The long-term forecast for higher interest rates, according to Treasury Secretary Janet Yellen, makes it more difficult to control U.S. borrowing needs, which emphasizes the significance of raising revenue in the forthcoming budget talks with Republican lawmakers. There is only one problem: I believe she is wrong.
The accumulated figures are even more concerning. The CBO estimates that the aggregate primary deficit in the 2025–2034 period will reach a brutal $7.4 trillion, with accumulated interest expenses of $12.4 trillion. We must remember that the CBO baseline estimates no recession and constantly rising tax receipts above the record 2024 level.
If the CBO’s optimistic estimates lead to the conclusion that deficits and interest expenses are going to soar in a booming economy, it’s evident that no revenue measure is going to end this disastrous trend.
Those who say that revenue measures will cut the deficit have a problem with mathematics and reality. There is no revenue measure that will generate $700 billion in additional receipts every year. Furthermore, there is no revenue measure that will generate those additional annual revenues, regardless of the economic cycle. A single year of recession could destabilize the administration’s optimistic estimates.
The United States’ unsustainable budget deficit is a problem, and interest expenses are rising because the government rejects any form of budget discipline.
The administration believes that all expenses are necessary but too low, and that your hard-earned money is excessive and should be subject to higher taxes.
Deficits are always a spending problem. Only interventionist bureaucrats assume that revenues are the issue. Tax revenues are cyclical, and expenditures consolidate and rise faster than revenues because the administration can never get enough.
When the economy soars, governments spend more, and when the economy weakens, they spend even more, making deficit spending a burden on the economy that leads to discontent in recessions and expansion periods.
We are witnessing a deadly proposal for the U.S. economy. The government rejects any possibility of administering and balancing the budget. The unsustainable deficit is printing money, resulting in higher taxes and likely persistent inflation. You are poorer, and the government becomes larger every year.
Keynesianism is the destruction of the middle class. By printing money and bloating deficits and spending, the size of government in the economy rises faster than the private and productive sectors. The size of the government increases during recessions by increasing expenditures to combat them, and it also increases during economic downturns by boosting taxes and creating inflation, which is a hidden tax.
What we are witnessing is a slow nationalization of the economy. Small businesses and families are suffering from higher rates because the government has created inflation and driven deficits to unsustainable levels, and the government demands more tax revenues.
The trick, as always, will be to deceive us by claiming that taxes will only be imposed on the wealthy. An unfair taxation system is no less unfair if it affects only a small proportion of citizens. However, it doesn’t even matter. There is no way in which the government can boost revenues without passing a massive burden on to the middle class via inflation, a hidden tax, and higher direct and indirect taxes.
According to Ms. Yellen, the government won’t compromise on spending, and you will pay with inflation and higher taxes. This is the danger of letting Keynesianism reign. They start by presenting the government as the solution, and they always impoverish the middle class.
There’s no way in which the administration can fill a structural annual $700 billion budget hole with “taxes on the rich.” Therefore, when they talk of compromise, what they mean is that the middle class and small businesses will continue to suffer.
Considering that Ms. Yellen and the Biden administration are unwilling to even moderate the insane government spending trend, the Federal Reserve is finding itself in the position of trying to curb the cost of debt by slowing the path of balance sheet normalization. This means that the Fed has to abandon its fight against inflation because fiscal policy is failing to reduce inflationary pressures. In doing so, the Fed is unwillingly passing the entire burden of policy normalization and higher rates on to the productive sector, while the Treasury looks at the enormous deficit and thinks, “Well, we must collect more revenues.”
You pay.
There is only one way to save the U.S. dollar from losing more purchasing power and the United States from becoming a stagnant and unproductive economy: reduce the size of government. If you believe the government is too small, be prepared to be poorer by losing your real wage and ability to make ends meet.
If you want more government, you will have it. And you will overpay for it. Inflation, higher taxes, and lower wages are the price of more state control. Always.
