Wolf Richter offers his usual hardass realism about the “debt ceiling” nonsense, illustrated by his usual hardass graph, a picture worth 20 trillion words.
In discussing the impact of normal interest on taxes and federal debt, he brings up a point that I hadn’t thought of:
On the other hand, fixed-income investors that buy those securities with the higher coupon interest are loving it, as they’re finally getting interest on Treasury bills that exceeds the current rate of CPI inflation. And those folks are going to pay federal income taxes on the interest income – along with folks who are paying income taxes on the interest income from CDs, money market funds, and high-yield savings accounts. So there’s more tax revenue heading toward the Treasury.
Yup, I’m loving it, and I’m feeling the REAL wealth effect as I can finally spend without eating up my base. The tax backwash is obvious after you think about it, but I hadn’t thought about it. Normal interest is a cost to the treasury, but 20% of it will come back as tax revenue, plus sales taxes from the increased spending.
Polistra's Mill 