Senate Republicans have been trying to persuade President
to accept a scaled-down version of his new spending plans. Given the tax hikes he intends to go along with them, a new report suggests that scaling the Biden “infrastructure” plan down to zero might be the best outcome for U.S. workers. The Tax Foundation reports the results of its analysis:
The Biden administration’s proposed American Jobs Plan… would increase federal spending by about $2.2 trillion over 10 years, including $1.7 trillion for infrastructure, partially funded with permanently higher corporate taxes of about $1.7 trillion over 10 years (conventionally estimated). Using the Tax Foundation General Equilibrium Model, we find that the combined effects of the tax changes and spending would reduce U.S. gross domestic product… in the long run by 0.5 percent and result in 101,000 fewer U.S. jobs.
What kind of a “jobs” plan results in fewer jobs? The Tax Foundation released its analysis on Friday, the same day that Mr. Biden was trying to explain why the latest U.S. employment report from the federal Bureau of Labor Statistics fell short of expectations.
“Remember, when I took office in January, our economy was in a tailspin,” said the President in what has become his favorite falsehood. Mr. Biden uttered these words eight days after his own Commerce Department’s Bureau of Economic Analysis reported that U.S. real gross domestic product “increased at an annual rate of 6.4 percent in the first quarter of 2021.”
Now the Tax Foundation report suggests that Mr. Biden may be telling even taller tales about our economic future. Among the notable aspects of this analysis is that it largely accepts Beltway economic assumptions and essentially gives the President the benefit of the doubt that, despite his history, much of the money really will fund useful infrastructure. According to the Tax Foundation report:
The American Jobs Plan includes $1.7 trillion in new infrastructure spending over 10 years, including spending on transportation, utilities, school and hospital buildings, research and development (R&D), and manufacturing, with the spending phasing out completely over the 10-year budget window. In the Tax Foundation model, we assume a 5 percent return for these public investments, consistent with assumptions by the Congressional Budget Office. We assume these infrastructure investments generate maintenance costs of roughly 2 percent of the spending per year, which continues beyond the 10-year budget window. The remainder of the additional spending in the American Jobs Plan ($486 billion) includes support for home care workers and workforce development, which we model as transfer payments with zero long-run effect on GDP.
The White House doesn’t seem to understand that most productivity-enhancing infrastructure is built by business, and when corporate taxes rise, businesses have an incentive to build less of it. The Tax Foundation explains that government spending giveth less investment than the new taxes would taketh away:
We estimate the infrastructure spending would increase long-run GDP by 0.3 percent, but this positive economic effect is entirely offset by the increase in corporate taxation, resulting in less corporate investment which reduces GDP by 0.5 percent in the long run, reduces wages by 0.5 percent, and eliminates 101,000 full-time equivalent jobs.
This is simply the latest warning about the damage likely to be inflicted by the Biden plan. In April this column noted:
A new analysis of the president’s “American Jobs Plan” from the University of Pennsylvania’s Wharton School finds that over the next decade the Biden scheme would reduce U.S. economic growth, capital stock, wages and hours worked. But there is something that the plan would increase—federal debt. In short, it’s a disaster for U.S. investors, workers and taxpayers.
Former top Obama administration economist
has been among those urging alternative jobs plans, i.e. plans that might help create some. Tyler Pager and Jeff Stein recently reported in the Washington Post:
Late last month, Summers urged policymakers to pay for new infrastructure spending in part by repurposing unspent money from the covid stimulus, an approach endorsed by congressional Republicans but thus far rejected by the White House. Summers also said policymakers should consider letting unemployment benefits expire sooner than the current deadline of September — another recommendation the administration has not considered.
On this last point, many Americans agree with Mr. Summers. It appears that a significant majority of U.S. voters support a very simple jobs plan: stop paying people so much money not to work.
Pollster Scott Rasmussen reports that a full 71% of voters favor ending pandemic-related supplemental unemployment payments and returning unemployment benefits to normal levels. His national survey finds that only 19% of voters are opposed to reducing the benefits while 10% are not sure. “Those totals include 51% who Strongly Favor ending those supplemental benefits and 9% who are Strongly Opposed,” says Mr. Rasmussen. He adds, “The debate over these benefits has taken on increased urgency in the wake of two consecutive disappointing jobs reports.”
He’s right about that. And the latest report from the Tax Foundation makes one wonder how many Biden “jobs” proposals the U.S. job market can stand.
James Freeman is the co-author of “The Cost: Trump, China and American Revival.”
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