At some point Joe Biden's bills will have to start paying off. The $ 1.9 trillion US bailout bill that passed this month was financed through debt, as were last year's pandemic relief bills, which topped $ 3 trillion.
As a result, the United States (US) budget deficit is projected to reach about 15 percent of gross domestic product this year, a gap historically associated with wartime. This is before adding Joe Biden's next “rebuild better” infrastructure bill, due to introduce in Pittsburgh this week. This is likely to cost more than $ 3 trillion over 10 years, which would add to the tide of federal red numbers.
Biden faces two challenges. The first is deciding how much of this to finance with tax increases - something that Treasury Secretary Janet Yellen indicated last week would be necessary - and spending cuts rather than increasing the national debt. The second is to find a way to advance in a Senate that is divided 50-50, where the Democrats in the center are eager to reach a compromise with the Republicans who are against the taxes. This could kill the fundraising elements of the bill.
In addition to his tenure, the economic case for Biden's "build back better" plan is compelling. The state of America's infrastructure is mediocre and deteriorating. The argument in favor of turbocharging the US shift to green technologies and energy efficiency is overwhelming. As is the need for high-speed national broadband. A well-designed bill would raise US productivity and increase the trend of GDP growth. It's unclear whether Biden plans to include anti-poverty measures in the same bill, including making the recent expansion of the child tax credit permanent, which is also compelling. Either way, you need to explain how this is going to be paid for beyond the self-funded investment elements of the bill.
A lot of money could be raised by better enforcing existing tax laws. The Internal Revenue Service (IRS) has shrunk by more than a fifth over the past decade and increasingly avoids auditing the very wealthy. One dollar spent strengthening the IRS would result in several dollars in return. The U.S. Treasury can also close loopholes in overseas corporate taxes, many of which were widened by Donald Trump's 2017 tax cut, largely unfunded.
About a fifth of corporate taxes - $ 70 billion a year - are not collected due to various offshore accounting schemes. Yet even so, US corporate tax collection remains meager by Western standards. It represents about 1 percent of GDP, according to the US Treasury, compared to an OECD average of 3 percent.
The argument for raising the corporate rate from 21 to 28 percent, as Biden wants, is strong. The argument for equating capital gains with income tax is also powerful. More can be raised by raising the income tax rate for top earners. Biden may also face more pressure to break his commitment to leaving intact those who earn less than $ 400,000 a year. A more progressive inheritance tax is also justified. None of this would be acceptable to Republicans. Senate Republican Leader Mitch McConnell described Biden's plans as a "Trojan horse" of new taxes "that eliminate jobs." His criticism is without merit.
The bill would be good for jobs. Sure, Biden should seek common ground with Republicans.