This article was originally published in Nevada Business Magazine.
Key arguments supporting President Joe Biden’s Build Back Better (BBB) tax-and-spend bill have been thoroughly debunked, including some in this space last month. So, let’s examine the major damage it would do to see why Nevada’s congressional representatives should oppose it.
Its problems start with misrepresentations by proponents of the facts. Their most outrageous claim is that all the spending is “paid-for”. So, there’s no cost to consumers, taxpayers or the economy? A free lunch?
That’s not what they mean at all.
By paid-for, they mean BBB under certain unrealistic assumptions would raise enough new tax revenues to offset its new spending. The primary unrealistic assumptions include that spending programs most important to them would be terminated in as short a time as one year after they are adopted.
With that assumption, the spending burden is vastly understated. At the same time, they assume tax and other revenues will continue to increase with economic growth and no cuts in revenues to match cuts in expenditures.
For example, BBB’s child allowance and increased earned-income tax credit would cost $198-billion in the first year and then expire. Of course, the majority party intends to extend those measures indefinitely after the first year. In the first ten years, the time frame normally used for fiscal scoring of such legislation, the non-partisan Congressional Budget Office (CBO) estimates these two measures will cost $1.732-trillion.
Phillip Swagel, CBO director, and the Joint Committee on Taxation estimated that BBB, as passed by the House of Representatives, would add $3-trillion to the national debt – not the zero amount claimed by the paid-for crowd.
Michael Boskin, Stanford economics professor and four-year chairman of President George H.W. Bush’s Council of Economic Advisors, notes fundamental errors in Biden’s claims. First, the impact of the federal Treasury’s fiscal position is not the proper measure of the cost of federal spending. Private-sector consumption and investment are diminished by raising taxes to support government spending.
So, he explains, “For any country, the cost of government spending is the value of the foregone opportunities from shifting resources form the private sector to the government. Less private consumption and less private investment leads to less housing and fewer factories.”
Moreover, the actual cost is not measured just by the amounts spent on each government program. “Not only are there administrative and compliance costs, but there is also the economic damage that taxes cause by distorting incentives. For example, income taxes reduce incentives to work and to save; corporate taxes reduce incentives to invest; and progressive tax rates decrease incentives to invest in one’s skills.”
He adds, “Spending $5-trillion dollars will cost the economy about $6.5-trillion, because the cost of federal [tax] dollars is estimated to fall in the $1.30 range. For a government spending program to be considered sensible, it must provide benefits of at least $1.30 per dollar of spending.”
The Nevada Controller’s Annual Report for the year ended June 30, 2018 emphasized this point, showing that total taxes relative to the American economy have been sub-optimally high since before 1960. Over that time, the long-term upward public-spending trend relative to our economy, plus the growing regulatory burden, have slowed growth of our economy significantly.
This effect has been exacerbated in the last few years as public spending and regulation were greatly accelerated relative to the economy by shutdowns in response to the Covid-19 viruses. Now the BBB spending will also accelerate out-of-control inflation.
The Economist magazine recently ran an editorial seeking to justify the metastasis of the American and other modern administrative states over these decades and into the future due to increasing adoption of progressive policies. They conjure up unsupported and unrealistic visions of future benefits they imagine from big government to wish away all the well documented problems of public spending and taxes.
Experience has shown pipe dreams aren’t realistic, but the costs indeed must be paid. Nevada’s representatives should vote “No” on the BBB.