Biden’s Dishonest Tax ObsessionRaising taxes will discourage the investment in goods and services needed to tame price increases.
JUNE 2, 2022
LEWIS M. ANDREWS
As high inflation persists, why does President Joe Biden continue to argue for raising taxes, especially on corporations and individuals? In Wall Street Journal, for example, Biden recently argued that if Americans want to stabilize prices, they should want to “end the outrageous unfairness in the tax code.”
Economists from his own party, including Clinton Treasury Secretary Larry Summers and Obama Council of Economic Advisors chair Jason Furman, have failed to persuade the president that tax rates have little to do with inflation, which arises when too much money is chasing too few goods and services. If anything, these liberal experts have tried to explain, boosting marginal tax rates will only discourage the additional investment in goods and services needed to tame price increases.
To understand Biden’s stubborn preoccupation with raising taxes, one must understand the perspective of a Democrat who was elected president at a moment when the days of excessive federal money printing appeared to be numbered. Biden’s own contributions to the national-debt crisis—the $1.9 trillion American Rescue Plan, subsequent attempts to pass an even larger Build Back Better bill, and his desire for student-loan forgiveness—have certainly aggravated that problem, but were not its only causes. For far too long, our leaders in Washington have gambled that the U.S. economic system could withstand an ever-widening disconnect between spending and revenues without experiencing persistent inflation.
Now, sadly for Biden, the gamble has proved a failure. From here on, both the president and Congress will be pressured to restore some fiscal balance. Beyond the public’s anger over inflation, the accompanying rise in interest rates on government debt, which threatens to dwarf every other federal expenditure, will only make their task more urgent.
Bridgewater Associates founder Ray Dalio has outlined an approach to solving this problem in his exhaustive study of the history of sovereign debt crises, appropriately titled Principles for Navigating Big Debt Crises (2018). As Dalio emphasized, the first and most important of these principles is that no nation emerges from a severe overspending problem without its major political factions agreeing to sacrifice for the greater good. After a lot of initial yelling and blaming, politicians across the political spectrum must either share in the required pain or sink together into the chaos of an economic collapse.
For their part, Republicans and conservatives will almost certainly have to accept some form of means-testing for the country’s two biggest entitlement programs, Social Security and Medicare. The right will also have to agree to a reduction in farm subsidies and policies that favor the affluent. While increasing taxes on the private sector would, in the end, only diminish what it can contribute to the federal treasury, reducing many of the benefits it currently gets from government would not have that effect.
Unfortunately for Democrats and progressives, their sacrifice will have to be as much structural as economic. The poor performance of so many progressive-favored government programs over the years has convinced voters that those employed to deliver public services are profiting far more from those programs’ operation than the supposed beneficiaries. As Larry Summers himself said of federal education policy in a recent Politico forum with Dalio, “Of course, there’s always the question: if you put more money into the school system, does it come out in the form of more education for more kids or more administrators (and) more comfortable lives for those in the existing system?”
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Source:
https://www.theamericanconservative.com/articles/bidens-dishonest-tax-obsession/
