111 K Street NE
Washington, DC 20002
- Toll Free 1.888.564.6273
- Local 202.783.3870
It is said that the next ten years will see more dramatic innovation and change than the last 100 years combined.
This is a very promising, exciting and realistic vision for our nation given the pace of technology innovation. But what happens to our economic future during that period as we consider multi-trillion dollar deficits and punishing tax proposals growing as far as the eye can see? With historically massive government spending running full steam ahead, the repercussions remain unclear:
Is the inflation threat that damaged markets, housing, and business in the 1970s and 1980s a real danger to our savings and livelihoods sooner than we imagine?
Democratic revenue raising proposals such as the Wealth Tax, Financial Transaction Tax, higher corporate, personal income and capital gains taxes will inevitably resurface in force to the detriment of economic growth - how badly will it impact our markets, our paychecks and our savings? Will the federal government spending spree actually accelerate dependence leading to a widening wealth gap?
Will investment dollars eventually be scared out of the market hindering the ability to power this innovation rocket ship?
The recently signed Covid relief bill is the largest expansion for the welfare state since The Great Society. Less than 10 percent of the exorbitant $1.9 trillion cost is actually dedicated to COVID related needs. The majority of the funds are directed toward state bailouts, student-debt forgiveness, health insurance subsidies, unemployment benefits, and state pension fund bailouts.
State and local government pensions have been mismanaged for decades wracking up over $4.2 trillion in unfunded liabilities.
Through poor management, failure to follow through on state contributions, and miscues on liability payouts, public pensions have long failed to properly account or repair these deficiencies.
Because multi-employer pension funds have carelessly overestimated their long term investment returns, the Biden stimulus bill will now create an $86 billion federal assistance program for 186 of these struggling pension funds with no strings attached.
It is claimed this will enable the plans to pay out full benefits for the next 30 years. But this fails to solve the issue of the sub-standard management of those plans. And politicos are comfortable dragging their feet because they know their terms expire long before major problems surface.
Taxpayers have been funding public-sector pensions for years through state income taxes, and that is where the taxpayer contribution should end. Of course, the Biden administration has now decided to ignore this and is willing to make this expensive bailout but only for UNION retirees.
What about the rest of us?
Our economy will be pulling out of the COVID-19 lockdown recession very quickly.
The markets are rightly anticipating stronger economic growth in 2021 leading to improvement in our saving and investment performance.
So a plan to stay steady and add to investments for now would be a reasoned strategy to enjoy the ride.
However, we need to focus on next year and the time to follow. These monstrously huge spending sprees never take place without consequences.
Higher taxes are definitely coming and Inflationary pressures are already being felt in material goods. We will see how this pressure eventually makes its way to our bond markets with higher interest rates and added volatility in global stock markets.
For too long, we have been told that deficits don't matter. Soon, we will see if that's true.
Massive deficits plus soaring tax rates have never equaled prosperity.
Clara Del Villar is Director of Senior Initiatives at FreedomWorks Foundation.