How are we going to pay for all of this bailout? The only answer we have been getting is that it will pay for itself. Some have said we could even make money out of this. This is not a sure thing so what is the plan if we don’t? Even if we do, how do we get the money to front this bailout before we make the money back? Someone could start a business tomorrow and make millions but they need the initial funds to start this business, this works the same way.What are the ways our government can raise funds to pay for this?
First, they can raise taxes. President Bush and the Republican candidate John McCain have both talked about keeping the tax cuts. McCain has talked about decreasing spending, but he would have to decrease it a lot to make it down to the level to pay for this bailout. The Democratic candidate Barack Obama has talked about increasing taxes for the highest bracket, but at the same time is talking about increasing spending. It is unsure if this will even balance out his own spending, let alone the bailout.
Second, they could borrow. We have borrowed a lot so far for the war and other types of deficit spending, so it is possible that this could work. The problem with this is that it is future taxes. At some point, Americans will have to pay this back and the more we borrow the higher the interest rate probably.
Third, they can print money. This may seem like the most attractive option to government bureaucrats but is probably the most scary for Americans. Inflation has been popular for years with the populist movement. It is an issue that has only died in the past 40-50 years in America. The idea was that the more inflation you had, the easier it was for people to pay off their debts. As a government bureaucrat and these people that are in troubled mortgages, this is very attractive. Not only have you found a way for this to get paid for but you are allowing loans to be easier to be paid back.
So why is this a huge problem for taxpayers? First, because it devalues everyone’s property. The more money that is in the economy, the less you can buy with the money you currently own. Prices and wages may go up but it is possible that this is not a helicopter effect. The helicopter effect is the idea that when money is printed it is given out pretty much evenly. Since they are doing this during a “credit crunch” then only those who have very good credit ratings will get it first. This is in fact a regressive tax. We are devaluing everyone’s property and giving the new money to the rich. Not to mention that there is a cost in dealing with money that is inflating. You can no longer hold as much money in your pocket and savings accounts will not even been able to keep up.
The way our “democracy” is suppose to work is that we vote in the people we believe holds our values. If they want to bailout these homeowners then they tax us. After all, we were the ones who wanted them in office in the first place. If there is a problem and we do not believe this bailout should have happened, we vote out those who supported it and install new leaders who will stop the bailout and lower our taxes. Instead, politicians have figured out how to borrow and inflate so therefore nothing costs too much. We are not feeling the direct effect and we are not going to vote them out.
I could guarantee that if Congress was only allowed to tax, instead of borrow or inflate, there would have been a lot more ‘No’ votes on the bill. They would know that this would significantly raise people’s taxes and it is an election year. This would end up being a big loss for many Senators and Congressmen. This is why many states have adopted Constitutional amendments that make it a requirement to balance the budget. States cannot print money, but they can tax.
Economist Ludwig Von Mises fought with this very same issue over 70 years ago and here is what he had to say:
“A socialistic or semi-socialistic government needs money to operate unprofitable enterprises, to subsidize the unemployed and to provide the people with cheap food supplies. Yet, it cannot raise the funds through taxes. It dares not tell the people the truth. The pro-statist, pro-socialist doctrine calling for government operation of the railroads would lose its popularity very quickly if a special tax were levied to cover the operating losses of the government railroads.”
So how should we pay for this? Maybe we should make the Congressmen and Senators who voted “Yes” to raise the taxes in their area to pay for this. This way they would only vote for bills in which were very popular in their districts. If you do not like your new taxes, then you should vote you representative out.