Long-term growth will be stifled if government spending leaves less money to invest in the future.
President Joe Biden’s recently unveiled budget marks a new era in U.S. economic policy making. Decades of trickle-down tax cuts are out the window; Biden is betting that trickle-up economics will deliver the kind of sustained and equitable growth we all want. But that's a dangerously short-sighted strategy that in the long term will create far more stagnation than a Reaganomics agenda that overstayed its welcome.
Biden is proposing a very large expansion of government spending, to 25% of GDP from 20% before the pandemic. The plan represents a massive redistribution of wealth from companies and higher earners to middle and low-earning Americans. The White House wants to use tax increases on corporations and high earners to generate about $4 trillion in additional revenue over the next 10 years, then redistribute it to different sectors of the economy, including higher wages to caregivers and cash benefits to families with children, subsidies for more well-paid union jobs, and investment in infrastructure projects like repairing roads and bridges, with a lot of money ($186 billion) to “spark widespread adoption of electric vehicles.”
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
This piece originally appeared in Bloomberg