Apart from weathermen, no one besides government bureaucrats can be so wrong, so often, yet still keep their jobs.
No one was ever fired for telling Americans that COVID lockdowns would last just “two weeks, to stop the spread” and “flatten the curve”.
If we’re being generous and call that a ‘miscalculation’, they were off by about 100 weeks, i.e. 50x, in most places before COVID restrictions ceased.
Then there was the infamous Obamacare website, healthcare.gov, which the ‘experts’ in government originally estimated would cost $93 million. That’s already an absurd price tag for a website. But in the end, it cost over $2 billion, and barely functioned.
Not to mention, despite the ‘experts’ estimating a drastic decline in US healthcare costs, the actual cost of medical care in the United States actually increased after Obamacare.
The government is also notorious for missing the mark on tax estimates.
About fifteen years ago, for example, the Obama administration claimed that Americans were evading massive amounts of taxes by secretly hiding ‘trillions of dollars’ in offshore bank accounts.
Obviously there were plenty of people with undeclared accounts. But TRILLIONS? That hardly seemed a credible estimate.
Nevertheless, President Obama signed the Foreign Account Tax Compliance Act (FATCA) into law in 2010 with an aim to grab that supposed trillions of dollars of offshore money.
Among other things, the FATCA law forces EVERY bank in EVERY country around the world to disclose information on ALL of their customers to the US government.
It’s bizarre when you think about it: the US government forces other countries’ banks to comply with US laws. It would be as if the government of Saudi Arabia passed a law forbidding US grocery stores from selling bacon to Muslims on US soil.
And compliance with FATCA is extremely expensive. Banks (plus brokerages, investment firms, mutual funds, trust companies, money transmit businesses, etc.) all have to file forms, hire extra staff, pay lawyers, spend valuable time combing through records, etc. in order to comply with the law.
The overall global cost of FATCA compliance, in fact, goes into the BILLIONS of dollars annually, based on what banks report on their financial statements.
But hey. At least the government brought in ‘trillions’ of dollars of tax revenue to justify those costs.
Except they didn’t. According to IRS data, FATCA has only brought in an average of $500 million per year, on average.
Not only is $500 million peanuts compared to the federal government’s multi-trillion dollar annual deficit, it’s also peanuts compared to the multi-billion annual cost of complying with FATCA.
The benefit is simply not worth the cost.
But, again, FATCA all started with some bureaucrats’ completely fictitious estimate of how much ‘hidden’ money was sitting overseas. They were totally wrong.
Unfortunately, being wrong has never stopped the government from doubling down on a bad idea. And now they’re back to the same logic, with the same false premise.
Last week while attending the IMF/World Bank annual summit, US Treasury Secretary Janet Yellen claimed that her new army of IRS agents (thanks to $80 billion in funding from the Inflation Reduction Act) will close a “$7 trillion tax gap”.
The “tax gap” she refers to is the difference between what the government thinks it should be collecting in tax revenue, versus the amount it actually does collect.
Obviously there are plenty of people who underpay (or don’t pay) tax. But $7 trillion??? Seriously??? Where do these people come up with such ridiculous estimates?
Here’s why their number is way off. Literally since the end of World War II, the US government’s tax revenue has consistently averaged around 17% of GDP, year in, year out, with very minor variations.
In 1954, for example, federal tax revenue totaled 17.8% of GDP. In 1964, 16.7%. In 1974, 17.0%. In 1984, 16.5%. In 1994, 17.2%. 2004? 16.5%. 2014? 17.1%.
You get the idea. It’s pretty much always 17% of GDP.
How much revenue did the government collect in FY2024 (which just ended last month of September 30)?
16.9% of GDP. Pretty much a bulls-eye relative to the long-term historic average. And this leads to the obvious question: if tax revenue is right where it’s supposed to be, WHERE IS THIS SUPPOSED $7 TRILLION TAX GAP!?!?!?
Honestly, what are these people smoking to invent such a ridiculous number??
They were completely, woefully wrong with FATCA, like by 100x. And something tells me that their $80 billion worth of new IRS agents won’t even be able to find $80 billion worth of unpaid tax.
Once again, the benefit won’t be worth the cost. But they’re sure going to try.
Obviously they’ll start by auditing the wealthiest Americans. But before long they’ll run out of the super-rich and quickly move down to the middle class. There is simply no other way for the government to ‘close’ this fictitious tax gap other than an army of field agents harassing and scrutinizing regular people.
This has been a common tactic throughout history going all the way back to the Roman Empire. Bankrupt governments start with debasing the currency, i.e. inflation. And we’ve talked about that a lot in this letter.
In fact, as I wrote on Friday, Yellen also tacitly acknowledged that the US central bank will have to print trillions and trillions of dollars… which is going to generate a LOT of inflation.
But in addition to creating inflation, bankrupt governments also come up with destructive ways to increase tax revenue. And it’s not just about raising tax rates; they also become extremely aggressive with tax enforcement.
Once again, Janet Yellen spilled the beans on the government’s plan.
She knows that they have to bring down the deficit. The national debt is nearly $36 trillion and the annual budget deficit is nearly $2 trillion per year. So she flat-out acknowledged that they are going to (attempt) to make ends meet through inflation… and then stepping up tax enforcement.
Sure they’ll catch a few cheats here and there. But the vast majority of cases will be innocent people who have their lives turned upside down.
Naturally, no one talks about simplifying the tax code, making tax rates more competitive, spending money more responsibly, reforming entitlements, or dismantling the productivity-killing bureaucracy so that the economy (and hence tax revenue) can grow more quickly.
No. Their approach is to make up some ridiculous, completely unrealistic estimate for what tax revenue should be, then assume every American is a criminal tax cheat because the IRS doesn’t collect that much money.
It’s a pretty sad statement for a government that is supposed to be “of the people, by the people, for the people”.
