A Bad Fiscal Situation Is About to Get Worse

By the end of 2021, the nonpartisan Congressional Budget Office anticipates, the national debt will reach 102 percent of GDP. By 2031, it will swell to 107 percent.

And now, the bad news.

These catastrophic projections don’t include the $1.9 trillion “stimulus” President Biden plans to enact. He almost deserves credit for candor, as he feigns no interest in mitigating deficits or debt. He averred last month, “Every major economist thinks we should be investing in deficit spending in order to generate economic growth.”

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Yet eminent economists have objected. Jeffrey Miron of Harvard, David R. Henderson of Stanford and the Naval Postgraduate School, Veronique de Rugy of George Mason, and Alexander William Salter of Texas Tech are just a few of the noteworthiest among them. Even the left-leaning former Treasury Secretary Lawrence Summers and former International Monetary Fund chief economist Olivier Blanchard have reproved the Biden plan as oversized.

First off, the spending bill is unavailing in the context of the White House’s broader fiscal agenda. Even as the president touts the legislation as “relief” from the dusky COVID economy, he proclaims every intention of hiking taxes in the months ahead. And should he fail, higher taxes loom nonetheless. Barring massive cuts to federal entitlements, America’s present financial outlook portends a crisis rivaling what Japan has experienced these last three decades. An ephemeral “stimulus” isn’t worth its cost under such conditions.

Moreover, the legislation is ill-suited to its intended purpose, i.e., job creation. Its $400 supplemental weekly jobless benefit—on top of what unemployment already pays—will have especially perverse consequences in this regard. Unemployment benefits, as currently designed, balance recipients’ need to meet basic obligations—food, housing, clothing—and the importance of quickly finding new employment. Biden’s plan would pay many jobless Americans comparably to what they earned when they held jobs, begetting a major disincentive for them to find work. And this policy would come at the least apt moment, when the economy is growing briskly and the dangers of COVID-19 are ebbing.

Another provision of Biden’s proposal allots $350 billion in aid to the states. But however shrilly governors may cry for federal largesse, and however much the news media have tried to cast state and local revenues in an ominous light during the pandemic, the data tell another story. According to the federal Bureau of Economic Analysis, state and local tax intake in 2020 was $20 billion above the intake during 2019.

While the typical year-to-year increase is greater than that, last year’s revenues saw nothing like the $60 billion decrease that occurred between 2008 and 2009. No less an economic basket case than California has declared, “While negative economic consequences of the pandemic have been severe, they do not appear to have been as catastrophic from a fiscal standpoint as the budget anticipated.” Given the Congressional Budget Office’s projection that GDP will grow 4.6 percent in 2021, declines in state and local revenues seem unlikely to happen anytime soon.

A third problematic element of the president’s plan would send $1,400 checks to households earning below certain income thresholds. This is reasonable in some cases, but with checks going to head-of-household filers making up to $112,500 and to married couples earning up to a combined $150,000, it’s clear that much of this money won’t get allocated based on need.

Altogether, the White House’s wild expectations for its spending plan sound unconvincing. Treasury Secretary Janet Yellen, for instance, has predicted enactment will return the economy to full employment next year, whereas it is otherwise not forecast until at least 2024. But the naysayers have history on their side: In January 2009, as then Vice President Biden and President Obama entreated Congress to pass their American Recovery and Reinvestment Act (ARRA), White House economic advisers predicted ARRA would keep joblessness under eight percent and create over three million jobs by the end of 2010. It did neither.

At this juncture, policymakers can only do what science practically begs them to do: abjure their urge to asphyxiate the economy by various sorts of regulation but especially the sort devised to keep human beings apart from each other in hope of defeating the coronavirus. Immunity through vaccination and infection has already set the virus on a path to near defeat. Those who believe otherwise should take a gander at Worldometer’s COVID tracker.

Our tenacious president doesn’t like accepting defeat. Regarding COVID, we must hope he can accept victory.


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