Today in Pittsburgh, Joe Biden announced his plan for more than $2 trillion in spending on infrastructure and an oversized grab bag of other priorities, including housing, manufacturing, elder care, and even the PRO Act, which would make it harder for workers to choose to stay out of unions. Another package, which reportedly could push the total price tag to $4 trillion, is still in the works. This, of course, comes on the heels of a $1.9 trillion bill he already signed into law.
As Republicans and moderate Democrats contemplate whether they can support this — and haggle over details — there are three major things to keep in mind. Biden’s proposal is extremely expensive; our infrastructure is not “crumbling” for want of federal dollars; and Biden’s payment plan involves tax hikes that will damage the economy, harm the middle-class Americans Biden has vowed to shield, and eat up revenue sources that could, if nothing else, be put to better use fixing the existing deficit.
Two trillion dollars is, to put it mildly, a lot of money. It’s $6,000 for every single person in the country. It’s nearly half of what the entire federal government spent in 2019, before the coronavirus spending binge.
And don’t forget, this isn’t the first or the last big-budget Biden spending plan this year. Add in the COVID bill and the next spending bill, and we could be talking $6 trillion, or $18,000 for every man, woman, and child — above and beyond our normal spending, which is not exactly restrained.
Advocates of huge infrastructure spending, meanwhile, claim it’s needed because our infrastructure is “crumbling.” But this is not true, no matter what civil-engineering trade groups say. As laid out in a 2019 study from three economists and a 2020 essay in National Affairs by Eli Lehrer, our infrastructure is, in general, basically fine. The physical condition of interstate highways has actually improved in recent decades, for example, while buses have gotten younger on average and the quality of bridges has remained steady. And America looks good in the international context, with admirably low commute times (despite increases in congestion) and fast broadband. Further, most of America’s genuine infrastructure problems are best handled at the state and local level, rather than by having the federal government subsidize politically preferred projects.
That’s not to say there’s no room for improvement and no role for Congress. It is to say that infrastructure spending on this massive scale doesn’t address an urgent need in a targeted fashion. After a year of nonstop COVID relief, 13-figure spending projects should not be taken so lightly.
If the president wants to do something about infrastructure, he should focus on streamlining the regulatory processes that make American infrastructure so expensive and time-consuming to build, and carefully select areas that could use more funding, rather than on dumping budget-busting sums into new federal projects en masse.
Then there’s the question of how to pay for all this. Since his campaign, Biden has supported a massive increase in corporate taxes and income taxes on the wealthy. These policies can stunt growth, harm middle-class taxpayers Biden promised not to touch, and make deficit reform more painful in the future.
The infrastructure bill’s spending, spread out over eight years, would be funded by 15 years’ worth of corporate tax hikes — not only pushing the tax on corporate income from 21 to 28 percent but also imposing a wide variety of other tax schemes, from a strengthened “global minimum tax” to a minimum tax on big companies’ “book” income (which does not include, for example, deductions for investment and previous losses). Details on individual income-tax hikes, meanwhile, await Biden’s next proposal. More than likely, all these tax hikes won’t fully pay for the spending, especially if parts of the agenda are renewed when they end. But they’ll be big tax hikes nonetheless.
It’s not really in dispute that, all else equal, higher taxes reduce economic growth. The Congressional Budget Office, for example, recently found that both labor and capital taxes reduce GDP, the former by reducing the incentive to work and the latter by reducing the incentive to save and invest. Meanwhile, the evidence that infrastructure investment will spur enough growth to compensate is disputed at best.
These taxes can also directly affect Americans whom Biden promised would be shielded. During the campaign, Biden vowed not to increase taxes on “anyone” earning less than $400,000. But that promise has now magically evolved to include households that pass the threshold only when both spouses’ earnings are counted. Of course, during the speech he was back to dishonestly claiming, “No one making under $400,000 will see their federal taxes go up. Period.”
And corporate taxes will burden Americans quite broadly. While these are nominally paid by the corporations themselves, in reality, the burden falls on a mix of shareholders, employees, and customers. That includes middle-class savers and workers across the income spectrum. Economists disagree as to exactly how the burden is distributed, but even the left-leaning Tax Policy Center finds that low- and moderate-income families will see their incomes fall when corporate taxes rise.
Trillions of dollars in tax hikes would be bad news in the best of circumstances. They’re even worse news when they’re used not to reduce the deficit, but instead to finance entirely new federal spending. These new taxes will do nothing to stop the disaster looming over our entitlement trust funds, for instance, and if anything will force future tax hikes to hit the middle class harder.
Biden’s speech was littered with platitudes about the importance of unions and highly misleading claims about American decline. The president, in fact, argued that the fate of the nation was at stake with his bill. “I am convinced that if we act now, in 15 years,” he predicted, “people are gonna look back and say, this was the moment that America won the future.” Sorry, Mr. President, the United States doesn’t win the future with another tax hike, government boondoggle, or union bailout.