With a projected deficit of $3 trillion for this year already, congressional Democrats are moving full speed ahead to spend an additional $3.5 trillion over the next 10 years with no clear plan to pay for it.
This spending spree is too large to be funded through tax increases. That means the federal government will have to finance it through deficit spending. This additional borrowing will just raise already soaring inflation rates and raise the tax burden on future generations.
Joe Biden has repeatedly said that he would fully repeal the 2017 tax law to pay for his spending plan, but that alone would not come close to paying for this level of spending. The entire 2017 tax cut cost $1.456 trillion according to the Joint Committee on Taxation — that’s before taking into account the law’s positive economic effects that reduced its cost. Repealing the bill entirely would still leave Democrats over $2 trillion in the hole. And that doesn’t even take into account the crippling economic effects that higher corporate taxes would have on investment, productivity, and wages.
Democrats recognize the negative economic effects that a high corporate tax rate has on the economy, which is why President Biden is proposing “only” raising the corporate income tax rate to 28 percent, and why House Democrats have proposed a 26.5 percent rate. While these proposals are better for the economy than returning the US to the uncompetitive days of a 35 percent tax rate, they still raise less money.
Some House Democrats are also demanding that the spending package repeal the 2017 tax law’s $10,000 cap on the State and Local Tax (SALT) deduction. This repeal would cost the federal government $700 billion over the next 10 years and would benefit mostly high income earners. It increases the price tag of the reconciliation bill, necessitating more tax hikes or deficit spending, for a huge tax subsidy to the rich.
New taxes on the rich could pay for this reconciliation bill, right? Wrong. Take President Biden’s proposal to tax carried interest as ordinary income as an example. According to the Tax Foundation, this proposal would raise only $7.4 billion over 10 years — that’s less than a quarter of one percent of the revenue needed to pay for the $3.5 trillion package, and it carries with it the negative economic consequences of raising the cost of investment and distorting financial markets.
The math does not lie. The Democrats’ spending bill won’t be fully funded. It will increase the federal deficit, possibly by trillions of dollars. With inflation rising already, all this spending will do is add fuel to the fire of already high inflationary pressures.
This package means that the value of Americans’ wages will decrease over time because inflation and interest rates will rise. And it will be middle-class Americans who feel the negative effects of this deficit spending most keenly.
This spending will also put pressure on American entitlement programs that are already nearly insolvent. Medicare Part A is projected to go broke in five years, Social Security in 13. Increased deficit spending, especially to this extent, just speeds this timeline along. All we will get is closer to what seems to be an unavoidable debt crisis.
An additional consequence that should scare lawmakers away from supporting this bill is the impact it will have on our children. This package, along with the bipartisan infrastructure bill, will increase federal debt per U.S. household from $179,000 today, to $288,000 by 2031.
Lawmakers who support this bill are marching the born and unborn into further debt and economic despair. Whether it be through job-killing tax hikes, or through slower economic growth resulting from increased borrowing and less private investment, our children will pay for this bill.
The United States needs major budget reform, not another underfunded multi-trillion-dollar spending bill that puts major burdens on Americans and future generations. During the pandemic, Congress passed multiple trillion-dollar bills to help keep the economy afloat. With the economy recovering, America does not need another one.
This article, Tax Increases Cannot Pay for the Democrats’ Reconciliation Bill, was originally published by the American Institute for Economic Research and appears here with permission. Please support their efforts.