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What Does $6 Trillion Buy You?

Published June 1, 2021

About $2 trillion of the budget is devoted to Biden’s American Jobs Plan, which expands the traditional definition of physical infrastructure beyond productivity-enabling projects like public transportation systems, or even wireless communications technology or R&D spending.

Biden’s concept of infrastructure includes programs promoting environmentalism and social justice and rather than economic growth. Examples include creating a public option for health insurance, empowering labor unions, and lowering the Medicare eligibility age while expanding its benefits. There is also funding for new E.P.A. programs to address racial disparities in people’s exposure to climate change hazards and buying a fleet of electrified Postal vehicles.

About $1.8 trillion of the budget funds the American Families Plan, which expands childcare services, creates universal pre-K education and community college enrollment, subsidizes paid family leave, and extends tax cuts for families with children.

While these all may be worthy goals, how will this historic $6 trillion budget be funded?

Biden’s budget would raise the federal tax burden share on wealthier taxpayers while decreasing the tax burden share on low-income earners. However, the Congressional Budget Office notes that Biden’s revenue plan will continue to increase the national public debt over the next five years and fails to address the nearly $4 trillion COVID-induced federal deficit of 2020-21.

Primarily, the top capital gains tax rates would increase from 23.8 percent to 39.6 percent, for a total effective rate of 43.4% when including the net investment income tax. As mentioned in our earlier piece, this exceeds the top corporate tax rate of many European and Asian countries. This makes U.S. companies less competitive in the global marketplace, creating fewer American jobs.

Additionally, the top federal income tax rate would be increased from 37% to 39.6% for those making half a million a year, while extending the full child tax credit only for those earning around $100,000 or less per year. Keep in mind that the Tax Foundation used the latest IRS data from 2018 to illustrate how the richest 5% of Americans already paid 60% of the total federal income tax burden, while the entire bottom half paid less than 3%.

Prioritizing social equity and environmentalism over economic productivity may be a worthy goal for designing the federal budget—if pursued responsibly. However, the creators of national public policy are elected within a democratic federal government by majority rule. What can we expect if half of all American voters pay very little of the total federal tax burden needed to support a federal budget designed to redistribute wealth and correct “systemic” social injustice?

Our founding fathers created a constitution to protect the individual rights from the tyranny of the majority. America will soon need to reconcile the oft conflicting goals of equality and equity.

Eric Knowles, MBA

The Knowles Group has been providing professional economic services to the legal community since 1979. The firm has worked on behalf of thousands of attorneys in a dozen states and Canada. Testimony has been provided in both federal and state venues.