This will not be a detailed view of the spending spree (which will be euphemistically called an "investment" by the Dems in Orwellian doublespeak). Government spending included both consumption and investment but as the federal government has exploded in size and spending over the past 60 years (and really a long-term trend since the 16th amendment), investment has taken a decreasing percentage of the aggregate. There's a difference between consumption/expenses and investment. When the government spends money on a fighter jet, building, surgery facility or a road, it's being built for a long-term purpose, where assets are consumed over their useful lifetimes. The vast majority of federal government spending is dominated by mandatory (vs. discretionary) entitlement spending, which is really driven by consumption/sustainment
A lot of what we traditionally call infrastructure is in the bloated companion namesake Senate bill that Speaker Pelosi is holding back passing in order to pressure moderate Dems into voting for the spending spree bill. The "infrastructure" bill really amounts to maybe 5-7 cents on the dollar for purposes of traditional infrastructure spending like roads and bridges. Some of it benefits crony capitalists like Elon Musk who gets middle-class tax revenue to subsidize wealthy woke yuppie purchases of Teslas.
There is a lot of putting lipstick on a pig "human capital" investment in education and training in terms of universal preschool and "free" community college support. Conservatives and libertarians point out public education, if and when a government responsibility, occurs at the state vs. federal level by the 10th amendment. But it's also a poor investment on its own merits. The studies I've seen on early education show temporary gains that aren't sustained, and for many degree plans, the cost-benefit ratio, beyond certain engineering/technical/professional and health degrees, has been increasing. Moreover, there are few "investment" subsidies for private-sector alternatives like highly-competitive, lower-cost Catholic schools.
There are other parts to the Biden proposal as well:
- paid family/medical leave
- subsidized child care
- expanded child tax credit.
A detailed description of the proposal is beyond the scope of this post, but to point out the
leave program in particular: it provides government-guaranteed partial pay, up to a cap of $4000/month at two-thirds of income (higher percentages of income interpolate below the partial pay cap), Up to 12 weeks of subsidized income are gradually increased over the 10-year program for a variety of reasons (certain minimum employee counts and work tenure constraints apply):
- Bond with a new child.
- Care for a seriously ill loved ones
- Deal with a loved one's military deployment.
- Find safety from sexual assault, stalking or domestic violence.
- Heal from their own serious illness.
- Take time to deal with the death of a loved one.
The program has an employer mandate to guarantee the employee the same or equivalent position returning off leave.
Now there's no such thing as a free lunch. How do the Democrats plan to fund for this new splurge in new spending? By taxing the rich for "their fair share", a morally corrupt socialist principle of the Politics of Envy:
To pay for the program, the president's plan would increase the federal income tax rate for the top 1 percent of American income earners from 37 percent to 39.6 percent, increase capital gains and dividend tax rates for those who earn more than $1 million a year, and eliminate certain exceptions to the estate tax.
Obviously I reject the entire program in total. But let's first deal with the disingenuous talking point that Biden insists his spending bill doesn't add a penny to the deficit or federal debt, that it's fully paid for, that it's painless. When the government taxes an additional dollar, it is at the expense of the private economy. You have to look at the opportunity costs, how would that dollar be used (invested or consumed) in the private sector? The private sector competes with the government for resources, and this tends to have an inflationary effect. There's the
economic deadweight losses of taxation; I've often cited (David) Friedman's Law that it often costs government twice as much as private-sector operators to achieve the same results. (Among other things, you have the issue of the tragedy of the commons. Government employees are not vested in labor/cost-saving innovations and efficiencies or anything that puts their own bureaucratic ambitions and job security at risk)
Progressive taxation, at the heart of Biden's funding, is particularly egregious and economically illiterate/counterproductive. Any Econ 101 student knows the law of supply and demand. Taxes are part of prices/costs of doing business. New or additional business often occurs at the higher-taxed margin, a higher threshold for profitability. If and when taxes move higher, they discourage economic growth. Higher priced goods or services discourage demand/sales and tends to reduce the tax base. If you are going to tax, make it low and flat. Reverting to Clinton's high upper income taxes discourages realization of current income; higher wealth individuals can defer income to later years of lower income, convert income to lower-taxed equity and/or take advantage of lower-taxed investments, like tax-advantaged municipal bonds. The idea that higher-wealth individuals will respond passively as corrupt political forces look to take even more of their money at higher levels is beyond naïve; Every MBA student knows about the
Hawthorne effect . To give a very simple example, Trump changed his legal address from New York with its high state/local income taxes to Florida, with no income taxes. High-income NYC taxpayers
pay up to about 15% on top of the current 37% federal tax rate, which means you are literally working more for the government than you keep for yourself.
I'm nor familiar with the specifics of how they are modeling the anti-growth aspects of Biden's Robin Hood taxes but higher-worth individuals can probably wait out to realize their surplus income until a more pro-growth administration and Congress are in power. I suspect, though, that the rich will respond to lower or minimize their taxable income, perhaps in a less desirable ways that won't fund investments in the future of the economy. The end result may well be revenue shortfalls and a less globally competitive future economy, with fewer well-paid employment opportunities for young people.
Then there are the morally hazardous aspects of the bill's benefits, the limited applicability and constraints on the efforts of the private economy to provide lower-costing, more effective goods and services. Relevant regulations of child care, for instance, tends to reduce supply and raise costs. Note how the federal government's increased role in education funding has had the unintended consequence of inflation-bound college education since I earned my doctorate. I earned a modest $500-600/month stipend as a UH teaching fellow, and I could cover my tuition, room and board, and modest personal expenses without taking out a loan.
Notice how the progressive Dems are challenging the moderates to come forward with where to cut their funding, knowing there are vested interests behind every penny in the $3.5T bill. You can already write the primary challenger's platform, of protecting the interests of the upper 1%, the vote against working families. The GOP since 2000 has been facing this for over a generation; it is far more popular to cut taxes than spending, but when the bottom 50% pays little in federal taxes beyond payroll and excise taxes, it is hard to cut taxes below zero. But make no mistake: on the surface this may be a 10-year program, but once people become accustomed to the federal drug of subsidies, they feel entitled, and cutting them off becomes politically radioactive, like ending senior entitlements.
It's not that I oppose the intent of these program, just the means which I think are disastrous for the economy and a morally hazardous, creeping intrusion of government into the private economy. It wasn't government or unions that brought you the 40-hour workweek and higher wages, but entrepreneurs like Henry Ford. Compensation is the true labor cost, and I trust free market competition to meet the mix and needs of consumers and employees better than government; if there are shortages and high prices, it's more likely the result of government meddling, not an indictment of capitalism.
