The debt ceiling crisis has again brought into focus the perennial gap between what the government spends and what it accumulates in taxes, and the virtual impossibility of closing that gap by increasing taxes or negotiating cuts in the budget. In a 2023 book titled A Tale of Two Economies: A New Financial Operating System for the American Economy, Wall Street veteran Scott Smith shows that we would need to tax everyone at a rate of 40%, without deductions, to balance the budgets of our federal and local governments – an obvious nonstarter. The problem, he argues, is that we are taxing the wrong things – income and physical sales. In fact, we have two economies – the material economy in which goods and services are bought and sold, and the monetary economy involving the trading of financial assets (stocks, bonds, currencies, etc.) – basically “money making money” without producing new goods or services.
Financial Transaction Tax
As Senator Sinema gets Biden to drop his proposed tax increases on corporations and wealthy investors earning more than $400K income a year, no consideration is being given at all within Democrat party circles about introducing a financial transactions tax to pay for the Infrastructure bill ($.55T) or the Build Back Better Bill ($1.9T). 5 years ago I wrote and proposed a minimal financial transaction tax that would generate $2.4T in revenue. That would pay for both the new spending proposals in the Infrastructure bill ($.55T) as well as the Build Back Better bill proposal still on the negotiating table ($1.9T)–the latter which, by the way, is about to be reduced further by Democrat Senator Krysten Sinema’s ‘no taxes on corporations or the rich’.
For most Americans, what threatens health also threatens wealth. The COVID-19 pandemic triggered the worst economic crisis in nearly a century, with millions suddenly facing hunger, unemployment, or eviction. But Wall Street doesn’t represent most Americans. In the parallel universe of the financial industry, stock indices soared to historic peaks as Americans wished good riddance to the deadliest year in our history. Detached from the daily lives of most Americans, the stock market surge almost exclusively benefited the disproportionately wealthy, and the pandemic once again lived up to its distinction as “the great clarifier.” For years, Wall Street has been increasingly out of touch with the underlying economy of workers, jobs, and wages, and the fortunes reaped by hedge funds and billionaires have not helped the millions of Americans in dire need.