On the menu today: A brief turn away from the crises in Ukraine and China to look closer to home at this morning’s abysmal new inflation numbers; our impending tax day; the banal, insufferable cry of “tax the rich”; and a Democratic president and the NRA return to their positions in a very familiar fight.
America’s Financial Squeeze Worsens
We all knew today’s new inflation numbers were going to be really bad, and 8.5 percent inflation over the course of a year, the worst since 1981, is the sort of number that can end up defining a presidency.
Compared to a year ago, you’re paying 48 percent more today for gasoline; 35.3 percent more for a used car; 21.6 percent more for your natural-gas bill; 13.7 percent more for meat, fish, and eggs; 12.5 percent more for a new car; 11.1 percent more for electricity; 10 percent more for food at home; 7.7 percent more for transportation; 6.9 percent more for food away from home; 6.8 percent more for apparel; and 5 percent more for shelter.
Americans aren’t in a bad mood just because gas is much more expensive. They’re in a bad mood because just about everything is more expensive.
Never mind taking steps to alter federal policy to fight inflation; President Biden has extraordinary difficulty talking about inflation. He infamously pledged last July that, “There’s nobody suggesting there’s unchecked inflation on the way — no serious economist.” In December, Biden assured Americans that they were at “the peak of the crisis. . . . It matters to people when you’re paying more for gas, although in some states we’ve got the price down below three bucks a gallon, but the point is it’s not gone down quickly enough. But I think it will.” As you have probably noticed, right now, the national average price of a gallon of regular gasoline is $4.09.
In January, Biden boasted that, “We are making progress in slowing the rate of price increases.”
Then in February, Biden grew snippy with NBC News’ Lester Holt, accusing him of being a “wise guy” for quoting Biden’s earlier assurances back to the president.
(Then again, Biden is not alone; our Dominic Pino observed House speaker Nancy Pelosi contending that a ten-year, $3 trillion spending plan is what is needed to reduce inflation, and insisting that low unemployment causes high inflation.)
Inflation is not some obscure, eternal mystery, emerging from the sea like a kraken. The additional spike in energy prices driven by Russia’s invasion of Ukraine exacerbated existing problems, but it did not create the inflationary spiral that currently ails us. Inflation occurs when too much money is chasing too few goods. The federal government threw about $6 trillion into the national economy during the pandemic and hoped for the best. Unfortunately, Biden’s approach to all problems is essentially to “just spend more money.”
Tax Day Is Coming
Your taxes are due in less than a week, on Monday, April 18. This is slightly later than usual, but not because of the pandemic: “The Internal Revenue Service’s District of Columbia offices will be closed on Friday, April 15, in observance of the locally recognized Emancipation Day.” It is also Patriot’s Day in Massachusetts and Maine, which is a state holiday. (I note it is also Good Friday.)
According to figures from the White House Office of Management and Budget, in the 2021 fiscal year, which ran from May 1, 2020, to April 30, 2021, the U.S. government collected $3.863 trillion. The sum adds up from a bit more than $1.9 trillion in individual tax returns, $1.3 trillion from payroll taxes (taxes are used to finance social-insurance programs, such as Social Security and Medicare), $284 billion from corporate taxes, $87 billion on excise taxes (special taxes on specific goods or activities such as gasoline, tobacco, or gambling), and $116 billion on “other.”
To us mere mortals, that seems like a sum of money so big it is hard to comprehend, but that amount didn’t even come close to what the U.S. federal government expenditures were for that period. USASpending.gov, a website of the U.S. Treasury Department, estimates that the U.S. collected $4.05 trillion in fiscal year 2021 while spending $6.82 trillion. The year from May 2020 to April 2021 was not exactly business as usual in the U.S. or anywhere else, with the Covid-19 pandemic’s shutting down or limiting vast swaths of the economy, reducing revenues, and driving up expenditures in all kinds of ways.
The mildly good news is that, so far, the deficit in 2022 isn’t as bad as the past two years: “The federal budget deficit was $475 billion in the first five months of fiscal year 2022, the Congressional Budget Office estimates. That amount is less than deficits recorded during the same period in the two prior fiscal years: It is less than half the shortfall recorded for the same months in fiscal year 2021 ($1,047 billion) and three-quarters of the deficit recorded in 2020 ($624 billion).” The bad news is that we’re still in the ballpark of a trillion-per-year deficit, without the justification of the extraordinary circumstances of the pandemic. Back during the Obama administration, conservatives used to complain, loudly and justifiably, about trillion-per-year deficits.
All that borrowing is starting to cost us in the here and now. The U.S. government spent $562,388,232,682.17 — that’s more than $562 billion dollars — on interest payments for the debt in fiscal year 2021. The good news is that federal tax revenue was more than $4 trillion in fiscal year 2021. The bad news is that 14 percent of all of that federal tax revenue had to be used to pay down what we owe. Every dollar we use to pay down past debt is a dollar we can’t spend on other stuff we need or want right now. And every dollar we borrow now is another dollar we will have to pay back later — limiting our ability to spend money on priorities down the road.
People’s perceptions of how much they pay in taxes are often only distant cousins to what they are actually paying. If you live in a place where a household’s combined state and local tax bills are likely to exceed $10,000 — which includes the better-off parts of a lot of blue states — you are likely to encounter grumbling that federal taxes went up in 2017 under President Trump. That’s not the case; what the 2017 tax reform did was cap the deduction for state and local taxes at $10,000.
This map from the Tax Foundation displays the top income-tax rates in each state, and this map displays the median property taxes paid in each county. As you would expect, the highest property taxes are clustered around the biggest cities on the coasts, around Chicago, and — perhaps a bit surprisingly — in a few corners of Texas.
I recall interacting with a woman who insisted that President Trump had raised taxes “on the middle class” significantly, and she knew this was true because she was paying much more now than she was before. I pointed out that because the reform lowered tax rates at every income level, the only way her taxes could have gone up was whether she had previously taken an enormous number of deductions or deducted enormous sums of state and local taxes. She later revealed that she filed in New York City (which has a top income-tax rate of 4 percent and considerable property taxes) and New York state (which has a top income -ax rate of nearly 11 percent and considerable property taxes on top of that), and she personally earned more than $400,000 per year — which I think stretches the definition of the term “middle class” beyond recognition, even in the high-cost-of-living Big Apple.
The likes of congresswoman Alexandria Ocasio-Cortez get a lot of attention for the simplistic slogan, “Tax the rich,” a common slogan that is almost a guarantee that the person using it hasn’t bothered to look at any of the details of the tax code.
There are seven federal tax brackets for the 2021 tax year, from 10 percent for single filers making less than $9,950 in taxable income to 37 percent for single filers making $523,601 or more. Those who make more, pay more. When you point this out, the class-envy crowd will usually argue that income isn’t the real measurement of “taxing the rich,” because many wealthy people collect capital gains. Fine. The long-term capital-gains-tax rate is 10 percent, 15 percent, or 20 percent depending upon income level — single filers making up to $40,400 per year in taxable income are paying 10 percent, while single filers making $445,850 or more in taxable income are paying 20 percent. If a capital gain is short-term, meaning it is held for less than a year, it is taxed like income.
Wait. There’s another extra tax that particularly wealthy people pay: “The net investment income tax is a 3.8 percent tax on investment income such as capital gains, dividends, and rental property income. This tax only applies to high-income taxpayers, such as single filers who make more than $200,000 and married couples who make more than $250,000, as well as certain estates and trusts.”
We do tax the rich in this country, considerably. America’s problem is not that any particular group of people is undertaxed. Our problem is that our federal government spends money as if it was as plentiful as dirt or seawater.
Oh, and by the way, as of January, all 50 states were running budget surpluses; in 29 states, the surplus was more than $1 billion.
ADDENDUM: Greg and I were back at it yesterday, noting that in a midterm-election environment that is borderline apocalyptic for Democrats, President Biden and the White House have chosen to re-engage on the issue of gun control. The National Rifle Association has had about as brutal a three-year period as anyone could imagine, with a ton of self-inflicted wounds, and yet here is the White House, handing the group and its members a galvanizing, invigorating, and very familiar fight: a Democratic administration trying to enact new restrictions on gun ownership. (Kevin Williamson and David Harsanyi further pick apart Biden’s tired proposals on the website.) I suspect the NRA is feeling relieved, as it’s now back in the same kind of fight that it previously won in 1994 and 2010.