Faltering Expectations
The U.S. dollar and the stock market continued to be a little bit under pressure this week as anxieties are rising over the fate of the tax cuts with so many investors are putting so much expectation into the proposed tax cuts.
Tax Cuts Do Not Reflect Smaller Government
I have gone over many times on this podcast why I do not believe the tax cuts are going to help the economy. Tax cuts are good for the economy to the extent that they reflect smaller government. If you are going to make government smaller, and government is going to be less of a burden on the economy, if government is going to take fewer resources out of the economy, it will be freeing those resources up for the private sector. If you are lowering people’s taxes because you relieve them of the responsibility of paying for a larger government, that is a big positive!
Government Will Have to Print or Borrow
Any time we can take resources out of the government sector and put them back into the private sector, those resources will be used more efficiently and more productively, the economy will be better off. But if we simply cut taxes, and allow government to get bigger and bigger, that is not good for the economy. All that is happening is that the government has to find and alternative source for paying for the resources it is consuming. And if it is not going to collect it through taxes, then it is going to have to borrow it or print it. Those other ways of sucking up those resources do more economic damage than what otherwise would have been the case if they had just left taxes alone.
So Everybody is Wrong
So everybody is wrong in believing that these tax cuts are going to be good for the economy. They are not going to be good for the economy, and they are certainly not going to be good for the dollar. They will hurt the dollar because, by definition, instead of removing dollars, the government is going to print dollars out of thin air and spend that. So they are debasing the dollar.
No Individual Mandate
But putting that aside, there is still a lot of nervousness out there about whether or not the tax cuts will pass and what their final form will be. First of all, the Senate came out yesterday and all of a sudden thew a curve ball into the tax cuts. As part of the tax cuts they said they were going to repeal the individual mandate from Obamacare. That is the part that requires individuals to pay a penalty to the government for not purchasing insurance.
Hail Mary
First of all, the fact that they have to throw that in there shows that they needed to do that to tempt some Republicans, maybe like Rand Paul, who were on the fence or not for the tax cuts. I think the fact that they had to go for the Hail Mary shows that they are having a hard time getting enough Republican support.
Saving the Government Money?
But here’s the ridiculous part: The government claims that by eliminating the individual mandate it is going to save the government a lot of money and the savings will subsidize a larger tax cut for the middle class. Wait a minute. The individual mandate means that people who don’t buy insurance have a penalty to the government! That’s revenue to the government. Wouldn’t that cost the government more?
Republican Logic
Here is the Republican logic: If they stop penalizing people who don’t buy health insurance, then fewer people will buy health insurance. Some of the people who are buying health insurance now are getting government subsidies, so if they don’t buy health insurance then the government won’t have to provide the subsidies and that’s where they save the money.
Premiums Through the Roof
Then they argue that if younger healthy people drop out, then insurance premiums will rise even faster than they are rising right now. And because health insurance premiums will rise a lot faster, that will cause more people, who currently have insurance to drop out of the market, and that means even fewer subsidies that he government is going to have to pay. They are saying that the government will save money by forcing insurance premiums to go through the roof!
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