Aaron Rai
// Biden’s plans are counterproductive //
Biden’s new 3.5 trillion dollar infrastructure and tax legislation, the Build Back Better Plan, will hurt the U.S. economy. The plan backs over $500 billion in new spending, which will misallocate too much money and lead to a decrease in GDP in the long run. Furthermore, the legislation is not free, as the president himself claims, and the $500 billion would be generated through tax hikes on capital gains and corporate income taxes. While proponents of the plan claim that it will help the middle and lower class, it will actually hurt them in the long term.
It’s easy to assume that a top-down approach to the U.S. economy will benefit the middle-class, but economic history has shown this to be untrue. For example, when FDR’s government programs brought on by war spending ended, and taxes were cut, the US economy prospered. To quote economist Cecil Bohanon, “…the elimination of wartime economic controls coincided with one of the largest periods of economic growth in U.S. history.” The macroeconomic reason for this is that private spending was no longer being crowded out. However, governments alone cannot effectively decide where best to put citizens’ money and are likely to misallocate funds. The Build Back Better Plan contains many programs that will attempt to create cleaner energy (although very little proportionally for nuclear power, a more effective source then wind or solar), infrastructure, and education. The government’s role in the economy should be that of reasonable regulation to prevent the impeding of other freedoms. For example, when the government pays for the military, we expect only to be kept safe. Moreover, when the government funds relief efforts, we expect an effective service given to people in need rather than economic growth. However, when the government steps in to spur economic growth, it almost never succeeds.
Proponents of the Build Back Better plan insist that the bill would alleviate poverty and lead to prosperity for the lower class, but this is untrue. A far better solution to poverty would be to give people money because most government programs are ineffective and unnecessarily expensive. This can be achieved via charity or a negative income tax bracket. Also, the classic example of the Post Office’s bureaucratic failures demonstrates that large-scale monopolistic government programs are ineffective. Moreover, the idea that higher taxes necessarily increase government revenue is wrongheaded. Cutting tax rates a reasonable amount if the populace is overtaxed actually increases government revenue because when people make more money as a result of lower tax rates, they end up paying more taxes. While Biden’s tax plan will increase government revenue, it is still wrong to suggest the government needs high tax rates to sustain sufficient revenue. Two big economic schools of thought: the Chicago school of economics, also known as the Classical school pioneered by Milton Friedman, and the Austrian school of economics, with prominent members Mises, Hayek, and later Rothbard, advocate for freer markets and less government control over the economy for the reasons demonstrated in this article as well as price distortion that comes from government borrowing. The framework that’s much too often played out when we have an economic discussion in this country is that people don’t pay sufficient taxes to fund expensive government social programs and this hurts the working class and the U.S. economy. While it’s certainly true that some people avid taxes due to loopholes, which is one thing Biden’s plan will actually fix, that’s the wrong way to view economics. It ignores the fact that GDP grows when taxes are cut. It ignores the central bank’s control over the monetary supply, it ignores the boom and bust cycle, and it ignores the fact that economics isn’t an exact science. If constant government spending could buy you prosperity, the economic field would be cut and dry. However, it turns out that in a field where it’s unclear where psychology ends and math begins, it’s more complicated than that.
Lastly, because the government will have to borrow to finance all this new spending, we will see an increase in deficit spending. An increase in deficit spending will obstruct the real interest rate and crowd out private sector spending. This won’t be beneficial because the goods people want to spend on can be most efficiently produced in the private sector. Additionally, distorting the real interest rate is extremely detrimental because it can cause an increase in malinvestment or the sucking of funds out of the economy and too much saving, both of which are detrimental to growth. Furthermore, when the money supply increases in order to finance this spending, inflation will follow, exacerbating the inflationary pressures already plaguing the U.S. economy.
All in all, Biden’s Build Back Better plan doesn’t actually achieve what it says it will. The president’s spending plans are not logical if you look at them from a macroeconomic standpoint and they are plain wrong if you look at them from a historical standpoint.Even considering the limited good the plan would achieve, ultimately the public would experience inflationary pressures, a decline in private investment, and a decline in GDP, an all-around decrease in prosperity.
President Biden presents the Build Back Better plan
As the maximum income tax bracket has decreased, federal receipts have increased
