“Outside experts have estimated that as much as $75 billion should be spent over 10 years on public health infrastructure, preparedness, and prevention.
The revised Build Back Better legislation totals roughly $10 billion in public health infrastructure and pandemic preparedness funding over the next few years — a down payment on better readiness, in Democrats’ view, but one without assurance of future installations.
“All too often, when there’s a crisis, the reaction is to put money into public health. Once the crisis subsides, the funding tends to dry up,” Ron Bialek, president of the Public Health Foundation, told me. “This is not a recipe for success.””
“The larger spending package would increase government debt at a faster rate, which would increase the amount the government has to pay in interest. In the $3.5 trillion scenario, higher levels of spending and higher amounts of government debt “crowds out investment in productive private capital. Less private capital leads to lower wages as workers become less well-equipped to do their jobs effectively,” the report states.
Now, the PWBM has completed an analysis of the $1.5 trillion framework that Manchin reportedly offered as an alternative. In order to do the estimate, PWBM analysts assumed that Manchin’s proposal would increase spending by about $540 billion for means-tested childcare programs, like universal pre-K; $439 billion for a five-year extension of the expanded Child Tax Credit; $260 billion for public infrastructure; and $260 billion for other assorted government spending.
That’s still a lot of money, and there are still some negative long-term consequences—but the most important part of Manchin’s proposal is that it does not require additional borrowing, and relies on smaller tax increases than what President Joe Biden has proposed. As a result, government debt would actually fall slightly over the next 30 years. The tax increases would reduce private capital by less than 1 percent by 2050—as opposed to the 6.1 percent drop that would come with the passage of the larger reconciliation package. Wages and national GDP would remain flat under the $1.5 trillion plan, instead of the projected decline under the $3.5 trillion plan.
What the report essentially says is that Manchin’s proposal would be less bad than the $3.5 trillion proposal.”
…
“It is a little bit crazy that everyone in Washington is talking about $1.5 trillion as a small sum of money. What Manchin is willing to support would cost about $500 billion more than the Obama stimulus, even after adjusting for inflation. And this isn’t an emergency spending plan meant to float the country through a recession—it’s a massive increase in government spending at a time when the economy is growing significantly (despite the weirdness in labor markets and supply chains).”
“The federal government sent around $190 billion in aid to public schools across the nation during the COVID-19 pandemic. That is a lot of money by any standards, but in terms of federal spending on primary education, it is a shockingly large amount: as Reason’s Matt Welch explained when surveying the Biden administration’s weak moves toward promoting public school reopening back in February, that’s more than four times as much as the federal government tended to push toward K-12 education a year in pre-COVID times.
Is the money being diligently used for its intended purpose? Of course not. A survey by ProPublica found, when examining some of the “provisional annual reports…by state education agencies” for about $3 billion worth of the aid from March to September of 2020, that “just over half of the $3 billion in aid was categorized as ‘other,’ providing no insight into how the funds were allocated.”
Over the last school year, 15 states constituting around a quarter of the total U.S. population didn’t even manage to achieve 50 percent effective in-person education, the alleged purpose of all that federal COVID money.”
…
“”The law places few restrictions on how districts can spend the federal aid, as long as the investments are loosely connected to the effects of the pandemic,” ProPublica explains, while noting that various districts, as reported by the Associated Press, are diverting the cash to athletics. The schools are supposed to spend all the money by 2024. The Associated Press reports that although schools “are required to tell states how they’re spending the money…some schools are using local funding for sports projects and then replacing it with the federal relief—a maneuver that skirts reporting requirements.””
“Democrats are reportedly considering a one-year extension of the expanded child tax credit, which pays parents $3,000 annually for every child (and an extra $600 for kids under age 6) and is paid out as a refund even for families that owe no federal taxes. Previously, Biden’s plan called for a five-year extension of the child tax credit. As I wrote in September, the five-year extension was a budget gimmick designed to make the tax credit appear to be roughly $700 billion less expensive than it otherwise would be within the standard 10-year budget window. In short, Democrats were signalling that the expanded child tax credit would be permanent, but they were only accounting for half of what it would actually cost to make it permanent.
A one-year extension would be mashing that same “gimmick” button even harder.
In a similar way, Democrats are also reportedly considering a shorter-than-planned extension of the expanded Obamacare subsidies made available during the pandemic. Instead of being extended permanently, those provisions would technically expire after three years—even though everyone knows they are likely to be extended past that sunset date.
“These proposals don’t actually shrink the package; they just shorten it,” says Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB), a nonprofit that advocates for balanced budgets. The CRFB estimates that the twin “blatant budget gimmicks” involving the child tax credit and Obamacare subsidies could hide between $1.5 trillion and $2.4 trillion in future spending, depending on other trade-offs in the final package. Even if the final bill is $1.9 trillion and requires no new borrowing on paper, the CRFB warns that the actual price tag could be as much as $4 trillion with much of the hidden cost financed by adding to the deficit.”
“Rising costs of entitlement programs and the interest on the debt itself are the primary reasons why the debt will keep growing. In other words, even cutting a lot of discretionary spending would have little effect on the debt at this point.
The guilty parties are, well, both parties. It was fitting that the debt hit the symbolic $1 trillion figure during Reagan’s presidency, as the Gipper ignored his own warning. Republicans have spent much of the past 40 years venerating Reagan as an icon of conservative values, including supposedly limited government. And while his successors ran up far larger amounts on the nation’s credit card, Reagan saw the government surpass not only the $1 trillion debt threshold but also the $2 trillion threshold.”
…
“The guiding principle for today’s Democratic Party is the idea that debt doesn’t really matter if interest rates remain low. So long as the cost of servicing the federal debt stays below 2 percent, policymakers should not be restrained by the “traditional idea of a cyclically balanced budget,” Larry Summers, Clinton’s treasury secretary, and former Obama economic adviser Jason Furman argued in an influential paper published last year.
But the past 40 years would suggest that lawmakers have almost never been restrained by the idea of balanced budgets—a few brief interludes of fiscal sanity notwithstanding.
It took nearly two centuries for America to accumulate $1 trillion in public debt. It took 40 years to increase that amount 28 times over. If we refuse to address the breakneck speed at which America spends money it doesn’t have, how long until Clinton’s warning is realized, and that debt deals with us?
“The federal government hasn’t fully paid for its normal, run-of-the-mill spending in a single year since 2001. If you believe the projections of the Congressional Budget Office (CBO), there is not a single year in the next 30 (the longest length of time for which the office projects spending and revenue) in which the budget will balance. Despite that, lawmakers from both parties continue to peddle this line whenever they want to make big policy changes. Democrats promised that Obamacare would be revenue-neutral. It hasn’t been. Republicans promised the Trump tax cuts would pay for themselves. They didn’t.
Now it’s the Democrats’ turn to play this game, and President Joe Biden has dutifully stepped up to the plate. Speaking Friday about the combination infrastructure package and budget reconciliation bills that the House may vote on sometime this week, the president declared that anyone worried about the latter legislation’s $3.5 trillion price tag should calm down.
“We talk about price tags. It is zero price tag on the debt,” Biden said. “We are going to pay for everything we spend.””
…
“Democrats are proposing to pay for their $3.5 trillion reconciliation package with about $2.3 trillion of tax increases and $700 billion in savings from changing how Medicare and Medicaid purchase pharmaceutical drugs. The rest is written off as being paid for with future economic growth—the idea being that increases in government spending will cause more hiring and greater economic activity, which will cause future tax collections to be higher than projected.
It’s a little bit like saying that your drinking habit can pay for itself, as Reason’s Peter Suderman has explained.
The math doesn’t add up. In order to achieve the amount of “dynamic scoring” necessary to offset that last $600 billion or so of new spending, the reconciliation bill would have to boost America’s economic output by about 3.5 percent by 2031. That’s far in excess of what every independent assessment of the package says it will do. In fact, at least one assessment of the package says the bill’s tax increases and borrowing will more than cancel out the benefits of heightened spending, dragging growth lower.
The debate over those projections is pretty esoteric. But regardless of which forecast you believe, there’s no getting around the fact that some of the lawmakers now championing the magic of “dynamic scoring” used to be quite skeptical of it. Democrats on the House Ways and Means Committee—the very committee that put together the details of the reconciliation bill over the past few weeks—blasted Republicans for relying on “dynamic scoring” to make it look like the Trump tax cuts would balance over the long-term. In the Senate, meanwhile, Budget Committee Chairman Bernie Sanders (I–Vt.) used to call dynamic scoring a “gimmick” meant to “conceal” the real cost of legislation. Now, he’s fine with using it because Republicans did it first.
If hypocrisy could be taxed, maybe we’d be able to balance the budget.”
…
“That isn’t the only dubious assumption behind Biden’s promise that everything will be fully paid for. It doesn’t fully account for the long-term budget impact of the newly expanded child tax credit, which allows Congress to claim $700 billion in “savings” that are unlikely to materialize. The reconciliation bill also calls for boosting IRS enforcement in the hopes of generating $239 billion in revenue from taxes that are currently going uncollected. That is likely an overestimation, as the CBO says the provisions would generate no more than $120 billion from increased tax compliance.”
…
“If the bill is truly paid for, Democrats in Congress should prove as much by asking the CBO and the Joint Committee on Taxation to provide a detailed analysis of the “dynamic scoring” promises contained in the reconciliation bill. Without that, argues Chris Edwards, director of tax policy studies at the libertarian Cato Institute, Democrats’ claims that higher spending will generate sufficient economic growth have no hard backup.
“There is no magic money tree in Washington,” Edwards says. “Rather, taxpayers will ultimately pay for the spending through current tax increases, debt and future tax increases, and inflation.””
“The simplest way to understand economics is that it is a reckoning with unavoidable tradeoffs. If you spend money on something, you may obtain something in return—but you lose the ability to use those resources on something else. In the world of politics, economics helps us weigh the merits of those tradeoffs. It answers the question: Do the benefits of a policy outweigh the costs? Sometimes the benefits are larger. Sometimes they are meager or even nonexistent. But there are always costs. To acknowledge this is merely to acknowledge reality.”
…
“White House press secretary Jen Psaki responded to a question about the tax impact of the $3.5 trillion spending plan now working its way through Congress by declaring that “there are some…who argue that in the past companies have passed on these costs to consumers…we feel that that’s unfair and absurd and the American people would not stand for that.”
When taxes are raised on corporations—the “companies” in Psaki’s response—corporations often respond by passing that tax on to others. In some cases, they pass costs to consumers. In others, as the Cato Institute’s Scott Lincicome wryly notes on Twitter, they reduce the amount they would have otherwise spent on wages. They have to pay more to do business, and so they make adjustments accordingly. Costs create consequences and tradeoffs.
Empirical research has consistently shown that a large portion of corporate tax increases is actually paid by labor down the line. There are some reasonable academic debates about the precise percentage of the tax paid by labor, and how that might change under certain circumstances. But there is little real debate about whether or not some of the costs are passed on. The point is that it happens. Workers, not owners, pay at least some share of higher corporate taxes.”
“a review of the literature about the impact of government spending on growth reveals that, generally, such spending crowds out the private sector. This dispels the hope that more spending will produce economic wonders.
Deficit spending will eventually result in higher taxes for future generations. That’s a profoundly unfair burden. Debt is also expansive in and of itself, as interest payments on an enormous amount of debt—even when interest rates are low—will result in a larger and expanding deficit. According to Brian Riedl at the Manhattan Institute, Congressional Budget Office data reveal that by 2049, “Interest payments on the national debt would be the federal government’s largest annual expenditure, consuming 42% of all projected tax revenues.”
Eventually, growing debt will also slow economic growth. Lower growth means fewer innovations, lower wage growth, and higher unemployment. It’s all-around bad news. Finally, higher debt could result in a debt crisis. These are good enough reasons for me to want to restrict the size of government and impose fiscal prudence.”
…
“Interestingly, recent concerns over inflation have highlighted one additional reason why higher debt is problematic. You see, when it comes to inflation, people’s expectations about the price trajectory in the next few years are what really matters. So, it matters less than we think that the current inflationary forces are likely transitory. If people believe that inflation is here to stay, they will try to protect themselves from it today, and we will indeed have inflation today.
Under that scenario, to get inflation under control, the Federal Reserve will have to raise interest rates. And this is where your debt levels matter. Higher interest rates result in a large increase in overall interest payments fairly quickly, as so much of our debt needs to be rolled over on a short-term basis. A sudden increase in interest rates would slow down the recovery, too, which hurts lower-income Americans.
If the Fed were immune to political pressures, this reality might not matter. However, we can expect that political pressure to be enormous. No administration would be happy to see a large increase in interest payments suddenly show up on its balance sheet followed by a large increase in the size of the deficit, especially if that administration is already planning to spend a larger amount of money in the first place. This pressure only grows under an administration that will resist any rate change that could hurt growth. The Fed may also be slow to act because it has made addressing inequality one of its priorities.”
…
“Do I know what expectations are and how long inflation will stick around? I don’t. But in truth, no one really does. That’s part of the point. In that context, fiscal prudence now is the best course of action, because with so much political pressure in the worst-case scenario, there will be fewer opportunities when the Fed must actually raise interest rates.”
“Five years after Los Angeles voters approved a $1.2 billion bond measure and a countywide sales tax hike to raise another estimated $355 million annually to solve its homelessness problem, there are more people living and dying on the streets than ever before.
Many of these men and women are both frequent targets and perpetrators of violence.
Mayor Eric Garcetti (D), who did not respond to our interview request, has partially blamed this failure on the pandemic, which slowed new housing construction and limited shelter capacity. It’s true that COVID caused a surge in homelessness, but the city’s plan was already failing.”
…
“The centerpiece of L.A.’s plan was to spend the $1.2 billion raised through Proposition HHH to build 10,000 supportive housing units over a decade. Even if the government were able to pull that off, it would merely put a dent in the problem in a city where more than 30,000 people are living on the streets and sidewalks according to the 2020 homelessness count.
Five years into the 10-year plan, just 14 projects are in service. Of the promised 10,000 supportive housing units, the city has completed fewer than 700.
It would take more than 30 years to house all of the people currently homeless in L.A. county at that pace, according to a federal court order.”