As we consider tax policy....

A government that robs Peter to pay Paul can always depend on the support of Paul.

- George Bernard Shaw

How will deficits be paid? There are only three ways, increasing tax rates, growing to increase revenues, or inflating to reduce the nominal value of debt. The big fear is that alternatives are limited. There are limits to the increase in tax rates. Many households do not pay taxes now, so there are constraints to the "soak the rich" strategy. The growth alternative is limited if we do not have a V-shaped recovery. An inflation story is limited at this time given the large output gap, but the fear is that the inflation alternative becomes more likely if the first two policy choices are clearly closed. This explains why the back-end expected inflationary expectations are at 2% given the deep recession.