With a projected deficit of already $3 trillion for this year, congressional Democrats are moving full speed ahead to spend an additional $3.5 trillion over the next 10 years with no clear plan to pay for it.
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This spending spree is too large to be funded through tax increases. That means the federal government will have to finance it through deficit spending. This additional borrowing will just raise already soaring inflation rates and raise the tax burden on future generations.
Joe Biden has repeatedly said that he would fully repeal the 2017 tax law to pay for his spending plan, but that alone would not come close to paying for this level of spending. The entire 2017 tax cut cost just $1.456 trillion according to the Joint Committee on Taxation — that’s before taking into account the law’s positive economic effects that reduced its cost. Repealing the bill entirely would still leave Democrats over $2 trillion in the hole. And that doesn’t even take into account the crippling economic effects that higher corporate taxes would have on investment, productivity, and wages. At the end of the day, repealing the 2017 tax law wouldn’t even come close to bringing in the revenue needed to pay for this bill.
Democrats recognize the negative economic effects that a high corporate tax rate has on the economy, which is why President Biden is proposing “only” raising the corporate income tax rate to 28 percent and why House Democrats have proposed a 26.5 percent rate. While these proposals are better for the economy than returning the US to the uncompetitive days of a 35 percent tax rate, it still raises less money.
Some House Democrats are also demanding that the spending package repeal the 2017 tax law’s $10,000 cap on the State and Local Tax (SALT) deduction. This repeal would cost the federal government $700 billion over the next 10 years and would benefit mostly high income earners. It increases the price tag of the reconciliation bill, necessitating more tax hikes or deficit spending, for a huge tax subsidy to the rich.
New taxes on the rich could pay for this reconciliation bill, right? Wrong. Take President Biden’s proposal to tax carried interest as ordinary income as an example. According to the Tax Foundation, this proposal would only raise $7.4 billion over 10 years — that’s less than a quarter of one percent of the revenue needed to pay for the $3.5 trillion package, and it carries with it negative economic consequences of raising the cost of investment and distorting financial markets.
The math does not lie: The Democrats’ spending bill won’t be fully funded. It’ll increase the federal deficit, possibly by trillions of dollars. With inflation rising already, all this spending will do is add fuel to the fire of already high inflationary pressures.
This package means that the value of Americans’ wages will decrease over the long run because it will cause inflation and interest rates to rise. And it’ll be middle-class Americans who feel the negative effects of this deficit spending most keenly.
Increased deficit spending, especially to this extent, just speeds up the timeline of these programs becoming insolvent and America moving closer towards a major debt crisis. Major reform is already needed for these programs to survive, and spending sprees like this package just move their death date forward.
An additional consequence that should scare lawmakers away from supporting this bill is the impact it will have on our children. This package in tandem with the bipartisan infrastructure bill would increase federal debt per U.S. household from $179,000 today to $288,000 by 2031.
Lawmakers who support this bill are marching children and future generations into further debt
and economic despair. Whether it be through job-killing tax hikes, or through slower economic growth resulting from increased borrowing and less private investment, our children will pay for this bill. It’s a total loss for our nation’s future.
America needs major budget reform, not another underfunded multi-trillion-dollar spending bill that puts major burdens on Americans and future generations. During the pandemic, Congress passed multiple trillion-dollar bills to help keep the economy afloat. With the economy recovering, America does not need another one.
Image by Here and now, unfortunately, ends my journey on Pixabay from Pixabay. Article cross-posted from AIER.