“It’s going to cost nothing,” President Biden said of the Democrats’ massive $3.5 trillion spending binge, which House Speaker Nancy Pelosi is scrambling to pass this week.
Don’t believe it. The bill, which aims to move America closer to a European-style social-welfare state, will shorten the fuse on a debt bomb that’s already set to detonate.
Last year, lawmakers enacted $3 trillion in (mostly) justified deficit spending for a once-in-a-lifetime pandemic. Yet the 2021 spending blowout is set to dwarf those costs. Lawmakers have already enacted a $1.9 trillion “stimulus” bill filled with unnecessary items like unemployment benefits that exceed the wages for many available jobs, and bailouts to states already running budget surpluses. The Senate has passed a $550 billion infrastructure bill that is financed mostly with gimmicks. Biden’s 8.4 percent discretionary spending increase would permanently raise the baseline by $1 trillion over the decade.
And now, Democrats are trying to pass a $3.5 trillion reconciliation bill that would raise deficits by as much as $1.75 trillion. Even those figures understate the bill’s true cost by at least $1 trillion by pretending that policies like the expanded child tax credit will expire within a few years, even though the Democrats’ policy is to make them permanent.
Add it all up, and congressional Democrats are set to commit $8 trillion in new spending over the decade, of which $6 trillion would be borrowed. That is quadruple the net cost of the 2017 tax cuts.
It would be enough money to eliminate the employee side of the payroll tax, or deposit $60,000 into each family’s bank account. Instead, it will be spent on a grab bag of long-standing liberal policies.
All this debt has a permanent cost. If interest rates ever nudge back up past 3 percent, this year’s $6 trillion borrowing spree will cost $180 billion in additional interest costs every year, forever. That’s $180 billion annually that could otherwise provide tax relief, assist veterans, or improve infrastructure. Instead, it will pay interest to bond holders. What a waste of tax dollars.
This year’s Democratic spending binge is not the end of the story. Biden still has $3 trillion in leftover campaign promises covering Social Security, health care, higher education and other issues. If his entire agenda is enacted, the national debt held by the public — which was just under $17 trillion before the pandemic — would reach $44 trillion a decade from now.
The long-term danger is that today’s irresponsible government borrowing is set to collide with 74 million baby boomers retiring into Social Security and Medicare systems that are projected by the Congressional Budget Office to run a $112 trillion cash shortfall over the next three decades, including the resulting budget interest costs.
All this debt is projected to make interest the largest item in the federal budget, consuming nearly half of all annual tax revenues within three decades. And these figures assume that interest rates still remain comparatively low. If rates exceed the CBO projections by even just one percentage point, it would add $30 trillion in interest costs over 30 years.
None of this is remotely sustainable. Which is why all of this new spending will eventually bring huge new taxes. Biden and congressional Democrats claim that all of their promises can be financed by taxing corporations and families earning over $400,000. Basic math shows otherwise. Even if progressives had the votes to raise corporate tax rates to 28 percent, slam American multinational companies, raise the top income tax rate back to 39.6 percent (or higher), impose Social Security taxes on high earners, steeply raise investment and estate taxes, and impose a wealth tax, those policies still could not fund the $8 trillion in total benefits promised in this year’s legislation.
Democrats crafting the reconciliation bill are learning that most of their “tax the rich” proposals are either unworkable, highly unpopular, or would not raise nearly as much revenue as promised. So they are already considering imposing new tobacco taxes in violation of their “tax only the rich” pledge.
It won’t stop there. Locking in all this new spending on top of rising Social Security and Medicare costs will likely push annual budget deficits past $2 trillion even during peace and prosperity. If Democratic spenders cannot tax the rich to pay for their historic spending surge, whom do you think they will come after next? European nations fund their social democracies by slamming their middle classes with large income, payroll and value-added taxes. America cannot fund a vast social democracy on the backs of the wealthiest 3 percent of taxpayers.
Once all that new spending is locked in, the middle class should protect their wallets. The bill is coming.