Writing in the WSJ, Josef Joffe explains how Biden is seeking to reshape government’s role in the economy. Emphasis is ours.
President Biden’s tax plans might soon make Europe look like a capitalist heaven by comparison. He wants to raise the long-term capital-gains tax from just below 24% to above 43%. Switzerland has no such tax. In Britain, inventor of the welfare state, it is 20% and in Germany 26%. On income tax, the U.S. may soon top the scale. Mr. Biden wants a top marginal income-tax rate of just below 40%. Add state and local income taxes, like California’s 13.3% for top earners, and wealthy U.S. taxpayers could pay more than their European counterparts.
The New York Times got it right: The Biden budget promises to “reshape the government’s role in the economy.” Don’t worry about the bill. A 10-year Treasury note nominally fetches about 1.25%, but at 5% inflation, the net yield falls below zero. Servicing a mountain of public debt with depreciating dollars is a steal. These days, profligacy is a virtue, not a vice. Why fret? It is a free ride, as long as central banks keep pumping no-cost money.
Somebody always pays. The laws of economics still apply. Why is inflation climbing on both sides of the Atlantic? The same adage: too much money chasing too few goods. Add the wage pressure caused by pernicious government programs pouring out the most generous income supports ever, and you get millions of unfilled jobs. Why look for a job if unearned money matches after-tax pay? It is a rational reflex, though it isn’t responsible.
The middle class will pay the bill. Inflation eats up savings, though the rich evade the trap by investing in assets like stocks, art and real estate, whose rising prices are rocketing past the inflation rate.
For precisely this reason, all governments love Bidenomics. Inflation is the best way to make the public debt melt away and keep the floodgates open. The downside? Devalued dollars make the masses poorer and more dependent on the government.
Didn’t public spending after World War II plunge from over 40% of gross domestic product in 1945 to 20% in 1947? That was a national emergency too, and after it ended Chrysler went back to making cars instead of tanks as government pulled back.
But that is ancient history. Each decade adds a new entitlement to the welfare state, like social security, family assistance, and healthcare. Reversing course won’t be easy because gifts, once given, are hard to take back, whether in the U.S. or in Europe.
The old ideological divide between left and right is waning. Progressives like Joe Biden and conservatives like Angela Merkel, Boris Johnson and Donald Trump all want to flood their countries with trillions in cash. On fiscal policy, the twain has met.
Such munificence burdens the future. As government expands and hands out more goodies, it also tightens its grip on the economy. It shrinks the private sector, the engine of U.S. wealth creation. It is no accident that Europe has grown more slowly over the past 40 years as government spending, regulations and taxes have increased. Europe’s share of global GDP is dropping while America’s has held steady around 25% for decades, despite the rise of China and others.
U.S. capitalists and the Europeans who happily embraced big government decades ago now think the same way. Mr. Biden is betting trillions that Americans will go along with the new dispensation. The European settlers came to North America in the 17th century to craft a new order of the ages, but their descendants are coming home again. Are we all democratic socialists now?