Inflation Hits 30-Year High According to This Key Metric

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It’s the biggest annual surge recorded since January 1991—roughly three decades ago.

 

Left-leaning media coverage has in recent weeks pushed the narrative that inflation is fading. But shocking new inflation numbers released today blow that media spin to smithereens.

The Labor Department just released the latest Personal Consumption Expenditures index (PCE), which is the Federal Reserve’s preferred metric for monitoring inflation. It shows a 4.3 percent rise in consumer prices from August 2020 to August 2021, with prices rising 0.4 percent last month alone. That’s the biggest annual surge recorded since January 1991—roughly three decades ago.

Even when factoring out volatile food and energy prices, the PCE still shows a 0.3 percent monthly rise in consumer prices and a 3.6 percent year-over-year increase. That’s the highest on that metric since May 1991!

This all may sound like abstract economic data, but it translates to a real erosion of everyday Americans’ living standards and purchasing power. As economist and FEE fellow Peter Jacobsen has previously explained, rising inflation means “the average consumer making the same salary this year has taken a pay cut when you consider what their paycheck can actually buy.”

Even the Federal Reserve is starting to acknowledge, much belatedly, that these persistent levels of inflation are not just a “temporary” problem.

“It’s also frustrating to see the bottlenecks and supply chain problems not getting better — in fact at the margins apparently getting a little bit worse,” Fed Chair Jerome Powell said earlier this week. “We see that continuing into next year probably, and holding up inflation longer than we had thought.”

“It’s very difficult to say how big those effects will be in the meantime or how long they will last,” he added.

Of course, Powell and his colleagues at the Federal Reserve have every incentive to downplay the inflation problem hurting Americans. After all, it is, in part, driven by the Fed’s own policy decisions.

As Jacobsen noted when the concerning inflation metrics first arose in May 2021, the Fed has created trillions of new dollars out of thin air during the pandemic to date. The natural consequence of this money-supply expansion, he explains, is that “If more dollars chase the exact same goods, prices will rise.”

But even the Fed’s preferred inflation metric, the PCE, is now recording the highest levels of consumer price increases measured in 30 years. This problem is becoming impossible for even the most obstinate observers to deny. And until policymakers change course, American families will continue to pay the price.

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This article was published on October 1, 2021, and is reproduced with permission from FEE, Foundation for Economic Education.

What’s Inside The $3.5 Trillion Bernie-Biden Spending Blowout

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After passing a $1.2 trillion infrastructure spending bill on a bipartisan basis — which is filled with liberal spending priorities — Congress is now considering a budget resolution that is the largest tax-and-spend bill in history. If enacted, it would permanently expand government control over almost every aspect of American life, from childcare responsibilities and health care, to flexible work options and energy costs. In lieu of bipartisan support, the Democrats’ plan is to use a process called “reconciliation,” which allows the majority party in the Senate to pass certain budgetary measures with just 51 votes instead of the normal 60 required for legislation.

President Biden campaigned on unity and bipartisanship, yet is trying to ram through the most expensive and extreme agenda of all time by circumventing Republican opposition. The $3.5 trillion spending blowout is the product of Bernie Sanders’ lifelong socialist vision for our country, and we simply can’t afford it. Here’s a breakdown of some of the major proposals inside, along with IWF’s take

PROPOSAL: Universal prekindergarten and government-funded daycare.

The mammoth budget resolution allocates hundreds of billions of dollars for childcare and preschool. It would likely require states to develop and submit childcare plans. Universal pre-K would be secured through block grants and expanded funding to Head Start.

Our Take:

  • Parents have every reason to fear that a government-approved preschool and daycare program would create the same problems parents face in K-12 public schools. Those disgusted with public schools’ COVID-era failures and curriculum controversies should reject the idea of putting the government in charge of daycare and preschool.
  • Greater daycare or preschool enrollment does NOT improve outcomes and may cause harm. A federal study of Head Start(the existing, childcare/early education program meant to help low-income children) showed no academic benefits and some emotional harms. While intensive programs can help very at-risk students, there’s no evidence of benefits for the general population.
  • Daycare can be made more affordable. Regulations make daycare needlessly expensive and scarce. Between 2005 and 2017, the number of home-based childcare providers fell by about 50 percent. A Mercatus Center study concluded that eliminating ineffective child care regulations could “reduce the annual cost of child care by between $850 and $1,890 per child across all states, on average.”

Policymakers should support all families. Just 6 percent of parents think a quality daycare center is optimal. Most working mothers would prefer to work less and spend more time with their children. Rather than increasing subsidies for daycare, the least-preferred childcare option of most parents, policymakers should help all families with young children by reducing tax and regulatory burdens and supporting strong, flexible labor markets so families can make the childcare decision that they feel is best

PROPOSAL: Paid family and medical leave to allow employees to care for a new child or ailing relative, funded by taxpayers instead of private employers.

Under the president’s proposal, the U.S. Treasury Department is tasked with setting up a program to pay up to 12 weeks of leave for all workers, including the self-employed. As WSJ points out, “This is not a maternity benefit, but a broad program for both sexes to care for new children or an ailing relative ‘by blood or affinity.’ Benefits are supposed to replace about two-thirds of wages on average.”

The plan calls for Treasury to “reimburse employers who offer comprehensive paid leave up to 90% of average costs.” WSJ calculated that a new parent earning $200,000 a year could be eligible for more than $1,000 a week for 12 weeks every year, “no matter if this person is married to another six-figure earner, who can also claim the leave.” This means taxpayers will be subsidizing time off for some of the nation’s highest income earners, while low-wage workers would only receive a fraction of those benefits.

Our Take:

  • The new, proposed federal paid leave program doesn’t target assistance at those who need it, but rather would sweep away privately-funded existing paid leave packages for all American workers and disproportionately benefit higher-income earners, as California’s state’s paid family leave program did.
  • The program would create another unfunded entitlement. President Joe Biden called for $225 billion to provide a new paid family and medical leave program. Yet, as The Daily Signal pointed out, “the Congressional Budget Office put a $573 billion price tag on a similar plan that didn’t call for sending potentially hundreds-of-billions-of dollars to private employers and state governments. Just as Social Security was supposed to be self-funding and its payroll taxes were never supposed to exceed 6% (they’re more than twice that now), a federal paid family leave entitlement will require either rationing of benefits or massive tax hikes.”
  • Government-dictated benefits reduce flexibility and will leave millions of employees worse off. Millions of workers who currently have benefits through a private employer will find benefits reduced under new government rules. Workers will have fewer options and less ability to customize their compensation and benefits.
  • Government-mandated benefits impose costs on employers that get passed on to workers and employees. Employers will offset extra costs by increasing prices, reducing worker hours or take-home pay, consolidating jobs, or outsourcing.
  • To boost access to paid leave benefits, we should empower people and give them new and better options without imposing the costs of a new entitlement. 
    • Help people SAVE by modernizing tax-preferred savings accounts.
    • ADVANCE Social Security benefits.
    • Increase FLEXIBLE work arrangements.
    • TARGET government support to low-wage workers who cannot afford to save or may lack access to paid leave benefits.
    • ALLOW workers to take paid leave in lieu of overtime.

PROPOSAL: Shore up the Affordable Care Act by making enhanced subsidies permanent, expand Medicare, and/or move toward a “Medicare for All”-style model, as championed by Sen. Bernie Sanders.

The $3.5 trillion Biden-Sanders spending spree includes at least $1.1 trillion in new health care spending, including $200 billion to lower the Medicare eligibility age to 60, $300 billion to add new dental, vision, and hearing benefits to Medicare, $163 billion to expand the Affordable Care Act, a $400 billion giveaway to home healthcare unions.

This will supposedly be “paid for” with $492 billion from Medicare prescription drug price controls, a recipe to destroy innovation and reduce the supply of life-saving medicines; $186 billion in wasteful Washington budget gimmicks (things like using fake expiration dates to hide long-term cost); and half a trillion in deficits.

Our Take: 

  • Expanding Medicare would increase the government’s power over health care and worsen Medicare’s already unsustainable financial state. Lowering the age of those eligible for Medicare would mean that there are fewer resources for the truly elderly and for vulnerable seniors, creating the possibility of dangerous, bureaucratic rationing.
  • Expanding the Affordable Care Act would threaten private health insurance plans that hundreds of millions of Americans prefer, because many employers will find it more profitable to stop offering health benefits and instead ask workers to rely on government programs like Medicaid and Obamacare. Expanding Obamacare subsidies would also benefit higher-income individuals who already have private insurance, funnel more taxpayer dollars to insurance companies, and induce employers to drop coverage options for workers.
  • Expanding government control of U.S. prescription drugs would lead to pharmaceutical shortages and fewer new breakthrough therapies.

PROPOSAL: Green New Deal-style climate policies.

Sen. Bernie Sanders is spearheading a massive push for climate policies inside the budget bill that would have drastic implications on the American economy. As detailed by The Daily Signal, examples include a clean electricity standard payment program, a new tax on imports that emit carbon dioxide, new taxes and fees on conventional energy resources like oil and gas, more subsidies and tax breaks for green energy and electric vehicles, a new Civilian Climate Corps, and climate research and development programs across the federal government.

As The New York Times noted, the proposed tax on imports from countries with high levels of greenhouse gas emissions “could violate Mr. Biden’s pledge not to raise taxes on Americans earning less than $400,000 a year, if the tax is imposed on products such as electronics from China.”

Our Take:

  • The cost of these climate plans will clearly fall on American families. Biden promises that individuals with incomes less than $400,000 a year will not face higher taxes, but everyone will pay higher prices for gas, electricity, and other sources of energy.And while the majority of Amerians see climate as an important issue, they do not see it as an immediate threat worth prioritizing over more immediate financial needs.
  • Clean, renewable energy sources are playing a growing role as a source for energy in the United States. This is a trend we want to continue. However, quickly replacing fossil-based energy (coal, oil, and natural gas) with renewables like wind and solar faces a range of technical hurdles that will lead to higher energy costs and a less reliable energy grid. Renewable energy sources are limited because we do not have the energy storage technology to make them sufficiently reliable. This leaves populations particularly vulnerable to blackouts and price hikes during extreme weather events.
  • The climate proposals encompass a massive takeover of the nation’s energy sector, along with a massive expansion of government bureaucracy. The private sector, which has led the way in developing clean energy innovation, is much more equipped to tackle the global challenges of climate change. Instead of regulations and mandates, the government should look to private-public partnerships to support clean energy innovations.

PROPOSAL: Finance the $3.5 trillion spending bill with taxes on corporations and individuals with incomes over $400,000 a year, negotiating the price of prescription drugs, and other budgeting gimmicks.

The proposal would increase the federal corporate tax rate to 26.5% from the current 21% (on top of that, corporations would still face state tax rates ranging from 2.5% up to 11.5). The top individual federal tax rate would be bumped to 39.6% from 37%, and the proposal includes a 3% surcharge on individual income above $5 million and a capital gains tax of 25%.

Our Take:

  • Biden’s promise that “no family making under $400,000 a year will pay a penny more in taxes” is patently false. Expert analyses found that the plan offers no tax relief at all; instead, the reconciliation bill will include damaging tax increases that will be borne by middle-income families and small businesses.
    • A top income tax rate to 39% will hit some entrepreneurs and small businesses organized as pass-through entities such as LLCs, sole proprietorships, partnerships, and S-corporations. Women and people of color, like others who own businesses, “pass through” their income to be taxed under individual income taxes. The Tax Foundation finds that more than half of all pass-through income would be taxed at this new, higher rate.
  • Inflation, including soaring food prices, is already skyrocketing, with spikes not seen since the Great Recession of 2008. This new package will only accelerate inflation in our country — hitting poor, elderly, and minority families hardest. The result of the current pace of inflation is that Americans’ earnings are getting wiped out, and low- and minimum-wage workers are poorer than they have been in decades.
    • Inflation is essentially a tax on everyone that disproportionately hurts poor people. Lower-income families spend a greater share of their budget than wealthier families on everyday goods and services like food, housing, and health care.
  • The combined federal and state taxes rate on U.S. corporations would be higher than the United Kingdom’s 19%, Russia’s 20%, China’s 25%, Canada’s 26.5%, and even higher than France’s 32% rate, essentially wiping out all the gains made from the Trump Tax Cuts and Jobs Act. This damaging tax hike would harm workers, make America a less attractive place to do business, and burden small businesses. A review of the economic research shows that “workers bear a majority of the economic burden of the corporate income tax in the form of lower wages.”
  • This plan increases the publicly held debt by more than $4.16 trillion, bringing it to more than 118% of gross domestic product. This is a recipe for inflation and fails to tackle the nation’s most important fiscal challenges like unsustainable entitlement programs, including Medicare, Medicaid, subsidies for private health insurance, and Social Security. And that’s not to mention the new entitlements, such as universal pre-K and paid family and medical leave the president wants to add.
  • The proposed spending amounts to $24,252 per U.S. taxpayer ($3.5 trillion divided by 144.3 million taxpayers in 2018, the latest year for which IRS data is available). Even on a broader measure of the U.S. population, the proposed spending amounts to $10,525 per U.S. resident ($3.5 trillion divided by 332.5 million), or $1,052 per resident per year for the next 10 years.

Wind And Solar Folly In Detail

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The Lower 48 states of the US cover four time zones. The sun sets in California about 3 hours after the sun sets in New York. One must wonder if the folks running the government in Washington DC are aware of this. President Joe Biden’s plan for a climate-friendly electric grid depends on his administration’s ability to construct thousands of miles of power lines to bring energy from the wind and the sun across the nation.

This is intended to meet the Democrats’ goal of eliminating the power sector’s carbon dioxide emissions. Their purpose is to save the world from predictions made by mathematical equations saying the Earth might warm a few degrees ending life as we know it.

New transmission lines will be required to carry wind and solar power across the country to replace electricity previously supplied from coal and natural gas. As the sun sets in New York and their wind calms, California may be able to keep Manhattan’s lights on for a few more hours before all goes dark. There are however other major problems.

Eric Wolfe writing at politico.com [1] pointed out the tremendous local opposition encountered constantly to high-voltage transmission lines. Efforts by power companies to build these long-range transmission lines have failed repeatedly in recent decades. They become mired in legal and political fights from the opposition of states and communities along the projects’ paths.

In fact, Wolf’s article failed to point out that all sources of energy and all means of transmission/transportation of energy are regularly opposed by people who call themselves environmentalists. It would appear they yearn for life in the mid-nineteenth-century when heating was with wood, air conditioning nonexistent and transportation was by horse.

Nuclear energy has long been stifled by opposition based on unsubstantiated fear and there is a war against all fossil fuels because of global warming said to stem from the odorless, colorless, life-giving gas CO2.

Let me remind all readers, we are not just talking about fuel for Transportation but the capacity to create Electricity, cook our food, heat and cool our homes, manufacture everything, fertilize agriculture, create most products and provide sanitation. Mark Mathis at Clear Energy alliance.com is campaigning to end the use of the term fossil fuel and replace it with the acronym TECHMAPS which holds the initials of each of the most important things for which we use petroleum products.

Industrial wind machines are opposed by neighbors on the grounds of deep vibrating sound, shadow flicker, and ugliness. Solar panels that spread out over huge tracts of land render the land unsuitable for farming.

To make hydropower useful, you have to have a large flow of water, a big change in elevation, and a huge lake to store the water. The lake floods huge areas, much to the consternation of environmentalists. To grow energy crops, such as corn for ethanol, requires water, fertilizer, and pesticides, all annoying to the average environmentalist.

We all know that pipelines for carrying oil or natural gas meet opposition wherever they are proposed. The most notable one is the Keystone pipeline, which after years of struggle has been canceled by the brain trust in Washington. Yet railroad tank cars and tanker trucks which are far more dangerous than pipelines, also regularly meet opposition.

Transmitting electricity from place to place requires cables. The greater the distance the power must be transmitted, the higher the transmission voltage has to be. The more the sources are spread out, the greater becomes the web of transmission lines, and the greater the number of lawsuits brought by environmentalists.

Environmentalist nannies tell us to turn down the thermostat, eat raw vegetables, stop eating food that came from distant places, drive less, take the stairs instead of the elevator, and so forth.

In other words, the battle against power lines is just another skirmish in the larger war against energy production, transport and use. It is a fair bet that 80% of the environmental road blockers are democrats but don’t expect them to back down for President Biden’s master plan for using only wind and sun to run our country.

The hypothetical wind/solar grid (ignore its impossibility) that is being promoted is not—repeat, not—a source of electricity. Like any utility’s grid, “the grid” merely delivers electricity from where it is generated to where it is used by virtue of transmission lines. Some might require a million volts of direct current (dc), for noon solar power to be delivered from Arizona to New York, Chicago, Boston, and Atlanta.

The real problem, however, is that even on this grid, every source of energy must be able to provide power all the time, because the requirement for every grid is 99.9% reliability. When the current on the grid is lowered a tiny amount of automatic circuit breakers shut down throughout the system and in a very few minutes the entire system shuts down to save itself. Catastrophic destruction occurs throughout the system and weeks are required to put the grid back in operation. February in Texas this year escaped that situation only by about 5 minutes as they cut off power to enough companies and locations to get back in balance.

Regardless of these incontrovertible facts, Wolff quoted from Biden’s recent address to Congress:

“My American Jobs Plan will put hundreds of thousands of people to work — hundred [sic] of thousands of people to work — line workers, electricians, and laborers — laying thousands of miles of transmission lines; building a modern, resilient, and fully clean grid,” he said.

Ideally, the utilities and the grid would have very few employees, because everybody on the payroll costs consumers money. The purpose of utilities is to provide the highest quality, most reliable electricity at the lowest cost, not to have the most employees. Providing electrical power is a service, not a make-work project.

And what, precisely, is unclean about the present grid? We can hardly wait to see the “modern” wires.

Even a bigger problem is that building long transmission lines has always been hampered by what developers call the “three P’s”: planning, permitting, and paying for it. “These long-haul transmission lines take eight to 10 years to build,” said Lauren Azar, a transmission expert and former DOE adviser and Wisconsin state commissioner. “And we as a nation don’t even have the right planning processes right now to identify the right transmission that is needed.” Simply put, while you will continue to see large groups of wind turbines and solar collectors proliferate across our nation on your tax dollar, they will never make up a significant portion of our nation’s energy utilization no matter who is in the White House.

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This article was published on September 30, 2021, and is reproduced with permission from CFACT, The Committee for A Constructive Tomorrow.

Biden’s Demagoguery That Government Spending is Costless

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There is only one way to describe the fiscal mindset of those in the White House and in Congress who are proposing new federal budgetary expenditure and taxing increases in the trillions of dollars: a fantasy land of financial irrationality.

The Biden Administration insists on additions to the already bloated American welfare state that will see an expansion in entitlement programs and increased societal dependency on government largess not implemented since Lyndon Johnson’s Great Society programs of the 1960s. But to show just how much Joe Biden’s mind seems to operate in some alternate universe, he has recently informed us that the $3.5 trillion of additional government spending over the next several years will cost “nothing.”

Why, nothing? Because over $2.1 trillion will be covered by taxing the rich and large corporations. The remaining difference between $3.5 trillion of greater spending and $2.1 trillion of increased taxes will materialize through some magic formula of government investing in infrastructure, alternative energy sources, and people.

Biden’s Hucksterism of Something for Nothing

Notice the rhetorical hucksterism. All of that additional spending won’t cost anything, because “you” are not being taxed to pay for it, and it will not result in any net increase in the national debt. It’s those others, you know, the millionaires and billionaires, who neither need all that money nor deserve it. You do, in the form of increased government redistribution.

You see, if you are not taxed to pay for it, and if it does not increase the debt, it is all, well, free goodies with other people’s money, other people who really don’t count or matter. How else do we interpret Joe Biden’s words at a recent White House event? “It is zero price tag,” he said, “on the debt we’re paying. We’re going to pay for everything we spend.” He went on to say, “Every time I hear this is going to cost A, B, C, D – the truth is, based on a commitment that I made, it’s going to cost nothing . . . because we are going to raise the revenue.”

This was clarified by White House deputy press secretary Andrew Bates, “The bill’s price tag is $0 because it will be paid for by ending failed, special tax giveaways for the richest taxpayers and big corporations,” he said, “adding nothing to the debt.” Listening to the president and those around him, you would assume that “the rich” pay little or nothing, while the poor and the middle-class working population bear the brunt of all the good things that government paternalism does for all of us.

Those Who Bear the Tax Burden for Government Spending

In fact, in 2018, the top 1 percent of income earners (those earning $540,000 or more) paid more than 40 percent of all income taxes collected; the top 5 percent of income earners (those making $218,000 or more) paid 60.3 percent of all collected income taxes; the top 10 percent (those earning $152,000 or more) paid 71.4 percent of all income taxes; and the top 25 percent (those making $87,000 or more) paid 87 percent of all income taxes paid. The bottom 50 percent of all income earners (those earning $43,600 or less) paid less than 3 percent of all income taxes collected.

As for corporate taxes, the United States, currently, ranks as 13th in heavily taxing corporations, but if Biden’s tax plan were to be implemented, the corporate tax rate would rise from 21 percent to 26.5 percent at the federal level. But considering that state governments also tax corporations, these business enterprises would (depending on the state) have taxes anywhere between 30 percent and 35 percent. If this happens, the U.S, would rank third in the world in terms of corporate taxes, just behind Portugal and Columbia.

In a new study, economists Daniel Mitchell and Robert P. O’Quinn estimated that the business tax effects of Biden’s plan would shift about 2 percent of the economy’s output into the hands of the government over several years, with an appreciable negative impact on private sector economic growth looking to the years ahead. They estimate a $3 trillion shortfall in national income from what it otherwise might have been over the next decade if Biden’s policies were not implemented.

A Philosophy of Plunder, Envy, and Paternalism

What is as disturbing as the possible economic impacts of these spending and taxing policies is the philosophy behind them. From Biden’s own mouth, the largess coming from government can be viewed as costless for those said to be the interest group beneficiaries, only as long as someone else can be made to pay the fiscal tab for it. This is an out-and-out politics of plunder, under which people may be promised practically anything, because the rich Peter will be taxed for the benefit of the deserving Paul.

The political paternalists always insist that those they designate as the rich do not really deserve or have a right to their higher incomes and wealth. First, this is because of the clear envy hidden behind the smokescreen of convoluted conceptions of equality. The mere having of more than others becomes a mark of social injustice.

Second, underlying this are forms of the Marxian and socialist presumptions that accumulated wealth and high income can have no origin other than by the exploitation and the oppression of others. If some have significantly more than others, there can be no rational reason for it other than it represents ill-gotten gains taken from others to whom it legitimately belongs. As a consequence, taking more of it away from the rich is merely – through the intermediation of the redistributing political authority – getting back what is rightfully due to those from whom it should never have been stolen in the first place under the capitalist system.

The only modern variation on this theme is that social classes in conflict with one another have been widened to incorporate a white, male, capitalist exploitation and oppression of all people of color, and female and related genders, along with the workers of all ethnicities and races. (See my article, “Identity Politics and Systemic Racism Theory as the New Marxo-Nazism”.)

Biden’s Socialism is of the Fascist Variation

It is noteworthy that when democratic socialists like Bernie Sanders or Alexandria Ocasio-Cortez are asked how much would be enough for the capitalist rich to pay their “fair share,” there is never a truly straight answer, other than implicitly a number approaching 100 percent. Biden, of course, has gone out of his way to insist that he is not a socialist.

But when your starting premise is that all good things come only through government planning, directing, and dictating, and that the resources and wealth of the entire country are at the discretionary disposal of those in political power who think like him, it is difficult not to view Biden as a central planner. And when central planning takes the form of government directly or indirectly commanding how those who own private businesses may go about their business in terms of what, how, where, and when to produce, employ, sell, and price what is being offered for sale, we end up with fascism.

When a president of the United States declares that he will use every political power at his disposal to compel as many people as possible to be vaccinated against a virus; when he insists that good citizenship requires every American to wear a facial mask, and pressures businesses to impose vaccine and masking rules on virtually every working American; when he commands that within a handful of years the majority of vehicles on the roads and highways of America must be powered and fueled a certain way, and threatens penalties if auto manufacturers do not comply with this demand; when he imposes retroactive regulatory rules and prohibitions on various forms of enterprise structures and market conduct through active antitrust enforcement; when he does these, and dozens more in a matter of a few months that he has been in office, one is reminded of Benito Mussolini’s description of the fascist, totalitarian system: “All within the state, nothing outside the state, nothing against the state.”

Biden Gets Arrogantly Impatient with a World Not Obeying Him

Biden always seems impatient whenever he is challenged about any of his decisions. He angrily turns away from any more questions about the American withdrawal from the Afghanistan debacle. He has no intention of rethinking the pilotless drone warfare that enables the United States to arrogantly target anyone, anywhere in the world. He seems to believe that just about everything is in America’s national interest.

He knows the world is threatened by global warming, so he will try to remake how all Americans live and work, and he is closed to any suggestion that the supposed science is challengeable. He talks like an irritated, impatient parent who is tired of the foolishness of the immature child-like citizens who won’t do as they are told. He hides away and won’t even talk about a border crisis of his own making.

Why, then, should it be surprising that Joe Biden just announced that $3.5 trillion of additional paternalist government spending has no cost? If he says so, well, then it is true. It is costless because it will not increase the national debt, since it will be paid for by imposing $2.1 trillion of higher taxes on those designated as rich, and taxing them, remember, has no cost attached to it.

Notice that in Joe Biden’s fiscal world, there are no trade-offs between the use of scarce resources in the private sector versus and by government. Indeed, magically, resources in the government’s hands are somehow automatically more productive. How else can it be asserted that taxing the rich an additional $2.1 trillion will somehow equal $3.5 trillion of redistributive spending?

Ludwig von Mises on the Illogic of Government Spending and Taxing

The mindset behind such policies are, tragically, nothing new. More than 90 years ago, in 1930, the Austrian economist, Ludwig von Mises (1881-1973), wrote about a similar mentality in his native Austria in the years between the two World Wars. Mises was at that time employed as a senior economic policy analyst for the Vienna Chamber of Commerce, Crafts, and Industry. In that capacity, he had a wide and detailed knowledge of the fiscal and regulatory policies of the Austrian government.

Mises delivered a talk before the Industrial Club of Vienna in December 1930 on “Adjusting Public Expenditures to the Economy’s Financial Capacity,” (Chapter 26) in which he discussed the mentality seen in the open in Washington, D.C. today. It is, perhaps, worthwhile, therefore, to quote Mises at some length:

“The errors in our fiscal policy stem from the theoretical misconceptions that dominate public opinion about financial matters. The worst of these misconceptions is the famous, and unfortunately undefeated, idea that the main difference between the state’s and the private sector’s budget is that in the private sector’s budget expenditures have to be based on revenues, while in the public sector’s budget it is the reverse, i.e., the revenue raised must be based on the level of expenditures desired.

“The illogic of this sentence is evident as soon as it is thought through. There is always a rigid limit of expenditures, namely the scarcity of means. If the means were unlimited, then it would be difficult to understand why expenses should ever have to be curbed. If in the case of the public budget it is assumed that its revenues are based on its expenditures and not the other way around, i.e., that is expenses have to be based on its revenues, the result is the tremendous squandering that characterizes our fiscal policy.

“The supporters of this principle are so shortsighted that they do not see that it is necessary, when comparing the level of public expenditures with the budgetary expenditures of the private sector, not to ignore the fact that enterprises cannot undertake investments when the required funds are used up instead for public purposes. They only see the benefits resulting from the public expenditures and not the harm the taxing inflicts on the other parts of the national economy . . .

“When the taxation of enterprises goes too far, it results in the consumption of capital. To a large extent, this has been the case here in Austria for the last eighteen years. Capital consumption is detrimental not only for the owners of property but for the worker as well. The more unfavorable becomes the quantitative ratio of capital to labor, the lower is the marginal productivity of the work force, and, consequently, the lower are the wages that can be paid.

“The view that levying taxes on property in any amount does not affect the interests of the masses is just one of the steps leading to the demagogic and false doctrine that it is safe to burden the state with any amount of costs.”

Fiscal Follies Can Lead to Capital Consumption

The following year Mises co-authored a report for the Austrian government that demonstrated that between 1925 and 1929, tax increases and compulsory union wage demands on the Austrian private sector had actually resulted in capital consumption. Private enterprises were unable to maintain the value and physical capacity of their capital. General corporate business taxes were increased by 32 percent, mandatory social insurance payments rose by 50 percent, industrial wages, in general, had been pushed up by 24 percent, and wages in agriculture by 13 percent, along with higher transportation costs by 15 percent due to various regulatory interventions.

At the same time, an index of the prices of manufactured goods bearing these fiscal and labor union burdens had increased only by 4.74 percent. For many segments of the Austrian economy, revenues were not enough to cover the costs of maintaining capital. Austrian society became economically poorer, as a result.

The difficulty of fully appreciating how fiscal and related policies can lead to such an extreme situation was also something that Ludwig von Mises drew attention to. Near the end of his famous treatise on Socialism: An Economic and Sociological Analysis, he explained:

“Capital consumption can be detected statistically and can be conceived intellectually, but it is not obvious to everyone. To see the weakness of a policy which raises the consumption of the masses at the cost of existing capital wealth, and thus sacrifices the future to the present, and to recognize the nature of this policy, requires deeper insight than that vouchsafed to statesmen and politicians or to the masses who have put them into power.

“As long as the walls of the factory buildings stand, and the trains continue to run, it is supposed that all is well with the world. The increasing difficulties of maintaining the higher standard of living are ascribed to various causes, but never to the fact that a policy of capital consumption is being followed.”

Biden’s Policies Could Lead America Down the Same Road

America may still be far from a situation in which its capital is consumed in the manner that Mises analyzed. But it nevertheless remains that the political and ideological forces at work are not that much different from his time in interwar Austria. Taxing the rich is presumed to have no detrimental effect on the continuing maintenance and increase in the capital that enables more, better, and newer products from coming to the market. We know this because Joe Biden has told us so. The same presumption is made in our time as in Mises’s. More government spending in any and all directions need not be limited to available resources.

Government borrowing and Federal Reserve money-printing are presumed to have no cost or constraint. All you need is a central bank that is willing to keep interest rates near zero, so the cost of borrowing trillions to cover budget deficits can seem to be almost nothing at all. There is always enough fiat money in the banking system to make it seem like there is plenty for anyone and everyone, for almost anything.

Joe Biden’s demagoguery, arrogant impatience, and dictatorial manner do not and cannot change reality. At the end of the day, his policies can only lead to a financial and economic disaster. But why should he care? He gets to sit in the Oval Office, play master of the world, have his staff and supporters bow and grovel at his feet, and dream of his legacy as president of the United States.

Besides, at 78 years of age, most of the disastrous consequences of his own policies will only fully come home to roost after he is long gone. Those will be some other president’s problem. For now, he gets to play the most powerful political paternalist on the planet. As for later, well, Après nous le deluge.

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This article was published on September 30, 2021, and is reproduced with permission from AIER, American Institute for Economic Research.

Debt Limit Negotiations – Threat Or Opportunity For Fiscal Conservatives?

Estimated Reading Time: 3 minutes

Surprise, surprise! It’s time to go through the debt limit-raising hassle again.

Democrats are clamoring for immediate action to avert a financial crisis which would be blamed on Republicans, just because. Meanwhile, the Republican campaign conservatives aren’t showing much enthusiasm for this rare possibility of achieving significant fiscal reform.

Treasury Secretary Janet Yellen rolled out the traditional arguments for raising the debt limit in the Wall Street Journal. Raising the limit doesn’t authorize additional deficit spending, which is true, as far as it goes. But it does ratify the overspending that has occurred, which keeps the ball rolling for spenders.

But she whiffs on the real point. The greater danger to our creditworthiness would be to continue the present course. As our indebtedness climbs to stratospheric levels and interest rates return to normal, our fundamental ability to service the debt becomes questionable, as our geopolitical rivals well know.

America is going to pay its debts. Yet in an obvious attempt to bullrush Republicans into compliance without conditions, Secretary Yellen warns that any failure could cause economic damage so severe as to be permanent.

Indeed, the titanic struggle over the 2011 debt limit increase, which resulted in a $2.1 trillion spending cut, caused a significant downturn in financial markets. However, spurred by the spending cut and the vitality of America’s private sector, all the losses and more were made up within the year.

Yellen notes that Congress has raised or suspended the debt ceiling 80 times since 1960, so it must be no big deal, right? But what’s wrong with this picture?

All 80 times, the effect was to increase America’s borrowing capacity. It has never been reduced. The routine expected raising of the debt limit is the enabling mechanism that has allowed us to slide into treacherous financial territory.

Republicans have never had a better opportunity to break this self-perpetuating cycle. Democrats are on a world record spending binge. Their majorities are slim and fractious. They desperately need Republican cooperation.

So Republicans are threatened with being saddled, again, with responsibility for the dreaded government “shutdown”. Previous shutdowns prohibited WW II veterans from visiting their DC memorial and prevented the viewing, even from the highway, of Mount Rushmore.

But government employees and beneficiaries were exempted. Nonessential employees got the best deal of all. They were furloughed but promised a complete pay reimbursement after the “shutdown”. Road trip!

Both Yellen and Biden insist that raising the debt ceiling in the past was bipartisan. That doesn’t make it right, of course. Still, the claim holds true only if you consider a 98.8% negative Democrat vote on the three debt ceiling bills during the George W. Bush administration to be “bipartisan“.

But the screws on Republicans get tightened anyway. “I can’t believe Republicans will let the nation default“ by not raising the debt limit, Chuck Schumer mourned at a recent press conference. As usual, the Chuckster was making it up.

Democrats control the White House and both houses of Congress. They don’t need a single Republican vote to do whatever they wish. They could have simply included the debt limit provisions in a budget resolution, a reconciliation bill not subject to the filibuster and thus not requiring Republican votes to pass.

Schumer instead moved the debt limit to regular legislation requiring 60 votes so that Republicans could be blamed for its failure. Democrats understandably don’t want the political blame for pushing our nation deeper into debt. But why should Republicans bail them out when the budget-crushing Biden era spending bills have passed with almost exclusively Democrat support?

Based on their record when in power, Republicans may not be sincerely interested in living within our means either. If they are serious, they must learn from past mistakes. Previous budgetary reforms included in debt limit bills have failed because they were later amended or ignored.

This time, Republicans must demand limitations that are self-activated and self-enforced, not subject to congressional amendment, at least for a time certain. Congressional proposal of a debt-limiting constitutional amendment should be on the table.

For common-sense fiscal conservatives, this is our time. Success requires boldness and bravery.

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Thomas C. Patterson, MD is a retired Emergency Medicine physician, Arizona state Senator and Arizona Senate Majority Leader in the ’90s. He is a former Chairman, Goldwater Institute.

Manchin Drops The Hammer

Estimated Reading Time: 3 minutes

After weeks of speculation about the position of Senator Joe Manchin (D-WV), the Senator made the following statement about the proposed $3.5 trillion dollars worth of Biden’s new spending:

“Every Member of Congress has a solemn duty to vote for what they believe is best for the country and the American people, not their party,” Manchin said. “Respectfully, as I have said for months, I can’t support $3.5 trillion more in spending when we have already spent $5.4 trillion since last March.  At some point, all of us, regardless of party must ask the simple question — how much is enough?

“What I have made clear to the President and Democratic leaders is that spending trillions more on new and expanded government programs, when we can’t even pay for the essential social programs, like Social Security and Medicare, is the definition of fiscal insanity. Suggesting that spending trillions more will not have an impact on inflation ignores the everyday reality that America’s families continue to pay an unavoidable inflation tax.

“Proposing an historic expansion of social programs while ignoring the fact we are not in a recession and that millions of jobs remain open will only feed a dysfunction that could weaken our economic recovery. This is the shared reality we all now face, and it is this reality that must shape the future decisions that we, as elected leaders, must make.”

“While I am hopeful that common ground can be found that would result in another historic investment in our nation, I cannot — and will not — support trillions in spending or an all or nothing approach that ignores the brutal fiscal reality our nation faces,” Manchin said. “There is a better way and I believe we can find it if we are willing to continue to negotiate in good faith.

“If there is one final lesson that will continue to guide me in this difficult debate ahead it is this: America is a great nation but great nations throughout history have been weakened by careless spending and bad policies. Now, more than ever, we must work together to avoid these fatal mistakes so that we may fulfill our greatest responsibility as elected leaders and pass on a better America to the next generation.”

We applaud Senator Manchin’s courage and common sense. The fact we could be inches from fiscal disaster is a testament to the insanity of the current Democrat Party. What will be the position of Senator Sinema from our state? She now has political cover to vote NO as well.  While it takes less courage than Manchin just displayed, it would be nice to see more moderate Democrat voices be heard.

Manchin is absolutely correct that we cannot pay for our current commitments, with both Medicare and Social Security just a few years from insolvency. He is also correct that inflation, or depreciation of the currency, is a form of tax, and a very regressive tax we might add that particularly hurts the poor that don’t own appreciating assets like stocks and real estate.

There likely will still be a fight over the debt limit. Democrats have steamrolled Republicans as they  try to pass essentially 100 bills wrapped in one giant appropriations measure and Republicans need to stand up and resist further spending by not voting for a higher debt ceiling.  As Senator Kennedy points out in the accompanying video on this site, the Democrats can raise the debt limit all by themselves.  Republicans should resist so the Democrats own these tax increases, inflation, and economic instability that will follow their wild spending.  Besides, the President says all this spending does not cost anything.  Therefore, under his own twisted logic, a hike in the debt ceiling is not necessary.

 

The Most Splendid Housing Bubbles in America: Holy Cow, September Update

Estimated Reading Time: 2 minutes

Even the Fed is getting antsy about this raging mania house-price inflation. Housing Bubble 1 is starting to look cute in comparison.

House prices spiked 19.7% from a year ago, the biggest year-over-year increase in the data going back to 1987, according to the National Case-Shiller Home Price Index today. But the national index of this raging mania doesn’t do justice to individual metropolitan areas, where price spikes reached up to 32%.

The Fed is getting seriously antsy about this massive house price inflation, on top to the regular consumer price inflation that has hit 30-year highs. Just today, the president of the Federal Reserve Bank of St. Louis, James Bullard, who’d been fretting months ago about the “threatening housing bubble,” came out with a proposal to reduce the assets on the Fed’s balance sheet right after the taper is completed by mid-2022, which would purposefully allow long-term interest rates, including mortgage rates, to rise significantly.

“Everything can occur much faster than it could have in the previous recovery,” he said.

Markets have started to anticipate the end of QE. Long-term interest rates have started to rise. The 10-year Treasury yield is currently at 1.55%, the highest since mid-June. The average 30-year fixed mortgage rate today was 3.16%.

The mind-boggling price spikes in the charts below for individual metropolitan areas are based on the “July” Case-Shiller Index. The July data are a three-month moving average of closed sales that were entered into public records in April, May, and June. That’s the time frame we’re looking at here.

House price inflation. The Case-Shiller Index uses the “sales pairs method,” comparing the sales price of a house to the price of the same house when it sold previously, and includes adjustments for home improvements. By tracking the amount required to buy the same house over time, it is a measure of house price inflation.

Los Angeles metro: Prices of single-family houses rose 1.4% in July from June and spiked by 19.1% year-over-year.

All Case-Shiller Indices were set at 100 for January 2000. The index value for Los Angeles of 359 means that house prices have soared by 259% since January 2000, despite the Housing Bust in between. The Consumer Price Index (CPI) has risen by 62% over the same period.

This puts Los Angeles on the dubious pedestal of being the most splendid housing bubble on this list. All charts below are on the same scale as Los Angeles to show the relative heat of house price inflation in each market since 2000.

San Diego metro: House prices rose 1.6% for the month and by 27.8% year-over-year. Since 2000, prices have exploded by 255%:

 

Phoenix metro, holy cow: +3.3% for the month, +32.4% year-over-year. The reddest-hottest annual house price inflation among the most splendid housing bubbles here:

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Continue reading this article at Wolf Street.

Arizona Could Be Ground Zero in U.S. Microchip Self-Reliance

Estimated Reading Time: 2 minutes

Arizona’s technology sector will play a prominent role in American manufacturing’s latest plan to reclaim its title as the world’s leader in semiconductors from Asia.

One of the lessons learned from the COVID-19 pandemic was the need for U.S. manufacturing companies to diversify their supply chains. Semiconductor production slowed to a crawl in 2020, causing microchip shortages worldwide. The void in chips led to a systemic supply chain disruption in several industries, most notably for automobile manufacturers.

According to semiconductor industry leaders, the answer to that dilemma in domestic production is the National Semiconductor Economic Roadmap. The Arizona Commerce Authority said Tuesday the plan would address three steps necessary to creating a thriving semiconductor manufacturing sector in the U.S.: finding and training a workforce, establishing a resilient supply chain, and installing the surrounding infrastructure.

“Today more than ever, we see the strategic importance of a robust U.S. semiconductor industry,” said Pat Gelsinger, CEO of Intel. “Intel has been at the forefront of designing and manufacturing semiconductors in the United States for over 50 years, and many of our leading commercial and technological innovations have grown out of Arizona.”

The group’s first meeting is planned for October, with the final roadmap unveiling due in July 2022.

“States have a pivotal role to play in advancing U.S. competitiveness,” Arizona Gov. Doug Ducey said. “Arizona looks forward to engaging with other states and industry leaders to establish an industry-led roadmap to help drive U.S. semiconductor leadership for decades to come.”

The U.S. once was a major supplier of semiconductors, the silicon-centric material used in microchips that power electronic devices, but 80% of the facilities are now based in Asia.

With Intel announcing in March a $20 billion plan to build two more fabrication facilities (fabs) in Arizona and the Taiwan Semiconductor Manufacturing Company’s plans to build a new fab in Phoenix, the state is expected to see a large share of the planned expansion.

“As Arizona’s experience has shown, states are on the front lines of semiconductor investment and attraction,” Arizona Commerce Authority President Sandra Watson said in a news release. “We’re proud to help lead this historic effort alongside our state and industry partners to develop a shared vision, one that can help drive American semiconductor leadership for decades to come.”

The Arizona Commerce Authority said Arizona is one of the “top-four” states for semiconductor industry share.

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This article was published on September 28, 2021, and is reproduced with permission from The Center Square.

Critics Pan Biden’s Claim $3.5 Trillion Spending Bill Costs ‘Zero’

Estimated Reading Time: 3 minutes

President Joe Biden is taking fire for comments he made about his $3.5 trillion legislation just as the bill faces a deeply split Congress.

Biden made headlines for claiming the bill would cost “zero dollars,” despite media reports and members of both parties commonly naming the bill’s cost at $3.5 trillion for the last several months.

“My Build Back Better Agenda costs zero dollars,” Biden wrote on Twitter. “Instead of wasting money on tax breaks, loopholes, and tax evasion for big corporations and the wealthy, we can make a once-in-a-generation investment in working America. And it adds zero dollars to the national debt.”

The administration argues tax increases will offset the bill’s expenses, something that is very much in flux given Democrats’ hesitancy about parts of the bill, and the taxes to pay for it.

Even still, critics took issue with the claim of a zero cost, even if Biden does manage to include enough tax increases to fund the legislation.

“The $3.5 trillion in spending and tax credits combined with at least $2 trillion in tax hikes will add to the debt and have a tremendous cost to the economy and to the health of American families,” David Ditch, a budget expert at the Heritage Foundation, said. “The taxes will hit families taking home as little as $30,000 per year, violating President Biden’s promise, reduce private sector investments that create jobs and opportunities for workers, and put America at a disadvantage with our global competitors. Huge increases in welfare spending will discourage work and make families increasingly dependent on government, which is exactly the wrong approach to increasing wealth for low-income households.”

“The bottom line is that the costs are real and deserve more attention from the media,” he added.

Earlier this month, Democrats proposed raising the top tax rates for individuals to 39.6% from 37%, and for corporations to 26.5% from 21%.

Some have estimated the package will exceed $3.5 trillion costs. The Committee for a Responsible Federal Budget estimated the bill could cost $5.5 trillion over 10 years.

“All government spending consumes resources taken from the private sector and thus would generally shrink private GDP,” said Chris Edwards, an economic expert at the Cato Institute. “Contrary to Biden, $3.5 trillion more government spending would likely cost the private economy not just $3.5 trillion but probably more than that. That’s because extracting every additional $1 of taxes causes about $1.50 of damage or ‘deadweight losses to the private economy. When taxes rise, individuals and businesses reduce their productive activities and private output falls.”

The overall price tag has been a key sticking point for Democratic Sens. Joe Manchin and Kyrsten Sinema, both of whom have explicitly said they cannot vote for the measure because of its $3.5 trillion cost. A less expensive plan may be able to get their vote, they said.

“These are not indications of an economy that requires trillions in additional spending,” Manchin said. “Every elected leader is chosen to make difficult decisions. Adding trillions of dollars more to nearly $29 trillion of national debt, without any consideration of the negative effects on our children and grandchildren, is one of those decisions that has become far too easy in Washington. Given the current state of the economic recovery, it is simply irresponsible to continue spending at levels more suited to respond to a Great Depression or Great Recession – not an economy that is on the verge of overheating.”

Biden’s comments drew sharp pushback from Republican lawmakers.

“Joe Biden thinks his $3.5 trillion spending bill will cost ‘zero dollars,’” U.S. Rep. Jim Jordan, R-Ohio, said. “Speaker [Nancy] Pelosi doesn’t want to ‘talk about numbers and dollars.’ Why can’t they just be honest? They’re going to raise your taxes.”

Business leaders also have criticized Biden’s spending plan, saying it poses a serious threat to the nation’s economy.

The U.S. Chamber of Commerce launched a six-figure ad campaign to warn Americans and lawmakers about the legislation.

“This reconciliation bill is effectively 100 bills in one representing every big government idea that’s never been able to pass in Congress,” U.S. Chamber of Commerce President and CEO Suzanne Clark said. “The bill is an existential threat to America’s fragile economic recovery and future prosperity. We will not find durable or practical solutions in one massive bill that is equivalent to more than twice the combined budgets of all 50 states. The success of the bipartisan infrastructure negotiations provides a much better model for how Congress should proceed in addressing America’s problems.”

Critics also pointed to the inefficiency of the federal government, saying the money taken from the private sector is often wasted by officials.

“Some new government spending may be worth more than the private spending it displaces, but I have not seen any detailed cost-benefit analyses showing that is the case with the Democratic plans,” Edwards said. “Democrats are simply guessing that their new spending is higher value than the private spending it will displace, but there is little or no evidence of that. Besides, if there was new, high-value spending that the government could do, then it would more efficiently be handled by state governments, not the horribly mismanaged federal government.”

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This article was published on September 28, 2021, and is reproduced with permission from The Center Square.

Biden’s Wrecking Ball for Financial Privacy

Estimated Reading Time: 5 minutes

The Biden administration is seeking to compel banks to report to the IRS any bank account with more than $600 in transactions per year. This proposal is a linchpin of Biden’s American Families Plan, and will supposedly help generate almost $500 billion in federal revenue over the next decade. But previous catch-all financial reporting requirements have helped spur national disasters, complete with pervasive federal looting.

Sen. Mike Crapo (R-ID) denounced the Biden proposal as a “surveillance dragnet,” a “huge violation of privacy,” and “an egregious abuse of Americans’ right to due process by inferring that all U.S. taxpayers are guilty of evading taxes until proven otherwise.” Paul Merski of the Independent Community Bankers of America warns that the Biden proposal would be “be a historic invasion of financial privacy like we’ve never seen before.” Merski also declared, “The IRS is absolutely incapable of handling or processing this massive amount of new data, and they would admit as much — that’s why they’re asking for an additional $80 billion in this budget.”

Actually, federal money cops have long been overwhelmed by too many reports from banks. Prior federal reporting requirements buried bureaucrats in useless reports and became a de facto Terrorist Hijacker Empowerment Act . The 9/11 attacks were preceded by the biggest failure ever by U.S. financial authorities.

The Bank Secrecy Act of 1970 made it a federal crime for banks to keep secrets from the government. This law obliged banks and other financial institutions to submit a currency transaction report (CTR) to the federal government for each cash transaction involving more than $10,000. The feds harvested 17 million CTRs in 2000; federal agencies were flooded with tons of paper that bureaucrats often never bothered to examine. Beginning in 1996, banks were also obliged to file a Suspicious Activity Report on any transaction that “has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage.” The feds were soon receiving two hundred thousand suspicious activity reports per year. Greg Nojeim of the American Civil Liberties Union observed, “Congress barred financial institutions from telling their customers that their bank had spied on them by reporting their transactions to the federal government.”

That deluge of reports provided a smokescreen for the 9/11 plotters. A 2002 United Nations report on terrorist financing noted that a “suspicious transaction report” had been filed with the U.S. government over a $69,985 wire transfer that Mohamed Atta, leader of the hijackers, received from the United Arab Emirates. However, the report noted, “this particular transaction was not noticed quickly enough, because the report was just one of a very large number and was not distinguishable from those related to other financial crimes.” Atta was on a terrorist watch list, but the avalanche of other reports the feds received targeting home buyers, boat buyers, and other innocuous transactions provided sufficient cover for the attack to proceed.

Rather than recognize how pointless reporting requirements swamped federal watchdogs, Congress responded to 9/11 by vastly expanding federal financial vacuum cleaners. On October 17, 2001, Rep. Ron Paul (R-TX) was the only member of the House to oppose the International Money Laundering Abatement and Antiterrorist Financing Act of 2001, which became Title III of the Patriot Act. Paul warned that the bill “has more to do with the ongoing war against financial privacy than with the war against international terrorism” and derided it as “a laundry list of dangerous, unconstitutional power grabs…. These measures will actually distract from the battle against terrorism by encouraging law-enforcement authorities to waste time snooping through the financial records of innocent Americans who simply happen to demonstrate an ‘unusual’ pattern in their financial dealings.”

Paul’s warnings were prescient. The Patriot Act turbocharged reporting requirements, and the feds are now receiving two million “Suspicious Activity Reports” a year. It would be worse than naïve to assume that all the reports that banks send to Washington will sit passively in federal databases.

Financial reporting requirements helped spur one of the most disgraceful federal looting sprees in modern times. The IRS has exploited the technicalities of the Bank Secrecy Act – which requires banks to report any transaction over $10,000 – to preemptively confiscate the bank accounts of innocent Americans. The IRS “enforced” the Bank Secrecy Act by presuming that anyone who deposited slightly less than $10,000 was a criminal. The IRS seized a quarter billion dollars because it disapproved of how businesses and individuals structured their bank deposits and withdrawals. IRS bureaucrats don’t even need to file a criminal charge before snaring citizens’ life savings.

Between 2005 and 2012, the number of IRS seizures for Bank Secrecy Act violations rose more than fivefold, but the vast majority of victims were never criminally prosecuted for structuring offenses. “One-third of those cases involved nothing more than making a series of sub-$10,000 cash transactions,” the Institute for Justice reported. A 2017 Inspector General report found no evidence in 91% of the forfeiture cases that the money came from illegal activities. The IRS chose to seize first, and ask questions later – if at all. IRS investigators simply looked at banking records and then confiscated the accounts of hundreds of people.

Most of the victims were “legal businesses such as jewelry stores, restaurant owners, gas station owners, scrap metal dealers, and others.” The IRS targeted businesses with legal sources of income because “the Department of Justice had encouraged task forces to engage in ‘quick hits,’ where property was more quickly seized… rather than pursuing cases with other criminal activity (such as drug trafficking and money laundering), which are more time-consuming,” the Inspector General reported.

Would the IRS behave as atrociously with a new $600 reporting requirement as it has in the past with the $10,000 reporting requirement in the Bank Secrecy Act? In U.S. Tax Court, IRS determinations of what citizens owe are “presumed correct,” with taxpayers bearing the burden to prove the feds wrong. Corporations with well-fed legal departments routinely defeat the IRS in court but few citizens can afford to fight a federal agency that appears to hold all the cards. Treasury Secretary Janet Yellen declared, “Any suggestion that instead this reporting regime will be used to target enforcement efforts on ordinary Americans is wholly misguided.” Then why do the feds want the data on almost anyone with a bank account?

Biden’s new reporting requirement could be the Bitcoin Relief Act of 2021. Forty banking and financial associations sent a letter to Congress on September 17 warning that the Biden proposal “would create tremendous liability for all affected parties by requiring the collection of financial information for nearly every American without proper explanation of how the IRS will store, protect, and use this enormous trove of personal financial information.” American Banking Association president Rob Nichols warns that requiring “banks to police and report on the accounts of customers…will undermine trust in the banking system and erode the progress we have made reducing the number of unbanked and underbanked in the country.”

The Internal Revenue Service has perennially been the authoritarian means to paternalistic ends. The Washington Post reported that “the single biggest source of new revenue in the [Biden] plan comes from dramatically expanding the clout of the nation’s tax agency.” Biden relishes condemning tax-dodging billionaires but that $600 reporting requirement is a signal that IRS purgatory could soon be crowded with average Americans.

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This article was published on September 22, 2021, and is reproduced with permission from the AIER, American Institute for Economic Research.