Home Finance Biden’s budget plan could lead America to weak growth and fewer jobs

Biden’s budget plan could lead America to weak growth and fewer jobs

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The first thing any economist should do while reading a budget proposal is to analyze the basic macro assumptions and results presented by the administration. When both are poor, the budget should be criticized. it is a matter biden budget plan.

Same growth, more debt and less employment.

According to the administration, this budget’s impact on growth will be negligible, as their own and optimistic projections do not show any change in the slowdown in US economic growth.

CBO (The Congressional Office of Budget, Budget and Economic Outlook: 2021 to 2031) forecast a 1.7% average real growth in GDP between 2020 and 2030, the same average they forecast for the period 2025-2030. This is lower than the potential real GDP growth of the US economy, but is driven by much higher debt with less employment.

The CBO also expects extremely poor job growth at 4.1% for 2025-2030, with an average unemployment rate of 4.8% over the period 2020 to 2030. This means not achieving the 2019 unemployment rate by 2030, even after spending $6 trillion.

Even more worrying is the sharp deterioration in the financial position of the United States. The Committee for a Responsible Federal Budget (CFRB) warned that “public-held federal debt will increase from 100 percent of GDP at the end of fiscal year 2020 to 110 percent of GDP in 2021 by 2024 and 117 percent of GDP in 2021.” 114 percent of the product. Percentage of GDP by the end of 2031. In nominal dollars, debt will grow from $17.1 trillion by the end of fiscal year 2031, from $22.0 trillion today to $39.1 trillion in fiscal 2031 (President Biden’s full Fiscal Year 2022 budget).

This is a concern because history shows us that these projections are on the optimistic side and debt grows exponentially.

The $3.8 trillion offset in the budget is overly optimistic. The Biden administration recognizes that the tax hike will have no impact on investments and anticipates an overly optimistic revenue collection trend. For example, tax revenue is projected to grow above GDP and with no slowdown over the entire period, something that hasn’t happened in decades. Still, the administration estimates that new spending will only cover about three-quarters of the cost, as the budget deficit will total $14.5 trillion over the next decade. The annual deficit is expected to average $1.4 trillion (4.7 percent of GDP) every year for a decade. There is no one year in which even these accelerating projections of economic growth will be covered by outlay revenue.

According to the CFRB “instead of keeping debt relative to the economy stable and then downward, the President’s budget will break the previous record and raise the debt level to 117 percent of GDP by 2031”.

According to the CFRB, spending rises to 24.5 percent of GDP in the coming decade. The Biden administration’s baseline projection is 22.7% of GDP, well above both the 50-year average of 20.6 and 17.3 percent of GDP. The problem is that much of it goes into current spending without real economic benefits and entitlement programs increase which will impact productivity, employment and investment. Even in the Biden administration’s forecast, annual spending would exceed revenue at 4% of GDP … and those revenue estimates are overly bullish.

So how does the Biden administration expect to pay off the growing deficit and debt? Neo-Keynesian economists say the deficit does not matter and the Federal Reserve may monetise the excess spending. This raises two questions: If the deficit doesn’t matter, why is there a massive tax increase? And, why not cut taxes instead?

The most dangerous part of the budget is that all this spending does not provide any real improvement on the average trend of growth and employment, while stressing the imperative spending side of the budget, making it impossible for future administrations to balance the budget. .

Mandatory outlays increased by $1.2 trillion between 2021 and 2030, indicating that no future revenue measure can now eliminate deficits or cut debt. No realistic estimate of economic growth or a better tax revenue estimate can offset the $14.5 trillion increase in debt over ten years. As mandatory spending increases, the US economy’s fiscal challenges become less likely to improve. A small recession and debt will grow even faster over the next ten years, above 120 percent of GDP.

Estimates from the CBO and the Biden administration show an increase in tax revenue every year in every category, and we all know that’s impossible given the past five decades of history. Furthermore, even with projections from the CBO or the Biden administration, there is a clear conclusion: The United States’ deficit problem is a spending problem. No realistic revenue measure will balance the budget.

The question is, what inflation are they going to create to wipe out this debt? This is the biggest risk of this budget. The Biden administration clearly aims for a massive increase in consumer prices to reduce the real debt shock, and this means lower real wage growth, weaker purchasing power of salaries and, more importantly, savings. and the destruction of America’s purchasing power. Dollar.

Many economists point to the European Union, pointing out that debt levels in many countries exceed 116% of GDP. True. They also show weak growth, poor employment rates and low productivity growth. There is a lesson there too. France, a country that has reportedly consistently raised taxes to finance a high government spending, has not had a balanced budget since the late 70s and the economy has been stagnant for decades. Unemployment, even in periods of growth, is much higher than in the United States.

When you copy the EU, you should also be aware that you will find an EU-style lack of growth and job creation.

The Biden budget plan, in its own projections, does not provide higher growth or better employment levels. Reality will show that the results will be worse.

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of knews.uk and knews.uk does not assume any responsibility or liability for the same.

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