TThe Senate will soon consider the multibillion-dollar “Build Back Better” tax and spending bill passed by the House in a narrow partisan vote. The largest peacetime tax and spending increase in our history, the bill would cause serious long-term damage to the US economy.
It would spend $ 2.4 trillion on a host of temporary programs that, if extended permanently, would cost $ 4.6 trillion. It would also increase personal and business taxes by over $ 2 trillion.
President Joe Biden and his economic advisers apparently believe that more stimulus spending is needed every few months to keep the economy going and that higher taxes on investment and business do not negatively impact the economy. private economy. Only the opposite is true. Penn Wharton’s budget model shows that the combined effects of increased spending and taxes would hurt economic growth, further fuel inflation, reduce private investment, and increase public debt.
In the past 12 months, Congress has enacted a $ 1,000 billion COVID relief bill, a $ 1,900 billion stimulus spending bill, and a 1,200 billion infrastructure bill. billions of dollars. This is in addition to $ 2.6 trillion in other COVID relief bills passed last year. That’s $ 6.7 trillion in spending so far. Passage of the House bill would increase total spending since the start of the pandemic to between $ 9.1 trillion and $ 11.3 trillion. That’s an astonishing amount of new spending.
Penn Wharton’s model sets out the negative economic consequences of increased spending. The transfer payments provided for in the bill would divert resources from capital formation. A smaller capital stock would mean less investment in equipment, factories and other assets that produce goods and services. The result would be lower economic output and lower economic growth.
The increased spending would lead to higher public debt, crowding out investment in private capital, leading to lower wages and fewer jobs. If spending is extended permanently, public debt would increase by 11.6% in 2031, 19.6% in 2041 and 24.4% in 2050.
The Senate is expected to take a break before rushing to pass this bill in the final weeks of the year. Adding trillions of dollars in additional spending would fuel inflation further and hurt our economic recovery.
Bruce Thompson served as Assistant to the United States Senate, Assistant Secretary of the Treasury for Legislative Affairs, and Director of Government Relations for Merrill Lynch for 22 years.