Streetwise Professor

September 29, 2021

Build Back Bullshit

Filed under: Economics — cpirrong @ 6:35 pm

Joe Biden and the Congressional Democrats are scrambling madly to pass a $1.5 trillion “infrastructure” bill, and a $3.5 trillion “Build Back Better” monstrosity. Both are execrable, but the latter is beyond grotesque.

Do you know what’s in them? No? Well, then you are almost certainly as informed as most of those who are supposed to vote on them.

These bills are being sold with lies, starting with the Liar in Chief, who claims that his build back bullshit (BBB) costs nothing, zero, zip, nada. How can a $3.5 trillion spending bill cost nothing? Because it includes $3.5 trillion in taxes, silly!

This line is being regurgitated ad nauseum by assorted Congressional idiots (e.g., Nancy Palsy, I mean Pelosi), the White House, and assorted journalistic slugs like the WaPo’s Glenn Kessler.

I should actually write this lie is being regurgitated ad nauseum because it is outrageously false as a matter of economics. The cost of something is the value of the resources used to produce it. In the present instance, the resources used to produce it are extracted by taxes. The cost is real, and the taxpayers bear the cost.

Put differently, the entire administration propaganda effort is asserting that the No Free Lunch Fallacy is in fact no longer operative. Free lunches for all!

Much of the bill consists of massive transfer payments that have resource allocation implications, e.g., a gargantuan expansion of child care tax credit, two years of free community college. The additional resources used to provide child care and community college are real costs. The same can be said of virtually everything in the bill.

There is no free lunch, but the entire ruling class is attempting to gaslight you that there is in order to gain your support, or at least your acquiesance.

But that doesn’t end the gaslighting. The administration and Democrats in Congress claim that you won’t be paying higher taxes. It will be corporations and billionaires. Nobody earning under $400K will pay higher taxes!

Yeah, right.

First, taxes on capital (including corporate taxes, capital gains taxes, inheritance taxes, which are the main sources of revenue in BBB) are borne predominately by wage earners. Reduce after tax returns on capital means less investment means a lower capital stock means lower wages. A reasonable estimate is that virtually all taxes on capital are paid by labor, not capital. So if you look at tax incidence, working schmucks will pay the bulk of the cost. But the incidence of the cost is concealed from those who bear it, which represents yet another lie being used to smuggle these bills to passage.

Second, a billion is 3 orders of magnitude smaller than a trillion. It would be necessary to expropriate around 70 percent of the the entire wealth of billionaires in order to cover $3.5 trillion: their entire wealth would not pay for the two bills together.

And as if that could be accomplished anyways.

There are also stealth features of the bill that are very disturbing. There is a “pilot program” to study mileage taxes. That camel’s nose is therefore under the tent, and any such tax will be highly regressive and impact people who live in rural areas particularly hard. (But they’re Republicans, so fuck ’em, right?) There is also a provision to require the reporting of the IRS all–all–transactions over a certain dollar amount. Biden (or, more accurately, his puppeteers) proposed a $600 floor. $600. Which would mean pretty much every mortgage payment, a lot of credit card payments, etc. This has apparently been raised to $10,000, but don’t be surprised if that gets lowered to a level that will impact millions of Americans.

Most Americans do not really experience the tender mercies of the IRS (because most income tax revenue is generated from high earners who draw the greatest IRS attention). They really don’t understand how draconian (and Kafkaesque) it is. Subjecting American’s ordinary banking transactions to IRS scrutiny will be a shock.

BBB also increases IRS funding by $80 billion, and would double-yes, double-the staffing of the IRS. Doubling the size of the most oppressive part of the US government is another leap and bound down the road to serfdom.

I could go on. But you get the idea. These bills are a monstrosity.

The Democrats are hell bent on getting these bills done, and are therefore resorting to exceptional procedural measures, namely reconciliation, to pass BBB. They are also trying to condition passage of the infrastructure bill on passage of BBB, because the former is more palatable to the mushy middle, e.g, Manchin and many Senate Republicans.

They are doing so precisely because they feel that they have a very short window to implement their agenda, most of which is embodied in BBB. Their margin in Congress is razor thin–and basically non-existent in the Senate. Further, they realize that it is very likely to disappear altogether in the aftermath of next November’s election: ironically, the less popular Biden is, the more crazed the Democrats are in their pursuit of the bill. It’s now or never.

Such massive endeavors should never be passed on a purely partisan basis, especially when the legislature and the country are so closely divided. Doing so only exacerbates division and political conflict. But progressives are in a hurry precisely because they see their window of opportunity closing. So expect the lies to get even more grotesque, and the political strong arming to become even more thuggish.

If these bills fail, the Republic may have a chance. If they pass, they are likely to seal its doom, for they represent a point of fiscal no return.

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  1. “There is a “pilot program” to study mileage taxes.”
    Are they unaware of how many governments have nearly been undone by increasing the cost of personal mobility? Blair, Macron, pretty much every government in the Middle East…

    Comment by HibernoFrog — September 30, 2021 @ 2:10 am

  2. Well written!
    What is actually the point of having all those universities (some say the best in the world), institutions et al. if insane decisions like this are possible (and probable) at all?
    serious question…

    Comment by viennacapitalist — September 30, 2021 @ 3:51 am

  3. The other economics blog I follow is Marginal Revolution but it is strangely reticent about economic matters such as this. I suppose you could say that it’s an economics blog for people who aren’t much interested in economics. I have recently chided them for their interest in epidemiology and vaccines and lack of interest in the cost/benefit analysis of lockdowns.

    Comment by dearieme — September 30, 2021 @ 4:58 am

  4. Is mom-and-pop tax evasion such a big thing in the US? There’s me thinking your average American was as honest as the day is long. Still, you shouldn’t necessarily complain about having a few more IRS employees – our tax collectors are so thin on the ground in the UK that it’s nigh on impossible to get an answer to a question, and they don’t seem that bothered if there’s a tax bill outstanding.

    A mileage tax seems a bit onerous. Why not whack a few cents on gas duties or sales taxes? Everyone would moan for a bit then accept it. Again, look on the bright side – at least you have gas at the pumps (another win for Brexit Britain).

    Also, what “exceptional procedural measures”? Sounds, y’know, sort of Trumpian to me.

    @Hiberno: I thought the post ‘08 spike in food prices did for all those Arab states?

    Comment by David Mercer — September 30, 2021 @ 5:56 am

  5. SWP, I can attest to the IRS bubble: they are are expanding their offices outside of the continental states, as we’re told “to bring employment to the islanders”.
    Unable say more due to NDA.

    Comment by Tatyana — September 30, 2021 @ 1:35 pm

  6. at what point does the common man just not pay their taxes? enough do it, they can’t enforce it.

    Comment by Jeffrey Carter — September 30, 2021 @ 8:22 pm

  7. Economics blogs: I beg his pardon, I also follow Tom Wirstall’s. It combines analysis of, for example, tax incidence, with sweary dismissal of fashionable stupidities.

    Comment by dearieme — October 1, 2021 @ 7:35 am

  8. NanXi Palsy said “it’s for the children, the children, the children”

    all I see is proposed massive economic distortion

    oh – but it’s “free” – zero cost!

    taxpayers pay for the Dem GANG – they are not a political party, they are a GANG – to run this country into the ground and below ground level

    Build Back Bullshit

    Comment by elmer — October 2, 2021 @ 8:27 am

  9. ‘you will own nothing, you will rent everything, you will be happy’ social credit vaccine mandates, and carbon taxes, will do the rest,

    Comment by miguel cervantes — October 2, 2021 @ 8:49 am

  10. I thought this was supposed to be about jobs, not carbon footprints and “free college” and a Gestapo IRS


    Comment by elmer — October 2, 2021 @ 8:57 am

  11. @dearieme. Tim’s blog is very good. Different style than mine–more quick hits and succinct droll observations, though his profanity and snark are similar to mine.

    MR annoys me. Cowan and Tabarrok are ostensibly libertarian. Alex T arguably is, but Tyler C is an elitist poser who is disturbingly reverent of the ruling class. He’s a big fan of Strauss: maybe he’s being Straussian, but spare me.

    And yes, their COVID posts have been decidedly un-economic in their failure to analyze trade-offs. It’s all vaccine and testing cheerleading. Meh.

    Comment by cpirrong — October 3, 2021 @ 4:48 pm

  12. 6uild 6ack 6etter

    Comment by Joe Waler — October 3, 2021 @ 5:14 pm

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