Saying that the time has come for a new framework for fiscal policy, President Biden’s Council of Economic Advisers issued a policy brief Friday that lays out its argument for the multi-trillion dollar investments the administration has proposed to make in everything from green energy infrastructure to childhood education.
“For the past four decades, the view that lower taxes, less spending, and fewer regulations would generate stronger economic growth has exerted substantial influence on U.S. public policy,” the paper says. “Over this period, the United States has underinvested in public goods such as infrastructure and
innovation, and gains from growth have accrued disproportionately to the top of the income and wealth distribution.”
The tax cuts passed in 2017 reflected those ideas, the economists say, but failed to deliver the promised benefits of higher growth and income for ordinary workers. “There has been no evident impact on investment or growth: gross domestic product grew 2.4 percent in the two years leading up to the law’s passage and 2.4 percent in the two years following its passage. Instead, the tax cuts contributed to inequality by delivering disproportionate gains to the already well off without the promised wage gains for the middle class.”
As an alternative, the Biden administration is proposing “an engaged, effective public sector” to help support a more robust economy that works for the benefit of both businesses and workers. Greater federal involvement in research and development, infrastructure, education and health care can produce lasting benefits for the population as a whole, the economists said.
Looking for long-term funding: While the policy brief provides an overview of the Biden administration’s approach to government involvement in the economy, it says little about funding Biden’s plans. CEA member Jared Bernstein addressed the issue in an interview Thursday, telling told Bloomberg’s Tracy Alloway and Joe Weisenthal that the White House wants to fully fund its proposed programs. “It is the president's view that a longer-term or more permanent proposals should be paid for,” Bernstein said.
While noting that the federal government may have more wiggle room when it comes to deficit spending than economists thought in the past – “There's more fiscal space and there's more political space to wield that fiscal space,” he said – Bernstein said that dedicated funding is an important factor to consider when designing new programs. Programs that stick around tend to have clearly defined sources of revenue, he said.
“[T]he effects of not having funding sources for permanent programs show up all the time in their disinvestment and their insufficient upkeep,” Bernstein said. “By contrast, look at Medicare and Social Security, which have held up relatively well in that space because they have dedicated funding sources.”