When is a trillion dollars not a lot of money?

by Russ Roberts on February 26, 2009

in Taxes

So starting in 2011, Obama is proposing a trillion dollars in new taxes.

Sounds like a lot of money. But it's over ten years. So it's a measly $100 billion a year.

That's a drop in the bucket of red ink that he's promising. So for 2009 and 2010, no new taxes while deficits are in the trillions. There's no way that these taxes will get the job done.

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Seth February 26, 2009 at 5:19 pm

I don't understand the "I didn't get us here" excuse Obama touts to justify irresponsible fiscal policy. If he didn't get us here, shouldn't he do something different than the outgoing president to fix it? Like, maybe spend responsibly.

Sam Grove February 26, 2009 at 5:22 pm

That's monetization of the debt comes in.

Daniel February 26, 2009 at 5:29 pm

But there's more that a mere $1 trillion in new taxes. That doesn't include another $650 billion (from 2012-2019) in cap and trade revenue. http://www.instituteforenergyresearch.org/2009/02/26/president-obama-budget-includes-16-trillion-in-new-taxesthe-largest-tax-increase-in-history/

This is labeled as "climate revenue" on pages 115 and 123 of the budget.

Methinks February 26, 2009 at 5:35 pm

from the report: $24 billion – tax carried-interest as income

This is mislabeled as a business tax as it effects partnerships and partnerships are disregarded entities for the purposes of the IRS. This tax change, should it pass, is merely a massive tax hike on the sweat equity of entrepreneurs. A massive tax hike on innovators and risk takers is just what we needed to create all those jobs and taxable incomes. So, the way to get these people to work harder is to more than double their tax burden. Well done, Obamessiah!

I'm curious how these numbers are calculated. Do they predict any incentive effect at all or are these static calculations based on current income numbers?

John Dewey February 26, 2009 at 5:53 pm

Why do they insist that raising capital gains tax rates will increase government revenues? The evidence from the past 30 years shows just the opposite.

After each of the capital gains tax cuts – Steiger in 1978, Reagan in 1981, Clinton-Gingrich in 1996, and Bush in 2003 – capital gains tax revenues increased for several years. After the 1986 capital gains tax increase, capital gains tax revenues dropped for 6 consecutive years.

It is a Laffing matter

The Bush Capital Gains Tax Cut after Four Years

No doubt Keynesians will continue to argue that the Laffer curve is not valid – presumably because they are hell-bent on punishing success and the economy be damned – but the post tax response of capitalists since 1978 certainly supports Laffer.

T L Holaday February 26, 2009 at 6:12 pm

There's no way that these taxes will get the job done.

Would you please phrase that in detail sufficient to allow for a prediction market?

T L Holaday February 26, 2009 at 6:14 pm

And in answer to your question about when a trillion dollars is not a lot of money, we have it on the authority of the governor of Louisiana that Americans can do anything.

LowcountryJoe February 26, 2009 at 6:23 pm

It'll seem like chump change in a decade or two after the Treasury's helicopters are done with their drops. That'll be around the time that the banks of foreign countries have to raise TARP money to purchase the toxic assets that the SSA holds: the ones known today as Special Issue Bonds or, in more generic speak, the lockbox that never was.

Unit February 26, 2009 at 6:26 pm

If the stimulus is supposed to restore confidence and spur demand, how does announcing some severe belt-tightening a few years from now not induce people to consume less today?

Mark Sherman February 26, 2009 at 7:17 pm

Don't worry about the amounts. After Big O gets through printing money inflation will take care of the outsized numbers. After all, a decade or two with hyper inflation will really bring the concept of a trillion dollars down to size.

The Chinese wont like it but what does Big O care? By the time the Chinese understand that we are repaying them with valueless dollars it will be too late. Might be hard to borrow money after that, however!

Here is a 1933 pro inflation propaganda film from the makers of the original New Deal: http://www.liveleak.com/view?i=3e0_1235601005


Malthus February 26, 2009 at 7:28 pm

When you live in Zimbabwe?

Mesa Econoguy February 26, 2009 at 7:33 pm

And….in order to pay for this profligate spending, this bozo wants to stifle any recovery 3+ years out by taxing everyone, yes everyone, not just “the rich.”

Even if he were to confiscate 100% of revenue from “the rich,” he wouldn’t come close to covering the gap.

This guy is so full of crap it’s astonishing, even to people who knew he was full of crap before.

Mike Farmer February 26, 2009 at 9:15 pm

Obama promised transparency and it's one of the promises on which he's following through. His attempt to promise everyone (except the top 2% of earners) something while delivering the greatest expansion of statism in our history is totally transparent.

Lucas February 26, 2009 at 9:29 pm

From my class the other day- I was trying to make a point as to how insane the payout was to union veterans after the Dependent Pension Act and one interrupted me and said, but wait wasn't the stimulus package alone almost $1 trillion? And that was that.

John V February 26, 2009 at 9:39 pm

How do you figure the future totals collected from a tax over a ten year period? Depending on the tax, a lot changes as soon as they introduced. Nothing is static.

T L Holaday February 26, 2009 at 10:43 pm

John V,

You are correct, sir!

The Albatross February 26, 2009 at 11:28 pm

I just wanted to take a moment to thank our new President Obama and all his supporters. I am getting ten grand from Uncle Sam! I just wanted to give a shout out to all those useful idiots who made this possible—more money for Albatross and with all those new regulations gonna be hard for people to compete with us already in the biz. Let us not forget all those opposed to free trade—hey without you we may have to compete with those shady foreigners. If it was not for you we may have to deal with those offering better products at better prices. I just wanted to say, thanks again for allowing us big corporations (or at least those who pay me) for making money they would not have otherwise have made. Please give me your home addresses so I can put you on my Hanukah list.
The Albatross

CriticalThinker February 27, 2009 at 4:25 am

These budget projections are enough to even frighten Keynes. However, if you have noticed nary a mention of the overall budgetary debt, just the incrementalized yearly reports. Put it together, with the present debt, and you are at a little under $18 trillion in the red by 2019.

Wonder who is going to pay for it? I don't think the Chicoms are interested in buying up that much. So, that leaves you and me.

European Democratic Socialism, here we come!

Mike Farmer February 27, 2009 at 6:41 am

It's amazing how easily we zoomed from billions to trillions — quadrillion can't be far behind.

Headline in future — Joe Biden, who was just elected after Obama's second term, promised to cut in half the 80 quintillion dollar budget deficit by 2020.

DTT February 27, 2009 at 9:29 am

If a big spending government was the key to stimulus and economic growth, wouldn't the Bush years have made us more prosperous? I believe the last 8 years are a very good indication that the next 4 will be a disaster. Governments cannot spend their way to prosperity, so when will these people learn that lesson.

I do have a $100 Billion Bank of Zimbabwe note on my desk. It is very funny that their currency has an expiration date on it. The USD may not be far behind.

Big John February 27, 2009 at 10:46 am

A mind boggling reason why taxpayers eyes glaze over in discussions about government bailouts and deficit spending is if you stacked up thousand-dollar bills:
One million dollars would reach four inches high.
One billion dollars would reach 333 feet high.
One trillion dollars would reach 63 MILES high.

Kevin February 27, 2009 at 10:51 am

I'm with Obama on this. He's just giving the people of the USA the change they voted for. IMHO, the less diluted it is, the better.

MnM February 27, 2009 at 5:53 pm

Don, Russ, I suspect you're being spammed… Don't ask what raised my suspicions…

MnM February 27, 2009 at 5:54 pm

Darn, sorry for the double post. (heh, maybe I'm the spammer)

MWG February 27, 2009 at 6:15 pm

Hmmm… that's an interesting way to look at it eastern okonom.

Hammer March 2, 2009 at 4:23 pm

I thought that was Martin there for the first 23 paragraphs, but after paragraph 24 without a mention of people not investing in making more children and children not paying for their parents, I knew something was amiss.

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