Bloomberg
In his speech last week to Congress, President Joe Biden declared his ambitions for a country on its way back from the COVID-19 pandemic. “Now, after just 100 days, I can report to the nation: America is on the move again,” he said.
Barely three months into his presidency, Biden outlined his third huge fiscal proposal — a package of nearly $2 trillion to be spent over 10 years on child care, education, paid leave and expansions of the earned-income and child tax credits. This comes on top of the $1.9 trillion pandemic-relief law already passed by Congress and the president’s $2.3 trillion plan for new spending on infrastructure.
By any standard, this is an extraordinarily bold agenda. Is it affordable? And is it wise?
Biden’s intentions are admirable. He’s right to prioritize opportunity for the poor and disadvantaged — a consistent theme. He’s also right to match long-term spending increases with plans to raise taxes, because most of these outlays, however desirable, won’t pay for themselves. And it makes sense, as Biden proposes, to target those best able to afford it, hence pushing back against the trend of worsening economic inequality. In particular, he proposes roughly doubling the top rate of tax on capital gains and dividends to 43.4% (including the 3.8% Medicare tax introduced by President Barack Obama).
These goals are worthy — but Biden’s blizzard of proposals nonetheless gives cause for concern.
Spending on such a scale without waste is a bigger challenge than the president appears to think. And when it comes to taxes, the promise that the richest 0.3% will pay for everything is implausible bordering on dishonest. The danger is that the gains for the intended beneficiaries will be less than hoped, and the substantial cost won’t in the end be confined to a sliver of people at the top.
Done right, spending on infrastructure can boost private investment and growth; done wrong, it builds bridges to nowhere. Universal access to broadband internet is eminently desirable; it might be achieved economically and efficiently, or at inordinate cost. Two years of tuition-free community college could mean expanded training in skills demanded by employers, hence higher incomes and faster growth; or it could cause delayed entry into the labor force with loss of wages and no offsetting benefit. With so many American schools failing their students, fixing K-12 education is a more compelling priority.
Biden’s plans to pay for it all are problematic, too. The emphasis on squeezing the rich has led the administration to propose sharp increases in taxes on capital. Economists are divided on what this will mean for saving and investment, but such a big increase would leave the U.S. as an outlier among rich countries. At the very least, it’s a gamble.
Biden’s incautious ambition has one further drawback. It abandons hope of reaching consensus on aspects of fiscal policy where, even now, it might still be possible. Many Democrats think that seeking agreement with Republicans is pointless, merely a formula for delay and paralysis. But they ignore that modest-seeming steps sustained from one administration to the next are more supportive of growth and innovation than a policy pendulum that swings from one extreme to the other every four years. Instability breeds uncertainty, suppressing investment and growth. It’s much too soon to give up on bipartisanship — and it’s a shame to see Biden, of all people, throw in the towel.
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