By John Branthoover / Herald Forum
Our next federal budget needs to bring the deficit down. You might ask how we do that. May I suggest a few things that have worked in the past.
A new budget should have the effect of lowering the prices we pay for goods and services, and at the same time increase our economic growth. The Federal Reserve Bank, also called the Fed, seems to think it needs to get inflation down with austerity policies, by restricting the flow of money and credit. They are punishing us, because of the government’s mistake when it printed too much money, and its own error when it kept interest rates too low for too long.
The Biden administration now wants to raise taxes to pay for all the spending it unleashed when they tried to offset the covid lockdown and high inflation. It’s time for some fresh thinking, not more of the same old official advice we have received in recent decades.
You can’t achieve the aims of cutting the deficit, controlling inflation and growing the economy without targeted tax cuts. Fiscal conservatives are correct in saying “No spending program should be unfunded.” Congress knows all about unfunded program spending, as they created enough of them over the last three years. If they had revenue to cover their spending, we would not have such an inflationary problem. Instead, their actions ended up effectively borrowing from the Fed. Now we are paying the price with higher interest rates the Fed sets. We are all forced to pay for the extreme monetary expansion the administration and Congress triggered to pay the bills.
We need targeted tax cuts to get prices down. Why not suspend the federal tax on domestic fuel? That would bring domestic heating bills down by 5 percent to 10 percent. Why not have a temporary cut to relieve some of the pressures on people and businesses when they need gas and diesel to get to work, and deliver the goods to working people? Cutting the tax would have a beneficial effect on consumer spending, their paychecks and the prices reported in the Consumer Price Index.
So how could we pay for this? The Office of Management and Budget has once again got its forecast wrong, and understated revenues from existing taxes. If voters insists on Congress being more prudent, why not also ask for more domestic oil supply to help control prices.
Inflation is too much money chasing too few goods. The Fed wants to squeeze the money supply, but we should also try producing more goods. Since February 2020 the U.S. has lost thousands of the self-employed from the workforce. Some of this was a result of coivd, but much of it was government’s meddling in the private market with regulations that have been destructive to business and the tax base.
Government should want to boost small businesses. Government should lower corporate taxes. This would enable a large number of businesses to do more, relieving a major barrier to their expansion. Small businesses turn down work, and decline to take on an extra staff, because they do not want to deal with governments over-reaching regulations.
Using OMB arithmetic, we could generate substantial additional revenues as more business is transacted and more taxable earnings created. The public sector has presided over a fall in its productivity. Now that lockdowns are over, we need to get back to 2019 levels of productivity. This will entail cutting the waste in government civil service, and other public sector administration offices. It should be possible, through sensible planning, to save one to two billion a year.
The government should rethink its grants of large amounts of money in the form of foreign aid. The policy of using more of our own oil and gas, instead of relying more and more on imports, would also raise the amount of tax revenue the Treasury collects, and will add well paid tax paying jobs to the economy.
The U.S. Treasury should cut back on selling treasury bonds, and sending the bill to the taxpayer by forcing us to pay the interest on the national debt. It should allow its bond portfolio to run down. Treasury could finally repay the money they borrowed, over the years, by selling bonds. This will lower the federal deficit, and exclude the Fed’s control over interest rates by many billions.
Fiscal conservatives need to recapture their tax-cutting beliefs and show once again that only through tax cuts can you control the deficit, grow in the economy and conquer our now ruinous inflation.
John Branthoover lives in Arlington.