Government Spending

Why Biden's $3.5 Trillion Spending Plan Would Be Worse for the Economy Than Manchin's $1.5 Trillion Proposal

Manchin's $1.5 trillion plan is still bigger than the Obama stimulus, and would be a major expansion of government's power to redistribute wealth.

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Here's a novel idea: if the government engages in less taxing, spending, and borrowing, the negative consequences of all that taxing, spending, and borrowing will be limited.

That's the bottom line from a pair of recent studies that project the long-term economic consequences of the proposed $3.5 trillion reconciliation bill and a more hypothetical $1.5 trillion spending plan offered by Sen. Joe Manchin (D-W.Va). Manchin, who remains a key holdout in Democrats' plans to pass the larger package through Congress, says he won't support the $3.5 trillion bill because he's concerned that adding to the national debt will constrain America's future economic growth. The two studies, both completed by the Penn Wharton Budget Model (PWBM), an economic policy think tank housed at the University of Pennsylvania, support Manchin's caution is warranted.

As I wrote last month, when the PWBM published its analysis of the reconciliation bill, the $3.5 trillion spending package will leave America poorer in the long run. The PWBM analysis projects a decrease in private wealth, wages, and America's gross domestic product (GDP) over the next three decades relative to a projection in which the bill is not passed. The larger spending package would increase government debt at a faster rate, which would increase the amount the government has to pay in interest. In the $3.5 trillion scenario, higher levels of spending and higher amounts of government debt "crowds out investment in productive private capital. Less private capital leads to lower wages as workers become less well-equipped to do their jobs effectively," the report states.

Now, the PWBM has completed an analysis of the $1.5 trillion framework that Manchin reportedly offered as an alternative. In order to do the estimate, PWBM analysts assumed that Manchin's proposal would increase spending by about $540 billion for means-tested childcare programs, like universal pre-K; $439 billion for a five-year extension of the expanded Child Tax Credit; $260 billion for public infrastructure; and $260 billion for other assorted government spending.

That's still a lot of money, and there are still some negative long-term consequences—but the most important part of Manchin's proposal is that it does not require additional borrowing, and relies on smaller tax increases than what President Joe Biden has proposed. As a result, government debt would actually fall slightly over the next 30 years. The tax increases would reduce private capital by less than 1 percent by 2050—as opposed to the 6.1 percent drop that would come with the passage of the larger reconciliation package. Wages and national GDP would remain flat under the $1.5 trillion plan, instead of the projected decline under the $3.5 trillion plan.

What the report essentially says is that Manchin's proposal would be less bad than the $3.5 trillion proposal. But it would still be a progressive scheme to redistribute wealth. "We estimate that the average 30-year-old in the lowest 20 percent income group is about $3,200 better off under the Manchin memo," the PWBM analysts conclude. "In contrast, the average 30-year-old in the top 20 percent of income distribution is about $6,800 worse off."

But, by limiting how much new taxing and borrowing is necessary to finance all that redistribution, Manchin's proposal limits the damage done to the wider economy "as productivity effects of the new spending offset the distortions produced by higher taxes," the PWBM concludes.

It is a little bit crazy that everyone in Washington is talking about $1.5 trillion as a small sum of money. What Manchin is willing to support would cost about $500 billion more than the Obama stimulus, even after adjusting for inflation. And this isn't an emergency spending plan meant to float the country through a recession—it's a massive increase in government spending at a time when the economy is growing significantly (despite the weirdness in labor markets and supply chains).

The potential costs of an even bigger spending plan should be front and center in lawmakers' minds. Higher levels of debt—even if it doesn't cause runaway inflation and even if higher interest rates don't trigger a major crisis—will be a major drag on future economic growth.

What Manchin is proposing is a still-risky but ultimately safer plan that still gives progressives much of what they want—higher taxes on the rich and corporations, an extension of the child tax credit, and much more redistribution of economic gains—and delivers a big political win for Biden in the form of the infrastructure package. It is in no way a win for limited government, but it's less of a win for people who think the government can buy utopia on credit.

NEXT: San Francisco Wants To Sell the Air Rights Above City Hall for $45 Million. Why Not Give Them Away for Free?

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  1. Funny how the Biden regime's $3.5 Trillion spending plan is worse for the economy than Manchin's $1.5 Trillion plan, but not worse than Trump's $500 Billion plan.

    1. Thank you for this message, I was about to get my Bowf Sidez(tm) Calculator out and start working those numbers out, but you did it for me.

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    2. The Trump Welfare and Handout Bill of 2020 was $2.2 trillion.

      The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, is a $2.2 trillion economic stimulus bill passed by the 116th U.S. Congress and signed into law by President Donald Trump on March 27, 2020, in response to the economic fallout of the COVID-19 pandemic in the United States. The spending primarily includes $300 billion in one-time cash payments to individual people who submit a tax return in America, $260 billion in increased unemployment benefits, the creation of the Paycheck Protection Program that provides forgivable loans to small businesses with an initial $350 billion in funding, $500 billion in loans for corporations, and $339.8 billion to state and local governments.

      wikipedia

      1. Pitched, Written and Co-Sponsored by 87% Democratic Politicians.
        One of Republicans biggest CURSES is bowing to the Nazi-Regime.

  2. Well, Duh!

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  3. Why wasn't Reason talking about this incessantly before November of 2020? Why wasn't Reason talking about this more before the Georgia Senate runoffs on January 5th?

    This was not only foreseeable but also foreseen.

    1. “Why wasn’t Reason talking about this”….Urban Planner, Public Policy Majors, Sociology and PhD Keynesian Economist cocktail parties

    2. 2 words. Mean tweets,

    3. Your brain is operating in exactly the same state as if your sports team had lost.

      Just stop supporting that sports team. Why is that so hard?

      People are fucking apes.

      1. Hey tony, what’s the body (haha) count of murdered trannies up to since the chappelle special? In the hundreds yet?

        Stay on it, big guy. We expect updates.

  4. Why Biden's $3.5 Trillion Spending Plan Would Be Worse for the Economy Than Manchin's $1.5 Trillion Proposal

    Does the answer have something to do with math? I'll bet the answer has something to do with math. It's math, isn't it?

    1. No, math is racist. Can’t be that.

      1. Well call me racist, but... I think Bernie Sanders would fail this question.

        1. We used to burn numbers in the front yard all the time!!

  5. retrovestigative journalism at its finest.

  6. Let's see, our bridges and roads are supposedly crumbling, yet only $260 billion of this $1.5 trillion proposal is for public infrastructure.
    How about Congress divides this dog's breakfast up into separate pools of vomit and votes on them individually?

    1. Line item budgets make sense to us but not those at the trough or filling the trough.

  7. I don't understand why anyone would vote for these massive bills. There is so much crammed into them that pure crap gets passed, like the proposed banking rules spying on us. Did no one learn from the Patriot Act?

    1. instruction manual

    2. One might cynically assume that it is a feature, not a bug, that omnibus bills are loaded with authoritarian horseshit. It also allows individual politicians to escape accountability (not that they are generally held to account for most of the things they vote on).

  8. Because with 100 million taxpayers, we'll each owe 20K less?

  9. 3.5 billion isn't nearly enough. Fuck Joe Mansion

  10. I don't mean to go on, but the planet's on fire, there's a global plague, and Republicans are Stupid Nazis.

    Don't you think it's a bit late in the evening to be whining about Elon Musk's tax bill? I realize you have a job to do, but my God. Oh no, not redistribution. What ever will we do.

    It's just gauche.

    1. The planet is not on fire. Yeah, there'll be some warming. It's not going to be catastrophic. It'll cost less to adapt than it will to stop it. (The 'business as usual' model... isn't. It's a worse than worst case scenario that assumes trends in energy production that were already wrong 10 years ago).

      The global plague will end soon enough, and nothing government has done has made it end any sooner, from the looks of things. (Respiratory pandemics have a mean duration of about 2 years.)

      I'm willing to grant Republicans are stupid (although not generally Nazis), but Democrats are also stupid. Wouldn't it be nice if we had to worry about the stupid in Washington a lot less.

      The economic catastrophe that spending trillions of additional dollars is likely to cause is going to be worse than the pandemic. Pumping money into a supply-side shortage is about the dumbest thing imaginable - even Keynes would tell you that.

      1. So don't spend a time. Raise Elon Musk's tax bill. He'll be fine.

        1. Why don’t you voluntarily pay more taxes?

          1. Why don't you come up with an argument that's not a lame distraction?

            1. Suggesting Musk isn’t paying enough when Washington and every state capital have a serious spending problem is a distraction.
              Pay more taxes and at least you won’t be a hypocrite about it.

            2. When have you ever come up with an argument that is not a lame distraction, Tony? All you do is straw man and move goalposts. You suck.

    2. I feel your pain, loser.

    3. EVERYTHING IS SO TERRIBLE AND UNFAIR!!!! (tm)

      Tony, the poster child. Haha.

      1. aka waste of time; he wants the kind of troll that will take care of him in return for being his bottom

  11. It's a diversion to suggest Musk isn't paying enough when Washington and every state capitol have a severe spending problem. https://nytimes-spellingbee.com

  12. Why is spending more money we don't have worse than spending less money we don't have? Gee, that's a tough one.

    How about not spending money you don't have and living reasonably within your means while investing?

  13. There are 3.5 trillion reasons to be opposed to president joe biden's plan. Joe Manchin's plan has 2 trillion fewer reasons than president joe biden's plan to oppose, but there are still 1.5 trillion reasons to oppose it.

    If Joe Manchin's plan passes it would be is a colossal disaster. If president joe biden's plan, there are not words bad enough to express how much of a disaster it would be.

    The reality is that the federal government is way over extended and we need to reduce the size of the federal government and reduce our expenditures. Now is not the time to increase spending. We should be eliminating several alphabet agencies and returning power back to the states.

    1. https://www.forbes.com/sites/tomlindsay/2019/11/11/the-risk-is-minimal--justice-scalia-on-the-need-for-a-convention-of-states-to-restrain-federal-power/?sh=3e8cc8645fb6

      I've joined COS as it is the only group or organization I know of that is actually willing to actually do something about everything we are bitching about.

      Certainly we can argue about concerns like "runaway conventions" and the futility of a balanced budget and so on but what are the alternatives? Just remain on sideline and complain and try to sound, or post, like the smartest guy in the room? Or waste your time with snarky dipshit trolls?

  14. Just waiting for the next article to be "why the rich should get another tax break and how it will be great".

    1. Dems are working on SALT, hang on a bit longer.

  15. Title correct ---

    Why Gov-Gods using Gov-Guns to steal $3.5T from it's citizens is worse than stealing $1.5T from them....

    Um..... Math? Any 2-year old can tell you stealing a persons entire life savings is worse than a lollipop.

  16. Funny how the Biden regime’s $3.5 Trillion spending plan is worse for the economy than Manchin’s $1.5 Trillion plan, but not worse than Trump’s $500 Billion plan.
    Sad Shayari

  17. Thanks for such post and please keep it up..

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