On Wednesday, President Joe Biden announced his massive new infrastructure plan—his latest effort to expand government influence over our economy, laying out a two-part spending spree that will grow our national debt, make us less competitive with other countries and likely lead to job losses among working-class Americans.
It’s hard to see how this plan, being marketed as the American Jobs Plan, helps an economy that is continuing to climb out of a COVID-induced hole, especially when it comes less than a month after Congress passed a $1.9 trillion spending bill that was not nearly as narrowly tailored as it should have been to help those most in need: the unemployed and those whose wages had been cut back.
And this is particularly striking because there is little evidence to suggest that past COVID bills worked efficiently, with the Congressional Budget Office (CBO) estimating that just 60% of last year’s $1,200 stimulus checks would generate economic activity. Meanwhile, a study on the spring 2020 stimulus by the National Bureau of Economics found more than 80% of stimulus beneficiaries either saved the money or used it to pay down debt—“with only about 15 percent reporting that they mostly spent it.”
Saving money and paying down debt are worthy pursuits, but they don’t indicate an immediate emergency—and they don’t boost economic growth. It’s better for Americans to earn more money in jobs today rather than living off future generations. From what we know of the new Biden plan so far, it appears a free-for-all grab bag of spending projects, far from serving those most severely hit by the pandemic.
As CNN reported, one part of the plan aims to invest in “domestic manufacturing, research and development, the care-giving economy, climate infrastructure and roads, bridges and rail” and a second part in “childcare, paid family leave, health care and education infrastructure.”
The White House says it wants to pay for the plan by hiking the corporate tax rate to 28% from the current 21%, increases in the global minimum tax, ending federal fossil fuel subsidies and adding a requirement that multinational corporations pay the U.S. tax rate. Yet experience shows that introducing new taxes kills job creation, right at a time when U.S. competitiveness is fragile—especially in the race with China.
A February analysis by the Tax Foundation found hiking the federal corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to 32.34 percent, making it the highest in the OECD and among Group of Seven (G7) countries. CBO has noted that raising corporate income taxes decreases workers’ wages and makes America less attractive compared to other countries. The Tax Foundation also estimated Biden’s hike would reduce long-run economic output by 0.8%, slash 159,000 jobs and cut overall wages by 0.7%.
But the worst part is that with the economic contraction the most vulnerable get the worst hit, with the Tax Foundation estimating “the bottom 20 percent of earners would on average see a 1.45 percent drop in after-tax income in the long run.” As I noted in December 2019 (just before the pandemic hit) the GOP-led tax cuts passed in 2017 and regulatory reform helped spur record job growth, household wealth and employment for Black Americans.
Even though Biden says he won’t raise taxes on people making less than $400,000, rich people can absorb the impact of a tax hike more than poor people. Biden’s just talking about the sticker price of paying personal income tax—he’s ignoring its other effects, such as job loss and the increase in consumer prices that hits poorer people harder.
For example, Biden’s climate policy would hit lower-income Americans the most. A 2014 Stanford study found “that it is ultimately people—not corporations—who would bear the costs of climate change regulation” as poorer households spend a higher share of their income on fuels for heating and transportation, “while higher income individuals spend proportionately a greater amount on services, which usually have lower than average carbon emissions per unit of output.”
A big piece of Biden’s package is infrastructure spending, and while some civil engineers are making the case for some new spending on that, the overall economic impacts of infrastructure spending is hotly debated by economists. Why make such drastic spending decisions right now—again with massive price tags, rather than a more laser-scoped focus on the poorest neighborhoods? Especially when COVID has made the US population map—and thus future infrastructure needs—in total flux—with Pew reporting that 16 states saw population decreases last year, with massive migration flows out of states like California, New York and Illinois and into states like Texas and Florida.
Bottom line: Biden’s new plan is an unfocused spending spree that needs major overhaul to help the most in need.