Everything Is Seemingly Spinning Out of Control

By IPI President Tom Giovanetti

"Democrats plan to add trillions more in a $1.9 trillion Covid-19 relief package that contains significant spending that is not directly related to the pandemic. . . "

Democrats in Washington want us to believe that order, sanity and responsibility have returned to the nation’s capital, and stylistically that might even be partially true. But in the actual details of policy proposals, Washington is doubling down on the crazy.

Prior to the Covid-19 pandemic, the economy was in near robust shape, driven by long-overdue corporate and international tax reforms, the winnowing of outdated and unnecessary regulations, and continued technological innovation. Absent any change in policy, there is every reason to expect that prosperity will continue to increase once we’ve gotten past the worst effects of the virus.

No doubt there WILL be a burst of economic activity as people are able to return to brick-and-mortar retail establishments, bars and restaurants, and long-delayed hair salon and nail appointments. But whether actual economic growth happens (they’re not the same thing) will depend on the policies being debated and implemented right now.

You may be under the impression that the federal government spends a little more than it takes in, but you would be mistaken. In FY2020, federal revenues were $3.42 trillion, but federal spending was $6.5 trillion. In other words, the federal government spent almost TWICE what it took in. That’s not sustainable.

But Democrats plan to add trillions more in a $1.9 trillion Covid-19 relief package that contains significant spending that is not directly related to the pandemic, including Medicaid expansion, additional paid leave for federal employees, and billions to states to bail them out for their own past mismanagement.

And that’s not all. Democrats have trillions more in their legislative pipeline for infrastructure, Obamacare expansion, and more green energy and broadband subsidies. It’s as if there is no natural limit on the amount of borrowing and spending a country can do, and no limit on taxpayers’ willingness to pay for it all with higher taxes. It’s as if inflation and recession have been ruled out by the fact that Democrats’ intentions are pure in their own minds.

Beyond more federal spending, Democrats want to double the federal minimum wage, assuming the money for the additional labor costs will just materialize out of thin air.  In reality, employers must pay those increased labor costs by reducing other expenditures—such as on new equipment or hiring more workers—or pass along the increases in the form of higher prices to consumers.

In fact, unlimited money out of thin air seems to be the core policy assumption in Washington these days. But we know that’s not true, and at the end of that road awaits the dragon of inflation.

Meanwhile the political debate is about culture wars and personalities, rather than about the details of policy changes that will affect our prosperity—and posterity—for decades. We’d better start paying attention to the important stuff before the golden goose gets slaughtered.

Today's TaxByte was written by IPI President Tom Giovanetti.