President Biden’s Spending and Tax Proposals

President Biden’s Spending and Tax Proposals

Presidents and Congresses, similar to your uncle who used to dress up as Santa Claus, like to be viewed as generously passing out gifts to good little girls and boys, and even to adults.

Common holiday courtesy was never to ask “Santa” how much the presents cost, and he never really mentioned that the gifts actually were bought and paid for by the kids’ own parents. Uncle Sam generally, however, in contrast to jolly old Uncle Santa from Christmases past, does get pressed for answers regarding the goodies he wants to hand out. We do expect our politicians to tell us in advance how much new things will cost, and we do need to know where the money will come from to pay for them.

This post is going to ask those ticklish questions to Santa Joe and his legislative helpers regarding their current proposals for massive federal spending for everything from infrastructure to new entitlements like education programs for all. As our gift in return, we also will suggest answers.

The Shopping List

This month, Congress is debating a new spending package that would add another $3.5 trillion to the $1 trillion infrastructure bill passed last month by the Senate and awaiting consideration in the House of Representatives. All of this would be on top of the existing federal budget of approximately $6 trillion. New expenditures of such magnitude need to be evaluated logically and through the lens of principles rather than partisanship.*

*Principle Based Politics does not care one iota about which party or politicians will be perceived as “winning” the spending debate, who will get credit or blame for these proposals being passed or not, nor how the outcome will affect future elections. We care only about our country and its people.

Infrastructure provides the best place to start the questioning. Does America have infrastructure needs? Yes, we continually need better ports, bridges, roads, tunnels, cybersecurity, broadband, water systems, rail, and energy systems; building these things also will provide jobs and be good for our economy in many ways. Are these needs that can be met only by the federal government? Yes, it appears so based on our prior review of the principle of limited government. This is especially obvious when a trillion-dollar price tag is involved.* The rare bipartisan 69-30 vote in the Senate last month certainly supports infrastructure needs and the vital federal role in meeting them. 

*California, our largest state, has an entire budget of less than a quarter trillion dollars, which is twice as high as the other states with the biggest budgets. In addition to unaffordability, no state could possibly coordinate comprehensive infrastructure programs throughout the country.

Expanding standard Medicare to cover dental, hearing, and vision, which is part of the $3.5 trillion proposal, is something much different. Do senior citizens need the federal government to pay for this? No; many seniors can obtain these coverages through existing health care plans to supplement their Medicare plans, and they likely would prefer the high-quality private services they currently receive. At the very most, then, Medicare should be expanded only for those who could not have access to dental, hearing, or vision care without taxpayer support.

Universal pre-kindergarten programs require similar scrutiny. Needed and properly funded by the federal government? Not universally, no. Again, many Americans already have what their children need for pre-K education. This should not become a federal entitlement for everyone, and means testing should be included if the feds do get involved.

Paid family leave and subsidized child care also have been proposed, to the tune of 12 weeks of leave at 85% of pay and $15,000 per year for child care (with child care workers getting paid $12.24 per hour through the government). Is this necessary federal spending? Not for everyone. Many companies already provide paid family leave. With labor markets as tight as they currently are, it seems that principles of free enterprise will continue to expand the availability of parental leave. Many parents already have arranged quality child care through private markets and family. These proposed entitlements also are unneeded except by those whose individual finances and circumstances dictate.

Free community college. We are all in favor of education. But, is it necessary (or wise) for the federal government to fund all high school graduates to take community college classes? Millions of people obtain helpful higher education already without federal funding, so this also would not be a smart new entitlement to create on a universal basis. As with other programs discussed above, it seems likely that federal funding and control of community colleges would lead to reduced quality overall, among other problems—not to mention the taxpayer expense. Federal grants for impoverished college students remain a superior alternative.

“Climate” expenditures comprise the final major component of the current proposals. Is significant additional budget allocation needed in an attempt to alleviate climate change and protect the environment? Absolutely. Can only the United States as a whole lead a worldwide effort? Absolutely. Therefore, if the money truly will be disbursed scientifically and efficiently (rather than unfairly by helping certain businesses or regions over others), this indeed is valid federal spending. As discussed in our post on climate change, strong principles demand so.

Who Will Pay for All of This?

Believe it or not, deciding the above issues is the easy part. Paying for whatever the federal government needs to fund is harder.

Really, there are only two funding options: (1) borrow the money or (2) increase taxes.* Borrowing would entail increasing the national debt, which, as we have written, is too high already. Nobody really appears even to be arguing for borrowing these new funds, particularly for any components other than infrastructure.

*Proposals also have been made to increase enforcement of current tax laws. Any politician who says that will raise trillions for anything is incorrect.

Tax increases, in turn, could apply to individuals, estates, or corporations. Individual tax rate increases (including on wages or capital gains) are the most straight-forward and lucrative way for the government to bring in more revenue, but rate hikes should occur only to the minimal extent necessary. Estate taxes on the extremely wealthy probably are the fairest way, but this also should not be done excessively or vindictively. Corporate taxes appear to be the least wise economically. That all is the result of our principled analysis of taxation, at least.

The bottom line is that infrastructure and climate help would be the best gifts to find under the tree in 2021. It is absolutely imperative, though, that our politicians remember they are not Santa, as it is our taxpayers who will be paying for whatever is received. Please shop carefully.

Written by Quentin R. Wittrock, founder of Principle Based Politics. 

Look for his posts twice each week, as this blog will explore and promote the idea of principle in politics, both as to individual elected leaders and our federal government as an institution.

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