Going back to 2000, Americans have grown used to watching presidential candidates duke it out over economic policies. Candidate Al Gore ran as a New Democrat, whose platform even included business tax cuts. President George W. Bush ran as a supply sider, with a nuanced and professionally scored tax plan the centerpiece of his campaign. John Kerry ran against President Bush by calling for the repeal of the Bush tax cuts, which he characterized as a giveaway to the rich. President Obama reprised the Kerry story, but also argued for stimulus during the financial crisis. President Trump attacked U.S. trade and immigration policy, while pushing for middle-class tax cuts.
President Trump can be forgiven, perhaps, for running on his record rather than a bold new policy agenda. But his challenger, Joe Biden, has barely made a peep about policy. During the Democratic primaries, he boldly supported far-left initiatives such as the Green New Deal, but backs away from those commitments now when queried about them. In 2009, when President Obama and Joe Biden took over the White House, they chose to drop the policy agenda that got them elected, even pushing an extension of the hated Bush tax cuts because a “recession is a bad time to raise taxes.” Biden’s proposals have likely received so little attention because markets expect him to use the current pandemic recession as an excuse to once again leave the radical Left at the altar.
The problem with this expectation, however, is that it fails to account for two important factors. First, big policy changes usually require legislation, which means that Congress has a big say about policy. Second, the Democratic Party has moved sharply to the left even since 2009. One has a hard time imagining that a Democrat-controlled Congress today would be able to extend the Bush tax cuts, even in a recession.
Given that, it seems that the most likely policy path following a Biden victory and Democratic congressional sweep would be that Congress passes sweeping policy changes with little care for the preferences of the executive branch, cognizant of the idea that Biden would be extremely unlikely to veto the Democrats’ own bills. And what type of legislation might they pursue? Exactly the proposals that were negotiated as part of a détente with Bernie Sanders and AOC as part of the “Unity Platform,” proposals that to this day are described in impressive detail on the Biden website.
Motivated by this, my coauthors and I spent the past few months doing a deep dive into the economic-policy proposals of the Biden campaign. Despite his reluctance to dwell too much on policy in public, Biden’s platform is perhaps more detailed and carefully spelled out then the platforms of any of the candidates mentioned above. He proposes large changes in the tax code, an expansion of the Affordable Care Act, profoundly transformative energy policies, and a tidal wave of new regulations. Sifting through the proposals, our paper quantified what could be quantified and incorporated the policies into a commonly used macroeconomic model.
Our results suggest that the Biden platform, if fully enacted, would reduce GDP by approximately 8 percent, reduce employment by about 5 million jobs, and reduce median family income by $6,500.
Those are, admittedly, very large effects, but a couple of examples can help provide intuition for their scale. On energy policy, Biden proposes to effectively move passenger miles to electric vehicles, which will require power generation in the U.S., we estimate, to increase by 25 percent, about the same increase that we have achieved since 1979. At the same time, Biden proposes phasing out fossil-fuel consumption. Since fossil fuels account for about 70 percent of power generation in the U.S., this means that Biden has effectively put on the table a reboot and expansion of 95 percent of current power capacity. A change that big will, obviously, be disruptive.
As for taxes, Biden proposes, among other things, eliminating the cap on the 12.4 percent Social Security tax for those with incomes above $400,000. This move dramatically increases marginal tax rates on pass-through entities in the U.S., which currently employ more than 54 million workers. If you increase the tax rate on firms that employ that many workers from below 40 percent to about 55 percent, you should expect your policy to have a big effect. And if you hike taxes precisely now, when so many businesses have been pushed to the edge of the abyss by the pandemic recession, then a freefall is far from implausible.
With that in mind, and given the mission of Capital Matters to shed light on important economic- policy issues, we will over the next week provide a series of articles describing the specifics of Biden’s proposals in the areas mentioned above. While the 2020 campaign will surely continue to be policy-free, the 2021 Congress will likely be as policy-heavy as any in history.
Editor’s note: This article originally referred to Bill Clinton, not Al Gore, as a presidential candidate in 2000.