When government officials begin to talk about “investment” and “free” programs, taxpayers are wise to hang onto their wallets.  President Biden is scheduled to give his first State of the Union Address to Congress tonight at 9:00 p.m. and those words will be flying fast and furiously.

Citizens Against Government Waste (CAGW) took a look at the what the President proposes to spend in his next, new multi trillion-dollar initiative.  Likely, it will make Rep. Alexandria Ocasio-Cortez (D-N.Y.) and her Far-Left colleagues gush even more over the populist proposals being pushed out of the White House.  She said recently, “The Biden administration and President Biden have definitely exceeded expectations that progressives had.”

The Biden administration continues to use the pandemic to spend more money than ever to create large, permanent government programs that will cost trillions of dollars into the future.  This new proposal is entitled, “The American Families Plan,” and is expected to cost $1.8 trillion over 10 years, with $1 trillion going to “investments” (there is that word again) and $800 billion in tax cuts for American families and children over 10 years of age.  This proposal and the American Jobs Plan that calls for $2.25 trillion for all sorts of new types of “infrastructure,” which Senator Kristen Gillibrand (D-N.Y.) famously described and tweeted as, “Paid leave is infrastructure.  Child care is infrastructure.  Caregiving is infrastructure.”  The total cost of the “infrastructure” bills is $4.05 trillion, on top of the $5.7 trillion that has already been spent for COVID-19 relief and the $1.5 trillion discretionary budget for fiscal year 2022, with all adding up to $11.25 trillion, more than 2.5 times the $4.4 trillion spent during fiscal year 2019.  The late Senator Everett Dirksen’s adage and warning, “A billion here, a billion there, and pretty soon you're talking about real money,” seems sadly, or perhaps frighteningly, quaint.

Here is some of what is in the Biden plan:

• $225 billion to make childcare more accessible and help families, depending on household income, pay only a portion of the total cost of the care.
• $225 billion over 10 years to provide a “national comprehensive paid family and medical leave program.”  The program will provide up to $4,000 a month, with a minimum of two-thirds of average weekly wages replaced, increasing to 80 percent for the lowest wage earners.  This program will be ripe for abuse.
• $200 billion for free “universal pre-school” to all three- and four-year old kids where all educators that participate will receive at least a $15 minimum wage and those that have comparable qualifications to kindergarten teachers will receive a similar income.  The administration claims this government benefit will save families an average of $13,000 when fully implemented by allowing more people to participate in the labor force.
• $200 billion to make the Patient Protection and Affordable Care Act (ACA), or Obamacare, expanded premium tax credits and subsidies found in the American Rescue Plan permanent.  They are currently scheduled to expire in two years.  The funding does nothing to lower health insurance premiums; it just throws funds at the insurers.
• $109 billion for “free” community college for all Americans, including students who were brought into the country illegally as children, called DREAMers.  Students could use the benefit over three or even four years.  When anything becomes free, its value is lost.    When a student, or their parents, are paying for college they have skin in the game and will be more focused on achieving the goal of learning something and graduating.  But even when paying for college, it is difficult to succeed.  A 2016 report from The Third Way, which analyzed Department of Education data, found that a first time, full-time student who enrolls at a four-year school has less than a 50 percent chance of earning a degree.  Making college free will encourage even more students to attend, leading to higher costs for taxpayers and more disappointment for students.
• $45 billion to expand current nutrition programs, such as the summer EBT, expand healthy school meals initiated during the Obama administration, which was a disaster, and SNAP.  But some of these programs have been used for years to assist the poor and supposedly improve nutrition so one can wonder how spending more money will solve the health problems that still exist.
• $39 billion for families that make less $125,000 a year, to send their child to a four-year Historically Black College and University, a Tribal College and University, or another minority-serving institution.  But there are other costs to attending college, like commuting, room and board, books, and other expenses and it is unclear if there will be funding for these extras.
• $9 billion to address teacher shortages, improve training, promote diversity, and earn new credentials, which is throwing money at public teacher unions, who have been at the forefront of blocking the opening of schools across the country.
• President Biden also calls for allowing people at age 60 to enroll in Medicare, a program that is destined to go broke in 2026.  If the government believed in fiscal responsibility, the age should be raised instead.  He wants a “public option” to be added to ACA, which as CAGW wrote in an October 2020 WasteWatcher, is really a foot in the door for national health insurance, or government-run healthcare.  He also calls for Medicare to “negotiate” drug prices.  Negotiation already occurs in Medicare, as CAGW has pointed out in several CAGW blogs.  What this really means is he wants to institute price controls, which destroys research and development.

Someone has to pay for all this “free stuff” and according to the American Families Plan that means he wants Congress to reverse the 2017 tax cut law and “giveaways” to the rich.  Of course that tax cut supercharged the economy, businesses boomed, and unemployment dropped to record lows in 2019, especially for Hispanics at 3.9 percent, for African Americans at 5.5 percent, for Asians at 2.5 percent, and adult women at 3.1 percent.  The COVID-19 shutdown devastated the economy and many now question correctly if that was an unwise decision by healthcare “experts.”

Biden demands that “high-income Americans pay the tax they owe under the law – ending  the unfair system of enforcement that collects almost all taxes due on wages, while regularly collecting a smaller share of business and capital income.”  He wants to “eliminate long-standing loopholes, including lower taxes on capital gains and dividends for the wealthy, that reward wealth over work.”  But millions of families, not just the super wealthy, have their retirement savings invested in the stock market, and these tax changes will harm middle-class Americans.  He claims the changes to the tax code will help rebuild the middle-class by using the revenue to invest in education that will “boost wages,” assuming that more people will graduate from college.

According to an April 28, 2021 New American article by Veronika Kyrylenko, 2018 data from the Internal Revenue Service (IRS)  found that “the top 50 percent of all taxpayers paid 97.1 percent of all individual income taxes, while the bottom 50 percent paid the remaining 2.9 percent” and that the “top one percent paid a greater share of individual income taxes (40.1 percent) than the bottom 90 percent combined (28.6 percent).”  She points out that a Tax Policy Center analysis found that “76.4 million people (44.4 percent) did not pay any federal income tax in 2018” and queries how that represents “fairness.”

But the super wealthy will have the means to move their money and assets elsewhere.  Kyrylenko writes that “taxing the rich” simply “hastens the exodus of businesses elsewhere.”  After all, she points out how New York and California have each lost population and as a result, a congressional seat due to the 2020 census.  This has happened to other high tax and regulatory states, like Illinois and Michigan.

Other tax increases, like the elimination of the stepped-up basis and the repeal of capital gains for carried interest, have been tried in the past.  The stepped-up basis repeal would create a second estate tax by eliminating the ability of all beneficiaries of estates of all sizes to use the value of an asset at death as the basis for their ownership of the asset.  If it is eliminated, family farms, small businesses, real estate, and stock ownership would be severely damaged.  According to an April 2021 Family Business Estate Tax Coalition report , repealing the stepped-up basis would cost 80,000 jobs every year for the next 10 years and 100,000 jobs annually thereafter, decrease GDP by $100 billion over 10 years, and cause significant liquidity issues, along with increased tax compliance costs and disputes over valuation.  In 1976, Congress repealed the stepped-up basis and after it was found to be impractical, unfair, and complex, Congress overruled its unwise decision and restored the provision in 1980. 

Treating carried interest as ordinary income rather than capital gains (which has been the tax treatment for 100 years) would generate less than $14 billion over 10 years.  Carried interest is not the same as regular income because it is an ownership stake in a business, and the interest income is returned if certain profits are not achieved.  The small amount of money that would be added to the Treasury is more than offset by the negative impact this change in the tax laws would have on private investment.  The 2017 Tax Cuts and Jobs Act raised the long-term capital gains holding period for carried interest to three years, and this should not be changed.

It is clear who will end up paying for President Biden’s and the Democrats’ prolific spending and higher taxes.  The massive damage to the economy, inflation, and the large expansion of government means that in the end all Americans will foot the bill and pay a hefty price.