign holdings of US debt must increase every year by amounts equal to the yearly US shortfalls... however, since around 2015, foreign holdings of US debt have been falling to flat. Nowadays, not only there isn't any "exorbitant" privilege, there isn't any privilege at all.
The shortfalls are funded by the US population at large via internal debt and inflation.
There's a slight uptick of foreign holdings this year due to instability but any public benefit from that is dwarfed by the losses caused by inflation and tariffs.
The yearly data for foreign holdings of US debt are easily found online.
But the dollar is used for 60-80% of international trade [2]. Many dollars don't stay in the U.S. to be transacted among the locals; they go abroad, and are held as foreign currency reserves or transacted between other nations for international trade. Under these conditions, the relevant Q in the money supply equation is the value of international trade denominated in dollars, which has been growing close to the increase in money supply. The dollars are getting soaked up for international transactions, preventing severe inflation at home.
I'm trying to model out what happens if the volume of dollar-denominated international trade declines, which seems to be the situation we're entering now and is the stated policy of the Trump administration. Certainly one consequence is that the stock market would crash by ~70-80%, which is the component of major S&P 500 companies earnings that are earned abroad. I suspect that this would trigger major chaotic effects (like WW3 or a revolution in the U.S.), that make future economic predictions irrelevant.
[1] https://fred.stlouisfed.org/graph/fredgraph.png?g=1UTPn&heig...
[2] https://www.brookings.edu/articles/the-changing-role-of-the-...
[1]https://en.wikipedia.org/wiki/Modern_Monetary_Theory
https://www.slickcharts.com/sp500
Going down that list, the first 9 are all tech (the "Mag 7" plus Broadcom). The first non-tech is Berkshire Hathaway at #10, but that is financial services. The top 10 together are 38.63% of the index. Then you have Walmart at #11 and 1.57% of the index, then 2 financials (JP Morgan Chase and Visa) and a pharmaceutical (Eli Lilly). The rest of the top 30 includes 6 more tech companies (Micron, Oracle, AMD, Netflix, Palantir, and Intel) and 2 more financials (Mastercard and Bank of America).
https://www.tradingview.com/markets/stocks-usa/market-movers...
It is even more dominated by finance and tech: the list is Alphabet, NVidia, Apple, Microsoft, Amazon, Berkshire, Meta, JP Morgan Chase, Bank of America, and then the first non finance/tech comes in at #10 with Exxon. Exxon's earnings are less than 1/4 of Alphabet's.
The reason to prefer market cap over earnings is that market cap includes investors' view of the company's future earnings power, but they both tell the same story.
Earlier in my adulthood, I would happily vote for almost any tax or levy, because I had faith that that money was turning directly into societal good.
I have lost that faith. In the worst case, money seems to be grossly mismanaged (here is a local example from just last month: https://www.seattletimes.com/seattle-news/politics/fallout-f...).
In other cases, it is going to real nonprofits that are tasked with solving problems that never seem to get better, no matter how much money is spent.
In yet other cases, the money goes to building transit (something else I was previously very bullish on), but that, once built, seems to be governed by principles of limitless permissiveness (an example from a few days ago: https://komonews.com/news/local/only-8-metro-fare-enforcemen...)
It's hard to feel invested in the programs that my taxes pay for when it doesn't feel like they reflect my values.
Ezra Klein https://music.youtube.com/watch?v=mX5U5DNUfBc&si=4XEYfEl6lbW...
Now the math doesn’t work with a federal fund rate of 4-5%. And now as our debt rolls over it gets refinanced at the higher rates. Debt servicing is roughly 20% of the government budget and will soon be 25-35% in ~10 years assuming we don’t further accelerate deficit spending (which seems unlikely).
US govt needs to cut dramatically to avoid this and the otherwise likely “solution” otherwise is inflation to make the debt effectively less expensive which also raises interest rates.
We can’t tax our way out of this. Only 60% of US households earn enough to pay federal income tax. The top 1% of earners already pay roughly half of all tax revenue, top 10% is roughly 75%. Furthermore, there is profligate waste in government, inefficiency, no matter where the taxes came from even if we could materialize them.
The government needs to shrink dramatically. This type of change is best done gradually but immediately to avoid later shocks (eg: Medicare suddenly disappears)
To ensure that the consumption tax doesn't hit the poor too hard the govt can determine how much someone at the poverty line would pay, on average, in monthly taxes ie$200. The govt then deposits $200 monthly in to every US citizen's USG debit card.
High corporate taxes incentivized business investment that built the middle class.
Another stupid move was legalizing stock buybacks that was previously considered stock manipulation.
Doesn't even touch that the tax code is purposefully complicated to have zillions of loopholes so the very rich pay little to no taxes while everyone else funds an out-of-control military-industrial complex and socialism for the rich.
But the fear and dislike of taxes has clearly been weaponized by the ruling class to wage war on minimum wage workers and immigrants, in order to funnel as much wealth and power to the elites as possible.
The war on taxes was never "America vs Taxes" it was "The Wealthy vs. The Poor" and the wealthy were able to leverage the media to trick the poor people into reacting in fear that "The gov't is coming for your money." By just parroting their own fears about the gov't coming for their money and saying "it could happen to you too."
TBF, the Media really let/fueled this happening, likely because they were captured by corporate interests.
We can't have nice things without paying for them. People who believe they are self-sufficient seem to ignore all the public infrastructure that keeps society and the economy moving (e.g. roads, emergency response/firefighters, schools, parks, libraries, etc).
Imagine how much more entrepreneurial people could be if taking big big financial risks didn't have dire consequences like not having access to health care.
No one loves paying taxes, especially when you don't agree with ways it's spent, but that means we need to fix politics and spend money better rather than denying that society needs financial contributions from almost everybody to function.
I think the only solution realistically is going to be continued balkanization of the states as they take up more of the tax burden. Which is not going to lead to the outcomes said voters want. It's a shame since I think we really need a proper national healthcare program but if the president can just shut it down on a whim then there's no point.
90% tax on all income over $100 million. That would mean anyone making $500 million would still be bringing in $40 million a year. If you need more than $40 million a year you are just greedy and want to be some kind of king.
This would also mean the power of wealth would be neutralized.
In 1980 Reagan began unraveling all of the pillars of that middle class success.
46 years later you can see the damage. Housing is unaffordable even for professional couples. Public colleges are gated to the upper classes.
There is no middle class anymore.
But the other side has been allowed to criticize taxes and government unfairly with little to no effective opposition. IMO, there is a strong case to be made that waste and corruption is quite low (as a %), and that almost all non-defense spending is spent well and has a positive impact on society, benefiting everyone.
I see a growing narrative that successful people "earned" everything they have on their own. People think "I paid my way through university, no one gave me anything", obviously complete nonsense. "I built my business from nothing, with no help from the government", and so on.