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With COVID still raging and public officials idiotically closing vast swaths of the economy, now shouldn’t be the time to start pinching pennies with another massive pandemic relief package, as Congress is doing while this column goes to press.
Or maybe it is time.
The deal on the table isn’t the largest of the stimulus packages that have been passed since the pandemic started. It’s “just” $900 billion — down from the $2.2 trillion the Democrats initially pushed, and the $2.4 trillion deal reached during the early days of the pandemic.
But it does raise some thorny questions: When will all this spending be paid off, and who will be footing the bill?
Average America may not like those answers.
Of course, no one in DC or on Wall Street is thinking about the long-term implications of all this spending. On Wall Street, stocks are hitting record highs on the prospects of a deal — and will likely keep rising for some time. My trading sources point to the so-called put-call ratio — where options to buy stocks (calls) are spiking to historic highs underscoring significant stimulus bullishness.
Most stock traders, of course, rarely think beyond the next trade, but even the bond market — which used to keep speculators and spenders in Washington honest — loves all the spending. Yields on the 30-year bond have remained low, meaning bond traders see (at least for now) a never-ending appetite for our debt.
Oddly, among bond traders there is little anxiety about the very real possibility that massive budget deficits might someday cause a sharp increase in interest rates, which can crush the stock market and the US economy.
No surprise that you can say the same for our political class. The best stimulus would be a federal government working with states to reopen businesses while protecting the vulnerable from the virus. Think targeted reopening of restaurants, gyms, movie theaters with capacity limits that allow small businesses to survive the cold, harsh winter.
But that would take some leadership; it’s easier simply to throw money at the problem through aid to small businesses and extended unemployment insurance. To get the deal through, Republicans led by Mitch McConnell dropped their demand for COVID liability protection. Dem House Speaker Nancy Pelosi can now throw a bone to her trial-lawyer pals (and donors) as small businesses could face the prospect of lawsuits on top of all the other costs they’re dealing with.
McConnell didn’t walk away totally empty-handed. Democrats dropped their demands for direct aid to states and cities to plug budget deficits and pension liabilities made worse during the pandemic. That saved open-for-business red states like Texas and Florida from subsidizing the boneheaded policy decisions of Mayor de Blasio and Gov. Cuomo to restrict business for months on end even when science showed indoor dining did little to spread the virus.
My GOP sources say some Republican members do care about deficits and put up a fight to keep out of the bill additional direct checks to Americans (about $600 per person) because the bill includes unemployment-insurance extensions. But they will likely eventually lose the fight as the deadline for the bill nears: McConnell and the White House are worried that haggling over the money is a bad look when control of the Senate is on the line in the Georgia runoffs.
Lost among these Wall Street and Washington antics is the country’s credit-card bill. The size of the US budget deficit — the shortfall between the revenues the government brings in and what it pays out — is now more than $3 trillion. That’s about three times larger than projected before the pandemic hit.
Overall, the size of the national debt has grown to around $27 trillion — or about $69,000 for every US citizen. That’s a lot of Benjamins to be owing (among many foreign creditors) the Communist Chinese.
The debt as a percentage of GDP (a gauge of the country’s ability to repay borrowing) isn’t the highest it has even been — that occurred after World War II, when it hit 113 percent.
But at a projected 98 percent, it isn’t far off. And the way our tax system works, not every American will owe the same amount. Mega-corporations find plenty of loopholes to evade their fair share of the tax burden. One of the world’s largest companies, e-tailer Amazon with a market capitalization of $1.6 trillion — paid a paltry $162 million in federal income taxes in 2019.
Super-rich investors and traders make most of their money on their market holdings and get taxed on a capital gains rate, which is lower than the upper-bracket 37 percent rate most rich people must pay, not to mention all those not-so-rich people who make more than $200,000 a year.
Yes, there’s good news out there: A COVID vaccine that appears to work, and the markets like that as well. But when the pandemic is over, the price for all the spending will come due, and the tax burden falls hardest on the people in the middle.
So get ready to pay.
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