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The Deficit Obsession is Back

That old deficit hawkery threatens the promise of Biden presidency

The surprisingly hidden truth of American politics is that voters like laundry lists. The speechwriters and political professionals prefer the soaring rhetoric and falling in love with their own words, but people want to know what their leaders will do for them. In this sense, Joe Biden had a successful speech last night.

I would point you to Harold Meyerson’s recap of the address, which makes a number of good points. He spent the first 100 days surmounting the potential logistical crevasse of the vaccine rollout, more than doubling his initial projection for shots in arms. (A bad break on the Johnson & Johnson vaccine has coincided with a pullback that might be connected to hesitancy, and will be a major hurdle of the next 100 days.) And he got money to those in need (mostly) through the American Rescue Plan.

Having established that government can work, he’s pushing for more of it, and associating that project with the ability for democracy to function, setting up a race between democracy and autocracy for control of the globe. It sounds pretty stark, but FDR used this rhetorical technique in his day to good effect, at a time during the Depression when people wondered if democracy was worth salvaging and openly pining for an American dictator. Harold brilliantly deconstructs all that, go read it.

This is a comparison to Roosevelt that feels right, not strained or pollyannish. It is a recognition that neoliberalism as a counter to Reaganism failed, and that we must remake the country to save the country. But some old habits die hard. And the biggest whiplash of the First 100 days came when Biden turned away from all the investments he wants to make and toward how we must “pay for” them all.

You’ll recall that there was a lot of celebration over how Biden slayed the deficit dragon, how he not only didn’t bother to pay for anything in the American Rescue Plan, his team actively rejected the usual nonsense arguments about runaway inflation and “targeted” relief. Well, look, I think we can now say that this only applies to emergency legislation in a pandemic.

“So, how do we pay for my Jobs and Family Plan? I made it clear, we can do it without increasing the deficits,” Biden said last night. “What I propose is fair, fiscally responsible, and it raises revenue to pay for the plans I have proposed.” This was in a section where Biden attacked trickle-down economics, but even there, he condemned Trump for adding “$2 trillion to the deficit” with his tax cuts.

This is not limited to Biden himself. Here’s White House adviser Karine Jean-Pierre saying we have to pay for the plan and “not put the burden on the American people.” Council of Economic Advisers member Jared Bernstein has consistently made appearances touting how the deficit will not increase. There’s just no question that this is a preoccupation of the White House. In fact, if you go back to the campaign, this was the plan: emergency funding to rescue the country, and then back to the days of paygo politics.

I think the problem here is obvious: there’s no consensus on the pay-fors. Republicans don’t want any of them, so forget a compromise measure. It’s welcome that Democrats have quickly recognized that. But there’s no consensus among Democrats on these tax measures, either. This nightmare piece from the Wall Street Journal sets the scene. We already knew that the corporate tax increase was being whittled away; now Democrats are skittish about equalizing capital gains and income taxes for the top 0.3 percent of the population.

The thing about Congress is that everyone’s a self-styled tax expert. They have their own pet ideas on how to raise revenue, and their own ideas about what should be left untouched. Every tax plan sounds good until the one person it affects complains. And you end up with the Hamlet-like indecision displayed by Sen. Jon Tester (D-MT): “I don’t want to raise any taxes, but I don’t want to put stuff on the debt, either… But if we’re going to build infrastructure we have to pay for it somehow.” Yikes.

There’s one potential out here: the Biden proposal to have the IRS simply collect what it’s owed, investing $80 billion toward that end. This appeals to a lot of members because it doesn’t change the tax code (“without raising taxes a dime,” as California Rep. Ro Khanna puts it) yet could yield trillions in revenue. The IRS Commissioner said in open testimony that the gap between money owed and money collected is $1 trillion a year.

The problem is that if you’re doing this precise pay-for accounting you have to rely on the Congressional Budget Office. They looked at this last July, and found that increasing IRS funding for collections by $40 billion—half the Biden plan—only gets you $103 billion in revenue over 10 years. That’s ridiculously low; they’re saying that $40 billion in funding only closes 1 percent of the IRS tax gap. But they’re the scorekeepers, and unless they change their mind, tax enforcement just won’t get you far.

If you can’t get consensus on the pay-fors, and if your vestigial rhetoric of “fiscal responsibility” demands that everything be offset, the only result is that narrowing of the tax plan necessarily reduces the spending. That’s a ridiculous box for Democrats to put themselves into. Especially because, if there’s any type of spending that doesn’t require “paying for” it, as they are investments that pay off in the future, it’s infrastructure spending, be it physical or human infrastructure. The fact sheet on the American Families Plan cited a paper showing that every dollar invested in early childhood education yields $7.30 in benefits. So why are you paying for it then?

Not that there aren’t unanswered questions about the structure of the spending; why you need three child care benefit programs is baffling, as is why families must pay a share of child care expenses but not pre-K, or how to put states with wildly different community college tuition into the same free program that they must help fund. We’ve been digging into a lot of these design questions in our Building Back America series. But I’m far more concerned that we’re putting deficit concerns over needed investments to save the planet, give dignity to care work, get the country moving, and more. Solving problems is far more important than the long-run deficit picture in 2045. The entire logic of the Biden project collapses if you yoke it to deficit concerns.

Amazingly, the old Obama team is more forward-thinking on this. Jason Furman notes that these are investments and we have fiscal space. Peter Orszag wrote two months ago that Biden must put climate concerns over the deficit. Larry Summers wrote in 2014 that infrastructure spending pays for itself. Biden’s team has gotten totally away from Obama-era thinking, but the Obama team has evolved on this point.

And progressives need to evolve too. There’s not enough appreciation of how this deficit thing could really and truly blow up this entire package. It’s time to loudly state that the government was put in to solve problems. Inequality is a problem and I strongly support attacking capital income to counteract that. But the deficit blind canyon is a bad place to be. That needs to be made perfectly clear.

So this is the final edition of First 100, and as that emerged out of our Unsanitized series, it’s the end of 14 months of daily writing on our world-historical times. Doing this work was definitely challenging but also a real honor. It was a first draft of history, an attempt to understand a changing and confusing world. That it received national recognition gives me great pleasure. But it’s time to move on.

I’m not going anywhere. I’ll be writing about COVID and the Biden administration and all of the other things that interest me, over at our main site. You can always check my author page for new material. And let me make a pitch for the Prospect. We tell great stories about ideas, politics and power every day. The entire media world is struggling in the post-Trump era, as less engaged people break from talk of politics, and we’re not different. But we need you to stay involved. As the saying goes, you may not be interested in politics but politics is interested in you, and staying informed ensures that you have a shot against political and economic power.

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It was my unique pleasure to carry this through. Thanks to all the readers, and I welcome your feedback on Twitter or through email.