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Interestingly I consider the greatest Trump threat to the economy to be the plans to deport millions of people. I have seen estimates that 45% of farm workers are undocumented immigrants. Likely this would result in very large inflation in food prices and a permanent shortage of farm workers.

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America’s greatest threat is the ignorance of its own voters

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What a partisan article. Biden is an economic populist himself. Tariffs , tax breaks to his supporters-Salt/real estate tax breaks, returning industrial production to America which will enrich his supporters/cronies while having regular Americans paying higher prices. This is just a Democrat scare mongering in his wish forecasting. No one really knows what Trump has in mind . He’s too busy in court!

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The unfortunate confluence of massive government COVID spending (which was necessary) and massive government social/infrastructure spending by the current administration ensures that inflation is coming. The Fed wisely expect it and is appropriately holding rates. Whoever the next President is, he will be living with the impact of historic spending. The high level of rates necessary to deal with that will put the Fed in jeopardy, but hopefully they will remain independent and deal with it appropriately, if painfully.

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The massive government spending was mostly needed not because of Covid itself, but because the government shutdown or restricted businesses, which caused the job losses that caused rent and mortgage defaults. This led to the cash handouts to businesses (real or not) and individuals (paycheck protection) and eviction moratoriums. Then the moral hazard and outright fraud kicked in (read about the millions stolen by Somali charities supplying (undelivered ) free kids meals in Minnesota, or the prisoners in California getting multiple stimulus checks). If the government hadn’t suppressed the Great Barrington Declaration, and instead followed it the economic impact and lost school hours would have been much lower, as would the required stimulus.

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The problem is that interest rates and the Fed are highly ineffective tools to modulate inflation and other economic activity. Interest rates have both a stimulative and contractionary effect on economic activity. The proper tool is fiscal policy through the implementation of a job guarantee, and automatic tax increases/decreases depending on monthly inflation.

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Do you see Congress giving up their power? Do you believe they should?

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Trump himself is completely ignorant. But he will be surrounded by people with anti-inflation instincts. This is in contrast to the Democratic Party, which is a collection of people looking to spend money, impose regulations, and fantasize that taxes on the rich can somehow compensate for that. However, inflation could come from the need to manage a wartime economy if China goes to confrontation.

In this regard, I think there is a risk, but it is not especially related to Trump. A president who shows strength like him will probably deter China more than a president like Biden who projects weakness and hesitation.

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Jun 8·edited Jun 8

Biden and the Dems--through both the infrastructure bill, the IRA; and actual alliance-building--are actual, concrete measures to deter China from starting WWIII. Or at least to slow down Xi's timetable and leave us better prepared. Domestic microchip factories, expanded munition production capacity, a strengthened NATO: these are all because of Biden and the Dems. Over strenuous GOP objection, mind you. Johnson, at Trump's urging, delayed for SIX months a $90bn investment in our domestic munition manufacturing capacity.

Keeping ASEAN strong; courting both India and Vietnam to join a China-attacks-0ne-it-attacks-all alliance: these are diplomatic objectives that are sadly beyond Trump's ability.

Trump would destroy, or at least badly damage NATO. And don't even remind us of his weekly promise for 4 years on "Infrastructure Week..." Gods, what an embarrassment that was! Trump only talks. Biden actually gets shit done.

The modern GOP exists to increase federal borrowing to finance tax cuts for the ultra-rich and corporations. There actions have proven them to be the worst possible leadership choice; when we are gearing up for what will likely be the fight of our lives.

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Biden doesn't get shit done. He shits his pants on the world stage at Normandy.

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Jun 9·edited Jun 9

I watched Biden’s speech because again, I saw conservatives claiming he was unfit. Once again he delivered an excellent, moving speech and reminded me how desperate Republicans are to define Biden as something he isn’t, because there’s no positive argument for Donald Trump.

But a more serious comment about this piece: the fact that Trump advisors are debating removing the independence of the Fed means they *will* remove the independence of the Fed the second it seems politically advantageous. And then we’re on the fast path to being Venezuela.

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Jun 9·edited Jun 9

You need to get your news from actual journalists, working for media outlets that practice actual journalism; instead of just making stuff up. Or, like FOX, reporting on stuff that someone else made up; but treating it as newsworthy.

Reading your post I googled, "Biden poops pants Normandy." Hits are divided by partisanship; but here's a Snopes analysis: https://www.snopes.com/fact-check/biden-invisible-chair-dday/

Verdict? Camera angle of 12 second clip obscures the fact that Biden is indeed sitting down in an *actual* chair. Analysis? GOP operatives desperate to shift narrative after their convicted rapist is freshly convicted of falsifying business records covering a payoff for boffing a pornstar.

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You are assuming that extending the Trump tax cuts would have no impact on economic growth. This is not true. They would more than "pay for themselves." We have to get higher RGDP growth for anything to work, and raising taxes is not the way to do that.

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author

"They would more than 'pay for themselves.'" <-- no

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A tax cut "pays for itself" if the cut increases RGDP growth enough that the present value of future federal revenues is the same or greater after the tax cut than before. I have done the calculation and (from the 2023 CBO LTBO baseline), it would take only a 0.05 percentage point increase in RGDP growth to pay for eliminating the corporate income tax completely.

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Jun 8·edited Jun 8

You a GOP lobbyist? Like the magical effects of fairy dust, the GOP keeps trotting out tax cuts for the rich ad nauseum as a cure-all for GDP growth. Those 2017 cuts added, what, $1.9trn to the deficit? How about increase taxes on the rich and corporations, and use the revenue to fund research grants and properly fund the Small Business Administration? Y'know, two of the chief promoters of economic growth here in the US?

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I'm just a person that: 1) can do math; 2) who knows that the economy is driven by human decisions; and 3) that incentives impact human decisions. The math says that to oppose eliminating the corporate income tax (which has huge compliance costs) entirely based upon the health of federal finances, you would have to believe that doing so would not increase RGDP growth by at lease 0.05 percentage points. Beyond that, America averaged 3.46% RGDP growth for the 20th century as a whole. The CBO is projecting growth of 1.71% for the next 30 years. America cannot be itself at that rate of growth, so we need to do something. Cutting the taxes that impact capital investment within the U.S. is one option. I just did the math to determine how much additional growth we would need to get for each 1 percentage point reduction in the federal tax take to keep federal finances whole.

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“The math says” that the interest rate and horizon you are using for your present value calculation of future fed revenues requires assumptions that may not work out.

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The increase in RGDP growth required to pay for a tax cut is inversely related to the spread between the NGDP growth rate and the interest rate at which the government can borrow. My 0.05 PP RGDP increase to pay for eliminating the corporate income tax is based upon the spread assumed in the 2023 CBO LTBO, which is RGDP - Real Interest Rate = -0.50 PP. If I did the same calculation with the 1948 - 2023 historical average spread (+1.53 PP), the RGDP growth increase required to pay for eliminating the corporate income tax entirely would be just infinitesimally above zero, and far smaller than the BEA can measure. In contrast, if we eliminated the corporate income tax entirely, we could expect RGDP growth to increase by at least 0.62 PP (for the past 71 years, the GDP return on "nonresidential produced assets" has oscillated around 44%).

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Is there any reason to believe such a tax cut could result in a gdp growth increase that much bigger than inflation?

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Yes. The BEA publishes "produced assets" numbers going back to 1953, and GDP is always close to equaling (0.44 X "nonresidential assets) + (0.08 X "residential assets"). Cutting the corporate tax rate to zero (which would eliminate all of the compliance costs associated with this tax) would cause an explosion of capital investment in the U.S. and therefore much faster RGDP growth.

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I think I’m missing a step. What is the connection between the equation you mention and corporate tax rate?

Also, compliance costs are part of GDP, so cutting them doesn’t directly lead to GDP growth (though it is presumably helpful if there are productive investments that are currently being crowded out by that spending).

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The corporate income tax captures 1.4% of GDP. Compliance costs are another 0.5% of GDP. With a zero corporate income tax rate, corporations would have more money to invest and more incentive to do so. Capital investment drives RGDP growth. And, no, compliance costs are not part of GDP.

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founding

What did you use as the discount factor for estimating future values? What happens if this number goes up? I am interested in looking at your work, if you don’t mind sharing.

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I used the 2023 CBO LTBO assumptions, which are incredibly pessimistic when compared with either the 1948-2023 average or 2023. If you are interested, I have just finished a draft of my book on economics ("Engineering Stable Money--and Permanent 4.00% Economic Growth," 316 pages with 148 graphs) that presents this in detail and if you email me at Louis.woodhill@outlook.com, I'll send you a PDF.

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Since when have tax cuts ever paid for themselves?

The thing to do is to raise taxes *on Republicans* specifically, as punishment. It’s the least they deserve.

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This whole pay for discussion is nonsense. The govt does not need to tax or borrow in order to spend.

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Governments spend in order to provide services, and providing those services requires real resources such as labor man-hours and raw materials. The purpose of taxation and borrowing is to reduce private sector activity and thus free up those man-hours and raw materials for the government's use.

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Right now, the Treasury pays bills with the money in the TGA at the Fed. The TGA gets money from taxes and borrowing. Exactly how would the U.S. Treasury pay bills if it didn't tax or borrow?

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We're not just talking about Trsry. Fed is part of govt. They buy bonds from Trsry. Left pocket borrows from right pocket.

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The Fed is not allowed to buy USTs directly from the Treasury. That is why they call Fed operations "Open Market Operations."

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It should tax (and seize the assets of) Republicans out of spite if nothing else.

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The 1996 capital gains tax cut produced 4.45% RGDP growth in Clinton's second term and (unforecasted by the CBO) put the federal budget into surplus.

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Is this correlation or causation? Like the internet was happening then, as was bank and welfare reform. You may be right - that may have juiced the VC industry, leading to reckless but sometimes wildly profitable endeavors. I am pretty sure that in a general sense we’re nowhere close to the peak of the Laffer curve, though.

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RGDP is driven by capital investment and the rate of RGDP growth overwhelms variables like the "tax take" (the % of GDP captured by federal taxes). If you do the calculations on a present value basis, you will find that we should not tax savings and investment at all. The FairTax would produce the best result for everyone. The huge increase in income inequality since 1970 is the result of ending (rather than reforming) the Bretton Woods gold standard and moving to an undefined, unstable USD. If the Fed stabilizes the real value of the USD (against general commodity prices), income inequality will unwind and about 5 percentage points of GDP will shift from capital back to labor.

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have a vague notion that in the 50's and 60's anyway taxes on the rich were much higher. Reagan famously complained. But gdp growth was high. Checking I see that growth in the 60's averaged about double growth in the 2010's. CEO salaries were also a much lower multiple of the average wage than today.

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One factor is that the US in the '50s faced a lot less foreign competition, because so much of the world was either still undeveloped or rebuilding after being reduced to ruins in World War II. In addition there were strict controls on the international movement of capital as part of the Bretton-Woods system.

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Lower tax rates on "the rich" increase RGDP growth, but not as much as going to a wildly unstable dollar reduces it. During Bretton Woods, the standard deviation of quarterly CRB Index values was 6.36% of the average CRB Index for the period. During the 21st century thus far, this number has been 24.32%. We need both stable money and low taxes on savings and investment to get the RGDP growth that we need.

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I believe there are lots of good reasons to alter the American tax structure and make it more progressive, but Trump's tax cuts will not "pay for themselves". We're a long way from the backside of the Laffer curve.

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Neither Trump nor Biden are interested in managing the Federal Governments budgets. Neither wants to do anything that would upset voters. This is why we are also not having a conversation about SS and Medicare shortfalls. Cowards essentially. Until we have someone of the stature of a John McCain or a Mitch Daniels....our countrys debt and deficit will not improve.

If you look at the future of the Democrat Party like a Gavin Newsom, there is not relief there either. Republicans will have “throwing Granny off a cliff” if Trump retains any power after his Presidency.

We are in awful straights.

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High interest rates don’t need to be an contributor to the deficit; the Fed holds about 20% of the Debt already, which means we are paying the interest to ourselves. The Fed can certainly increase its Debt holdings. In Japan, the Central Bank holds half their Debt. Also, the rest of the world very much wants US debt instruments, perhaps if fewer were auctioned at large, we’d get a premium for them? It’s probably the most interesting thing about the MMT arguments (which basically mostly just restates Keynes with different emphasis as far as I can tell).

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Interestingly the Fed has a lesson for high school students on the impact of debasement of the currency in the Roman Empire.

https://www.stlouisfed.org/-/media/project/frbstl/stlouisfed/Education/Lessons/pdf/Inflation_and_the_Fall_of_the_Roman_Empire.pdf?la=en

I have read the one in four U.S. dollars have been created since 2020. How have we not learned the lesson of Roman times?

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The most important factor in the cases of hyperinflation is foreign denominated debt. A sovereign that issues, borrows in, and floats its own currency, and can feed itself, is not vulnerable to hyperinflation. Hyperinflation is very unpopular. Even a corrupt populace government knows that. If they start down the road and inflation becomes evident, they will not continue inflationary policies unless they are forced to by the presents of high levels of foreign denominated debt.

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The most famous example of this was of course Germany 1923, where the high foreign-denominated debt was rooted in Versailles reparations.

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Eliminating the corporate tax may or may not raise gdp but raising gdp via that path will be a increase in gdp that goes to the wealthy.

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I’m only against the 200% tariff on Chinese cars, because I want one of those sweet BYD electric ones.

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I think that if you want to raise awareness about how could Trump raise inflation, you could just remind voters about Turkey in recent years; its chronic inflation is due to Erdogan's decision of forcing the Central Bank to lower interest rates, as well as tampering with official statistics though :)))

(P/s: Not sure that such a recent event could remind Americans about potentially dangerous outcomes; but you could do what you can!)

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Any tax cut that increases RGDP growth by an amount that the BEA can measure (i.e., at least 0.10 percentage point) will pay for itself on a present value basis (and that is what the financial markets care about). I talked to Art Laffer, and he agrees that the test of whether a tax cut pays for itself is the present value of future federal revenues, and not whether revenues go up in Year 1.

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Jun 8·edited Jun 8

Money raised from tarrifs needs to be redistributed funding whatever ubi it can cover.

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