Here are some numbers to dissect. The United States economy is worth approximately $22 trillion. The national debt is north of $28 trillion. The federal deficit stands at a record $1.9 trillion in the first seven months of the fiscal year. So, it might have frustrated accountants to learn that President Joe Biden proposes trillions of dollars more in new spending, in addition to what is already on the books. The administration might have uncovered the greatest finding in history: A magical money tree planted on the White House lawn.
What’s a Few Trillion Between Friends?
President Biden will pursue as much as $6 trillion in new federal spending for the 2022 fiscal year, increasing to more than $8 trillion by 2031. His budget, which is the first full one since taking office in January, includes raising taxes on corporations and high-income households. The Oval Office forecasts that budget deficits would begin to wind down in the 2030s, long after Biden is gone.
The proposal reveals that the funding will go toward his two-part infrastructure project: the American Jobs Plan and the American Families Plan. These proposals go beyond roads and highways as they include subsidized child care, two years of free community college, free universal pre-K, and climate change investments. In addition, other funding will be designated for Medicare, Medicaid, Social Security, and Defense – the programs that eat up a great chunk of the annual budget.
Biden’s budget also forecasts that inflation will top out at 2.3% annually over the next decade. This suggests that the White House agrees with the Federal Reserve that inflation will be nothing more than a blip on the radar and that concerns of runaway inflation are overblown.
Since the Democrats possess slim majorities in both the House and Senate this year, the president has a decent chance of having these enormous spending requests approved. Meanwhile, Republicans are warning about a double whammy of rising inflation and higher taxes, with Rep. Kevin Brady (R-TX) saying in a statement that “President Biden’s budget blunder sets us up for an even worse economic recovery than the Obama-Biden record of the slowest in history.”
So, is this an investment in America’s tomorrow, or even more costly expenditures that will weigh on cash-strapped taxpayers and penalize future generations?
Will US Deficits Have Consequences?
A decade ago, the $1.3 trillion budget shortfall seemed like the good old days compared to what lies ahead for Uncle Sam’s balance sheet and pockets. Instead, the United States is in for a level of spending unseen since the Second World War. Typically, presidents put together a wish list budget and a practical alternative. Many of the policies emanating from the Oval Office or the chambers do not appear pragmatic.
Biden and his team will inevitably try to market this plan in a number of ways: discuss how it will build America back better, argue that only the wealthy will pay for it, and promise that the deficits will certainly be wiped out by the next decade. But are these reasonable ideas?
“Build back better” has been the slogan for both Biden and his counterparts in the aftermath of the coronavirus pandemic, choosing to hit the great reset button to accomplish progressive objectives. In the short term, perhaps offering free child care and free tuition will provide a jolt to the broader economy. However, as borrowing costs rise and bubbles begin to deflate, the bills will need to be paid. Remember, the U.S. is still trying to pay for all the egregious outlays since the last recession.
So far, the administration has vowed that higher corporate tax rates and an increase in the capital gains tax will serve as panaceas to the sky-high price tag. On the surface, it looks like the wealthy are footing the bill (the top 5% pay almost all the nation’s taxes). However, once that same plane is shattered, the unintended consequences are uncovered, such as capital fleeing the country or the higher tax rates being passed onto the consumer in the form of stealth inflation.
During the 2020 electoral contest, neither former President Donald Trump nor Biden had discussed mechanisms to take an ax to the deficit. Both political parties will make some allusion to the ballooning debt and deficits, but little ever gets done. Pledging to eliminate the budget holes in a decade when nobody will remember, a new crisis forms, and the people in charge today are long gone is now a political art form for presidents.
It is averred that good marketing makes the company look smart, while great marketing can make customers feel even smarter. And that is what the Biden camp will need to accomplish in the months ahead: A superb marketing machine to convince a fiscally weary public that spending $6 trillion on top of the $4 trillion that the government already consumes is a strategy for prosperity.
The Biden Shock
This summer, the U.S. will be celebrating the 50th anniversary of the Nixon Shock, former President Richard Nixon’s economic policy shift that transformed the nation’s fabric, combined with officially abandoning gold and imposing price and wage controls. Will the country suffer from the Biden Shock? It has only been a few months into Biden’s first term, and the economic results of Bidenomics have not exactly been celebratory. The labor market is still in shambles, America’s energy independence has come into question, and inflation is running hot. With trillions more in spending coming onto the books, most of which will likely be monetized by the Federal Reserve, the fiscal cliff inches ever closer.
Read more from Andrew Moran.