President Joe Biden is considering a range of potential investment options for the federal government covering everything from traditional infrastructure like roads and bridges to housing, school buildings and even environmentally friendly technology. And while his press secretary, Jen Psaki, has emphasized the initiative is still in the discussion phase, speculation is a package will be presented to Congress imminently, bearing a price tag that could reach $3 trillion.
To cover some of the anticipated cost, Biden is considering increasing the taxes paid by wealthy Americans with annual incomes over $400,000.
Given that Biden’s predecessor in the Oval Office consistently promised — but ultimately failed — to introduce a significant infrastructure investment initiative, you’d think Republican leaders would be willing to engage with the Biden administration to negotiate a package they could support. So far, however, that doesn’t seem to be the case.
Indeed, Senate Minority Leader Mitch McConnell, R-Ky., dismissed what he referred to as Biden’s “so-called infrastructure proposal” out of hand, labeling it a “Trojan horse for massive tax hikes and other job-killing left-wing policies.”
Now, it isn’t entirely clear why McConnell believes investing in infrastructure is either a left-wing policy or a job-killing endeavor. After all, infrastructure investments have enjoyed bipartisan support over the years at the state and federal levels, and with good reason.
While many variables impact the value of the benefit created when the public sector spends on infrastructure, the research conducted over the last two decades does indicate investing in infrastructure stimulates the economy and creates job growth. For instance, Mark Zandi, one of the principle economists at Moody’s, found that every dollar the feds put into infrastructure boosts the nation’s GDP by $1.60.
Of course, it’s not surprising that McConnell claimed tax increases kill jobs. He’s just parroting what has been GOP orthodoxy on this point for decades. Ever since the Reagan Revolution in 1981, the Republican Party has been preaching that tax cuts, particularly for the wealthy, stimulate the economy and create jobs, while tax increases slow the economy and kill jobs. The problem is that line of thinking simply is not supported by the data.
Let’s start with a little context. From the end of World War II through 1980, the top marginal income-tax rate the federal government applied to the highest level of earnings varied from 70 to 90 percent. During this time, the nation’s economy grew by an average of 3.8 percent per year in real, inflation-adjusted terms.
Then came Reagan, who cut the top marginal tax rate imposed on the highest incomes significantly, all the way down to 28 percent by 1986. He promised this would create a huge economic stimulus, by providing an incentive for wealthy folks to work harder and thereby create jobs for everyone else through a “trickle-down” effect.
Moreover, this trickle-down effect would be so powerful that the tax cut wouldn’t increase the deficit because it’d pay for itself.
In the first two years after Regan’s tax cut, the economy did improve. However, economic growth over the seven years Reagan was in office averaged only 3.5 percent in real terms, or less than the average rate of growth when top marginal tax rates were much higher.
Slower growth meant the tax cuts never trickled down, so the deficit exploded.
Compare that to the record of President Bill Clinton, who raised the top marginal tax rate to 39.6 percent, which under GOP orthodoxy should have caused the economy to crater. But it didn’t. Instead, real GDP growth averaged 3.9 percent annually during his seven years in office, better than Reagan.
Bigger picture: The Congressional Research Service found there was no correlation whatsoever between any changes made in federal tax policy from 1945 an 2010 and economic growth, savings rates, investment rates or productivity.
That means the GOP should face facts when it comes to fiscal policy and work to craft initiatives that truly are in America’s best interests, rather than spout rhetorical positions that have been thoroughly discredited.