And, as you might expect, the numbers are not good under Biden.
Courtesy of the Bureau of Labor Statistics, here is the data on the labor force participation rate.
As you can see, the numbers were declining for much of this century, but then began to improve before falling off a cliff because of the pandemic.
For purposes of today’s column, it’s rather troubling that the labor market has not bounced back to where it was before coronavirus wreaked so much havoc.
Sadly, we have not come close to recouping those losses.
By the way, there are some folks on the left who recognize this problem.
Andrew Yang recently tweeted about the drop in labor force participation.
And he had a follow-up tweet pointing out that every one-percentage-point drop in labor force participation translates into 2.5 million fewer people being employed.
Is he right?
Well, let’s look at another chart from the Bureau of Labor Statistics.
As you can see, total employment today (158.4 million people) is not even back to where it was before the pandemic (158.9 million people).
And we would need a couple of million more jobs simply to get back on the pre-pandemic trendline.
To be fair, I don’t think Biden is fully responsible for the sub-par numbers. We probably would not be back to the pre-pandemic trendline even if we had good policy from Washington.
The bottom line is that we need more people working, but that probably won’t happen unless we get government out of the way.
P.S. If you want technical definitions, here’s how the BLS defines the above terms.
The labor force participation rate. This measure is the number of people in the labor force as a percentage of the civilian noninstitutional population 16 years old and over. In other words, it is the percentage of the population that is either working or actively seeking work.
The employment-population ratio. This measure is the number of employed as a percentage of the civilian noninstitutional population 16 years old and over. In other words, it is the percentage of the population that is currently working.
We do have some good news. Hungary is stopping, at least temporarily, the European Union from embracing its version of a minimum tax.
In a column for the Wall Street Journal, a member of that nation’s parliament explains his government’s position.
Adopting the European Commission’s minimum-tax directive now would be a profound mistake. …The EU directive, proposed by the European Commission in December 2021, aims to introduce a 15% minimum tax rate, effective Jan. 1, 2023…the current proposal would increase the tax burden on European manufacturers, which drive economic growth. The directive would need to be unanimously agreed by 27 EU member states to take effect. Hungary can’t support a proposal that would hurt the weakened European economy… Adopting the directive would hit Central European economies the hardest by damaging their favorable tax systems, a key competitive advantage over their Western European counterparts. …Hungary’s ability to set its own fiscal policies in this crisis is indispensable. To protect our competitiveness and sovereignty, the Hungarian National Assembly passed a resolution prohibiting the government from agreeing to implement a global minimum tax.
Let’s be thankful that Hungary said no.
But I’m still very worried, for two reasons.
First, the column focuses on why it would be a very bad idea to impose a global tax cartel during the current period of economic turmoil. That’s true, but it implies that it might be acceptable to impose a global minimum tax at some other point. That’s definitely not the case.
Second, it’s bad news that other nations – such as Ireland, Estonia, and Luxembourg – didn’t side with Hungary (Ireland’s capitulation is particularly disappointing).
Since we’re discussing the merits (or lack thereof) of a global minimum tax, let’s look at what others have written about the idea.
Aharon Friedman and Joshua Rauh opined against the concept of a global minimum corporate tax in an article for Fox News.
…the administration is conspiring at the OECD to stifle tax competition across the globe by effectively requiring all countries to impose similarly high tax rates. …teaming up with the OECD to be the world’s tax policeman would be disastrous for many reasons. …a global minimum tax would have to feature very detailed rules over every aspect of taxation, from cost recovery, losses, and interest deductibility, to tax incentives such as R&D and what kinds of businesses must be subject to the tax in the first place. The scheme would shift enormous power to the OECD Secretariat, which would start to look like the world’s IRS Commissioner. This would also be a backdoor through which to further strip tax lawmaking from Congress and place it in the hands of Treasury and its foreign counterparts. …The Biden administration is trying force countries across the world to adopt its own preference for high taxes on corporate income regardless of the effect on employment and wages.
The Wall Street Journaleditorialized against this scheme last year.
Ignore the back-slapping about revenues and “fairness.” This deal is bad news for economies recovering from the pandemic, and especially the U.S. …Officials and progressive activists say they’re halting a global “race to the bottom” on corporate taxes. We’re glad they finally concede that tax rates matter to decisions about investment and job creation, since the left has denied this for decades. But the real action has been on tax policy competition, which has been instrumental to economic growth, innovation and job creation since the 1980s. The OECD plan will throttle that competition. That’s because, while the G-7 agreement focuses on the headline rate for the new minimum tax, the OECD plan comes with reams of harmonized fine print… Suppressing tax competition is the main reason the Biden Administration broke with Washington’s long, bipartisan tradition of opposing a global minimum tax. …American workers, consumers and shareholders will pay the price.
Writing for CapX, Kai Weiss warns that a global minimum tax is a cartel to benefit governments with uncompetitive tax systems.
…there’s a real danger that these proposals will damage the prosperity of competitiveness of the world’s major economies, while trampling on nation states’ freedom and sovereignty. …The likes of France and Germany have long taken umbrage that smaller member states like Ireland and Luxembourg have used low corporate tax rates… Rather than reconsider their own counterproductive policies, the EU’s two biggest economies have simply decided to try forcing everyone else to play by their rules. …It’s hard to avoid the conclusion that this is another bout of protectionism from countries such as Germany, France, and Italy which have long pursued counter-productive, draconian tax policies. The big difference now is that they have a willing ally in the shape of Joe Biden. …there’s a word for this kind of behaviour. If businesses were following such a strategy instead of governments “we would call this a cartel”.
Last year, Thomas Duesterberg wrote critically about the implications for national sovereignty in a column for the Wall Street Journal.
Treasury Secretary Janet Yellen has a grand idea: a global tax regime. …Together with the Biden administration’s plan to raise the U.S. corporate tax rate to 28% and eliminate preferences, it would return the U.S. to its pre-2017 status as a high-tax jurisdiction, discouraging domestic capital investment and production. More insidious, it would cede authority over taxation, one of the pillars of democratic governance… This approach would transfer significant national sovereignty over corporate taxation, key to overall economic policy, to some yet-to-be-defined international regime under the guidance of the OECD… The Biden team should understand the road it is heading down. …Ceding corporate-taxation authority to an undefined international authority that will inevitably be controlled by an unelected technocratic elite would erode Madisonian principles even further. It would move America closer to the EU model of governance.
Needless to say, the EU model of governance (centralization, harmonization, and bureaucratization) is not a good idea.
I’m not optimistic, but my fingers are crossed that this awful idea of a global minimum tax will fall apart.
Simply stated, free markets produce efficiency and lower costs while government produces inefficiency and higher costs.
So it was particularly galling that President Biden is engaging in demagoguery against oil companies. Peter Baker and Clifford Krauss of the New York Timesreport on a letter that he sent to some of their CEOs.
President Biden chastised some of the largest oil companies for profiteering off surging energy prices and “worsening that pain” for consumers… With the average price of gas in the United States topping $5 a gallon for the first time, Mr. Biden pointed the finger at energy firms in a letter to seven top executives… “At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable,” Mr. Biden said in the letter.
The trade association for the oil industry got the chance to respond and noted that the federal government is hindering energy development.
Mike Sommers, president of the American Petroleum Institute, countered that the administration shared the blame for higher energy prices and called for approval of new drilling leases and approval of “critical energy infrastructure” like pipelines.
I’m sure the Biden Administration has not been helpful, but I want to make a bigger point.
If the President wants to know who “profiteers” from the energy industry, he should look in the mirror.
Courtesy of Wikipedia, here’s a chart of federal gas taxes over time.
But Uncle Sam is not the biggest profiteer.
Almost every state government grabs even more every time we fill up. Here’s a map from the Tax Foundation.
Moreover, the Fed’s big mistake started in early 2020 when the central bank dramatically expanded its balance sheet (see chart). And that error took place well before Joe Biden entered the White House.
Unfortunately, instead of pointing a finger of blame at the Fed, some of our friends on the left have decided to assert that inflation is caused by greedy companies.
A recent New York Timescolumn by German Lopez addressed this claim.
The good news is that Mr. Lopez’s column pours cold water on the “greedflation” theory.
The bad news is that the column completely overlooks the role of the Federal Reserve.
As prices have increased faster than at any other point in four decades, lawmakers have scrambled for explanations. In recent months, some Democrats have landed on a new culprit: price gouging. …”greedflation.” For Democrats, it is a convenient explanation as inflation turns voters against President Biden. …And it lets them recast inflation as the fault of monopolistic corporations — which progressives have long railed against. …there are other, more widely accepted explanations… Covid disrupted supply chains globally. Russia’s invasion of Ukraine caused another wave of disruptions, particularly in food and energy. The stimulus bills left people with a lot of extra cash, and many Americans spent it. That prompted too much demand for too little supply, so prices increased.
Just in case you suspect I’m not being fair, the words “federal reserve” or “central bank” do not appear in the article. Anywhere.
Needless to say, writing a column about rising price levels without mentioning the Fed is like writing the history of World War II and not mentioning Germany.
Why did the reporter make this mistake? If I had to guess, he probably noticed there was a debate inside the Democratic Party between the “crazy left” and the “rational left.” So he wrote about that conflict without noting (or perhaps even realizing) that there are other points of view.
P.S. For those who want more background, the crazy left are economic illiterates such as Robert Reich, Bernie Sanders, and Elizabeth Warren (and some guy named Lindsay Owens, who was cited in the article).
Most people think his reelection prospects were doomed because of high inflation.
I suspect, however, that he was most hurt by falling levels of real income. And when I write “real income,” I’m referring to income after adjusting for inflation.
If you peruse the historical data from Table A-2 in the Census Bureau’s most recent report on income and poverty, you’ll notice that median household income (in 2020 dollars) dropped by nearly $2,000 between 1978 and 1980.
In other words, Carter may have survived double-digit inflation if incomes rose even faster than prices.
But that’s not what happened. Instead, we got rising prices and falling real income. This “stagflation” is probably the reason Ronald Reagan was elected, and the rest is history.
Moreover, history may be repeating itself.
Here’s a recent story from the Washington Post. I’ve excerpted the key passages, but all you really need to do is read the headline.
…the World Bank warned… Not since the 1970s — when twin oil shocks sapped growth and lifted prices, giving rise to the malady known as “stagflation” — has the global economy faced such a challenge. …“The risk from stagflation is considerable…,” said David Malpass, president of the multilateral development institution in Washington… Investors also could take a beating from a repeat of ‘70s-style stagflation. The S&P 500 stock index, already down more than 13 percent this year, could lose an additional 20 percent or more, according to a recent client note from Bank of America.
The World Bank mostly focused on the risks for the global economy.
That being said, Biden reappointed Jerome Powell, the Chairman of the Fed’s Board of Governors. By rewarding Powell’s failure, Biden is now in no position to deflect blame.
P.S. Rising prices and falling income under Jimmy Carter gave us Ronald Reagan, so bad policy indirectly led to a good outcome. As of now, it’s unclear if there’s a new version of Reagan to rescue us from today’s version of stagflation.
P.P.S. For readers who are not old enough to have experienced America’s national rejuvenation under Reagan, you can click here, here, and here to see “the Gipper” in action.
What caught my attention was this chart showing the United States (light-blue bars) already is out of whack with major competitors and trading partners (green bars) – and Joe Biden wants to make a bad situation much worse (red bars).
And when I write “out of whack,” that’s not an idle statement.
it turns out that the United States would have the highest income tax rates in the world.
Higher than Greece. Higher than France. Higher than Italy. Here are some of the grim details.
…the tax increases in the Build Back Better Act (BBBA)…would raise revenues by $4 trillion on a gross basis over the next decade. The Biden tax increases in the budget and BBBA would come at the cost of economic growth, harming investment incentives and productive capacity… The budget proposes several new tax increases on high-income individuals and businesses, which combined with the BBBA would give the U.S. the highest top tax rates on individual and corporate income in the developed world… Taxing capital gains at ordinary income tax rates would bring the combined top marginal rate in the U.S. to 48.9 percent, up from 29.2 percent under current law and well-above the OECD average of 18.9 percent. …Raising the corporate income tax rate to 28 percent would once again bring the U.S. near the top of the OECD at a combined rate of 32.3 percent, versus 25.8 percent under current law and an OECD average (excluding the U.S.) of 22.8 percent.
The good news, relatively speaking, is that the United States would not have the highest aggregate tax burden (taxes as a share of economic output).
And the U.S. would not have the highest tax burden on consumption (no value-added tax in America, fortunately).
But with all of Biden’s new spending (along with the built-in expansions of government that already have been legislated), it may just be a matter of time before the U.S. copies those features of Europe’s stagnant welfare states.
The net result is lower living standards for the American people. The only open question is how far we drop.
I think Joe Biden must be feeling envious that Trump got so much attention, so he has issued a tweet showing that he also suffers from economic illiteracy.
Or maybe Biden’s problem is dishonesty because his tweet is based on a make-believe number about the the average tax rate paid by billionaires.
For what it’s worth, this isn’t the first time that Biden has issued a tweet based on fake numbers.
In the previous instance, he deliberately confused the distinction between the financial concept of book income and and cash-flow concept of taxable income.
What accounts for his most recent error?
Reporting for the Wall Street Journal, Richard Rubin and Rachel Louise Ensign explain how the Biden Administration concocted this number.
What do the wealthy pay in federal taxes? On paper, the top marginal income-tax rate is 37% on ordinary income and 23.8% on capital gains. Government estimates put high-income filers’ average rates in the mid-20s. A new Biden administration analysis, however, pegs the average tax rate for the 400 wealthiest households at 8.2% from 2010 to 2018. …It’s far below traditional estimates from government number crunchers… Recent estimates of a broader group of rich people from the Congressional Budget Office, Treasury Department and the Joint Committee on Taxation fall between 23% and 26%.
So how does the Biden Administration get a number that is radically different than other sources?
By artificially inflating the income of rich people by asserting that changes in wealth should count as income.
White House…economists Greg Leiserson and Danny Yagan..include increases in unrealized capital gains. That is the change in the value of assets, including stocks, that haven’t been sold. …Conventional analyses and the current income-tax law don’t include unrealized gains.
At the risk of making a wonky point, “conventional analysis” and “income-tax law” don’t include unrealized capital gains as income because, well, changes in net worth are not income.
To understand why that would be wretched policy, let’s cite examples that apply to those of us who, sadly, are not billionaires.
Imagine filing your taxes next year and having to pay more money to the IRS simply because Zillow estimated that your house rose in value.
Imagine that you’re filling out your 1040 form next year and you have to pay more money to the IRS simply because your IRA or 401(k) rose in value.
Both of these examples sound absurd because they would be absurd. And if a policy is absurd and unfair for regular people, it’s also absurd and unfair for rich people.
Since I’m a fiscal wonk, I’ll close by making the point that the Biden Administration wants to take a bad tax (capital gains tax) and make it worse (by taxing paper gains in addition to actual gains).
The net result is that we would have a backdoor wealth tax – a approach that is so anti-growth that even most European governments have repealed those levies.
But since Joe Biden is motivated by class warfare (see here, here, here, and here), he apparently doesn’t care about the economic consequences.
P.S. Biden once claimed that it is “patriotic” to pay higher taxes, but he then played Benedict Arnold with his own tax return.
But let’s set that aside and focus instead on a jaw-dropping claim from the White House.
Even though all of his major initiatives have increased red ink, he is patting himself on the back for lower deficits.
For what it is worth, Biden’s claim is semi-accurate. It is true that budget deficits are temporarily falling.
But not because of him. Instead, red ink is falling because there was massive, one-time, multi-trillion dollar emergency spending for the COVID pandemic in 2020. That spending began to wind down in 2021 and it has mostly dissipated this year, so of course deficits have fallen.
For Biden to take credit for this drop would be akin to Truman taking credit for the big drop in red ink after World War II ended.
Eric Boehm of Reason wrote a column that debunks Biden’s ludicrous claim.
…this year’s budget deficit is forecasted to be the third or fourth-largest in American history—but President Joe Biden claims…his administration is overseeing a period of fiscal austerity. …Here are some words that actually tumbled out of the president’s mouth at a press conference… “We’re on track to cut the federal deficit by another $1.5 trillion by the end of this fiscal year. …on top of us having a $350 billion drop in the deficit last year, my first year as president,” Biden continued. …Those facts, however, exclude a few key details. …Biden took office the year after the budget deficit hit previously unimaginable highs due to a completely unprecedented spending binge triggered by a once-in-a-generation public health disaster. …if you look at the actual budgetary baselines published by the Congressional Budget Office—that is, the ongoing amount of annual federal spending absent any emergency stimulus bills like the ones passed on several occasions during the height of the pandemic—Biden has overseen a noticeable increase in the deficit above the pre-pandemic baseline. According to the Committee for a Responsible Federal Budget, a fiscal watchdog group that advocates for lower deficits, Biden’s policies have added about $2.5 trillion to the deficit over the next 10 years.
Brian Riedl is now with the Manhattan Institute, but we used to work together earlier this century at the Heritage Foundation. One of his admirable traits is that he hasn’t lost the ability to be outraged.
That comes through in his tweet about Biden’s supposed accomplishment.
By the way, I’m not making a partisan point. I have no doubt Trump would have done the same thing.
The real drivers of economic strength are private investment and private production.
After all, we can’t consume unless we first produce.*
Not everyone agrees with these common-sense observations. The Biden Administration, for instance, claimed the economy would benefit if Congress approved a costly $1.9 trillion “stimulus” plan last year.
Yet we wound up with 4 million fewer jobs than the White House projected. We even wound up with fewer jobs than the Administration estimated if there was no so-called stimulus.
So what did we get for all that money?
Some say we got inflation. In a column for the Hill, Professor Carl Schramm from Syracuse is unimpressed by Biden’s plan. And he’s even less impressed by the left-leaning economists who claimed it is a good idea to increase the burden of government.
Nobel Laureate economist Joseph Stiglitz rounded up another 16 of the 36 living American Nobel Prize economists to declare, in an open letter, that…there was no threat of inflation. …The Nobelists’ letter showed that those signing had bought Team Biden’s novel argument that its enormous expansion of social welfare programs really was just a different form of infrastructure investment, just like roads and bridges. …The laureates seemed to have overlooked that previous COVID benefits had often exceeded what tens of millions of workers regularly earned and that recipients displaced by COVID were never required to look for other work. While the high priests of economic “science” were cheering on higher federal spending, larger deficits and increased taxes, employers were and are continuing to deal with inflation face-to-face. …The Nobelists assured that we would see a robust recovery because of President Biden’s “active government interventions.” Their presumed authority was used to give credence to the president’s continuously twisting storyline on inflation — that it was “transitory,” good for the economy, a “high-class problem,” Putin’s fault for invading Ukraine, and the greed of oil and food companies… Today’s fashionable goals seem to have displaced the no-nonsense pragmatism that has long characterized economics as a discipline. …Don’t expect a mea culpa from Stiglitz or his coauthors any time soon. …They can be wrong, really wrong, and never pay a price.
The New York Posteditorialized about Biden’s economic missteps and reached similar conclusions.
President Joe Biden loves to blame our sky-high inflation on corporate greed and Vladimir Putin. But a new study from the San Francisco Fed shows it was Biden himself who put America on this grim trajectory. …other advanced economies…haven’t seen anything like the soaring prices now punishing workers across America. Which means that the spike is due to something US-specific, rather than global prevailing conditions. That policy, was, of course, Biden’s signature economic “achievement.” …The damage it did has been massive. …inflation…to 7%… Put in concrete terms, a recent Bloomberg calculation translates this to an added $433 per month in household expenses for 2022. And historic producer price inflation, a shocking 10%, guarantees even more pain ahead.
For what it’s worth, I don’t fully agree with Professor Schramm or the New York Post.
They are basically asserting that Biden’s wasteful spending is responsible for today’s grim inflation numbers.
I definitely don’t like Biden’s spending agenda, but I agree with Milton Friedman that it is more accurate to say that inflation is a monetary phenomenon.
First, Friedman also points out that there’s “a long and variable lag” in monetary policy. So it is not easy to predict how quickly (or how severely) Keynesian monetary policy will produce rising prices.
Second, Keynesian deficit spending can lead to Keynesian monetary policy if a central bank feels pressure to help finance deficit spending by buying government bonds (think Argentina).
*Under specific circumstances, Keynesian policy can cause a short-term boost in consumption. For instance, a government can borrow lots of money from overseas lenders and use that money to finance more consumption of things made in places such as China. The net result of that policy, however, is that American indebtedness increases without any increase in national income.
P.S. You can read the letter from the pro-Keynesian economists by clicking here. And you can read a letter signed by sensible economists (including me) by clicking here.
It’s also worth pointing out that Keynesians have been consistently wrong with predicting economic damage during periods of spending restraint.
They were wrong about growth after World War II (and would have been wrong, if they were around at the time, about growth when Harding slashed spending in the early 1920s).
What’s especially disappointing is that he wants tax rates in the United States to be much higher than in other developed nations.
At the risk of understatement, that’s not a recipe for jobs and investment.
The Wall Street Journaleditorialized about Biden’s taxaholic preferences.
Mr. Biden…is proposing $2.5 trillion in new taxes that would give the U.S. the highest or near-highest tax rates in the developed world. …The biggest jump is in taxes on capital gains, as the top combined rate would rise to 48.9% from 29.2% today. That’s a 67% increase in the government’s take on long-term capital investments. The new top rate would be more than 2.5 times the OECD average of 18.9%. Nothing like reducing the U.S. return on capital to get people to invest elsewhere. Mr. Biden would also lift the top combined tax rate on corporate income to 32.3% from 25.8%. That would leap over Australia and Germany, which have top rates of 30% and 29.9% respectively, and it would crush the 22.8% OECD average. …Mr. Biden would also put the U.S. at the top of the noncompetitive list for personal income taxes, with multiple increases that would put the combined American rate at 57.3%. Compare that with 42.9% today and an average of 42.6% across the OECD.
The WSJ‘s editorial contained this chart.
The United States would be on top for corporate tax rates if Biden’s plan is adopted (which actually means on the bottom for competitiveness).
The bottom line is that Biden wants the U.S. to have the highest corporate rate, highest double taxation of dividends, and highest double taxation of capital gains.
To reiterate, not a smart way of trying to get more jobs and investment.
P.S. The “good news” is that the United States would not be at the absolute bottom for international tax competitiveness.
The Tax Foundation has just released a very interesting map (at least for wonks) showing the total tax rate on dividends in European nations, including both the corporate income tax and the double-tax on dividends.
Because it has a reasonably modest corporate income tax rate, some of you may be surprised that Ireland has the most onerous overall burden on dividends. But that’s because there are high tax rates on personal income and households have to pay those high rates on any dividends they receive (even though companies already paid tax on that income).
It’s less surprising that Denmark is the second worst and France is the third worst.
Meanwhile, Estonia and Latvia have the least-onerous systems thanks to low rates and no double taxation.
But what about the United States?
There’s a different publication from the Tax Foundation that shows the extent – a maximum rate of 47.47 percent – of America’s double taxation.
The bottom line is that the United States would rank #7, between high-tax Belgium and high-tax Germany, if it was included in the above map.
That’s not a very good spot, at least if the goal is more jobs and more competitiveness.
I’ve already written about his plan for a higher corporate tax rate.
But he wants an even-bigger increases in the second layer of tax on dividends.
How much bigger?
Pinar Cebi Wilber of the American Council for Capital Formation shared the unpleasant details in a column last year for the Wall Street Journal.
The Biden administration has released a flurry of tax proposals, including a headline-grabbing tax hike on capital gains that would apply retroactively from April. Dividends would be subject to the same treatment, according to a recently released Treasury Department document. …the proposal would tax qualified dividends—dividends from shares in domestic corporations and certain foreign corporations that are held for at least a specified minimum period of time—at income-tax rates (currently up to 40.8%) rather than the lower capital-gains rates (23.8%).
I also like that the column includes references to some academic research.
A 2005 paper by economists Raj Chetty and Emmanuel Saez looked at the effect of the 2003 dividend tax cuts on dividend payments in the U.S. The authors “find a sharp and widespread surge in dividend distributions following the tax cut,” after a continuous two-decade decrease in distributions. …Princeton’s Adrien Matray and co-author Charles Boissel looked at the issue the other way around. In a 2019 study, they found that an increase in French dividend taxes led to decreased dividend payments. …Another study from 2011, looking at America’s major competitor, reached the same directional conclusion: A 2005 reduction in China’s dividend tax rate led to an increase in dividend payments.
Not that anyone should be surprised by these results. The academic literature clearly shows that it’s not smart to impose high tax rates on productive behavior such as work, saving, investment, and entrepreneurship.
I’ve already written that massive spending increases for various bureaucracies is the most offensive part of Biden’s new budget.
But I explicitly noted that these huge budgetary increases (well above the rate of inflation, unlike what’s happening to incomes for American families) were not the most economically harmful feature of Biden’s plan.
In today’s column, we’re going to focus on his tax plan.
The Wall Street Journaleditorialized a couple of days ago about what the president is proposing.
A President’s budget is a declaration of priorities, so it’s worth underscoring that President Biden’s new budget for fiscal 2023 proposes $2.5 trillion in tax increases over 10 years. His priority is taking money from the private economy and giving it to politicians to spend. …Raising the top income-tax rate to 39.6% from 37% would raise $187 billion. Raising capital-gains taxes, including taxing gains like ordinary income for taxpayers earning more than $1 million would snatch $174 billion. Raising the top corporate tax rate to 28% from 21%—a tax on workers and shareholders—would raise $1.3 trillion. Fossil fuels are hit up for $45 billion. We could go on… Let’s hope none of these tax-increases pass, but the Democratic appetite for your money really is insatiable.
That’s a damning indictment.
But the WSJ actually understates the problems with Biden’s tax agenda.
That’s because the White House also is being dishonest, as explained by Alex Brill of the American Enterprise Institute.
The budget proposes $2.5 trillion in net tax hikes, almost entirely from businesses and high-income households, and touts policies that would “reduce deficits by more than $1 trillion” over the next decade. But a short note in the preamble to the Treasury Department’s report on the budget reveals a sleight of hand: “The revenue proposals are estimated relative to a baseline that incorporates all revenue provisions of Title XIII of H.R. 5376 (as passed by the House of Representatives on November 19, 2021), except Sec. 137601.”In other words, the budget pretends that the failed effort to enact President Biden’s Build Back Better Act was a success and considers new budget proposals in addition to those policies. But you won’t find the price of the Build Back Better (BBB) Act (including its roughly $1 trillion in net tax hikes) in the budget tables.
I’m going to use this trick during my next softball tournament. I’m going to assume at the start that I’ve already had 20 at-bats and that I got an extra-base hit each time.
So even if I have a crummy performance during my real at-bats, my overall average and slugging percentage will still seem impressive.
Needless to say, my teammates would laugh at me, just as serious budget people understand that Biden’s budget is a joke.
But there is some good news. Barring something completely unexpected, Congress is not going to approve the president’s farcical plan.
P.S. Don’t fully celebrate. As I noted in my “Hopes and Fears for 2022” column, there is a risk that some sort of tax-and-spend plan might get approved. The only silver lining to that dark cloud is that it wouldn’t be nearly as bad as Biden’s full budget.
P.P.S. If that prospect gets you depressed, here are a couple of humorous images depicting Biden’s fiscal agenda.
If I had to select a worst feature, though, I’d be tempted to pick the proposed spending hikes that Biden is seeking for some of Washington’s most-wasteful bureaucracies.
Here’s a chart from a story in today’s Washington Post (based on Table S-8 in the budget), which summarizes how much additional “discretionary spending” Biden is seeking.
Why am I upset about these proposed spending increases?
And since Biden is projecting that real GDP will grown by 2.8 percent next year and inflation will be 2.1 percent during the same period (see Table S-9 of the budget), he obviously wants all these bureaucracies to enjoy big increases (unlike families, who are losing ground compared to inflation).
But I’m also irked from a targeted fiscal perspective. That’s because Biden wants giant spending increases for bureaucracies that should not even exist.
Here’s what I’ve written about some of them.
Get rid of the Department of Housing and Urban Development.
It also means I don’t believe in blaming politicians for things that are not their fault. For example, NBC just released a poll showing that Joe Biden has low marks for economic policy.
Some of that is appropriate (his fiscal policy is atrocious, to cite one reason), but I think the answers to this question show that the president is getting a bum rap on one issue.
Why am I letting Biden off the hook about monetary policy?
For the simple reason that the Federal Reserve (the “Fed”) deserves the blame. The central bank’s inflationary policies are the reason that prices are rising.
One can claim that Joe Biden is partly to blame because he recently re-nominated Jay Powell, the current Chairman of the Fed. But, if that’s the case, then Donald Trump also is partly to blame – or even more to blame – because he nominated Powell in the first place.
Moreover, as illustrated by this chart, the Fed’s mistake that led to rising prices occurred in early 2020.
Simply stated, the Fed pumped lots of liquidity into the system. That set the stage for today’s price increases (as Milton Friedman told us, there’s always a lag between decisions about monetary policy and changes in prices).
If you look closely, you’ll notice that this massive monetary intervention began nearly one year before Biden took office.
In other words, Biden would have been just like Trump. At least on this issue.
But none of that changes the fact that Biden’s actions since becoming president have very little to do with today’s price increases.
Let’s close with a few additional observations about the aforementioned polling results.
The folks at NBC deserve some criticism for failing to give people the option of choosing the Federal Reserve’s monetary policy. I’m guessing this was because of ignorance rather than bias.
The people who blamed “corporations increasing prices” obviously didn’t pay attention in their economics classes. Rising prices are a symptom of inflation, not the cause.
The people who blamed Putin for inflation are even more ignorant. At the risk of stating the obvious, a Russian invasion in February of 2022 obviously wasn’t responsible for rising prices in 2021.
P.S. The inflation-recession cycle caused by bad monetary policy could be avoided if the Fed was constrained by some simple rules.
The first place to start is the Federal Register, which is Uncle Sam’s official site for new rules.
Though it gives us conflicting information. The number of pages (a crude measure of regulatory zeal, as I noted a few years ago) actually decreased during Biden’s first year. But only compared to Trump’s last year.
To understand what’s really going on, let’s look at the Forbesarticle from which the above table was taken.
Clyde Wayne Crews of the Competitive Enterprise Institute sifts through the data and concludes that Biden is a fan of expanded red tape.
The Federal Register is the daily depository of rules and regulations produced by hundreds of federal departments and agencies. …Under Biden, the regulatory establishment has its Hall Pass back, and it shows. The Federal Register page count ended the year with 74,532 pages. …The 2020 count under Trump was far higher, at 86,356. There had been “only” 61,308 pages back in Trump’s first year of 2017, which had been the lowest count in a quarter-century… Trump’s first year represented a 35 percent drop… But Trump’s final year made him number two… How come? Well, …removing rules that ought not have been written in the first place still requires writing new rules to do it. …So, paradoxically, any concerted Trump moves on “one-in, two-out” in service of deregulating and removing that which came decades before required fattening the Register to some extent. …Despite Biden’s lower Federal Register page count, we’re nonetheless back in the mode of not just unapologetically but combatively fattening the Federal Register. …several hundred of Trumps rules had been deemed “deregulatory” for purposes of his one-in, two-out program… Biden’s revivalist counts are embedded with no such purpose… Trump definitely left a mark. Biden is working on erasing it.
Incidentally, I don’t think regulatory experts from the left would disagree with the above assessment.
For instance, Brookings has a regulatory tracker that monitors what’s been happening since Biden took office and you will not find any evidence that the current administration is interested in limiting or reducing red tape.
Let’s wrap up by looking at a specific example of Biden’s regulatory excess. It’s about domestic energy production, which is a very timely issue given what is happening in Ukraine.
Ben Cahill of the Center for Strategic and International Studies summarized some of what Biden did to hinder America’s ability to produce energy.
President Joe Biden has followed through on a campaign pledge by introducing a moratorium on new oil and gas leasing on federal lands and waters. With nearly 25 percent of U.S. oil and gas production coming from federal lands, the policy shift may have significant implications for future investment and production. …This pause will not affect existing operations or permits for existing leases, and private lands will not be affected. …A more permanent leasing ban would have a significant impact, although visible offshore production declines may not materialize for up to 10 years, given the typical timeframe for planning, exploration, appraisal, and development. Onshore production declines could conceivably show up faster.
As you can see, the main damage is to future energy production rather than current energy production.
Needless to say, the same is true about the Biden Administration’s limitations on energy exploration and development in Alaska.
And don’t forget about pipelines (and geopolitics!), as mentioned in this column by Kevin Williamson for National Review.
The Biden administration already is reaching out to Caracas, where officials describe the initial conversation as “cordial” and “respectful.” I’ll bet it is. And Maduro’s isn’t the only tyrannical tuchus that requires kissing: President Joe Biden is said to be planning a personal trip to Riyadh to beg Crown Prince Mohammed bin Salman to ramp up Saudi production. …Right about now, President Biden must be wishing he had an extra pipeline to Canada. The thought has occurred to Alberta premier Jason Kenney, who observes about Keystone XL: “If President Biden had not vetoed that project, it would be done later this year — 840,000 barrels of democratic energy that could have displaced the 600,000 plus barrels of Russian conflict oil that’s filled with the blood of Ukrainians.” …We could spare ourselves some of these calculations by maximizing our own output — not only of crude oil and natural gas but also of refined-petroleum products. That would also mean building the necessary pipeline infrastructure and reforming our antiquated maritime regulations to enable the transportation of those fuels.
The bottom line is that the Biden Administration wants more regulation and red tape.
Especially when bureaucrats at the regulatory agencies ignore cost-benefit analysis (or put their thumbs on the scale to get a result that matches their ideological preferences).
And, in the case of energy, regulatory policy can have significant geopolitical implications as well.
P.S. You can click here to learn something about Obama’s record on the issue, and click here to learn a bit about Trump’s track record as well.
First, his so-called stimulus was approved last year, adding $1.9 trillion to the nation’s fiscal burden. The president and his team claimed it would lead to four million additional jobs, but the net result was a drop in employment compared to the White House’s own projections.
Regarding the third item, the president so far has not been able to convince all Democratic senators to support the scheme. And with the Senate evenly split between the two parties, Biden needs all of their votes to get his plan approved.
The most important part of the statement is that bigger government would “reduce the number of people working, badly misallocate capital, and hobble economic growth.”
Based on research from the Congressional Budget Office, the damage would be enormous, reducing worker compensation by $1.6 trillion over the next ten years.
What about the other issues mentioned in the statement, such as debt and inflation?
It’s not good that debt goes up, of course, but that’s a symptom of the bigger problem, which is government consuming a greater share of the nation’s output.
Also, at the risk of being annoyingly pedantic, I don’t actually think Biden’s budget would increase inflation. That only happens if the Federal Reserve adopts bad monetary policy.
That being said, central banks are more likely to adopt bad monetary policy when politicians are following bad fiscal policy. So the core assertion is correct.
P.S. I don’t know whether to characterize this as absurd, pathetic, addled, or dishonest, but Joe Biden actually claimed his budget plan has zero cost.
But what if we’re looking at one country rather than several nations?
In the case of the United States, it is useful to peruse data on GDP and consumption, but I’m also a big fan of using the Census Bureau’s data on inflation-adjusted median household income (though even this data isn’t perfect because household sizes are declining over time).
These numbers allow us to gauge, over multi-year periods, whether government policies are making life better for average families. Or whether they are producing stagnation.
But what if we don’t have several years of data?
That’s a very relevant question since we’re in the midst of my series on Bidenomics.
The president has only been in office for a little over one year, so we don’t even have medium-run data, much less long-run data. Moreover, I’m always cautious about using data for just one month, one quarter, or one year. After all, you don’t know if something is a real trend, or just a statistical blip.
That being said, if we want to give a preliminary grade to Biden’s economic performance, the best data would be inflation-adjusted earnings.
On this basis, Joe Biden is doing a bad job. Here’s Chart 1 from the Bureau of Labor Statistics’ report on what happened to hourly earnings in 2021, adjusted for inflation.
At the risk of stating the obvious, it’s not good news if most of the bars are in negative territory. I’ve also highlighted (in red) the key takeaways for the year.
Sophisticated observers will point out that hourly earnings are only one piece of the compensation puzzle.
So I then went to the Bureau of Labor Statistics’ report that also includes fringe benefits.
And if you look at Chart 4, which measures compensation after adjusting for inflation, you’ll notice very depressing data for 2021.
Now that we’ve looked at some grim data, let’s contemplate whether Joe Biden deserves blame.
The answer is probably yes, but I’ll share five caveats.
First, it’s just one year of data, so always be wary of statistical blips (maybe inflation is just transitory).
Second, only a few Biden policies have actually been enacted (though I’m not a fan of his biggest achievement).
Third, those policies may not have been in place long enough to have a meaningful effect on the economy.
Fifth, bad news in 2021 could merely be a continuation of a preexisting trend, in which case Trump maybe deserves blame.
Regarding the final point, notice in Chart 4 that the data was heading south at the end of 2020, when Trump was still in the White House.
Was that merely a statistical blip? If not, were the numbers bad because of something Trump did, or were they related to the pandemic? Or perhaps the bad numbers at the end of 2020 were related to investors and entrepreneurs fearing a future Biden agenda?
The bottom line is that we should ignore partisan labels and instead focus on policy. If government is becoming a bigger burden, then we can expect slower growth.
As such, it is very reasonable to think that 2021’s bad data is – at least in part – a consequence of Biden’s dirigiste policy agenda.
In Part I of this series, I pointed out that Biden’s plethora of proposed handouts and subsidies would lead to higher prices and more inefficiency. And in Part II, I explained that his discussion of inflation was embarrassingly inaccurate.
In today’s column, we’re going to analyze his strident support for protectionist “Buy America” provisions, which drive up costs for taxpayers by making it harder for foreign firms to compete for government contracts and thus give American firms the ability to charge higher prices.
How much of a burden are these policies? How much more are taxpayers having to pay because governments can’t opt for the lowest qualified bidder?
According to research shared by the Peterson Institute for International Economics (PIIE), American taxpayers lose $94 billion per year.
The good news (if we have a very generous definition of “good”) is that procurement protectionism “only” pushes up costs in the United States by 5.6 percent.
Our dirigiste friends in the European Union suffer much more. Their procurement protectionism results in average markups of 17.6 percent, costing European taxpayers a staggering $471 billion.
But taxpayers are not the only losers.
In a 2017 study for PIIE, Gary Hufbauer and Euijin Jung explain that nations also lose exports because of procurement protectionism.
Buy American provisions are often enacted because politicians associate the patriotic slogan with the creation of domestic jobs. In fact, these laws are counterproductive: They are costly for taxpayers, they curtail exports, and they lose more jobs than they create. “Buy American” was bad policy in 1930 and does even more harm today. …Buy American dulls competition for everything that federal, state, and local governments purchase. Consequently, taxpayers pay inflated prices for new infrastructure, the latest information technology, and routine maintenance of subways, bridges, and airports. …Quantification is difficult, but the major federal Buy American laws probably equate to tariff equivalent barriers of at least 25 percent on federal purchases. State laws vary in scope and protective degree, but on average they probably entail at least 10 percent tariff equivalent barriers. …When Buy American policies are championed at home they are emulated abroad—in the form of Buy European, Buy Mexican, Buy Japanese, and other local content laws and policies. Consequently, US goods and services face severe barriers in foreign procurement markets. …US exports could expand by $189 billion annually if OECD countries all repealed their existing local content laws.
The Heritage Foundation’s Tori Smith authored a report when Trump was pushing his version of procurement protectionism. Here’s some of what she wrote.
Domestic content requirements, like those found in the Buy American Act, the Berry Amendment, and various other laws, result in additional regulatory burdens for producers, and increase costs for American taxpayers. All for little or no gain: The policies are unlikely to stimulate job growth in target industries. …Existing laws and provisions regarding domestic content requirements…are extremely onerous and complicated burdens. They have three main effects: (1) creating additional regulatory hurdles for producers; (2) costing American taxpayers more than they would otherwise pay for government projects; and (3) they are unlikely to yield job growth in target industries like the steel sector.
Here are the most important passages from her report.
…to eliminate all existing domestic content requirements….would create hundreds of thousands of American jobs across the country and contribute billions of dollars to U.S. gross domestic product.
And this chart shows how various states would benefit if there was open competition for government procurement.
I’ll close with three additional points.
First, it’s disappointing that Biden is continuingTrump’s protectionist policies. It’s even more disappointing that he wants to expand upon them. This is one area where people thought Biden might move policy in the right direction.
For some historical perspective on the failure of the Trump-Biden approach, the National Taxpayers Union helpfully shared the views of Harry Truman and Dwight Eisenhower.
Second, some national security experts make a very reasonable argument that the Pentagon should not make itself dependent on purchases from nations such as China.
But this is at most an argument for “Buy from Allied Nations,” not an argument for “Buy America.”
Third, Biden is perversely consistent. Everything he is doing will increase costs for taxpayers and consumers in order to bestow undeserved benefits on special-interest groups.
P.S. The argument for competition in the market for government procurement is the same as the general argument for free trade. And since we’re on the topic of trade, remember that dollars sent overseas as part of a procurement contract will come back to the United States, either to purchase American exports or as part of investment in the U.S. economy.
That’s not a smart strategy when inflation already is at 40-year highs.
President Biden did address the topic of rising prices during his speech, but his approach was so incoherent that even Larry Summers (Treasury Secretary for Bill Clinton and head of the National Economic Council for Barack Obama) felt compelled to share some critical tweets.
This is remarkable. I’ve spent the past three decades fighting against some of Summers’ bad ideas on fiscal policy (he was a big supporter of the OECD’s anti-tax competition project, for instance).
But now we’re sort of on the same side (at least on a few issues) because Biden has embraced a reckless Bernie Sanders-type agenda of budget profligacy, class-warfare taxes, regulatory excess, and crass protectionism that is too extreme for sane people on the left.
Along with a head-in-the-sand view of monetary policy.
In a column for Canada’s Fraser Institute, Robert O’Quinn and I addressed Biden’s strange comments on inflation.
Here’s some of what we wrote on that topic.
After a disastrous first year pursuing an agenda that became increasingly unpopular, President Biden had an opportunity to reset his administration in a centrist direction as part of his first State of the Union Address. But he didn’t. On every domestic issue, he catered to the Democratic Party’s hardcore left-wing activists… Inflation, as Nobel laureate Milton Friedman observed, is always and everywhere a monetary phenomenon. …In his speech, Biden ignored the true cause of inflation. Instead, he offered a grab bag of statist ideas such as aggressive antitrust enforcement, price controls on prescription drugs, and tax credits for energy conservation and green energy—policies that, whatever their merits, have little or nothing to do with inflation.
Our basic message is that Biden ignored the real cause of inflation (bad monetary policy by the Federal Reserve) and instead came up with ideas (either bad or irrelevant) to addresses the symptom(s) of inflation.
We also noted that Biden’s nominees to the Federal Reserve are underwhelming.
Moreover, he has been pushing three controversial nominees to the Federal Reserve Board—Sarah Bloom Raskin, Lisa Cook and Philip Jefferson—who lack monetary expertise and are generally regarded as inflation doves. Raskin’s primary “qualification” is her support for using the Fed’s regulatory powers to divert credit away from oil and natural gas production. Cook and Jefferson have primarily written about poverty and race, which are outside of the Fed’s legislative mandate.
Instead, we have a president who thinks it’s a place where left-leaning activists should get patronage appointments.
P.S. If you have the time and interest, here’s an 40-minute video explaining the Federal Reserve’s track record of bad monetary policy.
P.P.S. If you’re constrained for time, I recommend this five-minute video on alternatives to the Federal Reserve and this six-minute video on how people can protect themselves from bad monetary policy.
He’s bad on the issues where Trump wasbad (spending and trade).
He’s bad on the issues where Trump was good (most notably, taxes).
And he’s bad on the issues where Trump had a mixedrecord (regulation).
Based on his track record as a long-time Senator, none of this is a surprise. According to vote ratings from the Club for Growth and National Taxpayers Union, Biden was to the left of even Crazy Bernie.
Unfortunately, a bad president (anyone remember Nixon?) can do a lot more damage than a bad senator.
Today is Part I of a series of columns analyzing Biden’s failure.
We’ll start with his so-called Build Back Better plan. Joe Biden didn’t explicitly mention “BBB” is his State of the Union address, but he did promote almost all of the specific policies that are in that plan.
And he even made the preposterous argument that some of those policies would help bring inflation under control.
I’ve repeatedlyexplained why the president’s plan for a bigger welfare state is bad news, but this tweet from Americans for Prosperity’s Akash Chougule does a great job of debunking Biden’s argument in a very succinct fashion.
In areas where the free market operates, by contrast, prices actually tend to decline.
I’ll close with the observation that Biden’s Build Back Better is a clunky amalgamation of new and expanded entitlements. His per-child handout is the most expensive, and it’s especially pernicious because it would undo the success of Bill Clinton (and Newt Gingrich’s) welfare reform.
But if there was a prize for the most economic damage per dollar spent, Biden’s scheme for government-dictated childcare would be the worst of the worst since he subsidizes demand while also restricting supply. If it gets approved, the chart may need a new vertical axis because Biden will screw up the market for childcare even more than the government has screwed up the markets for health care and higher education.
But I acted as a pundit in this interview about Joe Biden’s waning popularity (in my defense, I also used the opportunity to slip is some criticism of his agenda).
My assertions about Biden pushing a hard-left agenda aren’t new.
And, for what it’s worth, I don’t think my comments about Biden’s leftist ideology are controversial. Not even back in 2020.
For instance, here’s the headline from a Voxcolumn that year by Matt Yglesias.
And here’s a headline from a column that same year by Michael Kazin in the New York Times.
Both of those columns said the same thing – namely, that Biden had embraced a leftist agenda (and both authors were very happy about that development).
I also would direct people to this 2019 Washington Postcolumn by Lane Kenworthy, which observes (with approval) that Democrats have moved to the left.
If you want even more evidence, this analysis from 538 also makes the same point.
And a report from Pew notes that there’s a much bigger gap now between Republicans and Democrats – and it’s almost entirely because the median Democrat is now much farther to the left.
There’s one other point from my RT interview that’s worth highlighting.
I mentioned that we’ve had a strange realignment in the United States. Many rich people have moved to the left while lots of low-income people have moved to the right.
Maybe that’s part of the answer, but I mentioned in the discussion that social and cultural issues are probably the main reason.
In other words, wokeness may be the big dividing line nowadays in American politics – which is not exactly good news for libertarians who want the focus to be statism vs. liberty.
P.P.S. I don’t like the idea of government-financed media, but my philosophical objections haven’t prevented me from appearing on PBS, BBC, and France 24, so I figured it was okay to also appear on Russia Today.
And they are especially incompetent when they make forecasts based on bad policy, such as when the Obama White House projected that his so-called stimulus would quickly lead to falling unemployment.
In reality, the jobless rate immediately increased and then remained much higher than projected for the remainder of the five-year forecast.
But Joe Biden must have slept through that lesson because his first big move after taking office was to saddle the nation with a $1.9 trillion “stimulus” package.
The White House claimed this orgy of new spending would lead to four million additional jobs in 2021, on top of the six million new jobs that already were expected.
So what happened? Matt Weidinger of the American Enterprise Institute looked at the final numbers for 2021 and discovered that employment actually fell compared to pre-stimulus baseline projection.
The nonpartisan Congressional Budget Office projected on February 1, 2021…a gain of 6.252 million jobs over…2021…we now know payroll employment in the fourth quarter of 2021 averaged 148.735 million — an increase of 6.116 million compared with the average of 142.619 million in the fourth quarter of 2020. That means the job growth the President praised this week has fallen 136,000 jobs short of what was expected under the policies he inherited. …President Biden and congressional Democrats promised their $1.9 trillion American Rescue Plan would create millions of additional new jobs this year — on top of what White House economists called the “dire” baseline of 6.252 million new jobs reflected in CBO’s projection without that enormous legislation. …House Speaker Nancy Pelosi (D-CA) repeated that claim, stating that “if we do not enact this package, the results could be catastrophic,” including “4 million fewer jobs.” Yet…not one of those four million additional jobs supposedly resulting from that $1.9 trillion spending plan has appeared, as job creation in 2021 did not even match CBO’s projection without that legislation.
Below you’ll see the chart that accompanied the article.
As you can see, the White House projected more than 10 million new jobs (right bar).
Yet we would up with 6.1 million new jobs (left bar), about 140,000 less than we were projected to get (center bar) without wasting $1.9 trillion.
If pressed, I’m sure the Biden Administration would use the same excuse that we got from the Obama White House (and from the Congressional Budget Office), which is that the initial forecast was wrong and that the so-called stimulus did create jobs.
In other words, the Biden economists now would say they should have projected 2 million new jobs, which means that the $1.9 trillion spending spree added 4 million jobs, for a net increase of 6 million.
It’s an annual tradition (2021, 2020, 2019, 2018, etc) to list a handful of things that I hope might happen in the upcoming year, as well as the things I fear may happen.
Sadly, since I understand the economics of “public choice” (something Thomas Jefferson also implicitly understood) it’s always easier to envision the latter category.
But it’s good to begin a new year with optimism, so here are the good things that hopefully will happen in 2022.
Biden’s So-Called Build Back Better Stays Dead – The President squandered money on a fake stimulus and an infrastructure boondoggle, but we dodged the biggest bullet when Democrats couldn’t get all 50 of their Senators to support a multi-trillion dollar, growth-sapping expansion in taxes and spending.
The Supreme Court Ends Civil Asset Forfeiture – This was on my list last year, but the odious practice of “theft by government” continues. That being said, I still think it won’t survive if the Supreme Court has a chance to make a ruling (especially since America’s best Justice is very aware of the problem).
Republicans Win Congress in 2022 – I don’t have much faith in Republicans to do the right thing (especially when a Republican is in the White House), but I hope they win the House and Senate in November because they will oppose big tax increases while Democrats control the White House – even if only for partisan reasons.
Now let’s shift to the bad things that I fear will happen over the next 365 days.
Biden’s BBB Budget Plan Springs Back to Life – The President’s “Build Back Better” plan may be on life support, but sadly it’s not quite dead. I fear a scaled-down (but still horrible) version of the legislation may get approved this year. Senator Manchin of West Virginia, for instance, says he is willing to support a $1.5 trillion package and I fear the left eventually will decide that 50 percent of a (moldy and weevil-ridden) loaf is better than none.
Biden’s Remains a Protectionist – I hoped last year that Biden would reduce government trade taxes. Not because he believes in economic liberty, but simply because he wouldn’t want to continue a Trump-era policy. But that didn’t happen, and I now fear he’ll continue with protectionism in 2022. I don’t even have much hope that he’ll resuscitate the World Trade Organization.
New Tax Cartels – One of last year’s big defeats was the creation of a global tax cartel by governments. Barring some sort of miracle that prevents implementation, greedy politicians have set up a system that will require all nations to have a minimum corporate tax of 15 percent. That’s very bad news for workers, consumers, and shareholders, but I’m even more worried about the precedent it creates for additional tax cartels and ever-higher tax rates.
Now let’s look at the three worst policy developments of 2021.
Biden’s Fake Stimulus and Infrastructure Boondoggle – Even though the so-called Build Back Better plan failed to advance, President Biden was able to significantly increase the burden of government spending with a supposed stimulus plan early in the year, followed by a grab-bag of special-interest handouts as part of “infrastructure” legislation later in the year.
Well, that victory was short-lived, as captured by this headline from a Reason article.
For what it’s worth, I suspect this bit of bad news will be followed by some bad news on a related issue.
P.S. I thought about including inflation as one of the bad things that happened in 2021, but I think that’s the results of years of misguided monetary policy. Politicians from both parties seem perfectly happy with Keynesian policy from the Federal Reserve.
For today’s column, let’s zoom out and look at two charts that highlight the big issue that should be getting more attention.
First, here’s a comparison of projected inflation with baseline spending (the current spending outlook) and Biden’s budget – all based on economic and fiscal estimates from the Congressional Budget Office.
As you can see, spending was growing far too fast even without Biden’s budget. And if Biden’s budget is enacted, the spending burden will rise more than twice the rate of inflation.
Now let’s look at a chart that illustrates why Biden’s spending spree is just a small part of the problem.
To be sure, it’s not good that the President is exacerbating America’s fiscal problems, but you can see that he’s simply adding a few more straws to the camel’s back.
And that spending burden is getting worse over time because spending is growing faster than the private sector, violating the Golden Rule, which is bad news for jobs and growth.
P.S. Biden’s plan will increase the deficit, which also is not good, but keep in mind that tax-financed spending is no better than debt-financed spending. In either case, you wind up with the same bad result.
P.P.S. This column has two serious visuals to help understand Biden’s fiscal policy. If you prefer satire, here are two other images.
But what’s really baffling is the use of accurate numbers to make dumb arguments.
What do I mean by that? Well, here’s a tweet from the Democratic Congressional Campaign Committee celebrating a 2¢-per-gallon reduction in gas prices over a two-week period.
There’s only one problem with this tidbit of data.
If you look at what’s happened to gas prices during Biden’s time in office, the recent 2¢ reduction is swamped by $1 increase over the past year.
Tim Carney of the Washington Examinerwrote about this strange episode.
The Democratic Congressional Campaign Committee has just produced and tweeted the worst chart of 2021. It is a line graph of gas prices with three data points covering a two-week time span. The absurd dishonesty comes when you look at the y-axis. Each horizontal line represents half of a cent. …Gas prices have nearly doubled over the past 18 months, and Biden’s allies are holding a parade for a less-than-1% drop over two weeks. Thanks, Joe Biden! …So, how did this horrible chart happen? It seems someone at the DCCC took seriously a joke made by liberal blogger Matt Yglesias. …Ron Klain, White House chief of staff (presumably not understanding the tweet was a joke), liked the tweet before the DCCC put it out sincerely.
This is the political equivalent of leading with your chin.
And it’s not the only example.
Here’s a retweet from the White House Chief of Staff, Ronald Klain, celebrating a very tiny improvement in the labor force participation rate.
In this case, there’s nothing disingenuous about the chart. We actually get to see several years of data.
But does this small uptick in the labor force participation rate actually mean that “America is back at work”?
Call me crazy, but it seems that the main takeaway from the chart is that the country is still way short of getting back to pre-pandemic levels of employment.
According to independent experts at the Committee for a Responsible Federal Budget, the actual cost of the president’s policies is closer to $4.9 trillion. Some of this new spending will be financed with red ink, but President Biden also has embraced higher tax rates on work, saving, investment and entrepreneurship. Indeed, if his plan were enacted, the United States would have both the highest corporate tax rate and the highest capital gains tax rate in the developed world. …But how much would the economy be hurt? There are groups such as the Tax Foundation that do excellent work measuring the adverse effects of higher tax rates. But it’s also important to measure the harmful impact of a bigger welfare state. …Based on that CBO study, and using the CBO fiscal and economic baselines, we calculated the following unpalatable outcomes if Build Back Better bill (pushed by the president and Democrats in Congress) becomes law and growth is reduced by 2/10ths of 1 per cent per year.
And here are the results.
The good news is that the latest version of Biden’s plan doesn’t do quite as much damage as what was being discussed earlier this year.
The bad news is that our economy will be much weaker (and our results are in line with other estimates, including those done before the election and since the election).
For purposes of today’s column, though, I want to focus more on the politics of trade rather than the economics of trade.
That’s because Trump and Biden are basically the Bobbsey Twins of protectionism.
In his New York Timescolumn, Binyamin Appelbaum explains why Trump’s China tariffs backfired.
I obviously agree, but Appelbaum only mentions in passing that Biden has not done much to reverse that policy.
Tariffs on imports from China have refilled the employee parking lot at Stoughton Trailers in Evansville, Wis. …the rest of us are paying for those jobs. The tariffs have contributed to a shortage of chassis in the middle of an import boom, one reason that American ports are gridlocked. Tariffs also drive up prices. American chassis are beginning to roll off production lines, but they cost more than pretariff Chinese chassis, which raises the price of everything that travels by chassis. …the government has decided to limit competition, a lazy approach that is both expensive and counterproductive. Taxing imports from China gives the appearance of punishing China, but the cost of the tariffs is paid by Americans. …Mr. Biden should make a clean break with Mr. Trump’s destructive tariffs. The right recipe is simple…, maintain an environment in which companies can flourish, ensure workers reap the benefits.
To make matters worse, Biden is also imposing new trade taxes on American consumers and businesses.
The Wall Street Journalopined today on Biden’s latest protectionist initiative.
President Biden says he feels your pain regarding inflation… Too bad his Administration’s policies reveal different priorities. Witness the Commerce Department’s decision to raise tariffs on lumber, which will raise building costs in an already strained housing market. The Commerce Department said last week that it will double the average tariff on Canadian softwood lumber to 17.9% from 8.99%. …There’s rarely a good time for trade restrictions, but the timing of this one is tragicomical. The same month Commerce revealed its tariff plan, lumber hit a record price of $1,650 per thousand board-feet, more than three times the level before pandemic supply shortages began. …The Biden Administration’s tariff resumes the U.S.-Canada lumber war where President Trump left off. …President Biden campaigned against his predecessor’s tariffs, but his trade policy in office has been nearly as protectionist. He’s kept most tariffs in place.
Kept most in place…and now adding more.
This is very sad, particularly since I had hoped that was one area where Biden might actually move policy in the right direction.
But I hoped he would do the right thing simply to show he differed from Trump. Those hopes have been dashed.
P.S. If you want more reasons to be concerned, Biden also hasn’t done much to resuscitate the World Trade Organization and he isn’t pushing back on his party’s embrace of carbon protectionism.
This is bad news for our economy, as measured by my recent study (with similar findings from a wide range of academics – as well as normally left-leaning bureaucracies such as the IMF, World Bank, and OECD).
For purposes of today’s column, let’s put America’s fiscal decline in global context.
Here are some excerpts from a very depressing article in the Economist, starting with some discussion of how Biden’s spending binge is similar to the mistakes made by other nations.
President Joe Biden is building on what started as emergency pandemic-related policy, expanding the child-tax credit, creating a universal federally funded child-care system, subsidising paid family leave and expanding Obamacare. America’s government spending remains somewhat below the developed-world average. But this change is not just a matter of catching up; the target is moving. Government spending as a share of gdp in the oecd as a whole has consistently inched higher in the six decades since the club was formed in 1961.
There’s then some discussion about how a few nations – most notably Sweden and New Zealand – enjoyed period of genuine spending restraint, but accompanied by depressing observations about how fiscal responsibility is very rare.
Examples of genuine state retrenchment in developed countries are few and far between. Sweden managed it in the 1980s. In the early 1990s Ruth Richardson, then New Zealand’s finance minister, cut the size of the state drastically. …State spending is now six percentage points lower as a share of gdp than it was in 1990. But this is a rare achievement, and perhaps one doomed to pass. …This is a sorry state of affairs if you believe that low taxes and small government are the right, and possibly the only, conditions for reliable, enduring economic growth. …an argument made by Friedrich Hayek, an Austrian philosopher, Milton Friedman, an American economist, and others in the mid-20th century.
From 1274 to 1691 the English government raised less than 2% of gdp in tax. …In the 1870s the governments of rich countries were spending about 10% of gdp. In 1920 it was nearer 20%. It has been growing ever since (see chart 2).
Here’s the aforementioned chart 2, and there are a lot of depressing numbers, though notice how Switzerland does better than other nations.
Governments have not grown more powerful by all measures. Bureaucrats no longer, as a rule, set wages or prices, nor impose strict currency controls, as many did in the 1960s or 1970s. In recent decades the public sector has raised hundreds of billions of dollars from privatisations of state assets such as mines and telecoms networks. If you find it faintly amusing to hear that, from 1948 to 1984, the British state ran its own chain of hotels, that is because the “neoliberal” outlook on the proper place of government has triumphed.
Last but not least, there’s some discussion of “public choice,” which explains why politicians and bureaucrats have incentives to expand the size and scope of government.
Governments and bureaucrats are at least partly self-interested: “public-choice theory” says that unrestrained bureaucracies will defend their turf and seek to expand it. …Politicians have their own incentives to expand the state. It is generally more rewarding for a politician to introduce a new programme than it is to close an old one down; costs are spread across all taxpayers while benefits tend to be concentrated, thus eliciting gratitude from interest groups
I can only imagine the nursery rhymes he’ll hear in that setting.
She then enrolls him in a “free” pre-K program, presumably unaware that such programs have no evidence of success (but at least Biden will be happy that this program creates more unionized teachers to fight against quality education).
After college, he gets a job, which is nominally in the private sector, but which largely exists because of government distortions (all jobs are not created equal).
Last but not least, Linda gets to rely on taxpayers in her old age, thanks to other programs that are designed to produce additional overpaid government employees.
Let’s close this depressing celebration of dependency by shifting to humor.
Here’s a tweet about Biden’s people plagiarizing Obama’s people.
International Liberty 