Imagine you’re filthy rich. A one-percenter. You’ve got tons of investments and other sources of interest-based income. Yes, I know, you’ve got that vacation house in Aspen and that skiing chalet in Zermatt. But those, and the house in the Hamptons, are getting a little pricey for upkeep and paying the household staff a livable wage.
You’re tempted to sell off some of those investments to bring in some cash because the market’s pretty good right now. Besides, your Bentley is now three years old. Time to replace it with a new, $310,000 Mulsanne.
But your team of crack accountants tells you to hold off selling anything: “Remember, President Donald says he’s gonna push serious tax reform through Congress real soon.” In fact, the president’s treasury secretary said the new tax plan would be “the biggest tax cut and the largest tax reform in the history of this country.”
You, of course, salivate, thinking of all the money you’ll save if your top income-tax rate falls from 39.6 percent to 35 percent, to say nothing of the cut to 15 percent applied to all the businesses you own. (You know, of course, that team of crack accountants has for years kept you from paying anywhere near the top rate.)
So you indeed hold off selling. You tell all your one-percenter and one-tenth-of-one-percenter pals to hold off, too. So they do.
Suddenly, you and all your chums making nearly $500,000 a year in income are postponing sales of investments and hitting the pause button on paying taxes. Others who aren’t one-percenters are onto this game, too. They’re holding on to all the cash they can.
You’re not alone. Big transnational corporations, nominally based in the United States, are holding off repatriating more than $2 trillion in overseas profits (as they have for years), hoping for Congress to cut ‘em a deal — 35 percent to just 5 percent — as it did with the never-created-jobs American Jobs Creation Act in 2004.
Then there’s Congress stalling on creating real budgets. The men and women who earn at least $174,000 a year to make difficult decisions and compromises are in their ninth year of passing short-term bills called “continuing resolutions” to keep the government functioning.
All of this has consequences on the nation’s ability to pay its bills.
Max Ehrenfreund and Damian Palleta write in The Washington Post’s Wonkblog:
Wealthy Americans and business owners are putting off paying taxes in the hopes that Republicans will deliver big cuts, leaving the government increasingly short on cash and accelerating its crash into the debt ceiling.
Federal data and anecdotes from tax advisers reveal that a significant number of taxpayers are postponing cashing out on investments and other financial decisions, hoping to pay less later if the White House and congressional Republicans pass a huge reduction in tax rates. [emphasis added]
The Treasury Department as of this week only has $177 billion in its bank account. Yeah, I know: Sounds like a lot of money. But it’s chump change compared with requested federal outlays of a few trillion dollars.
Borrowing is difficult for the feds at the moment, the Post reporters write.
Even before the tax payments slowed, the government was spending more money than it brought in through revenue. To cover the difference, the government borrows money by issuing debt. But it can only issue debt up to a certain limit, known as the debt ceiling. And the debt ceiling can be raised only by Congress. The government has been bumping up against the debt ceiling since mid-March, and the Treasury Department is expected to run out of emergency steps to avoid defaulting on payments in a few months. [emphasis added]
The government’s bean counters can probably stretch that $177 billion (some tax money will continue to roll in but not as fast as the government spends it) until late summer or early fall. The debt ceiling sits at $19.81 trillion right now.
Congress doesn’t like to deal with the need to raise the debt ceiling. It doesn’t like the many dire threats and more dire counterthreats by both parties. So it stalls, usually ending a few days or hours before a government shutdown. So it will continue to stall through the summer. Treasury Secretary Steven Mnuchin has suggested lawmakers deal with the debt ceiling before they depart for their August recess. (those 22 days when they don’t have to deal with the nation’s pressing business.) Who knew Mnuchin was a comedian?
But don’t worry. I’m sure the patriotic one-percenters will rise up in the nation’s hour of need, find the cash, and pay taxes soonest.
We’re saved, right?