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Analysis: The US balance sheet is out of whack

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Stimulus checks and pandemic aid make it even more important to file a 2020 tax returnStimulus checks and pandemic aid make it even more important to file a 2020 tax return
Most of the $3.5 trillion the government brings in — about $1.9 trillion — is from you and people like you, in the form of income tax paid by taxpayers, estates and trusts. That’s according to the annual IRS data book, most recently published for the 2019 tax year, when the IRS processed about 253 million tax returns.
The pandemic fueled an epic government spending binge — trillions of dollars under both the Trump and Biden administrations meant to save individual Americans and the economy as a whole with extended unemployment benefits, two rounds of checks to most Americans, bailouts for specific industries like airlines and payments to small businesses.
Paired with tax cuts enacted by Republicans under former President Donald Trump, the US balance sheet, what it brings in versus what it spends, looks incredibly out of whack. And this doesn’t even include massive programs like Medicare and Social Security.

The Biden administration wants to spend more

President Joe Biden is pushing a nearly $2 trillion proposal over a decade to fix crumbling bridges and roads but also to transition the country away from its carbon-emitting fuel based economy and a separate spending bill to help US families, bring kids out of poverty and add access to two years of early childhood and two years of college for all American kids.
It all adds up to about $4.5 trillion in new spending over the next 10 years, although Biden argues it can be done without adding to deficits.
Experts who analyzed his proposals say it will add to short-term deficits, but even out in the long run. The difficulty would be enacting the easy part of his proposals (spending) at the same time as the hard part (tax hikes).
Biden wants to offset infrastructure spending with tax hikes on corporations and the wealthy, promising the proposals will help deal with the country’s inequality.

Doing it for the kids

Biden has argued the US can’t afford not to spend. It needs to get more competitive with China and other countries that use government funds to invest in industries and technological advancements. Plus, the US should be wealthy enough to care for its children and send them to school.
“In my view, it’s an easy choice between giving tax breaks to corporations and the super wealthy and investing in working families,” he said, standing in front of the aging Calcasieu River Bridge in Louisiana.
Raising taxes will be difficult, but focusing them on the wealthy and corporations has the support of the American public, according to recent polls.

Both parties like spending money

Republicans share much of the responsibility for the state of the country’s finances. They pushed through tax cuts on a party-line basis under Trump and did not find spending cuts to offset the plateauing revenue. The amount of income tax paid by businesses has dropped substantially since that law went into effect.
Now, out of power in Washington and, they’re re-learning the gospel of fiscal restraint and they have no interest in making the federal government any bigger than it already is.
“You’re either alarmed about the level of national debt and the future impact of that on our children and our grandchildren or you aren’t,” Senate Minority Leader Mitch McConnell said back in April, according to Politico.
It’s interesting that both Biden’s argument in favor of spending and McConnell’s argument against it have to do with providing a legacy for children.
Republicans have met with Biden, including last week at the White House, to reach some accord on infrastructure, but they have drawn a red line on taxes — they don’t want to undo any of the Trump era tax cuts, and they want the President to pare back his view of what constitutes infrastructure.

Why worry?

About half of Americans — 49% in a recent Gallup poll — said they worry “a great deal” about federal spending and the budget deficit. That’s well below the 64% who said they worried a great deal about federal spending a decade ago, but those concerns could be somewhat dependent on which party controls the White House.
There is a growing school of thought among Democrats — Modern Monetary Theory — that the US can run very large deficits permanently since it controls and prints its own currency.
That’s a controversial idea that can be difficult to explain, but it might effectively become US policy since one party has no plans to allow a tax increase, even for the wealthy, and the other wants very much to make the government do more for people.
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