$1.9 trillion for coronavirus relief. $2 trillion for radically redefined infrastructure. Now, $1.8 trillion for the “American Families Plan.” You know the government is on the march when even CNN describes the proposals as “huge” and “massive.” Biden’s not building back better, he’s building the government bigger.
Yesterday evening, President Joe Biden appeared before a coronavirus-safe joint session of Congress to announce his “American Families Plan,” complete with a budget of a whopping $1.8 trillion. These funds are in addition to the existing budget. As of 2019 before coronavirus relief became the rage, about $4.4 trillion; this year it’s $6.55 trillion. This is also on top of Biden’s coronavirus relief bill, $1.9 trillion and Biden’s infrastructure bill, somewhere over $2 trillion.
All told, we’re looking at $5.7 trillion in additional spending proposed in less than 100 days. That’s “trillion” with a “t,” or written out with zeros, $5,700,000,000,000, an absolutely staggering amount of money. To put this in perspective, the entire Federal government’s spending was $3.6 trillion only ten years ago. Twenty years ago it was $1.9 trillion. These new spending proposals are three times the size of the entire Federal government when George W. Bush took office and almost twice the size when Barack Obama took office.
Even worse, the Biden administration and the media are claiming that $3.8 trillion of this new spending is fully paid for in 15 years, but does anyone truly believe that’s possible when the deficit, before this massive new spending, has never been less than $438 billion in the past 10 years? In fact, we’ve wracked up almost $15 trillion in debt over that period. Given that the entire US economy totaled $21.4 trillion in 2019, what are the odds taxing the top 1% can produce the trillions in revenue Biden requires?
According to his own proposals, these tax increases aren’t major, affecting only .3% of Americans. First, he wants to raise the top tax rate by 7%, from 37% to 39.6%. This rate applies to individuals making $518,401 and up, couples making $622,051 and up. The top 1% of all taxpayers paid an average of $426,639 to the IRS across 1,443,179 returns. Even if we were to assume the 7% increase applies to the full tax burden, we’re raising an extra $26,639 per high income taxpayer, a total of $30.4 billion a year. That amounts to a rounding error across $5.7 trillion of spending.
Second, the bill proposes increasing the capital gains tax rate to 39.6% for individuals making over a million per year. The problem is that this universe of people is very small, only 539,207 people across the entire United States in 2018 and, of course, not all of that income is from capital gains. In fact, in 2018 the total capital gains tax revenue across all income levels was $158.4 billion. Even if Biden’s proposal would double that to $316.8 billion, we are still only looking at an additional $188.8 billion per year across both these hikes, meaning we wouldn’t have been able to fill in half of the lowest deficit year in the last decade. Think about that for a moment: Somehow, we’re going to cover trillions in new spending with less money than required to reduce the lowest deficit in a decade by half.
There are two other tax increases proposed in the bill, however. One, ending the breaks for hedge fund managers and real estate investors is likely to have a little impact, so little they don’t even bother to quantify it. The other increase is where the real action is, and where Biden will almost certainly break his promise not to raise taxes on the middle class. The key is the so-called stepped up basis of the inheritance tax and their unrealized gains.
Under current tax law, estates are subject to the inheritance tax, but not capital gains. Capital gains are assessed on the inheritors after they accumulate them, not at the point of the inheritance. Biden plans to change that by assessing capital gains at the time of death, meaning your heirs would be subject to both kinds of taxes at the same time. Kelly Johnston, writing for InsideSources, explains, “Say you’re a 60-year-old almost-retiree whose 90-year-old parent just passed away. You are bequeathed their Florida home acquired in 1980 for $100,000. Its value is now $500,000. Hopefully, it won’t be complicated by a reverse mortgage or isn’t burdened by other forms of leveraged debt. You sell it for $500,000. Thanks to “stepped-up basis,” you should owe no federal capital gains tax on the sale. But what happens if all this happens after Democrats eliminate this so-called “loophole?” You’ll owe capital gains taxes on the gain in value since the property was purchased 41 years ago, most of which is probably inflation. That’s a likely 20 percent tax hit on the “gain” of $400,000 – some $80,000 to Uncle Sam.”
Biden claims this will not affect middle income families because the $1 million of gains is untaxed, or $2.5 million per couple, but the taxes would apply to gains across the entire estate. A retiree who managed to save a couple of million dollars over the course of their life isn’t exactly Bill Gates, and, of course, unless it is indexed for inflation just about any Gen-X or Millennial who enjoyed a comfortable retirement will see their kids forking over 20% or more to Uncle Sam when they die, plus the inheritance tax.
At this point, I don’t think anyone knows how much revenue this tax increase would generate. It could well be significant, but given the size of the spending, not to mention the existence of massive deficits as far as the eye could see, it’s highly, highly unlikely Biden can live up to his promise to have all of these programs fully paid for in 15 years.
The media, of course, is happy to parrot the line and praise Biden’s new-found radicalism. For instance, CNN’s resident Biden propagandist, Stephen Collinson, lauds the “quite radicalism of Biden’s first 100 days.” “President Joe Biden’s ‘radical’ idea is that government is not the problem in America but the multi-trillion-dollar solution that can end the pandemic, equalize the economy and make life better for millions of working people. As he marks his first 100 days in office on Wednesday night with an address to a joint session of Congress, Biden will seize what may be a once-in-a-generation chance amid a deep crisis to change the trajectory of the country.”
Completely gone are the claims that Biden is a moderate, even though such claims were bandied about on a regular basis barely six months ago. Now, all of a sudden, “He is bringing activism and ambition to bear to tackle inequality in an economy that is working poorly for millions of citizens.” That Biden is pursuing these policies contrary to his campaign promises and whether or not any of them actually appeared at all on the campaign is completely irrelevant.
Indeed, whether or not the proposals in question do what they’re supposed to do isn’t even an issue. If something doesn’t match up, Biden is happy to redefine the word. I’m serious, as Mr. Collinson explains, “Biden’s quiet radicalism is expressed through a huge pandemic rescue bill, a larger proposal that redefines the concept of infrastructure, and a massive health and child care blueprint.”
Huge, larger, massive, and redefinitions, but don’t worry it’s all great. I understand that liberal readers will likely support many of the ambitious goals Biden is claiming his proposals will accomplish, but I would also caution them to stop and think: We’ve heard much of this before, from “pay their fair share” to “trickle down economics has never worked” to growing the “economy from the bottom up and the middle out.” These are platitudes bandied about for decades, but when you look at the details of these proposals, there’s not much there except for a laundry list of spending.
The latest “American Families Plan” will not do much for families, except at the margins. For example, the plan caps child care expenses at 7% of income. Families are currently spending 8.9% of their average income, though lower income families are spending a bit more. While I’m not saying it won’t help, it’s the difference of a couple of percent while the bill is also planning to increase the costs of child care. Another provision calls for a $15 an hour minimum wage for workers, up from the average of $12.24 an hour, so the government is giving with one hand taking with another.
There’s also a $109 billion dollar proposal to make community college free, with the goal of covering 5.5 million students. Community college averages $4,982 per year, so the total benefit will be about $10,000. However, Pell Grants already award up to $6,495 for low income students, so the net effect is negligible. It’s far more likely that unserious students will waste two years accomplishing nothing because it’s fully paid for than actually achieving any educational goals. Oddly, Biden also wants to expand the Pell Grant by $1,400, meaning low income students will receive almost 50% more than the average cost of tuition at a community college in these grants alone.
Then we’ve got 12 weeks of paid medical leave for individuals who want “to take time to bond with a new child, care for a seriously ill loved one, deal with a loved one’s military deployment, find safety from sexual assault, stalking or domestic violence, heal from their own serious illness or take time to deal with the death of a loved one.” Workers will receive up to $4,000 a month or two thirds of their income under the program. My take: This is probably a good idea in principle, but in practice there is likely a better way to accomplish it than a massive federal program.
Finally, we get to a massive boondoggle for the teacher’s unions, $200 billion for universal preschool. It’s actually going to cost $400 billion because states are supposed to pick up 50% of the tab, but what’s a couple of hundred billion between friends? This is an absolutely amazing proposal to make when many public schools still aren’t even open for in person learning, and we’ve just witnessed a year of abject failure, lost education, and potentially lost lives in the future. Private schools were open, but many public schools were not and the teacher’s unions didn’t care.
Why anyone would want to inject another penny into already failing public education is beyond me, but as CNN notes, it’s a “key Democratic priority, funding universal pre-K aims to both prepare children for K-12 learning and provide some financial relief to families paying for child care.”
All in all, you can debate the merits of any particular provision, but two things are apparent: The price tag will be much higher than $1.8 trillion as the spending is permanent and the taxes will certainly not cover it, especially if you include the other $3.9 trillion Biden already plans to spend on infrastructure that isn’t infrastructure and coronavirus relief. Don’t try telling this to Biden or the media though. They love the bait and switch. As usual, Biden himself says the “crisis” is an “opportunity,” and “Now, after just 100 days, I can report to the nation: America is on the move again.” “We’re in a great inflection point in history. We have to do more than just build back. We have to build back better,” he continued.
Yes, build back better with fraudulent proposals totaling trillions of dollars we don’t have. That will certainly do it!