When President Biden unveiled a $6 trillion federal budget in late May, he proposed shattering spending records and expanding the government’s role in economic life to a truly unprecedented extent. In justification, the Biden administration promised taxpayers this massive expenditure of their money would revitalize and grow the economy.
“This budget is an agenda for robust, durable economic growth and broadly shared prosperity,” the White House said at the time. “It will deliver a strong economy now and for decades into the future. And it is an investment in Americans all across the country who power our economy.”
But a new study puts the lie to the administration’s promises—and shows that the president’s $6 trillion budget proposal would actually hurt the economy in three major ways. The right-leaning, nonpartisan Tax Foundation analyzed the economic impact of the blowout spending plan and the many tax hikes it includes.
Far from stimulating “robust, durable economic growth” and “broadly shared prosperity,” the analysis concludes Biden’s budget plan would ultimately shrink the national income by 1 percent (equivalent to hundreds of billions of dollars in total lost income), reduce wages by 0.8 percent, and lead to 165,000 fewer jobs.
ANALYSIS: The combination of tax and spending proposals in President Biden’s budget is estimated to reduce U.S. GDP in the long run by 0.9 percent and result in 165,000 fewer U.S. jobs.https://t.co/0yqQLIRNwX— Tax Foundation (@TaxFoundation) June 16, 2021
That’s right: The president wants to confiscate trillions in taxpayer dollars for a government “investment” that would leave us worse-off as a country. Why would Biden’s plan have net negative effects?
Well, because despite the president’s rhetoric, you can’t get something for nothing.
The administration, and proponents of big government in general, often tout the perceived positive impact their spending would have. But they ignore or gloss over the trade-offs and consequences. Namely, that every dollar the government spends must ultimately come from elsewhere in the economy.
As free-market economist Ludwig von Mises famously quipped, “The government pretends to be endowed with the mystical power to accord favors out of an inexhaustible horn of plenty. The truth is the government cannot give if it does not take from somebody.”
We must weigh all economic policies in light of this fundamental truth. In the case of the president’s budget, it would fund Biden’s big-spending ambitions by raising taxes on business, income taxes, and more.
So, the benefits of new government programs must be weighed against the costs of less business and private sector investment that necessarily accompany them. When the Tax Foundation did this weighing, it found the president’s proposal to be a net-negative for the economy; the consequences of the tax hikes overshadowed any benefits from the spending.
This isn’t actually very surprising.
Not only does government spending usually just move money from one part of the economy to another, rather than actually create new wealth, it also moves it from efficient, market-based allocation to an assignment based on politics. This is a recipe for inefficiency, bloat, and all the other maladies that plague most government agencies.
Of course, don’t expect President Biden to acknowledge the shortcomings of his plan. (Although the White House’s own economists basically admit it won’t work in the fine print of the budget proposal.) Politicians have every incentive to make bold promises and skirt around economic realities. But taxpayers should nonetheless be aware of the real results we would get for this $6 trillion “investment”—and those results aren’t nearly as rosy as the president’s rhetoric.
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