President Biden’s $2.7 Trillion American Jobs Plan: Budgetary and Macroeconomic Effects

From Penn Wharton.

"Key Points

• PWBM projects that President Biden’s American Jobs Plan (AJP) would spend $2.7 trillion and raise $2.1 trillion dollars over the 10-year budget window 2022-2031.
  
  

• The spending provisions of the AJP, in absence of any tax increases, would increase government debt by 4.72 percent and decrease GDP by 0.33 percent in 2050, as the crowding out of investment due to larger government deficits outweighs productivity boosts from the new public investments.
  
  

• The tax provisions proposed in the AJP, in the absence of any new spending, would decrease government debt by 11.16 percent in 2050. Despite the reduction in public debt, the AJP’s tax provisions discourage business investment and thus reduce GDP by 0.49 percent in 2050.
  
  

• Considered together, the tax and spending provisions of the AJP would increase government debt by 1.7 percent by 2031 but decrease government debt by 6.4 percent by 2050. The AJP ends up decreasing GDP by 0.8 percent in 2050."

The Warren wealth tax, innovation, and consumer surplus

By James Pethokoukis.

"Elizabeth Warren’s new campaign ad returns fire on American billionaires who’ve criticized her wealth tax idea. Her counter attack: “All we’re saying is when you make it big, pitch in two cents so everybody else gets a chance to make it.”

Let’s put aside the reality of the eye-roll-inducing bit about the “two cents.” What Warren is suggesting is that building a business mostly helps the builder. Everyone else, maybe not so much. That sort of thinking always reminds me of the great paper from Nobel laureate economist William Nordhaus, “Schumpeterian Profits in the American Economy: Theory and Measurement.” In it, Nordhaus takes a stab at determining who really gains from the value generated by innovation, the producer of the innovation or the consumer of the innovation.

His findings: “We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers” And by “most,” he means almost all of the benefit with innovators “able to capture about 2.2 percent of the total social surplus from innovation.” Makes a rough sort of sense when you think about it. Consider what Jeff Bezos is worth — a lot — versus the value generated by his nearly trillion-dollar company — a whole lot more.

Many wealth inequality worriers are probably unaware of this research as they fret how superentrepreneurs aren’t giving enough back to the society that paid for paving roads, building bridges, and educating kids. But as economist Donald Boudreaux write a few ago about the Nordhaus study:

His findings show that successful entrepreneurs have already, in the very process of succeeding in the market and becoming wealthy, increased the wealth of ‘society’ – have ‘given’ to others – far more than each successful entrepreneur has increased his or her own individual wealth.  This process of enhancing the economic well-being of countless others through successful market innovation is neither intended nor choreographed by government, but this fact doesn’t make the results any less real or significant.

Learn more: OK, billionaire? Actually, billionaires are OK. | Here’s just how big a risk Elizabeth Warren and The New York Times want America to take | Europe’s tech entrepreneurs tell America: 'Don’t be like Europe'"

Tax-reforms that eliminate the double corporate tax would boost economic growth significantly

See Ending the One-Two Corporate Tax Punch: Jason Furman is right about the ‘stupid’ policy on overseas income. Domestic policy also isn’t so bright. by Brian Reardon and Tom Nicholsin the WSJ. Mr. Reardon is president of the S Corporation Association. Mr. Nichols is a former chairman of the American Bar Association Tax Section Committee on S Corporations. Excerpts:

"On paper, the U.S. has a world-wide tax system that imposes two layers of tax on overseas business income—an initial foreign tax when the money is earned and a second U.S. tax when the money is repatriated. In practice, however, companies actively avoid the U.S. tax by various means, including inversions (moving their headquarters abroad by merging with foreign corporations), shifting profits to foreign subsidiaries, and hoarding the cash overseas."

"On paper, the U.S. also imposes two layers of tax on domestic corporate income—one layer when the corporation earns the income and another on shareholders when they receive the income as a dividend or a capital gain."

"business owners have voted for a single-layer tax here as well. Those that are able become pass-through entities—sole proprietorships, partnerships and S corporations—where their business income is taxed only once, on their personal returns. Those that remain C corporations avoid the double corporate tax by retaining their earnings rather than distributing them, paying their executives excess salaries and bonuses, engaging in share buybacks rather than paying dividends, and borrowing rather than raising capital through the equity markets. The result is less investment, fewer jobs and more debt. It also means that very little corporate income is subject to a second layer of tax."

"Analysis by the Tax Foundation consistently finds that tax-reforms that eliminate the double corporate tax would boost economic growth significantly."

"The current code imposes a very high tax on equity investment, but a much lower tax on debt-financed investments. The dangers of too much debt were exposed during the 2008 financial crisis."