Aspirations vs. Arithmetic

The editors of Bloomberg are gravely disappointed with President Biden’s budget:

If you meant to discredit the U.S. government’s whole approach to budget planning, you’d struggle to improve on the proposal announced this week by President Joe Biden’s administration. Admittedly, these plans rarely tell the public much about what’s likely to happen. But the 2023 budget goes one better: It says next to nothing about what the administration would even like to happen.

Their haruspices have examined its entrails, however, and divined some clues:

Even so, the material can be mined for specks of information. For instance, since the budget assumes that Build Back Better, if it ever happens, will be revenue-neutral, its projections for public borrowing and debt reveal what the administration thinks about fiscal control. The good news is that the plan’s projected deficits are lower than in the Office of Management and Budget’s baseline. In that limited sense, Biden was right to say the plan reduces deficits.

Yet it doesn’t reduce them by much — the average deficit over the next 10 years is still projected to be 4.7% of gross domestic product. Public debt would continue to rise, from 102% of GDP this year to 107% in 2032. In effect, the administration wants to make the massive increase in public debt due to the pandemic permanent. That would be imprudent even if the recent fiscal emergency were sure to be the last — and, needless to say, it won’t be. A responsible budget would instead focus on getting borrowing firmly under control over the next decade.

Some of the plan’s specifics — policies not subsumed in the invisible “reserve” — are also revealing. Most notably, the budget calls for a 9.8% increase in defense spending. In light of Russia’s invasion of Ukraine, a higher priority for national security certainly makes sense. The proposal also envisions higher spending on policing, gun-control measures and other anti-crime initiatives. Most voters would welcome such outlays.

Such tax increases as are planned would be levied on the usual suspects: corporations and the “very rich”. As anyone who has studied the history of U. S. tax policy could tell you, sometimes only if pressed, raising marginal rates is one thing, the easy part; deriving additional revenue from the increased marginal rates is something else again. The “very rich” are different from you and me and can reorganize their holdings to avoid taxation. And that’s if the increases pass legal muster which is not assured.

They conclude:

In short, this proposal — like the budget as a whole — just isn’t happening. That was to be expected. What’s more disappointing is the administration’s continuing failure to wrestle with the implications of its spending ambitions. It’s still working on the assumption that an enormous expansion of government spending can be financed entirely with tax increases on corporations and the very rich. The arithmetic, and the realities of tax enforcement, say otherwise.

As usual I sympathize with the Biden Adminsitration, not in its goals but in its predicament. The Democratic congressional margin is razor-thin and Republicans are providing a pretty unified front against them. They need to placate their entire caucus which is, frankly, impossible. The caucus is at cross-purposes and, as has been documented here in the past, the progressive wing of the party is farther removed from rank-and-file Democrats let alone independents than its moderates. And matters following the midterms are likely to be worse. So they’re putting down a marker. It’s the wrong marker but why the heck not? Amiright or amiright?