The Daily Signal - Sen. Rand Paul Warns Against Democrats’ Plan to Raise Taxes Amid Inflation

Episode Date: July 22, 2022

The economic crisis facing the nation is disproportionately hurting small businesses. Mom and pop shops are struggling to stay afloat in the face of historic levels of inflation. Against this backdrop, Democrats have proposed raising taxes on pass-through entities—small businesses including sole proprietorships, partnerships, limited liability companies, and S corporations. To Sen. Rand Paul, R-Ky., that's just insanity. "It's a terrible time to also talk about raising taxes," says Paul. "Businesses are reeling from the inflationary rising costs; now, they would have an additional tax." Paul has been going around the country talking with small-business owners who want relief from inflation and high taxes. "They're very concerned, not only with the inflationary input, but adding a tax to this when small business is tenuous, and they're still coming out of the lockdowns," he says. The Kentucky lawmaker adds that this tax hike would have unintended consequences that Democrats aren't thinking of. "One of the unintended consequences will be closure of businesses and increased unemployment and exacerbation of the recession," he says. "This is something that we will fight steadfastly against and do everything possible not to let this happen to the American people." Paul warned that "if we do nothing, there's a possibility inflation gets worse. I think that's the most likely scenario. I think between now and the election, we're going to see a worsening of inflation." Also on today's show, Heritage Foundation economics expert E.J. Antoni discusses the possible consequences of inflation on the American people and how long we might be dealing with the issue. We also cover these stories: President Joe Biden has contracted COVID-19.  The House of Representatives passes the Right to Contraception Act. Senate Democrats introduce a bill to end the federal prohibition of marijuana. The U.S. Coast Guard and local law enforcement intercept a sailboat carrying more than 150 illegal immigrants off the southern coast of Florida. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Daily Signal podcast for Friday, July 22nd. I'm Samantha Rang. And I'm Doug Blair. The economic crisis facing the nation is disproportionately impacting small businesses. Mom and pop shops are struggling to stay afloat in the face of historic levels of inflation. Against this backdrop, Democrats have proposed raising taxes on pass-through entities. The Senator Rand Paul, that's just insanity. Paul joins the show today, along with Heritage Foundation economics expert E.J. Antony

to discuss the impacts higher taxes and inflation would have on small businesses. But before we get to my conversation with Senator Rand Paul and E.J. Antony, let's hit today's top news. President Biden has COVID-19. News came Thursday that the president tested positive for the virus and was experiencing very mild symptoms. According to White House Press Secretary Karin Jean-Pierre, Biden is fully vaccinated and twice boosted. And, per the White House physician, Dr. Kevin O'Connor, the president has fatigued. a runny nose and an occasional dry cough. To help treat his COVID-19, the president is using an antiviral drug called Paxlavid,

which helps minimize the severity of the virus. O'Connor wrote, I anticipate that he will respond favorably, as most maximally protected patients do. The White House reported that Biden will isolate himself at the White House, but will still execute his duties as president. Later on on Thursday, Biden released a video on Twitter to address his diagnosis. Take a listen. Hey folks, guess you heard this morning and I tested positives for COVID. But I've been double vaccinated, double boosted, symptoms are mild, and I really appreciate your inquiries and your concerns. And I'm doing well.

We're getting a lot of work done. I'm going to continue to get it done. And in the meantime, thanks for your concern. And keep the faith. It's going to be okay. Vice President Kamala Harris tested negative for COVID-19 as of Thursday. Less than a month after the landmark decision to overturn Rovi-Way, the U.S. House of Representatives passed the Right to Controception Act on Thursday.

The bill, which was introduced by North Carolina Democrat Representative Kathy Manning, had bipartisan support. If enacted, the bill would protect a person's ability to have and engage in contraception. Eight Republicans voted in favor of the legislation, including Wyoming Representative Liz Cheney, South Carolina Representative Nancy Mace, and Pennsylvania Representative Brian Fitzpatrick. Pro-life organization Susan B. Anthony List released a statement on the legislation saying, this bill seeks to bail out the abortion industry, trample conscious rights, and require uninhibited access to dangerous chemical abortion drugs. The bill will now head to the Senate, though there is uncertainty over whether it will pass.

And on the Senate side, on Thursday, Senate Democrats revealed a bill to end the federal prohibition of marijuana. The bill called the Cannabis Administration and Opportunity Act would legalize marijuana. by removing the drug from the Controlled Substances Act. The bill would also allow for states to make their own laws regarding the drug. Senate Majority Leader Chuck Schumer said, I am proud to be the first majority leader ever to say that it is time to end the federal prohibition on cannabis. And this bill provides the best framework for updating our cannabis laws and versing decades of harm inflicted by the war on drugs. Schumer added that the legislation would contain provisions to expunge federal convictions for nonviolent cannabis offenses,

as well as give Americans in federal prison for nonviolent cannabis offenses the opportunity to appeal those sentences. The bill faces opposition in the Senate, however, as Republicans and some Democrats look likely to try and block the bill's passage. The U.S. Coast Guard, along with local law enforcement, intercepted a sailboat carrying more than 150 migrants off the southern coast of Florida on Thursday. The U.S. Coast Guard tweeted images of the boat and wrote that people are on the vessel safe and not. the water. The tweet did not specify where the migrants were from. Last weekend, nine Cubans were taken into custody after their boat washed ashore in Jupiter, Florida. More than 3,300 Cubans have been caught by the Coast Guard attempting the same crossing, a level not seen in six years, according to reporting from NBC 5 in West Palm Beach. That's all for headlines. Now stay tuned

for my conversations with Senator Rand Paul and Heritage Foundation expert E.J. Antony, as we discuss inflation. The Heritage Foundation takes the field on offense with their young leaders program. I'm Evelyn Homily from Hillsdale College. I'm Harrison Stewart from the University of Virginia. I'm a journalism intern with the Daily Signal. I'm a digital productions intern and communications. For spring, summer, and fall semesters, the Heritage Foundation hosts undergraduate and postgraduate interns right here in the nation's capital to train our country's future conservative leaders. As a Daily Signal intern, I've had the opportunity to cover exciting events here in D.C. and work in a fast-paced environment with some of the conservative movement's best journalists.

In YLP, interns are on the cutting edge of the conservative movement, attending exclusive briefings from Heritage experts, members of Congress, and movement leaders fighting for the fate of our country. It's been exciting connecting with big names in the political world and better understanding our nation's greatest threats. If you want to go on offense with other passionate, dedicated conservatives, go to heritage.org slash intern to learn more about the Young Leaders Program. My guest today is Senator Rand Paul from the great state of Kentucky.

Senator, welcome to the show. Thanks for having me. Of course. So we spoke briefly the other day about how inflation is killing small businesses. And now we're hearing that Senate Democrats are proposing a tax hike on pass-through entities. How will that tax hike impact small businesses? You know, I think right now in the midst of an inflationary cycle where small businesses grappling with rising prices through inflation and the unpredictability is. some prices rising faster than others, it's a terrible time to also talk about raising taxes.

It's probably never a good time to be raising taxes on small business, but particularly when the economy is tenuous. We've had at least one quarter of negative GDP growth. There are strong suggestions that second quarter is going to be negative as well. Many economists define a recession as two quarters in a row of negative growth. That's a really terrible time to add in new costs. So businesses are reeling from the inflationary rising costs. now they would have an additional tax. As the head of the small business, the ranking member of the Small Business Committee, we've looked at this, and our economists have determined that about two-thirds of small businesses will be affected by this tax that the Democrats want to propose.

This would be a 3.8% tax on small businesses, the pass-through businesses, the S-corp's, which is a lot of our small businesses in our country. So let's hope better minds will prevail on this. the mass majority of Democrats want to pass this. I think Senator Manchin is still not committed to this tax increase. So let's hope that it will fail, but this is still something they're bandying about. And if we pass a tax increase going into a recession, it's a surefire way to make the recession quicker, sooner, and worse. You've actually done some research on this. You released a report recently on that plan to increase taxes, how it would negatively impact Kentucky's business as your home state.

So are you finding that that data is starting to pan out? It would negatively impact the small businesses in Kentucky. Yeah, our economists predict that it would be two-thirds of small businesses in Kentucky. We're talking about over 8 million businesses nationwide. But as I've traveled around Kentucky and around the United States, when I talk to small business owners, they're very concerned not only with the inflationary input, but adding a tax to this when small business is tenuous. They're still coming out of the lockdowns.

And this would be a terrible time to do this. And it's like so many other things that the Democrats want to do, there are a great deal of unintended consequences. And one of the unintended consequences will be closure of businesses and increased unemployment and exacerbation of the recession. So this is something that we will fight steadfastly against and do everything possible not to let this happen to the American people. If we can get through November,

basically we'll be somewhat protected from this nonsense because our hope is that come November, Republicans will take at least one House of Congress and that way putting us at ease somewhat from all these terrible ideas coming from Democrats. What are some plans if the GOP is able to reclaim either one or both houses of Congress come November? I think the main thing is you're protected from huge spending bills, huge deficits, and huge increases in taxes. Worst case scenario, you're also protected from things like packing the Supreme Court, D.C. becoming a state, you know, the socialization of America that many of the new Democrat

socialist would actually try to get passed. I think what's alarming to a lot of us is the Democrat Party is no longer has much of a middle, no much, no longer has much of a center left. It's got the extreme left tugging, pulling, and kicking them. And this is not just liberal. These are people now who actually self-identify as socialist. And this is a real a danger to the country. So November can't come soon enough for most of us. Fair point. And November is quite a bit further away than we would hope. But what can the GOP do now while waiting for November to come that could positively impact small businesses? I think pointing out what causes inflation. I think there's so much misinformation on television that people are like, well,

we just need to give people $1,000 to our checks. In California, they're giving people checks to compensate for inflation, not understanding that it was the free money and the checks that cause the inflation. So free money causing inflation is not cured by giving people more free money. Inflation is caused by Congress spending money we don't have, incurring a debt, and then the Federal Reserve purchases that debt. When the Federal Reserve purchases that debt, they do it with newly created money. So the M2 is a measure of the money supply. It's been going up at about 15% a year for the last three years. If you look at last January as a snapshot, the M2 is increasing in an annualized rate of 27%.

So inflation should not be a surprise to people. It's an increase in the money supply that increases the demand for all goods, and that causes generalized inflation. That's what we've got. If you want to get rid of inflation, quit digging the hole, quit adding debt to it. But there are many people that say it's even worse than that, that the only way ultimately an inflationary cycle ends is either through recession or through a rise in interest rates until you actually have a slowing of the economy.

Now, some people, all of us hope that that will be a soft landing, but the interest rates, if you look at them now, are significantly below inflation. Inflation's 9.1, depending on which marker of inflation, or interest rates, you're looking at interest rates still in the 2 to 3 percent range. They've got a long way to go if that's what it takes to tamponade the inflation. If we do nothing, there's a possibility inflation gets worse. I think that's the most likely scenario. I think between now and the election, we're going to see a worsening of inflation. And the record in our country was in 1980, 14.7%. Right now the producer inflation, we're seeing double-digit inflation. I think we can

conceive of consumer price inflation at that level. And in fact, some people who measure inflation say that the definition has changed over the year to lessen the measure of it, that if you took the original measure of inflation that we used in 1980, that we may already be exceeding the inflation of the 1980s. A very grim prognosis. Well, that was Senator Rand Paul from the great state of Kentucky. Senator, I really do appreciate your time. Thanks for having me. Conservative women, conservative feminists. It's true.

We do exist. I'm Virginia Allen, and every Thursday morning on problematic women, Lauren Evans and I sort through the news to bring you stories that are of particular interest to conservative leaning or problematic women. That is women whose views and opinions are often excluded or mocked by those on the so-called feminist left. We talk about everything from pop culture to politics. and policy. Plus, we bring you an exclusive interview with a problematic lawmaker or conservative activist every second and fourth Tuesday of the month. Search for problematic women wherever you get

your podcasts. And we are also problematic on social media. So be sure to follow us on Instagram. My guest today is Heritage Foundation expert in regional economics, E.J. and Tony. E.J., welcome to the show. Doug, great to be with you. Thank you for having me. Of course. I have a pretty good idea how the response to this question is going to look. But what's the state of the economy right now? Is it as bad as people are saying? I think it's worse, actually. Things are not looking good. It doesn't matter if you're looking at data from the Conference Bureau, from the Bureau of Economic Analysis, Census Bureau. I mean, really, just about anywhere you look, the numbers are pointing in the wrong direction. And that's one of the reasons why it's so laughable when the chairman of the Council of Economic Advisors gets up to a microphone like he did the. other day. And he starts telling us that they don't see a recession coming, that things are looking

positive. He cites figures that literally are negative and things like retail sales, real earnings. And he somehow thinks that that's a sign of strength. I don't know what numbers these people are looking at. And frankly, it's scary that these are the people running the country, allegedly. Now, one of the most common indicators of how an economic situation is is GDP. Are we seeing any indication that GDP is going up, down, saying the same? So the first quarter for GDP was negative. In other words, that just means that the economy shrank in the first three months of the year. The textbook definition of a recession is when you have two consecutive quarters of negative economic growth.

So we have GDP negative for two, three-month periods in a row. We already have one in the books, and the second one is going to be out the 28th of this month, and that is going to be negative as well. The Atlanta Federal Reserve Bank, they actually maintain their own model that projects GDP. They currently have it down 1.6 percent. I think it's going to be substantially worse than that. The latest numbers that I ran have it down somewhere between 2 and 3 percent. A big reason for that is because personal consumption expenditures, and that's simply just a fancy way of saying everything that people are buying in terms of goods and services, right?

That's going down. And people may hear this and say, okay, no, that's completely wrong because I'm spending more each month. No, no, that's true. You are. But in terms of real goods and services, in other words, the number of things you're actually able to buy, that's going down. Because money is essentially going out the door faster than it's coming in for almost all Americans right now. Prices are going up faster than their incomes are. I mean, it just sounds like you said that we're going to be in a recession.

Oh, absolutely, yeah. We're already in a recession. and a lot of people, it's kind of funny. People are shifting the question now. Previously, I was getting asked a lot, you know, is a recession coming? And now the question that I'm getting asked much more is, how bad is the recession going to be? So I think it's starting to dawn on people that this is just baked into the cake. It is what it is.

We are where we are. And at this point, it's just a question of, okay, how bad is it going to be? And that really is only answered by the Biden administration and the federal Reserve. When is Congress? When is the president? And when is Chairman Jerome Powell? When are they all going to get their act together and do what they need to? And if we look at something like the Great Depression, for example, at any point in the 1930s, the government could have done the right thing. It did not need to last anywhere near as long as it did. It could have been a very short, mild recession. So in terms of how long is this going to last? How bad is it going to be? We just have to

wait and see. You said the right thing. What is the right thing? The right thing is for the government, number one, the government needs to spend, borrow, and print less money. That is the driver of inflation, and that is the reason why we are barreling towards a recession right now. In fact, already in one. When you cannot afford to purchase what you did yesterday, because the prices keeps going up, you can't buy as much, which means the business is not going to make as much money. Because don't forget, the price that the business charges you going up doesn't mean they're making more money. Look at all the corporations right now that are missing earnings reports, for example, on Wall Street. If we look at wholesale inflation, for example, that measures the prices that

businesses are paying, as opposed to the inflation numbers we typically talk about that measure the prices for the things you and I are paying, right? Wholesale inflation has a exceeded consumer inflation literally every single month of Biden's presidency. In other words, businesses have actually been shielding consumers from a lot of cost increases, and now they're finally passing those cost increases on really in earnest. But inflation is not a recipe for economic growth. It is not a recipe for business development or for higher corporate earnings, at least in real terms.

And so people are spending less. consumer spending makes up about somewhere around three quarters of our economy, right? So the economy is shrinking because people are able to buy less. That's going to lead to less business investment. Businesses in the future, since they're not selling as much, they don't need as many employees. What does that mean? That turns into unemployment. It seems like that data that you just cited really puts the nail in the coffin of the idea that the Biden administration keeps pushing that this is all greedy corporate overlords that are trying to, you know, short shrift the American consumer. So it sounds like that.

like that's just not true. No, not in the least. And it's amazing how businesses suddenly became greedy when Biden was inaugurated, right? It's amazing how big oil suddenly became greedy. It's amazing how meat packers suddenly became greedy. All of these things suddenly, all of a sudden happened when Biden was elected. Now, to a certain extent, that's actually true. Because if you look at things like drug prices, you know, the regulatory efforts of this administration have had a bad impact on that front. The energy policy of this administration has had a terrible impact on that front as well, and that has led to higher prices. This administration is making an awful lot of hay about the fact that gasoline has come down recently, but they seem to ignore the fact that gasoline is still

up 94 percent from when they first took office. And so this idea that the American consumer is somehow jumping with joy, and again, going back to the line that this White House keeps pushing, that there's somehow strength, quote unquote, in terms of the American consumer, it's just not there, at least not any of the data that I see, and I look at it day after day. We've talked before about inflation and how it's sort of negatively impacting the American people, and you've mentioned that inflation is a tax. Could you maybe go a little bit more in depth about what you mean by that? Certainly.

So we get inflation when the Federal Reserve creates money faster than the economy is growing. What you want is for the economy and the amount of money in circulation to essentially grow at the same rate because that allows prices to maintain stability. The example I would give when I taught money in banking was imagine we're playing game of monopoly and I'm the banker and I tell everyone I'm going to double the amount of money you all have in your respective trays right now. Every individual person looks at that and says, oh my gosh, this is great for me. I'll take that deal, absolutely. So we do that. And then what happens? All of a sudden, everyone has more money to bid up the price of properties.

And suddenly everyone realizes no one's actually any better off. We all just have more money chasing the same amount of goods and services. And so prices go up, but no one's actually better off. It causes distortions in the marketplace, exactly what we're seeing now. But who's actually benefited from that? Well, in that case, no one actually benefited, right? But let's say, as the banker, I gave everyone that money maybe in exchange for some property. Now who's better off, me.

And that is exactly what the government does with inflation. What happens with inflation is that the government essentially uses, I should say the Congress, the Congress and the president use the Federal Reserve as their personal financing arm for all of their spendthrift policies. And the Federal Reserve then is essentially using inflation to levy a tax to pay for all of the unfunded spending by Congress. So inflation is a hidden tax, right? It's not one that Congress had to vote on or the president had to sign, but it is still fundamentally a tax.

So if you're wondering, where on earth did the government get the extra $6, $7, $8 trillion that they've spent over the last two years above and beyond what they were already spending? They are taking it out of your hide right now through these higher prices, and that is the hidden tax of inflation. That's one of the reasons why when the Biden administration says, hey, we just need to spend a trillion dollars more to reduce inflation. That doesn't even pass the smell test. I mean, give me one tax in the history of the world that was ever reduced by the government spending more money all weight. Yeah, I mean, it sounds like they're sort of throwing gasoline on a fire and hoping that that sort of puts it out. It sounds like from what we've discussed so far that we're in some pretty rough waters at the moment and that we are continuing to go into even rougher waters. Seeing as it doesn't appear

that inflation is going to go down anytime soon, at the Biden administration, doesn't seem to have any plans to actually address this. What can the American people expect in the coming months? Well, I don't see inflation peaking. That's the year-over-year number, the annual inflation rate. I don't see that peaking until at least September. So in terms of what the American consumer is going to face, unfortunately right now it looks to be more of the same. Now, that being said, as Larry Cudlow frequently says, you know, the cavalry is coming, so hang in there. But I'm just not sure how much longer the American people can hang in there. You look at something like real earnings, how much people can actually buy with the money that they're taking home every week or every two

weeks, and that has absolutely collapsed under this president. If you want to look at it in annual terms, right, the annual equivalent, people are down almost $3,400 a year. That's the average worker. So take your typical family that has both parents working. They're both making the average annual income, that's $6,800. Poof, it's gone. I mean, that is a massive tax increase. Also, it brings up the interesting point that if you've ever wondered, what would happen if the government actually introduced a $6, $7,000 or $8 trillion tax hike?

What would the effect on the economy be? We're seeing it right now. It's a recession. It's people being worse off. It's people not being able to afford their previous standard of living. And until these policies change, the effects won't change. Now, the only upshot of that is that these are self-inflicted wounds. So when those policies do change, we can expect people's lives to improve.

Do we see this lasting, I know there are plenty of people who are listening to this podcast right now that suffered greatly under the 2008 recession. Are we expecting it to be similar to that or worse? Again, it depends entirely on how fast this administration and this Federal Reserve decide to change course. Now, that being said, right, this is a big old battleship. this country and she takes a long time to turn around. So even if there is a change in the midterms, and by the way, there doesn't even need to be a change of people. There just needs to be a change in policy, right? Many of these bad policies were actually started under the Trump administration, not the Biden administration. And the great tragedy of the Biden administration

now is that even with the benefit of hindsight, they have decided to double down on the bad policies of the Trump administration and yet ignore the successes. So going forward then, let's say we have a change in leadership, at least in the Congress this fall. Then in January, we can expect possibly some of those changes to begin to be implemented. And some of those changes may simply be that we are no longer implementing the bad policies that the executive branches is pushing. So at that point, it's not necessarily that we're moving in the right direction, but we're no longer moving in the wrong direction, if you will.

So we may very well have to wait until 2025 before we really see the kind of turnaround and economic improvements and the really economic boon that we saw under President Trump. Very positive news there. One final question for you. You've mentioned multiple times that there are bad policies that are being instituted by the Biden administration right now, including printing just trillions of dollars and doing all this spending. many people are thinking that one of the solutions would be for the Fed to raise interest rates. Would that be an appropriate way to address this issue? And what are your thoughts on maybe how high we could see those interest rates going? Let me say this.

We'll use some context here. The last time that inflation was this high, the Federal Reserve's key interest rate was over 13%. Today it's less than two. So, I mean, they are just laughably behind the curve. You know, I and not just me, plenty of economists. We're begging the Federal Reserve over a year. year ago to begin tightening the money supply. And instead, they've spent virtually that entire time increasing it. So they are just laughably behind the curve. You know, interest rates need to

be significantly higher. I would not be surprised if by the end of this, they are pushing double digits. But all that being said, I think interest rates are a little bit of a distraction. I think the question we should be asking is not so much. What should interest rates be? it's what should the inflation rate be? And the answer to that is zero. Again, because inflation is just a hidden tax. It's a way for the federal government to confiscate your wealth and your purchasing power in order to fund their ridiculous spending levels without your knowledge.

Well, that's a pretty grim prognosis for the economy, but hopefully we can start to get turned on the right track. That was Heritage Foundation expert in regional economics. E.J. and Tony. E.J., thank you so much for your time. Doug, thank you for having me. And that'll do it for today's episode. Thanks so much for listening to The Daily Signal Podcast.

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