Michael Meeropol: Check Out The Details Of President Biden’s Infrastructure Proposal
On April 28, President Biden spoke to Congress. He presented arguments in favor of his two big infrastructure proposals: The American Jobs Act and what he referred to as the Families Plan.
That night on line and the next day in the print edition, the New York Times presented an extremely useful pie chart identifying FIFTY specific areas (with accompanying dollar figures). The pie is divided in half --- one half representing the $2.3 trillion infrastructure proposals while the other half covers the $1.8 trillion allocated for assistance to families. Within each of the halves, there are four broad subcategories. On the infrastructure side these are Buildings and Utilities, Transportation, In-Home Care and Jobs and Innovation. On the “families” side the four sub-categories are Tax Credits, Child and Family Services, IRS, and Education. The fifty specific areas are further breakdowns from these four sub-categories within the two halves of the pie.
The total cost is $4.1 trillion dollar spent over eight years. The Biden Administration proposes to raise that $4.1 trillion over 15 years by increasing the corporate income tax from the current 21 percent to 28 percent, by raising the tax on long term capital gains from the current 20% to 36.9% for those with over $1 million in income, and by increasing the rate of individual income taxation for couples making more than $400,000.
As always proposals with really big numbers must be put them in context. $4.1 trillion over eight years would add about $512,000 billion dollars to federal government spending each year. Current projections of federal spending for the fiscal year that began last October is $5.8 trillion. Adding $512,000 billion would raise it to approximately $6.3 trillion. Unfortunately, these big numbers mean nothing by themselves. The important context is how much this is in relation to GDP. $6.3 trillion represents approximately 30% of projected GDP for 2021. That is definitely a significant percentage, but it is much lower than the percentage spent during World War II (which maxed out at 40% of GDP in 1945). Since I believe the current situation is as dire as the danger to our nation’s survival posed by World War II, even a ratio approaching the 40% level would be appropriate.
As I have written in many different contexts, there is useful government spending and wasteful government spending. There are budget deficits that create problems when they accelerate inflation and budget deficits that are absolutely necessary when the economy is sluggish and unemployment is high. Opponents of government spending usually take the lazy way out ---- complaining about budget deficits because they cannot really make a case against specific proposals. Try a thought experiment: What have Republicans said in opposition to any of the specific items in the NY Times’ pie chart? Yes, some have made ludicrous statements like fixing the pipes that carry water to our cities isn’t infrastructure --- or guaranteeing two years of free college is actually a policy to FORCE everyone to go to college for two years. (In fact at least one pundit, the writer J.D. Vance of “Hillbilly Elegy” fame, has claimed that the proposal to finance two years of free pre-school for everyone is an effort to (once again) FORCE everyone to surrender their pre-school children to be “educated” by strangers.). However, for the most part the opposition to these proposals mostly focuses on the taxation part of it and the size of the proposal with long term budget deficits once again being decried as dangerous. The opposition usually doesn’t even try to specifically argue against the elements of the proposal – mostly because they are highly popular with the general public, including many Republicans.
I urge all readers to actually check out the pie diagram on line (or in the printed paper in a local library). Which of these proposals are inappropriate for government? Which represent what the right wing loves to call WASTE? Obviously, even the most useful programs (one of my favorites is free universal pre-school) have to be delivered well. (And yes, some writers scoff at the idea that government can deliver any program well --- forgetting that the delivery of the COVID-19 vaccines has been extremely effective since the Biden Administration took over. The need to make sure that good programs are delivered efficiently is true of all government programs. (The most sacrosanct part of the federal budget -- for Republicans and Democrats alike --- is National Defense. Yet, stories of waste in defense procurement are legendary and frequent. Very few people argue that because the Defense Department wastes money we should abolish it!)
Defense spending is about 3.9% of GDP while the first year of the Biden proposal amounts to ONE PERCENT of GDP --- We as a nation can certainly afford that.
As I noted above, many Republicans who oppose the Biden plans scoff at some of these proposals arguing that much of this is NOT infrastructure. I have dealt with this in a previous commentary so I won’t rehash the points.
Their second complaint is actually much more significant. They argue that much of this is liberal redistributionism --- Increase taxes on corporations and the rich to finance making the refundable child tax credit permanent, to finance universal pre-school, and to increase subsidies for affordable care act premiums. (As well as a number of other spending plans targeting lower income people.)
Well, guess what? Liberal redistributionism is a damn good idea. It allows us to counter the incredible increases in inequality that have occurred since the 1970s. To take one example, the ratio of CEO pay to the median pay of a worker in the same company was 61-1 in 1989. [In the oral version of this, I mis-spoke and said “1980” – sorry about that!] So back in 1989, a worker who made $30,000 on average worked for a CEO who earned $1,830,000 (on average).
By 2019, inequality had increased so much that a worker who made $50,000 worked for a CEO who took home $160,000,000. Raising taxes on those folks at the top of the economic pyramid and spending that increased revenue on cutting child poverty in half and subsidizing middle income people’s payments of health insurance premia, (I could go on and on) seems very good policy indeed.
So let the Republicans complain. I urge everyone reading this, PLEASE: go get those pie diagrams --- start talking to friends about the importance of each and every one of the specific proposals.
[The print version of the diagram is on page A14 of the April 29, 2021 edition of The New York Tiimes. It is the jump cut from page A1. The article is by Peter Baker. The title on page 1 is “Biden Makes case to Vastly Expand Government Role.” The title on page A14 is “Biden Seeks Fundamental Shift in How Government Serves Americans.” The electronic version is part of the NY Times Upshot series: Alicia Parlapiano, “Biden’s $4 Trillion Economic Plan, in One Chart: Money directed at families is added to an earlier proposal on infrastructure.
Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies
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