Why the US Should ‘Borrow Gobs of Cash’ Right Now

Plus, the cost of IRS budget cuts

Why the US Should ‘Borrow Gobs of Cash’ Now

Investors worried about the health of the global economy continued to scramble to the safety of U.S. bonds on Thursday, driving the yield on 30-year U.S. Treasury bonds below 2% for the first time ever on Thursday. The yield on benchmark 10-year Treasuries broke below 1.5%, reaching a three-year low.

Investors keep piling into U.S. bonds in part because they still offer positive yields, making them more appealing than debt from other safe havens where rates are negative.

Slate’s senior business and economics correspondent, Jordan Weissmann, writes that the drop in yields highlights two points. First, “[p]eople are clearly very worried about the direction of the world economy.” Second, he says:

“Washington could borrow a huge amount of money right now without having to worry much, if at all, about the consequences over the next few decades. As a rule, governments can sustain high levels of debt pretty much indefinitely as long as their interest payments are lower than the rate of economic growth. (I’m simplifying things, but bear with me.) … Trump wants a $1 trillion infrastructure plan? Fine. Now’s the time to debt-finance it. We can afford it, and it might help both the U.S. and the world economy avoid a downturn. This would also be a very good time to finance an expansive plan to combat climate change. Borrow a few trillion, throw it in a giant Green New Deal fund, and use it to pay for the sort of aggressive action necessary to eventually reach zero net emissions.”

Marc Goldwein, the head of policy at the Committee for a Responsible Federal Budget, agreed — not with adding more debt, but with extending the duration of government borrowing and locking in low rates for the longer term. “Refinancing may shake market confidence and wipe out some of the gains,” he tweeted. “But we issue or roll over tons of debt every week - I agree with you, I can’t think of a good reason all that debt shouldn’t be in 30 year bonds [at the moment].”

Weissmann’s piece echoes other calls this week for the U.S. government to take advantage of historically low borrowing costs to ramp up spending on investments that both Democrats and Republicans deem necessary, with infrastructure being the prime example. “With the U.S. government able to borrow at a near-record low 2.15% for 30 years, it sure would seem like an opportune time to address the 47,000 structurally deficient bridges across the country,” Bloomberg’s Brian Chappatta wrote Tuesday, before rates fell even further. “The bond markets aren’t demanding fiscal profligacy. All they’re suggesting is a modest loosening of the purse strings, with money directed toward projects that benefit the overall economy.”

In a recent analysis of the current economic environment, William Gale of the Brookings Institution said that while low interest rates are not a “get out of jail free” card as far as the country’s fiscal situation is concerned, more federal investment is warranted, even if it increases the deficit. "We need more infrastructure, research and development, and human capital … I conclude that it would be preferable – based on fiscal and economic growth considerations – to fund these projects with taxes rather than deficits. But, if given the choice between deficit-financed investments and no investments, policymakers should choose the former."

Neither an infrastructure plan nor a climate change fund is likely to happen anytime soon, though, as Weissmann readily acknowledges. But the failure to “borrow gobs of cash in order to fix the country, bolster the economy, and save the planet,” he argues, is “criminally negligent.”

IRS Budget Cuts Led to Billions in Lost Corporate Tax Revenue: Study

IRS budget cuts are costing the U.S. government substantially more in tax collections than they save, according to a new study highlighted by USA Today.

Researchers at the Indiana University Kelley School of Business studied how IRS funding affects the agency’s audit process for publicly-traded corporations. Relying on confidential IRS audit data from tax return years 2000 through 2010, they found that the IRS could have increased collections from these companies by $34.3 billion if it had been provided with $13.7 billion in additional resources.

"The scope of the audits is substantially reduced," Casey Schwab, an associate professor of accounting at Kelley, said. "The IRS has fewer resources to actually dig into the details. While the IRS appears to still target the most aggressive positions, they can't audit as many positions within the return. They just don't have the resources."

That $34.3 billion in lost revenue represents nearly 20% of the estimated gap between what corporations paid in taxes and what they owed from 2002 through 2014. It is also “potentially only a fraction of what the amount would have been if the study had included audit data from other businesses, individuals and foreign taxpayers,” USA Today’s Maureen Groppe notes.

Chart of the Day: That’s a Lot of Administrators

Administrative overhead has grown enormously in the U.S. health care system over the last 50 years, as this chart from Princeton economist Uwe Reinhardt’s final book shows. Reinhardt, who died in 2017, said that the U.S. has done little to address this problem.

“I can think of no legislation ever to emerge from Congress that addressed the magnitude of this administrative overhead,” Reinhardt wrote. “It is as if Congress just does not care what health spending actually buys. On the contrary, every health reform emerging from Congress vastly complicates the system further and brings forth new fleets of non-clinical consultants who make a good living teaching clinicians and hospitals how to cope with the new onslaught. All of their income becomes the providers’ expense and thus ends up in the patient’s bill.”

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Why Americans Won't Vote for Carbon Taxes

Earlier this year, dozens of well-known economists backed a proposal to use a carbon tax as part of the federal policy response to global warming. Carbon taxes are generally popular with policy wonks, since they offer a way to use market forces to limit pollution and develop more environmentally friendly technologies — and they resonate with voters, too, with about half of Americans saying they support the idea.

At the ballot box, however, carbon taxes have racked up a dismal record. In the most recent example, last year voters in relatively liberal Washington state rejected a proposal to tax carbon dioxide emissions, despite backing from a broad coalition that included unions, health groups and wealthy supporters such as Bill Gates and Michael Bloomberg. The failed initiative would have levied a tax of $15 per metric ton of emissions, raising an estimated $1 billion a year by 2023, with the funds used for renewable energy projects and to aid workers who were negatively affected by the move.

New research highlighted by the Tax Policy Center’s Howard Gleckman sheds some light on why carbon taxes have fared so poorly in the U.S. According to a paper recently published by the National Bureau of Economic Research, opposition to carbon taxes in Washington state was related to several factors:

  • Political ideology: Researchers found that ideology was the single biggest factor in determining attitudes toward carbon taxes, determining 90% of the variation in voting. Support or opposition to carbon taxes aligned with liberal and conservative attitudes on a whole host of issues.

     
  • Organized opposition: Well-funded interest groups helped shape public perception of the issue, with opponents successfully reframing the levy as a “tax” rather than a “fee.”

     
  • Promised benefits don’t matter much: Although the perception of personal tax burdens seemed to matter for some voters, with those facing a higher taxes expressing less support, the design of the proposal – i.e., whether the tax revenues from the carbon tax would be used to lower income taxes or for green energy research – didn’t seem to affect voter attitudes, perhaps because voters were skeptical about receiving any benefit from the program.

Although the analysis focused on just one state, the researchers concluded that carbon tax ballot initiatives would likely fail in any state that offered them. “Carbon taxes have run into similar problems in France and Canada and selling them here will not be easy,” Gleckman writes. “If supporters of what seems to be an effective solution to an existential problem are going to turn their ideas into policy, they are going to have to tell a much better story.”

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