President Biden’s proposed $6 trillion budget buttresses an economic and social agenda aimed at reshaping the nation. Even with an enormous increase in federal programs, the President’s Office of Management and Budget forecasts only tepid economic growth. Perhaps the headline of a Wall Street Journal column by Brookings Institution’s William Galston described the situation best, “Biden’s Slow-Growth Budget Gamble”.
The fiscal year 2022 federal budget proposal includes the President’s $2.3 trillion infrastructure initiative, $1.8 trillion for the American Families Act, and details $1.5 trillion for support of defense and domestic agencies. It would strengthen the safety net by investing heavily in infrastructure, education, paid family leave, childcare, and health. The proposed budget also addresses gun violence, climate change, and health research. There is much to like in the President’s initiatives, but its successful implementation is inexorably linked to a rapidly expanding economy.
Despite a $3 trillion tax increase imposed on corporations and upper-income taxpayers, the national debt will skyrocket. The national debt level is projected to exceed record levels experienced during World War II. By 2031 national debt held by the public is expected to total $39 trillion, or 117 percent of the nation’s economy as measured by Gross Domestic Product (GDP).
The Biden Administration argues that the proposed budget is “an agenda for robust, durable economic growth”. But is it?
As Neil Irwin wrote in his New York Times column, economic growth is strong in 2021 and 2022, but only to return the economy to its pre-pandemic trend line. In 2023, the administration expects the economy to grow by about 2 percent, and then 1.8 to 1.9 percent annually through the rest of the 2020s. This compares to 2.3 percent average annual economic growth from 2010-2019.
With the myriad of new federal initiatives to enhance opportunity, why is the projected economic growth so underwhelming?
Part of the answer may be that “demographics is destiny”. The Congressional Budget Office (CBO) found, “growth in the potential labor force is projected to be slower than in previous periods.”
To increase labor force participation budget priorities should be aimed at making it easier for women to return to work, expanding quality vocational and skill training opportunities, and implementing comprehensive immigration reform that considers merit.
Throughout American history, innovation and technology were engines of economic expansion. Federal budget policies must focus on supporting university and business research and development, and not impose regulations and taxes that could stifle technological advances that lead to good jobs.
President Biden’s budget contains programs that could address workforce and innovation challenges. Over time they have the potential to spark economic opportunity. At the same time, the President’s budget would increase the share of the economy going to the federal government from about one-fifth to one-quarter. Will a larger share of the economy flowing to the federal government impact the private sector entrepreneurial spirit? A robust private sector is essential to underpin the economic expansion to responsibly finance the President’s vision of America.
Douglas Holtz-Eakins, President of the American Action Forum and a past Director of the Congressional Budget Office told the New York Times “He thought Mr. Biden’s policies could create faster growth in the short term but slower growth in the long run because of taxes and spending.”
If current economic growth forecasts prove to be accurate, there will be a disconnect between President Biden’s goal of “building back better” and the ability of American taxpayers to foot the bill.
Go Local Prov Politics
Monday, June 14, 2021
Gary Sasse is the Founding Director of the Hassenfeld Institute for Public Leadership at Bryant University.
https://www.golocalprov.com/politics/bidens-budget-and-economic-growth-bet-gary-sasse