June 16, 2021 - 9:01 pm
President Joe Biden’s desire to take large amounts of money out of the private sector will hinder economic growth and undermine prosperity. That’s the finding of a new study, which examined the impact of the administration’s spending proposals.
The nonpartisan Tax Foundation analyzed the ramifications of Mr. Biden’s spending plans on the economy. It studied the American Jobs Plan, which is his “infrastructure” bill, the American Families Plan and his budget blueprint for next year. Those proposals would increase spending by more than $4 trillion from the current baseline. Some of the spending would occur over several years.
To pay for this, Mr. Biden has proposed a series of tax increases. That includes an increase in the corporate income tax from 21 percent to 28 percent. High-income earners would face several tax hikes, including an increase in the top tax rate, higher taxes on long-term capital gains and an increase in the death tax for unrealized capital gains. The Tax Foundation estimates these changes would increase net revenues by $1.3 trillion over 10 years. The Biden administration also claims it will collect around $700 billion through increased tax enforcement.
The Tax Foundation finds that Mr. Biden’s spending binge “would increase long-run GDP by 0.3 percent, due to enhanced public infrastructure.” But that small positive would be overwhelmed by the downside of higher taxes.
Combined, Mr. Biden’s plan “reduces GDP by 0.9 percent in the long run, reduces wages by 0.8 percent and eliminates 165,000 full-time equivalent jobs.”
This shouldn’t come as a surprise. When the federal government demands a bigger and bigger tribute from companies and individuals, as Mr. Biden proposes, it crowds out private-sector investment and spending. That leads to reduced economic output and fewer jobs. Not many Democrats like to acknowledge that these trade-offs exist, but, as rising inflation shows, they remain a fact of life.
Government does have a vital role to play in creating the conditions that enable a robust economy. It must protect life, liberty and property rights. An impartial court system is needed to uphold the rule of law. Providing basic infrastructure, especially at the state and local level, is important, too. But the federal government exceeded those basic responsibilities long ago.
Mr. Biden’s spending plans would also increase the nation’s massive debt. Ignoring the debt has bipartisan support, but it is still a looming national problem, even if it isn’t at a crisis point — yet.
Former President Bill Clinton once declared that the “era of big government is over.” Mr. Biden vehemently disagrees. If he succeeds in gorging an already corpulent public sector, the economy will pay the price.