Joe Biden’s $6 Trillion Budget Proposal Will Hike Spending, Keep Deficits Near Record Highs

“Biden’s plan would see the federal government spend “what amounts to nearly a quarter of the nation’s total economic output every year over the course of the next decade”—a threshold that has never been hit since World War II, with the exception of 2020 and 2021—while also collecting “tax revenues equal to just under one-fifth of the total economy,” which would also near a record high.

That really sums it up. Record levels of spending that would well exceed even a historically high share of the economy devoted to funding the government.

While Biden’s proposal does not envision budget deficits rising as high as they did last year—when the government spent $3.1 trillion more than it collected in tax revenue—his budget calls for deficits of at least $1.6 trillion for the foreseeable future, the Times reports. The national debt measured as a share of the economy’s overall size will exceed the all-time record high of 113 percent, set during World War II, by 2024. And it will keep growing.”

“Like all presidential budgets, Biden’s is mostly aspirational; Congress will have the final say. But with Democratic majorities in both chambers, something similar to the president’s proposal is likely to be adopted.

After Republicans effectively traded away any claim to fiscal responsibility during the Trump administration by backing bigger budgets and higher deficits, Biden rode into office with the chance to spend big with fewer of the usual political impediments. In his joint address to Congress last month, Biden promised to build “a union more perfect, more prosperous, and more just.”

Apparently it will also require more spending, more taxes, and more borrowing.”

Universal Student Debt Forgiveness Is Regressive, Say Economists

“Wiping out student loan debt for American college graduates would benefit the wealthy much more than it benefits less privileged students, according to a new working paper from the National Bureau of Economic Research. “Blacks and Hispanics would also benefit substantially less than balances suggest,” the authors say.

In the paper, titled “The Distributional Effects of Student Loan Forgiveness,” economists Sylvain Catherine and Constantine Yannelis conclude that universal student loan “forgiveness would benefit the top decile as much as the bottom three deciles combined.””

“”There are a number of ways in which debt can be discharged, with important distributional implications. For example, forgiveness can be universal, capped or targeted to specific borrowers. These debt cancellation policies can benefit different socioeconomic and ethnic groups. This paper explores their distributional impacts. We find that the benefits of universal debt forgiveness policies largely accrue to high-income borrowers, while forgiveness through expanding income-contingent loan plans instead favors middle-income borrowers.””

“full or partial loan forgiveness regardless of income and loan size would be “highly regressive, with the vast majority of benefits accruing to high-income individuals,””

Immigration’s wage, employment, and fiscal impacts: Bibliography.

The New Americans: Economic, Demographic, and Fiscal Effects of Immigration National Research Council. 1997. The National Academies Press. https://www.nap.edu/read/5779/chapter/6#138 Yes, Immigration Hurts American Workers George J. Borjas. 9/10 2016. Politico. The Impact of IllegalImmigrationon the Wagesand EmploymentOpportunitiesof Black Workers The United States

The debate over Joe Biden canceling student debt, explained

““No matter how it’s designed, student-debt forgiveness is very poorly targeted,” Bloomberg’s editorial board warned in November. “Even if relief could be better focused on the poor, severe drawbacks remain. For one, the vast majority of Americans who don’t have student debt would rightly feel left out. Many never had the opportunity to get a higher education; others put off financial goals (such as saving for retirement) to pay it down. Also, it would do little to improve the immediate cash flow of the many debtors who — because they’re in default or in income-based repayment plans — are making small or no monthly payments.””

“At the heart of the argument for canceling student debt, especially in the midst of the pandemic, is that it would be good for millions of people and, therefore, the economy. How good is where the disagreement resides — and because mass student debt forgiveness isn’t something we’ve seen in the past, the data on what could happen is relatively limited.
One 2019 working paper from Harvard Business School looked at what happened when students in default had their debt discharged because of a lawsuit. They found that borrowers reduced their overall indebtedness by a quarter and were also less likely to default on other accounts. That’s good for them and for the entities they owe money to.”

“People also demonstrated more mobility — they moved states, changed jobs, and took more risks that often translated to higher incomes.”

““If you give the same type of forgiveness to people that are not in that situation, one effect that we don’t capture is that your monthly payment is going down,” he said. The $300 people were putting toward loan payments every month could then be spent elsewhere.”

America Is Drowning in Pandemic Debt, but Congress Still Wants To Buy the Pentagon New Toys

“One of the major disagreements between the House and Senate is over how many F-35s taxpayers will buy from Lockheed Martin next year, reports Defense News, a trade publication for the military-industrial complex. The Senate wants to get 96 of them, while the House has authorized purchasing five fewer—though it should be noted that the Pentagon only asked for 79 new planes.”

“The various branches of the military already have 375 F-35 fighter jets, according to a July article from Air Force Magazine—far more top-of-the-line fighter jets than any other country in the world. But the planes have been criticized by the Government Accountability Office for being overpriced and failing to meet reliability goals.

Negotiations also loom over the number of new Virginia-class submarines—which cost about $5.5 billion apiece—to be built. The Navy asked for one, so naturally the House decided to budget for two. The Senate has included funding for just a single submarine, Defense News reports.

That’s not sitting well with Rep. Joe Courtney (D–Conn.), whose district notably includes the submarine base in New London, Connecticut. In a statement on Tuesday, Courtney condemned the Senate’s change to the submarine budget as “unworkable.”

“The Navy needs more submarines,” he said.”

Biden and Trump Offer Competing Tax Proposals, but Both Ignore Economic Reality

“In a world in which economic reality mattered to politicians, grandiose spending plans coupled with soaring government debt would pretty much preordain grim tax policy. But we don’t live in that world. In ours, tax and spending proposals are crafted based on their appeal to target audiences of voters, with no regard for balancing books or averting financial catastrophe.”

“It’s necessary, though probably pointless, to emphasize that neither Trump’s nor Biden’s tax plans come close to paying for the federal government’s anticipated spending spree in the years to come.”

Does Modern Monetary Theory (MMT) Destroy National Debt Concerns? SOURCES.

The Real News Podcast – Modern Monetary Theory – A Debate Between Randall Wray and Gerald Epstein The Real News. 2019. https://www.spreaker.com/user/therealnews/the-real-news-podcast-modern-monetary-th Is MMT “America First” Economics? Gerald Epstein. 3 20 2019. Institute for New Economic Thinking. https://www.ineteconomics.org/perspectives/blog/is-mmt-america-first-economics On Modern Monetary Theory

Debt Reckoning

“In 2016, Trump had campaigned on eliminating the national debt in under a decade. Yet by June 2020, the federal budget deficit had reached $864 billion…for just the month. That was more than the entire budget gaps in either 2017 or 2018. By September, the nonpartisan Congressional Budget Office (CBO) was projecting a $3.3 trillion annual deficit in 2020. Federal debt levels, which equaled just 35 percent of the economy in 2007 and 79 percent of the economy in 2019, would reach 98 percent. The CBO had previously warned that persistently high debt and deficits would have consequences: slower economic growth, an ever-increasing share of the budget consumed by interest payments on the debt, and reduced capacity to act should a major crisis arise.

And yet as the virus consumed the nation, even many deficit hawks were recommending more spending, at least in the short term.”

“In the early ’80s, some lawmakers had come under the influence of a macroeconomic theory that would come to be known as “supply-side economics.” This theory held that tax cuts could, in budget parlance, “pay for themselves” by boosting economic growth so much that the federal government would actually raise more revenue if it reduced rates.

There was some trivial truth to this. Imagine a world in which loaves of bread are taxed at 99 percent. This is a world in which not many loaves of bread are produced or sold and thus not much revenue is raised from the bread tax. Reduce the rate to, say, 50 percent, and you would probably see a marked increase in the production and sale of bread—and higher bread tax revenues as a result. Reduce the tax further, and the bread market would probably expand even more. Supply-side effects are real, but they typically offset only a small percentage of lost revenue.

Some Republicans took this to mean that tax cuts of just about any kind would often, and perhaps even always, result in higher federal revenues. At some point, however, lowering rates does in fact end up lowering revenues. A 0.001 percent tax on bread might unleash a powerful market in artisanal breadmaking. It would probably not produce higher total levels of tax revenue than a somewhat higher rate would.

In reality, this simplistic version of supply-side orthodoxy was not a macroeconomic theory so much as a convenient excuse for Republican lawmakers to give their voters what voters tend to want: tax cuts without spending reductions, i.e., a government they didn’t have to pay full price for.”

“As with many diets, it worked—for a time. Bill Clinton began his presidency by raising the top income tax rate from 28 percent to 36 percent—an increase, but still far lower than the top rate at the beginning of Reagan’s presidency. And then, following the Republican takeover of Congress, Clinton negotiated with GOP lawmakers to lower projected federal spending—when politicians talk about spending “cuts” they are often referring to reductions of planned future spending—particularly on welfare assistance. Accordingly, the deficit dropped from $203 billion in 1994 to $22 billion in 1997.

Forced to work across the aisle, Clinton and the Republican Congress had done what their predecessors had failed to do: reduce the deficit. Federal spending dropped as a percentage of gross domestic product, which boomed under the first wave of internet-induced investments—the 1990s tech boom. The rapidly growing economy kept voters from revolting, and Clinton framed the budgetary contraction not as a reduction in government services but as an end to federal overreach.

“We know big government does not have all the answers,” he said in his 1996 State of the Union address. “We know there’s not a program for every problem. We have worked to give the American people a smaller, less bureaucratic government in Washington. And we have to give the American people one that lives within its means. The era of big government is over.”

In Clinton’s second term, the already shrunken deficit ceased to exist. By the year 2000, the federal government was running a $236 billion annual surplus. Finally, the deficit problem seemed to have been solved.

The trouble with diets is that even when they work, they’re hard to stick to. That is especially true when the diet must be renegotiated among a rotating cast of 535 lawmakers and a new president every four to eight years.

And so, under President George W. Bush, deficits returned”

“Simpson-Bowles consisted of 18 people—a bipartisan mix of a dozen members of Congress and six private citizens—tasked with producing a set of recommendations for deficit reduction. There were difficult choices ahead. The committee’s job was to suggest which ones should be made.

The commission was a classic Washington gambit in that, outwardly, it was an attempt to solve a policy problem, but in reality, it was a politically motivated attempt to avoid solving that very problem.

Nominally, the problem the committee was tasked with solving was how to reduce the deficit. But that wasn’t the actual problem it was trying to solve, because since the 1980s the solution had remained fairly obvious: To reduce the gap between outlays (spending) and revenues (taxes), Congress would need to either increase tax revenue, reduce spending, or do some combination of the two. To be genuinely effective, the tax hikes probably would have to hit the middle class and the spending cuts probably would have to hit entitlements.

The actual problem the committee was intended to solve, then, was that, despite occasional protestations to the contrary, neither congressional lawmakers nor the president wanted to do any of this.

In the end, Simpson-Bowles recommended cutting spending and increasing taxes. In particular, it recommended cutting spending on entitlements and raising some taxes on the middle class in order to broaden the tax base.”

“of course, neither the president nor congressional lawmakers agreed to any of it.”

“a problem with Congress—is that it can’t tell itself what to do. Not for very long, anyway. The 112th Congress in 2012 has no power to bind the 113th Congress, which means that if Congress in 2013 does not like the instructions passed down from its forebearers, it can tell the 112th Congress to go get stuffed.”

“Trump, like most Republicans, had run against the federal debt. His promise to eliminate it completely in eight years was deeply unrealistic, backed by no specific plan, and predicated in part on Trump’s confusion of the trade deficit (which measures inflows and outflows of goods between the United States and other countries) and the budget deficit (which measures how much more the federal government spends than it takes in). But it was, at least, a rhetorical concession to the Republican fiscal politics of the Obama years.

In early 2018, House Democrats negotiated a budget deal with Senate Republicans that suspended sequestration caps and authorized $300 billion in spending above previously allowed levels. The particulars were complex, as budget deals often are, but in broad strokes, the agreement was straightforward: Democrats got more funding for domestic spending, while Republicans got more funding for the military. Trump signed the bill, proclaiming, “We love and need our Military and gave them everything—and more.” The bill, he tweeted, would also mean “JOBS, JOBS, JOBS.”

For years, Democrats and Republicans had bickered over budget priorities. With the 2018 spending bill, they resolved their differences—by agreeing to spend more on everything.”

“What Democrats saw not only in the 2017 tax bill but in the decadeslong deficit wars was that Republicans had found a political advantage in arguing that tax cuts paid for themselves. There was a clear pattern to federal budgeting: Under Republicans, tax rates would go down, spending would increase, and the deficit would rise. Under Democrats, tax rates would rise slightly, spending would hold more or less steady, and the annual deficit levels would decline. The GOP, which had long branded itself the party of limited government and fiscal responsibility, was the party of neither.

To the party’s base, this didn’t just mean that conservatives were hypocrites. It meant they could pursue their priorities without pressure to make concessions or tradeoffs. They had an argument, a rhetorical strategy—or, at the very least, a convenient and self-serving pretext—that insulated them from the understanding of shared pain and shared responsibility.

To rectify that political imbalance, the left—particularly the young, online left, which increasingly favored aggressive spending programs far more expansive than even many lifelong Democratic politicians would dare contemplate—would need a pretext of their own. And they would get it, in the form of Modern Monetary Theory (MMT).”

“As with supply-side economics, the central insight of MMT is both true and trivial: The U.S. budget is not, strictly speaking, like a household budget or a business budget, because unlike a household or business, the federal government can print its own money. From this single observation, MMT theorists have constructed an entire macroeconomic worldview, which says explicitly that deficits don’t matter and, consequently, the government can and should print money to fund federal spending projects on a massive scale.

In this understanding of the economy, debt is not a constraint; nor are interest rates charged by bondholders. Debt can be paid down with a few congressionally authorized keystrokes on central bank computers generating new dollars. Bondholders will have little recourse but to accept these newly created dollars, because America’s currency is the global reserve.

The only real constraint MMT proponents recognize is inflation, which serves as a signal that there are too many dollars in the economy and that some should be recalled by the government. But inflation has been running low for years.

The upshot of all of this is a belief not only that current deficit levels are sustainable but that they are actually too low. Congress, MMT proponents argue, should be spending far, far more. Fears about accumulating a large national debt should disappear entirely.”

“The supply-siders had triumphed on the right, and the MMTers were winning crucial battles on the left. The deficit had always been a bipartisan problem. At last, America’s politicians had found a bipartisan solution. Lower taxes. Higher spending. And the biggest deficit ever. Finally, Washington had found its balance.”