The Double-Barreled Danger of Biden’s Plan to Expand the Welfare State

The United States has a big economic advantage over Europe in part because the burden of welfare spending is lower.

This means fewer people trapped in government dependency in America. And it means a smaller tax burden in America.

But some of our friends on the left think it is bad news that the United States isn’t more like Europe.

They want more redistribution in America and they may get their wish if Congress approves Biden’s so-called American Families Plan.

The Economist has an article about Biden’s radical proposal, which would, as they correctly note, “Europeanise the American welfare state.”

President Joe Biden is proposing an ambitious reweaving of the American safety-net, which the White House says will cost $1.8trn. The American Families Plan has bits of the European welfare state that have long been missing in the country—a child allowance, paid family leave, universal pre-school, subsidised child care and free community college—but contains no reference to work requirements. …So how did Democrats go from Clintonism—which implicitly conceded the Reaganite critique that too much governmental assistance is a very bad thing—to its present-day unconcern about (even relish for) deficit-financed expansions of the safety-net?

Here are some of the specific details from the story, including discussion of Biden’s plan for per-child handouts.

This would bring America more in line with the rest of the developed world: the average government spending on benefits such as child allowances, family leave and early education is 2.1% of GDP in the OECD club of mostly rich countries. In America, it is just 0.6%. …A generous child allowance is the main anti-poverty tool in most rich countries—and also one that America lacks. One such scheme was created this year as part of the covid-19 relief bill that the president signed in March. It will pay most families $3,000 per year per child ($3,600 for young children)… The president’s plan proposes to extend these payments until 2025. Some Democrats think they should simply be made permanent.

The Wall Street Journal opined about Biden’s plan last month.

It’s more accurate to call this the plan to make the middle class dependent on government from cradle to grave. The government will tell you sometime later, after you’re hooked to the state, how it will force you to pay for it. We’d call the price tag breathtaking, but by now what’s another $2 trillion? …But the cost, while staggering, isn’t the only or even the biggest problem. The destructive part is the way the plan seeks to insinuate government cash and the rules that go with it into all of the major decisions of family life. The goal is to expand the entitlement state to make Americans rely on government and the political class for everything they don’t already provide. …This is now about mainlining benefits to middle-class families so they become addicted to government—and to the Democratic Party that has become the promoting agent of government.

I agree with the WSJ. Biden wants to create more dependency, even if that means eviscerating Bill Clinton’s very successful welfare reform.

For my contribution to this discussion, I want to make two points about the practical implications of Biden’s plan to “Europeanise” the United States.

First, it is impossible to have a European-sized government without massive tax increases. And since there aren’t enough rich people to finance big government, that inevitably means low-income and middle-class taxpayers will have to be hit with much bigger fiscal burdens. Which is exactly what has happened in Europe (and lots of honest people on the left openly admit a bigger welfare state would require similar policies in the United States).

Second, it is impossible to have a European-sized government and still maintain a big economic advantage over Europe. Higher spending and higher taxes will combine to reduce work, saving, investment, and entrepreneurship. Simply stated, European fiscal policy will lead to European economic results, and that will be very bad news for ordinary Americans since living standards are 30 percent-40 percent lower on the other side of the Atlantic Ocean.

It’s also worth noting that the United States ranks very high in societal capital, and that presumably will erode if more people are lured into government dependency.

P.S. Biden used to oppose a government-guaranteed income, correctly realizing it would undermine the work ethic.

P.P.S. The United States already faces a huge long-run challenge because of entitlement spending, so it’s remarkable – in a bad way – that Biden wants to step on the gas rather than hit the brakes.