When in 1838, the French statesman Talleyrand, a man known for his guile, died, the Austrian chancellor is said to have asked, “What did he mean by that?”
Say what you will about Joe Biden, he’s no Talleyrand, but looking at his program, and at what he has said on the campaign trail and from his basement, it’s reasonable to ask what he means by his program, and no less reasonable to ask what it will mean for Americans.
Over at the Hoover Institute, Timothy Fitzgerald, Kevin Hassett, Cody Kallen and Casey Mulligan have prepared a detailed analysis of Vice President Biden’s Economic Agenda, subtitled, The Long Run Impacts of Its Regulation, Taxes, and Spending.
The end of its opening:
[W]e conclude that, in the long run, Biden’s full agenda reduces fulltime equivalent employment per person by about 3 percent, the capital stock per person by about 15 percent, real GDP per capita by more than 8 percent, and real consumption per household by about 7 percent.
The analysis is detailed, long and, in my view, well worth reading in full. However, in a series of four articles (or really one plus three, as you’ll see), Kevin Hassett, a National Review Institute fellow and senior adviser to National Review Capital Matters, has provided an introduction to, and summary of, the analysis he prepared with his colleagues at Hoover. Kevin served in the Trump administration as a senior adviser and is a former chairman of the Council of Economic Advisers.
In the first of these articles, Kevin asked (in essence) how seriously we should take the former vice president’s program:
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…
That led to the paper described above.
In keeping with the mission of Capital Matters to shed light on important economic policy issues, Kevin then explained that he would be writing a series of articles describing some of the specifics of Biden’s proposals. In effect, these act as a summary of the larger Hoover paper, although Kevin’s succinct and informative articles are absolutely no excuse not to read the whole thing.
The first part of this trilogy looked at Biden’s energy policy.
Biden’s agenda is sweeping and far more complex than the debate discussion suggested. Take a deep breath. Here comes the highlight list. Biden calls for: restoring methane limits for oil and gas operations; ending federal leases for oil and gas drilling both onshore and offshore; ensuring that 100 percent of vehicles have zero emissions; eliminating carbon emissions from the power sector by 2035; making the entire economy net zero emissions by 2050; reparations to be paid by past polluters; $400 billion for clean energy research; rejoining the Paris agreement; reducing the carbon footprint of all buildings by 50 percent; and requiring firms to document and quantify the financial risk related to climate in their public reporting.
Pause to consider what the practicalities of arriving at a position where 100 percent of vehicles have zero emissions would actually mean:
We estimate that the electrification of passenger vehicles would require a giant increase in power generation, since gasoline would no longer be the source of energy for passenger miles. Demand for power would rise by about 25 percent. Because 70 percent of power is currently generated by fossil fuels, the plan puts almost the entire grid on the table. If you assume that demand would be met by solar power, which is less efficient than power generated by fossil fuels, then the typical power bill would jump about $1,000 annually — not to mention that generating that much solar power would require a land mass about half the square footage of New England covered with solar panels…
And fracking? Let’s just say that there are doubts how long fracking would survive under this new regime, although there is understanding for Biden’s unwillingness to say so:
The mineral wealth destroyed by these policies is extremely inconveniently situated politically. The Biden plan would cost, we estimate, Pennsylvania $390 billion, Colorado $184 billion, West Virginia $254 billion, and states with offshore drilling $366 billion. To put those numbers in perspective, the reduction in West Virginia’s wealth amounts to more than 3 times the state’s annual GDP…
Next Kevin turned his attention to healthcare:
[Biden’s] health-care proposal doubles down on the ACA, moving it very far to the left, and Biden himself has emphasized his main policies with admirable consistency. As one handicaps the policies that are likely to become law should the former vice president win, health care moves very close to the top of the list. The major reason why is Biden’s embrace of a public option for health insurance…
If the public option is attractive and takes over the health-insurance market, then the government will set the price for everything in that space, and presumably start to nickel and dime health-care providers. Almost all global health-care innovation starts in the U.S., so setting profits to zero here would have a major impact on the willingness of entrepreneurs to invest in risky new drugs. If you develop a cure for cancer, but have to negotiate its price with AOC, you probably will not come out ahead…
And, finally, Kevin moved his gaze to one of the two great inevitables, taxes:
On the corporate tax side, Biden increases the top rate to 28 percent (from the 21 percent achieved by the Tax Cuts and Jobs Act), but also allows expensing of capital purchases to expire, and imposes steep new taxes on multinational income. On the individual side, the top individual rate will rise to 39.6 percent. Biden advocates other increases in the top marginal rate through some additional measures. First, he phases out itemized deductions, which lifts the rate by about 1.2 percent (taking us to 40.9 percent). Then he removes the cap on the 12.4 percent Social Security tax (lifting the rate to 53.3 percent), with the capital-gains rate rising to equal the ordinary tax rate. This Social Security tax trick was already used before when Democrats removed the cap on the Medicare tax, so add the 3.8 percent from that to our rate to get up to 57.1 percent…
The plan does not end there, of course. The capital-gains rate for wealthy individuals is lifted to 39.6 percent (so get ready to sell everything in December if Biden wins). Biden even hacks away at retirement savings, ending the deductibility of IRA contributions and replacing that with a fixed credit…
In the paper, we go on to show that these huge marginal tax-rate increases do not only affect a few rich people because small businesses tend to file as individuals and pay the top marginal tax rate. There are about 50 million workers in the U.S. working in these so-called pass-through businesses. Short-term cyclical factors are difficult to quantify, but perhaps as many as 10 percent of those workers could be expected to lose their jobs next year if these tax hikes are passed…
To repeat myself, well worth reading…