So much for incrementalism. As our new $6 Trillion Man (think of Lee Majors’ $6 Million Man adjusted for inflation), Joe Biden wants to leap across the chasm of climate change and income inequality in a single bound. His new budget proposes the highest level of government spending, and the highest level of taxes to support it, in our lifetime — perhaps ever. As Doug Holtz-Eakin said, “It’s tax and spending on steroids.”
As a sovereign voter who cast his lot with Biden in the 2020 election, I did so with certain expectations. I thought I was voting for a “caretaker” president, in the mold of Gerald Ford, who would calm the roiling waters of the Trump years and bring back an America of patience, tolerance and pragmatism. What we got was something far different — an activist government that wants to place itself front and center, from cradle to grave, in the life of every American citizen and business.
What could go wrong? Well, a lot. As Bette Davis famously said after downing a martini, “Fasten your seat belts. It’s going to be a bumpy night.”
Life is about risk-taking. From the moment our mothers gave birth to us, we enter a life of risk. As we mature, we learn to be cognizant of risk and make adjustments for it. Some of us are risk-averse, like the proverbial belt-and-suspenders banker; others embrace risk, like the mountaineering daredevil Alex Honnold. But we all face risks and how we manage them often determines the quality and duration of our lives.
The proposed Biden budget presents an enormous amount of risk — economic, social and psychological. It represents a big leap from here — a steadily growing economy with steadily increasing supplies of renewable energy — to there — an economy of highly engineered, and costly, equality of outcomes. Making that leap may not be as easy as Alex Honnold makes it appear in his ascent of El Capitan, seen here. So let’s at least be cognizant of the risks. Here are a few:
Economic Risk: The Biden plan calls for $3.6 trillion in new taxes on high-earners, investors and businesses. That includes a top rate of nearly 40 percent on personal income taxes, an eye-popping aggregate rate of nearly 50 percent on capital gains and a new corporate tax rate of 28 percent. The political salve on this is Biden’s promise that no one earning less than $400,000 a year will be subject to higher taxes and that Janet Yellen will swoop into the G7 next month and negotiate a global minimum on corporate tax rates. This is magical thinking. The fundamental risk to Biden’s tax plan is disincentives to growth and the associated trickle-down effect. U.S. capital markets today are the largest, deepest and most liquid pool of risk capital in the world. Higher costs on returns will drive capital out. Similarly, increasing the cost of business will drive corporate capital offshore. The results could be a declining stock market, which houses a majority of Americans’ 401(k) plans, and a loss of manufacturing jobs in the U.S. We’ve seen this movie before and it doesn’t end well. If we were smart, we’d put a flat tax on both personal and corporate taxes. Then they’d stop being that football that Lucy kept pulling away from Charlie Brown at the last minute.
Social Risk: Uncle Joe famously declared at some point in the campaign that “I’m no socialist.” But as Sen. Thomas Gore of Oklahoma said to Labor Secretary Frances Perkins in 1935 when the Social Security Act was being debated, “Isn’t this a teeny-weeny bit of socialism?” The potential social risk posed by the Biden budget is exacerbating the divide in this country between the social classes. It may be that Biden simply thinks of the rich the same way that Willie Sutton thought of banks — “That’s where the money is.” But we risk supersizing our culture of tribalism and resentment by redistributing wealth on this scale. I’m not sure we’ve thought through what this might mean for the social fabric of the country.
Psychological Risk: I touched on this before in an earlier post (which you can read here in the event that you didn’t commit it to memory). If the Biden budget plays out, the U.S. government will comprise about 25 percent of the U.S. economy. Granted, the American economy and society are far larger and more complex than they were 50 years ago, so government should be expected to adjust to that. But by and large, this country was built on three principles — small government, free markets and personal responsibility. To the extent that government continues to metastasize, we run the risk of hacking that essential American character — pragmatism, hard work, self-reliance — and driving our animal spirts out of the public square and into the wilderness. Maybe that’s the kind of America we want today, but we shouldn’t let the change go unrecognized.
These are all potential risks, of course, and risks don’t always materialize. But as Maslow showed us, security is the bedrock of self-actualization (what the Founders called the “pursuit of happiness”). And managing risk is the bedrock of security — personal, social and economic security. So as we follow the $6 Trillion Man into this brave new world, we should at least do so with all the risks put clearly on the table. If we do that transparently and honestly — a tall order today, I know — maybe we’ll at least feel like we’re all on the same team. That would be something.
Russ, I am thankful you are seeing Pres. Biden for what he is-a POTUS who is in over his head. The proposed budget has so much non-infrastructure expenditures it’s a “joke”! He is giving in to the far liberal group we think are a digrace.