or taking advantage of it?
Legendary British Prime Minister Sir Winston Churchill is credited with saying “never let a good crisis go to waste.” The remark was made nearly 70 years ago as World War II was winding down and the unlikely trio of Britain, Russia, and United States contemplated post-war strategies. In simple terms, Churchill’s remark was suggesting that dramatic changes often uncover new insights and opportunities.
The Biden administration is now testing the logical limitations of that maxim. From unprecedented relief packages to executive orders targeting WEDA’s niche issue of Right to Repair, this administration and a Democratic-controlled Congress are pushing government spending and intervention to new levels not seen since the Great Depression, and their window of opportunity might be closing.
Government Spending Synopsis
With all the new proposals rolling out suggesting trillions of additional spending on everything from infrastructure to a new civilian climate corps, one can be forgiven for forgetting how much has already been spent during the pandemic. A quick refresher shows that since the pandemic, the federal government has already allocated $3.4 trillion in relief to the American people. That funding primarily came from four pieces of bipartisan legislation creating programs like the PPP and other acronyms that have now been added to the alphabet soup.
Looking at the breakout of that funding, we see that about $935 billion went toward small business grants and loans, $590 billion toward expanded unemployment benefits, $460 billion in rebate checks, $420 billion on health care, and $345 billion went to state and local aid.
While there may be disagreement in hindsight about the level of government spending needed in reaction to the pandemic, at the time legislation was passed the circumstances seemed dire. At the height of the economic downturn, unemployment registered at 14.8% – the highest since 1948. That is likely why the CARES Act passed unanimously in the Senate in March of 2020.
Since then, the American economy has recovered surprisingly quickly. The unemployment rate sits around 5% with wages up 4% year over year. In addition to that, the gross domestic product increased 6.5% in the second quarter of 2021 following a 6.3% increase in the first quarter of this year. Another revealing statistic is the number of job openings there are compared to the amount of unemployed with nearly a million more jobs available than job seekers.
Those data points paint the picture of a broiling economy, not an economy struggling to regain its footing from a perilous cliff. It also points to the effectiveness of all that bipartisan government spending that allowed the economy to quickly revive itself.
Testing the Limits
Like an auctioneer’s cadence creating a heightened sense of urgency, all this government spending has seemed to lead to more government spending. Despite warnings of inflation that is now registering above 5% according to the Bureau of Labor Statistics, Congress is pursuing additional spending legislation. A trillion-dollar bipartisan infrastructure package leads the charge that will create a generational investment in traditional items like roads and bridges but also includes large investments in rural broadband.
However, the rationale for increased spending is breaking down as President Biden and congressional Democrats try to advance additional spending of $3.5 trillion on the president’s so-called “human infrastructure” package, an amount equal to that spent at the height of the pandemic. That is in addition to the $1.2 trillion infrastructure package. That is one reason why the legislation is completely devoid of any bipartisan consensus that the previous relief packages over the last year had.
To give some perspective on the amounts being discussed, in 2012 federal outlays totaled $3.5 trillion. Nearly 10 years later, the federal government is on track to spend over $6 trillion without accounting for the anticipated infrastructure package that will be doled out over the next five years, or the $3.5 trillion-dollar package.
The Guessing Game
President Lyndon Johnson told Congress in 1964 that “the most damaging thing you can do to any businessman in America is to keep him in doubt, and to keep him guessing on what our tax policy is.” What is known at this point is that all this proposed spending must be accompanied by a commensurate increase in revenue at some point. The question of who will pay for it and when is still a guessing game.
The Biden administration and Congress have floated many ideas, some of which have already been shot down. For instance, a large part of the tax-raising portion of the “human infrastructure” package included the repeal of stepped-up-basis. Many agriculture proponents were quick to point out this would be ruinous for farmers and ranchers. A Texas A&M study recently showed that repeal of that provision would add an average additional tax liability of $726,104 to family farms and ranches attempting to transfer assets to the next generation, an insurmountable hurdle for most. That proposal was rejected unanimously by the Senate during a vote-a-rama on amendments to the $3.5 trillion budget resolution.
Even though some disastrous tax increases have been rejected, many more remain. Tax increase proposals seem especially targeted at accumulated wealth with substantial increases on capital gains at death and increases in the estate tax with much lower exemption thresholds. They also include a cap on like-kind exchanges, which have been a part of the tax code since 1921. There is also the matter of the corporate tax rate that was lowered in 2017, but would go back up to the highest rate in the developed world under the Democrat’s tax proposal, even higher than communist China.
Another amendment passed overwhelmingly during the budget resolution debate echoes a common refrain from President Biden that taxes will not be increased on those making less than $400,000 a year. Beyond that, we will likely be guessing what our tax policy is until it is actually passed. And all of that disregards the question of whether we actually need any additional spending or reform at the moment.
This brings us back to the title of this article, “Is America wasting a good crisis… or taking advantage of it?
Article Written By Eric Wareham
Eric Wareham is vice president of government affairs for the Western Equipment Dealers Association. He is a graduate of the Willamette University College of Law and Augusta State University. Eric may be reached by writing to email@example.com.