White House touts report that says Americans will see no change in inflation due to the bill until late 2023
The $433 billion Inflation Reduction Act will have no meaningful impact on consumer costs, according to the economist President Joe Biden cites most often.
By the end of 2031, the latest Democratic reconciliation bill would shave just .33 percent from the Consumer Price Index, the traditional inflation metric, according to a report from Moody’s Analytics chief economist Mark Zandi. The current CPI is 9.1 percent, the highest in over 40 years.
Zandi and his coauthors say the Inflation Reduction Act will only “nudge the economy and inflation in the right direction.” And that conclusion strains the definition of “nudge.” Americans will see no change in inflation due to the bill, the report states, until the third quarter of 2023—a .01 percent decrease.
Zandi’s analysis is often shared by the White House or the president himself. During a February 2021 speech, Biden cited Zandi’s work twice while pitching his economic agenda. In July of last year, Senate Majority Leader Chuck Schumer (D., N.Y.) called on lawmakers to read Zandi’s favorable report on the bipartisan infrastructure bill.
But Zandi’s latest findings have not deterred the White House. Both Chief of Staff Ron Klain and Deputy Press Secretary Andrew Bates retweeted a CNN reporter’s tweet that quotes the report as saying the bill will “meaningfully address climate change and [reduce] the government’s budget deficits.”
The White House’s celebration of the report signals how desperate they are to pass a budget reconciliation package before the midterm elections. Initially named “Build Back Better,” the bill has seen a number of rebranding attempts as voters increasingly sour on Biden’s presidency over the economic concerns.
Zandi and his coauthors conclude that the inflation reduction bill lowers consumer costs for some medications, something the White House highlighted, although they decline to specify the total savings. Moreover, the deflationary benefits from lower health costs, the authors write, do not kick in until “mid-decade.”
“Moreover, large corporations will attempt to pass through some of their higher tax bill to consumers in higher prices for their wares,” the authors write, although they add that this may be difficult “in competitive markets.”
The immediate impact of the bill may also slow growth as well, the authors find. Starting in late 2023 for over a year, according to data in the report, the bill will slightly shave off expected GDP growth. Despite those data, the authors say the Inflation Reduction Act will add “an estimated 0.2 percent” to GDP by the end of 2031.
The Inflation Reduction Act contains $433 billion in spending and purports to raise $750 billion in revenue from higher taxes and lower Medicare prescription drug costs. A report from the nonpartisan Congressional Joint Committee on Taxation found that, despite White House claims, Americans making below $400,000 a year would see higher taxes.
Sen. Joe Manchin (D., W.Va.), who led negotiations on the bill, grew defensive when asked by Fox News about tax provisions in the bill and whether the bill will meaningfully address inflation.
“I know people who don’t like the president and don’t like Democrats might be upset,” Manchin said. “It is not whether you like the president or you like Democrats. Do you like America? Do you want to fight inflation? This bill does it.”
It’s a remarkable feat—something not just anyone could accomplish. Yet in just a few short months, President Joe Biden managed to turn the recovery around. It’s not clear how he did it, but the boom for which he liked to take credit is officially over.
Of course, the White House doesn’t want to say that. It would be politically bad to acknowledge the situation that now exists. To avoid that, senior presidential aides and Cabinet secretaries like the Treasury Department’s Janet Yellen have been forced to turn rhetorical cartwheels while trying to explain that it isn’t really what the data tell us it is.
Team Biden has masterfully avoided the invocation of the word usually employed after two consecutive quarters of what the economists call “negative growth.” Call it what you want—some good alternative phrases like “economic Joe-down” and “Joe-cession” have already seeped into the conversation—the economic numbers don’t help Biden’s cause right now.
His unpopularity isn’t new news. A recent CNN poll found that 75% of Democrats who plan to vote in 2024 hope to have someone other than Biden for whom to cast their ballots. State by state, Biden’s favorable/unfavorable ratings are underwater in more than 45—including such liberal bastions as Massachusetts and even his home state of Delaware, where he’s down by seven.
Why is he so unpopular? Real wages are falling, income is down, and prices are up. That’s fact, not opinion or carefully structured analysis. Biden may think there’s plenty of good news out there, that it “doesn’t sound like a recession to me,” but it sure feels like a recession to the American people.
It would seem all that is good for the GOP’s prospects to pick up control of the U.S. House and Senate come election time—and by wide margins. The anti-Biden tide is going to swamp some boats that expect to ride the storm out—as happened in 1978, 1980, 1994, and 2010, when unpopular policies pushed by the occupant of the White House cost the president’s party seats it should not have lost.
How, then, with the Democrats seemingly in their worst political shape in nearly 50 years, does one explain a spate of recent polls like the one released last Tuesday in USA Today, showing them with a four-point lead—44% to 40%—over the GOP on the congressional generic ballot? Especially, that is, after the Republicans have been nearly double-digit dominant on the question of “Which party do you want to control Congress after the next election?” for many months now.
It doesn’t make sense—especially, as Rasmussen Reports said last Monday, with just 23% of likely U.S. voters thinking the country is headed in the right direction. The reason for the bump producing this apparent reversal of the Democrats’ political fortunes may have something to do with statistical manipulation. Pollster John McLaughlin told this publication that the USA Today poll had the two major parties “in equilibrium at 31%,” but because it sampled registered voters and not those considered likely to vote, “it waters down the GOP generic vote” considerably. “A lot of [the Democratic] respondents will not vote,” he added.
He may be right. A Rasmussen Reports poll of likely voters released on Friday found Republicans with a five-point lead on the generic ballot. That’s the upside. The downside is the voters may be souring on the GOP—and these new polls may be right, because the GOP is failing to offer voters an appealing alternative to the Biden agenda.
American elections are usually binary: this candidate or that one. Third-party candidates rarely win, and rarely have an impact. Most people pick either the Democrat or the Republican when they pull the lever. And right now, the GOP seems headed to a majority by default. They’ll win because they’re not “them”—Democrats. Biden and the progressives have overreached, something even the USA Today poll showed. They aren’t winning converts to their cause; they’re losing them.
If the GOP wants to lock down its hoped-for majority down, it needs to explain to its whole coalition of voters—the independents open to voting Republican, the moderates, the free marketeers, the social conservatives, and others—what the party’s plan is to get the economy moving, secure America’s borders and position in the world, and bring back the nation’s spirit. And the GOP must do so without driving its likely voter blocs into separate corners.
It’s a tall order that party leaders seem reluctant to embrace. They have about 100 days to come up with a plan to bring all these parts together and help voters make up their minds. In doing so, if that’s what they intend, they need to remember former House Majority Leader Dick Armey’s axiom: “When we act like us, we win. When we act like them, we lose.”
Americans are experiencing an energy crisis with gasoline and diesel fuel at historically high prices. President Biden has been releasing a million barrels a day from the nation’s strategic oil reserve and it is now at its lowest level in decades. Likewise, it is unsettling to watch the President travel abroad begging for oil rich nations to produce more oil. Another typically hot summer is driving up energy demands for electricity and adding to the feeling that this energy crisis is real and isn’t merely a function of high gas prices.
All of this is happening while the Administration is arguing that we should be driving electric vehicles. But as even Elon Musk, the number one producer of electric vehicles in the U.S. has pointed out, there simply isn’t enough electricity nor can our electrical grid handle the demand of millions of electric vehicles plugged in every night to recharge.
One of the problems with complex issues is that policymakers often suggest absurdly harmful solutions that won’t work in real life. America’s current energy woes cannot actually be solved by a sudden switch to electric vehicles. Nor can the problem be solved by depleting the strategic oil reserve. But oddly enough these are not the most absurd policy suggestions. Some of the proposed solutions are even more misguided.
For example, some have suggested that we repeal the Jones Act, which requires ships operating within the United States between two or more U.S. ports to be American ships with American crews. They seem to think that allowing foreign ships with unvetted and unknown foreign crews to sail up and down America’s 25,000 miles of inland water ways will somehow solve our energy problems, a policy prescription that borders on the insane or at least the inane.
When pressed, they use the energy crisis and argue that liquefied natural gas (LNG) could be shipped more cheaply in the United States via foreign vessels as the American fleet isn’t currently prepared to ship massive quantities of LNG (which requires a specialized fleet). But here’s the problem with this policy prescription — pipelines are by far the cheapest and safest way to transport natural gas and petroleum products across the United States. So, if you’re worried about the expense of transporting LNG, you should support the construction of more pipelines, not the repeal of the Jones Act.
If you repeal the Jones Act, all you would gain a relatively expensive way to transport LNG that would also pose more risks and dangers. In exchange, you would also lose all the benefits of the Jones Act.
The Jones Act is a critical part of our military readiness and ability to supply our military. Former Vice Chairman of the Joint Chiefs of Staff, General Paul Selva said, “I am an ardent supporter of the Jones Act. [The Act] supports a viable ship building industry, cuts cost and produces 2,500 qualified mariners. Why would we tamper with that?” Admiral Paul Zunkunft also said, “You take Jones Act away, the first thing to go is these shipyards and then the mariners…. If we don’t have a U.S. fleet or U.S. shipyard to constitute that fleet how do we prevail?”
But the Jones Act isn’t just important to our military strength, it actually helps border security and homeland security as well. The law allows the primary focus of our security efforts to be on the outer perimeter of our country and the American ships and American crews who are both vetted and trained become the eyes and ears on America’s inland water ways. The taxpayer doesn’t have to pay them or pay for their boat to do that. They do all of that while they’re doing their normal job.
As Michael Herbert, former Chief of the Customs & Border Protection’s Jones Act Division of Enforcement said, “We use the Jones Act as a virtual wall. Without the Jones Act in place, our inland waterways would be inundated with foreign flagged vessels.”
The truth is — if we were to repeal the Jones Act, any foreign ship, with an unknown and unvetted crew, carrying unknown cargo, equipment, and even weapons, could sail up the Mississippi and along America’s vast inland water ways, gaining access to America’s heartland.
Once you know the facts, it is clear that those suggesting we repeal the Jones Act — whether they realize it or not — are really suggesting that we allow Chinese, Russian, North Korean, and Iranian ships and crews, which would likely be carrying spies and covert operatives, to deploy inside America’s heartland with high-tech listening devices and tools of sabotage. They are also suggesting that America’s military capacity be significantly weakened and undermined.
Given that pipelines are both cheaper and safer, and don’t undermine our national security, or bring foreign powers into our heartland, they would be a far better solution to transporting LNG and petroleum products. It is time to put an end to the senseless talk of repealing the Jones Act.
As the Biden administration readies its fifth extension of federal student loan repayments, voter concerns over surging inflation take a back seat to the needs of Democrats’ donor class in the run up to the midterm elections.
The current student loan moratorium is set to expire on August 31, leaving the Democrats with the prospect of student loan payments resuming just two months out from an election. Democrats are almost certain to extend the moratorium again.
The student loan “pause” begin in March 2020. Yes, two-and-a-half years ago.
This policy has been a disaster: costing taxpayers nearly $135 billion while primarily benefiting the elite and contributing to the highest inflation in 40 years.
Recently a group of 180 left-of-center organizations signed a letter urging President Biden to extend the moratorium on student loan repayments. They insisted that the moratorium be extended until the administration fulfills its promise to cancel student loan debt.
This letter is filled with delusional, out-of-touch arguments that perfectly illustrate the Left’s understanding of the student loan issue.
The primary assertion by these groups is in the letter’s one bolded line: “People with student debt cannot be required to make payments toward loans your administration has promised to cancel.”
Ironically, the Left is arguing that a politician’s “promise” while on the campaign trail should be more binding than the contractual agreement borrowers signed promising to pay back their debts.
The signers also describe the moratorium and cancellation as a way to relieve the financial pressure of inflation on Americans, especially “economically vulnerable” people, people of color, and women. This, of course, is just part of the Left’s strategy to frame every policy goal of theirs as “justice” for the destitute and oppressed. This kind of framing for the student loan issue is especially shameless, though, as the student loan moratorium primarily benefits white, wealthy elites while worsening inflation for low and middle-income Americans.
About 75 percent of student loan repayments come from the top 40 percent of earners. The bottom 20 percent of earners only pay 2 percent of monthly student loan payments. As the Committee for a Responsible Federal Budget points out, the effects of the student loan moratorium is even more skewed toward elites than a blanket cancellation, as graduate student loans tend to have higher interest rates than undergraduate loans.
The Brookings Institution, whose scholars generally support student loan cancellation, described those who would benefit most from student debt forgiveness as “higher income, better educated, and more likely to be white.”
Adam Looney, a former economic advisor to President Obama, explained that, “Measured appropriately… loan forgiveness is regressive whether measured by income, educational attainment, or wealth. Across-the-board forgiveness is therefore a costly and ineffective way to reduce economic gaps by race or socioeconomic status.”
This is not very surprising. As one might assume, many low-income Americans chose not to go to a four-year, private university. Many paid their way through community college or a public university/college, went to trade school, joined the military to pay for their education, or went straight into the workforce after high school. For these Americans, the moratorium and cancellation proposals are slaps in the face. If student loan debt is cancelled, their sacrifices and hard work was futile.
Further, the letter’s assertion that student loan handouts could help ease the financial pressure of inflation on Americans is especially misguided. About 45 million Americans, or 17 percent of the adult population, have federal student loan debt. While this limited group of Americans, who already skew higher-income, may experience relief, every American is facing crippling inflation.
The consumer price index increased by 9.1 percent on an annualized basis in June, according to the Bureau of Labor Statistics (BLS), setting yet another 40-year high for the sixth time under President Biden.
A primary cause of inflation is the government’s reckless spending. The federal government is flooding the economy with so much money that demand is growing too fast for production to keep up. The moratorium on student loan repayments has been incredibly expensive: so far, it has costed taxpayers $135 billion, and continues to cost them an additional $5 billion each month.
While the Left has attempted to frame the student loan issue as one pertaining to “racial and economic justice,” it is simply a handout to the liberal elite. Lawmakers cannot allow the Left to worsen inflation for average Americans under these false pretenses.
Central banks’ only real option for tackling inflation is to reduce demand – an approach that implies a significant drag on global growth. But even as interest rates rise, a recession can be avoided if policymakers recognize the large role that supply-side measures must play in restoring price stability.
Central banks’ efforts to contain high and rising inflation are fueling growth headwinds and threatening to tip the global economy into recession. But the proximate cause of today’s inflationary pressures is a large, broad-based, and persistent imbalance between supply and demand. Higher interest rates will dampen demand, but supply-side measures must also play a large role in inflation-taming strategies.
Over the past year or so, the rollback of pandemic-containment policies has spurred a simultaneous surge in demand and contraction in supply. While this was to be expected, supply has proved surprisingly inelastic. In labor markets, for example, shortages have become the norm, leading to canceled flights, disrupted supply chains, restaurant closures, and challenges to health-care delivery.
These shortages appear to be at least partly the result of a pandemic-driven shift in preferences. Many types of workers are seeking greater flexibility – including hybrid or work-from-home options – or otherwise improved working conditions. Health-care workers, in particular, report feeling burned out by their jobs.
If this is true, the inflation picture must include an adjustment in relative labor costs. To bring markets back into balance, wage and income increases will be needed, even for jobs for which there was previously an ample supply of workers.
This transition will generate some inflationary pressure. Yes, nominal prices and wages have limited downward flexibility. But at a time of excess demand, firms generally try to pass on higher costs via price increases – and they often get away with it, at least for a while.
Lingering blockages associated with the pandemic, especially in China, which remains committed to its zero-COVID policy, are also fueling inflation. But these blockages will eventually subside, as will short- to medium-term capacity constraints caused by shifts in the composition of demand (in terms of both products and geography), though some will persist for a while. Capacity – whether in ports or semiconductors – takes time to build.
But today’s inflation has deeper roots. Over the past several decades, the activation of massive amounts of underutilized labor and productive capacity in emerging economies has generated deflationary pressures. With those resources having now been significantly depleted, the relative prices of many goods are set to rise.
Moreover, there is a global push to diversify and, in some cases, localize demand and supply chains – a response to the increasing frequency of severe shocks and rising geopolitical tensions. A more resilient global economy is a more expensive one, and prices will reflect that.
The war in Ukraine has not only accelerated this supply-chain transformation, but also has caused energy and food prices to skyrocket, further exacerbating inflation, especially in lower-income countries. In the case of fossil fuels, a prior pattern of underinvestment in capacity at multiple points along the supply chain has compounded the problem.
But there is even more to the story. More than 75% of the world’s GDP is produced in countries with aging populations. Old-age dependency ratios are rising, and in some countries, the workforce is shrinking. Productivity gains could counter the contraction of labor supply relative to demand, but after nearly two decades of falling productivity growth, such gains are not forthcoming.
So, inflation is rising fast, and central banks are under pressure to take drastic action. But their only real option is to reduce demand, by raising interest rates and withdrawing liquidity. These measures have already spurred a massive repricing of assets, including currencies, and they threaten to push global growth below potential, with lower-income economies suffering disproportionately, and to reduce investment in the energy transition.
There is another way: supply-side measures. Trade and investment have long enabled supply to expand rapidly in response to growing global demand. But, for nearly two decades – and especially in the last few years – proliferating trade barriers have been adding friction to this process. Creeping protectionism must be reversed, with US President Joe Biden removing the tariffs imposed by his predecessor, Donald Trump, and Europe accelerating the integration of its services markets.
At the same time, efforts must be made to improve productivity. Digital technologies will be crucial here. While the pandemic helped to accelerate the digital transformation, many sectors – including the public sector – are lagging, and concerns about the effects of automation on employment persist.
But in a supply-constrained world characterized by persistent labor shortages, productivity-boosting digital technologies, together with higher wages for workers, would go a long way toward improving the balance between supply and demand. For example, artificial-intelligence-based tools can perform a wide range of functions, from screening luggage more efficiently at airports to analyzing medical imaging to detect cancers. Beyond digital technologies, regulatory regimes can be streamlined and improved, in order to reduce supply-side bottlenecks.
Such an agenda must be applied to both the public and private sectors. At the international level, efforts to facilitate trade, address supply-chain rigidities, and close data gaps will be essential. Otherwise, central banks will be left to deal with inflation alone – with dire consequences for the entire global economy.
The nation’s plunge into inflation-fueled economic doldrums may be linked to the lack of practical, real-world business experience of many of President Joe Biden’s top officials, a report released Thursday suggests.- Sponsored –
“The United States has the highest inflation rate in four decades. The stock market sell-off has liquidated $10 trillion of wealth. Retirement savings are dwindling. Consumer, small business, and investor confidence are shrinking. There’s widespread concern that America is at best teetering on the edge of a recession and may already be in one. And, in terms of growth, the economy has flatlined,” said The Committee to Unleash Prosperity’s Stephen Moore, principal co-author of Not Ready for Prime Time Players.
A majority of key appointees, the report said, have zero years of business experience.
“Instead of having the best minds in America working on these problems, the president is relying on political and policy stooges who couldn’t make a garden grow, let alone the U.S. GDP,” Moore, an economist, said.
Aside from the president, who earned a law degree from Syracuse University in 1968, was elected to the New Castle County Council in 1970 and was elected to the United States Senate in 1972 when he was just 29 years old – Vice President Kamala Harris, Treasury Secretary Janet Yellin, Council of Economic Advisors Chairman Cecilia Rouse and Shalanda Young, director of the White House Office of Management and Budget, have no previous private sector experience.
The report draws attention to some of the concerns limited prior private sector experience may cause regarding the ability of administration officials to make informed policy decisions. Pete Buttigieg, the former South Bend, Indiana mayor and unsuccessful 2020 Democratic presidential candidate who is now U.S. Transportation Secretary, the authors wrote, “now has oversight over a $1 trillion industry and is the official in charge of dealing with intricate supply chain issues at our ports and other vital parts of our transportation infrastructure. Yet he has virtually no experience in transportation or logistics.”
In formulating their conclusions, the authors of the report looked at 68 top officials in the Biden administration, starting with the president. The list of those whose employment history was examined includes cabinet members, regulatory officials and senior White House aides. Others in key economic policy positions who lack any identifiable business experience include Attorney General Merrick Garland, Climate Change Ambassador John F. Kerry, HUD Secretary Marica Fudge, U.S. Trade Representative Katherine Tai, Federal Communications Commission Chairman Jessica Rosenworcel, Federal Trade Commission Chairman Lina Khan, Deputy Assistant to the President for Labor and the Economy Seth Harris, Special Assistant to the President for Economic Policy Daniel Nornung and Jonathan Kanter, the Assistant U.S. Attorney General for Antitrust.
The report also found:
This is in stark contrast to the Trump administration, which was populated by many senior policymakers with experience in the business world including the president, who spent 45 years in the private sector before choosing to run for office. The average business experience of the members of the Trump Cabinet was 13 years and the median for years of experience was eight.
The study was undertaken, the authors said, to address what it called “growing concerns” that top decision-makers in Congress and the Biden administration lack the basic skill sets and business/management experience and acumen to either oversee a $6 trillion federal government or to regulate the various sectors of the national economy.
“It’s easy to understand why we have the highest inflation in forty years, the economy may have already put America into a recession. Despite the White House claims like record job ‘creation,’ a sizable majority of the country now believes, according to the latest polls, that America is on the wrong track. The people making economic policy have never worked in the real world,” said Moore, who co-authored the study with the committee’s Jon Decker, “Americans are hurting and we need to change course immediately.”
Moore’s analysis is backed by a New York Times/Siena poll released Monday that shockingly showed nearly 80 percent of the American voters surveyed thought the nation was headed in the wrong direction. Just 27 percent of Democrats and a mere 5 percent of Republicans said things were on the right track, putting the numbers at their lowest since the near collapse of the U.S. economy at the end of the Bush administration helped put Barack Obama in the White House.
The “takeaway” from the study, the authors wrote, is the need to consider the qualifications of those making policy as it pertains to their ability to solve the nation’s economic troubles, which are growing more severe by the day.
“Surely, we want our political class to have a diversity of backgrounds. We want lawyers, grassroots activists, those with political and policy experience, scientists, health experts, and academics with required specialties,” Moore and Decker wrote. “But we also want people who have experience running large operations with hundreds and thousands of employees and who understand logistics.”
“We need people at the top rungs of government who have experience dealing with large-scale crises (as we experienced during COVID), and also at least some familiarity with the everyday struggles that businesses have with the government,” they write before concluding “The Biden administration has made ’diversity’ a major goal of its administration. But the one area that is sorely missing in this diversity goal is in attracting talented and experienced men and women from the field of small business, commerce, and finance. When it comes to the government: Ignorance is not bliss.”
The president's plan to forgive $10,000 in student debt per borrower has several negative consequences.
Last week, The Washington Post reported that the president’s plan, which sources say is nearing a formal announcement, will resemble his 2020 campaign promise to forgive $10,000 in federal student loans per borrower. The Committee for a Responsible Budget estimates this will cost taxpayers $230 billion.
While political firebrands such as Sen. Bernie Sanders have long supported substantially increasing federal higher education spending, including offering things like free college, President Biden’s proposal would represent a significant change in policy from previous presidential administrations, including Democrats.
President Barack Obama’s 2008 campaign promises were modest by comparison. President Obama sought to expand Pell Grant access to low-income students and eliminate government subsidies to private student lenders. Even Obama’s 2014 executive order that sought to forgive some federal student loans only did so after 20 years and required borrowers to make regular payments via the Pay As You Earn Initiative.
By comparison, the Biden administration’s plan is a major departure from Obama’s more modest and measured approach to student debt. While it would certainly be popular with many of the people who have $10,000 of their student debt forgiven, public opinion is quite divided over how to handle college student debt.
A CNBC national poll conducted in January of 2022 found that 34% of respondents supported loan forgiveness for all student loans. Only 27% of respondents opposed student loan forgiveness entirely. However, 35% of respondents supported a middling approach, preferring loan forgiveness only for those “in need.”
Supporters of student loan forgiveness for those in need may be pleased to hear that President Biden’s proposal is reportedly going to be means-tested, with individuals eligible for student loan forgiveness if they have an income of less than $150,000 ($300,000 for couples).
The Washington Post editorial board notes some of the problems with that cut-off:
These provisions, while welcome, would not stop the policy from becoming yet another taxpayer-funded subsidy for the upper middle class. The president’s means test would be almost useless, as some 97 percent of borrowers would still qualify for forgiveness. The Committee for a Responsible Federal Budget, a nonpartisan watchdog, estimates that such a plan would cost at least $230 billion, that 71 percent of the benefits would flow to those in the top half of the income scale — and that a quarter of the benefits would go to the top 20 percent. Even this does not express fully how regressive the policy would be, because many recent graduates from medical, law and business schools would qualify for forgiveness even though their lifetime income trajectories don’t justify it.
Similarly, The Wall Street Journal has reported that more than 40% of all student loan debt is held by individuals with advanced and lucrative degrees, such as doctors and lawyers.
Only one-third of Americans have bachelor’s degrees. These individuals are statistically likely to earn more than the two-thirds of Americans who don’t have those credentials.
This means that many taxpayers nationwide, 85% of whom do not have student loan debt, would now be paying off the student debt of their college-educated peers who, in many cases, enjoy greater affluence because of their college degrees.
Importantly, this loan forgiveness proposal does not actually address the major problem of rising college costs. Biden’s plan would likely only exacerbate what many have labeled the student debt crisis.
“Economically rational people will respond to that dynamic by choosing more expensive programs of study and borrowing more than they would have otherwise. The result: a pool of outstanding student debt growing even more quickly than before.”
This means that Biden’s proposal would incentivize future students to invest in riskier loans under the hope or assumption that their loans could later be forgiven. Such a plan is a disaster in the making that, over the long-term, could significantly expand Americans’ already ballooning student loan debt.
In fact, even if President Biden does reduce student loan debt by $10,000 per borrower, the Committee for a Responsible Budget reported that the total student loan debt would return to its current level in just three years, assuming no change in borrower behavior.
Instead of debt reduction, policymakers should consider reforms that have a lasting effect and address the rising cost of college. Extricating the federal government from the student loan business altogether or placing strict annual and lifetime caps on federal student loans could help encourage universities to stop hiking their costs.
At the end of the day, any sort of student loan forgiveness is a bad policy since it does not hold individuals accountable for their financial decisions. In fact, it would represent a massive betrayal of public trust. Many people worked to pay off their student loans. Others chose less expensive colleges to avoid student debt. Some people didn’t go to college at all because they decided they couldn’t afford it.
It may be well-intentioned, but President Biden’s student loan forgiveness plan is a recipe for disaster. It would potentially encourage bad borrowing behavior going forward. It would disadvantage those who made significant sacrifices to avoid or minimize their student debt. And, perhaps worst of all, it would force American taxpayers who didn’t go to college to pay for student debt they chose to not accrue and from which they will not benefit.
By The Atlantic•
As somebody who’s paid to tell stories about the economy, I always find it satisfying to assemble data points to produce a compelling pointillist picture about the state of the world. But these are rough times for economic pointillism. The data are all over the place, and the big picture is a big mess.
I look at the stock market, where valuations have collapsed. Okay, so markets are trying to tell us that future growth will be slower. Then, I see that consumers expect persistent inflation over the next five years. A growth slowdown with sticky inflation? Unusual, but not unprecedented. Consumers are glum about economic conditions but optimistic about their own finances, and they’re spending money on services and leisure and travel as if they’re eager participants in a booming economy. So everything is terrible, but I’m doing fine? Okay, that’s psychologically rich. Nominal gas prices are at record highs, but unemployment is near multi-decade lows; mortgage interest rates are rising quickly, but they’re at historically normal levels. So, things are bad, but also good, but also crummy, and maybe fine?
Regrettably, there’s another, significantly more important economic storyteller that also seems deeply confused about the economy. That would be the Federal Reserve.
Just six months ago, the Fed said it expected that prices would normalize in 2022, and it forecast that a key inflation index would average 2.6 percent growth this year. But now it projects that 2022 inflation will be twice as high, at 5.2 percent. Three months ago, the Fed signaled that it would raise a key interest rate by 0.5 percentage points in June. But this week, the Fed changed its mind after getting spooked by a few inflation reports and suddenly decided to jack up the federal-funds rate by 0.75 points, its most significant increase in 28 years.
Fed Chair Jerome Powell’s explanation for the rate change was baffling. He claimed that the number of job openings in the economy pointed to “a real imbalance in wage negotiating” but also said that the labor market had practically nothing to do with inflation. He explained that headline inflation has soared largely because of supply-side issues, such as the war in Ukraine’s impact on the gas market, that the Fed can’t really do anything about. But he also insisted that the Fed had to up the ante on interest-rate hikes to bring down inflation by reducing demand. He insisted that he didn’t want to send the economy into a recession, but the Fed’s own economic forecasts project several consecutive years of rising unemployment—something that generally happens only in a recession.
The full story only barely holds together. In the Fed’s view, inflation is partially caused by the labor market, but also not caused by the labor market; it’s largely a supply-side issue that the Fed can’t fix, but the Fed is going to try desperately to fix it anyway; and we’re hopefully not getting a recession, but we’re probably getting a recession. Like I said: baffling.
What the Fed is actually trying to do here—as opposed to the story it’s telling about what’s happening in the economy—is clear, yet extremely difficult: It is trying to destroy demand just enough to reduce excess inflation but not so much that the economy crashes. This a little bit like trying to tranquilize a raging grizzly bear with experimental drugs: Maybe you bring down its core temperature but also maybe you leave the big guy in a coma. The Fed could succeed. It could get Americans to spend a little less, borrow a little less, and loan a little less, and this synchronized decrescendo in economic activity would almost certainly reduce inflation. But here’s the problem: If global energy prices don’t come down and global supply chains remain tangled by Omicron variants and other natural disasters, we might end up with the worst of both worlds: destroyed domestic demand and constricted global supply. Slow growth and high energy prices could mean the return of the dreaded stagflation.
In the next few months, you should be prepared for the economic situation to get even stranger. Markets might be on the lookout for signs that the Fed is successfully crushing domestic demand. In other words, some investors will be hoping that the housing market stalls and retail spending slows, because these are signs that the Fed’s policy is working. We will be in an upside-down world where bad news (the economy is slowing down) is interpreted as good news (the Fed’s policy is working), and good news (consumer spending is still red hot) is interpreted as bad news (the Fed’s policy isn’t working).
For much of this century, the Fed has been an island of relative competency in a sea of institutional failure. But the Fed is neither an all-knowing artificial intelligence nor a band of wizard oracles sent from the future to stabilize price levels. The people who work there are fundamentally pundits with an interest-rate lever. They’re folks like you and me, telling stories about an economy that they’ve recently gotten wrong, wrong, wrong, and then kinda right, and then wrong again. I don’t know if this is comforting or terrifying to you, but it’s the full truth: Right now, we are truly all confused together.
The closer attention you pay to Biden, the less he has to say
President Joe Biden is “rattled,” according to NBC News, and “looking to regain voters’ confidence that he can provide the sure-handed leadership he promised during the campaign.”
How? By trying to change the media narrative. On May 30, Biden published an op-ed in the Wall Street Journal that explained “My Plan for Fighting Inflation.” The next day, Biden wrote a “guest essay” for the New York Times on “What America Will and Will Not Do in Ukraine.”
Bad poll numbers and a collapsing domestic and international situation have excited the typically drowsy president into action. There’s a problem, though. The closer you read Biden’s op-eds, the less he has to say. This new, annoyed, engaged Biden may be a prolific writer and speaker. But he’s not an incisive one. He won’t admit that there is a connection between his ideology and America’s problems. He can’t decide between giving Ukraine the weapons necessary to defeat Russia or settling for a war of attrition.
Biden’s Journal op-ed is a masterclass in passing the buck. He doesn’t bring up his “plan for fighting inflation” until midway through his thousand-word piece. My inner college professor wanted to send the article back to him with suggestions for revision. Number one: Always move your best material to the top!
The plan itself is gauzy and thin. “The Federal Reserve has a primary responsibility to control inflation.” You wouldn’t know that from listening to Progressives, including some of Biden’s nominees to the Federal Reserve, who argue that the Fed’s interest in price stability distracts it from promoting full employment, green energy, and diversity, equity, and inclusion. Now Biden wants the Fed to correct not only its mistakes, but his own. Let’s see if his faith in an independent central bank can stand the test of higher interest rates, higher unemployment, and lower incomes.
Parts two and three of Biden’s inflation plan are the remnants of his Build Back Better agenda: some clean energy and housing subsidies here, a few tax hikes there. He mentions his use of the Strategic Petroleum Reserve to lower gas prices, but not his appeals to Venezuela and OPEC to boost the oil supply. As for the obvious answers to America’s energy problems—a complete reversal of Biden’s hostility to oil and gas exploration and production, huge investments in nuclear power, and emergency efforts to increase refinery capacity—Biden has no words. His devotion to the environmental lobby and to green energy blinds him. If the Progressive Left rejects nuclear power, the “clean energy future” it desires won’t arrive.
This mismatch between ends and means is visible in Biden’s Ukraine policy. The president tells New York Times readers that the United States sends Ukraine weapons “so it can fight on the battlefield and be in the strongest possible position at the negotiating table.” The desired end state is “a democratic, independent, sovereign, and prosperous Ukraine with the means to deter and defend itself against further aggression.” And Ukrainian president Volodymyr Zelensky is in the driver’s seat. “I will not pressure the Ukrainian government—in private or public—to make any territorial concessions.”
All good. Why, then, limit the weapons deliveries to systems with ranges of 40 miles? Why slow-walk and agonize over each tranche of support? Why engage with Russia in farcical and dangerous negotiations over Iran’s nuclear weapons? Why not take a more active role in peace talks between Ukraine and Russia? The Biden policy is static even as the shape of the war changes in ways that favor the aggressor. The president’s goals are laudable. But his tactics are calibrated for a war that Ukraine is winning.
And Ukraine is not winning. At least not now. The Ukrainians defeated Russia’s attempt at regime change. But they have been less successful in removing Russia from eastern Ukraine and from their port cities in the south and southeast. Absent a change in Biden administration policy—in the ranges of weapons systems America provides Ukraine, in the establishment of a humanitarian corridor to relieve the Russian blockade of Ukrainian Black Sea ports, or in a major diplomatic effort—the war will turn into a frozen conflict with no clear resolution and with mounting humanitarian costs. How that situation would help anyone, including Biden, is unclear.
Then again, little Biden says or does makes sense from the vantage point of either policy or politics. He’s right to be rattled. He’s also clueless.
Drug importation is always presented as a way to reduce costs, but the truth is it is the wrong solution and will have the costly impact of endangering drug safety and creating a huge counterfeit medication problem.
“Safe” importation of medications is an oxymoron. It may sound good and it may sound like a cost saver, but it’s actually very risky. For example, the reality is that many drugs labeled as “Canadian” and thus assumed to be safe, are usually counterfeit or tainted medications that come from third world countries. In some cases, the medications are simply ineffective and have no value as medication. But if you need medication and think you’re getting the needed medication at a lower cost, but you’re actually getting what amounts to a placebo, your health is at risk and you’re not saving any money at all. In fact, you’re wasting money. You might as well eat chalk and burn cash. It would provide the same benefit.
And in other cases, the medications are not merely ineffective, they are actually tainted and do great harm. For years, healthcare policy analysts and health safety experts have produced a cacophony of powerful objections to importation based on worries about safety and pricing. Even many government reports make it clear that drug importation is a risky business and that there are better ways to keep costs in check. The health, legal and economic dangers posed by drug importation makes it dangerous public policy.
This isn’t just our opinion, the nonpartisan Congressional Budget Office carefully reviewed Senator Bernie Sander’s proposal for drug importation in 2017 and determined that it would have minimal to no impact on federal expenditures.
Additionally, drug “importation” would actually import Canada’s price-controlled, government-run healthcare system and kill off the incentives to develop new medicines. If we hope to find the next generation of cures and treatments to many of the terrible diseases that have plagued mankind for millennia, then we need to encourage innovation, investment and research — not stifle it.
Simply stated, drug importation may have a certain rhetorical appeal, but when the shiny stylistic glitter is wiped away, it becomes clear that the proposal is dangerous and potentially deadly for American patients. Paying a lower cost for so-called medications that aren’t medications or in some cases are poisonous, is not a cost savings.
Plus it will stifle and hamstring future innovation and development of new medications. None of that is a good idea, and none of that will help American’s stay healthy or end up reducing healthcare costs.
Drug importation is a bad and risky idea. It keeps getting recycled and some pretend that it isn’t a completely discredited idea. It is time to stop recycling failed ideas that pose real risks to Americans. It is time to look to encourage innovation and research.
King Solomon was quoted in Ecclesiastes 1:9: “What has been will be again, what has been done will be done again; there is nothing new under the sun.” As in King Solomon’s time, these days truth does not matter. As a result of hate-driven and ideologically distorted narratives, politicians like President Putin and his like-minded fellow despots do not allow themselves to be bothered or confused by facts. Accordingly, in the dark jungle of fake realities Russia the aggressor has been turned counterintuitively into the victim of Ukrainian belligerence. The old rules of fabricated evidence are back in play again.
Historically, wars have always been ruthlessly destructive affairs. Since their outcomes always having been either winning or losing, monarchs and political leaders more frequently than not have ended up as vulnerable, even lamentable players, in the murderous calculus of local, regional as well as global politics. In the main, such warrior politicians have not been subject to checks and balances. As self-appointed narcissistic guardians of the presumed national interests, they could have invoked emergency powers, and thus free themselves from man-made laws as well as moral constraints. Existing in this God-like penumbra of despotic powers they have unfailingly led their nations and the world into historic catastrophes.
Vladimir Vladimirovich Putin, the President of the Russian Federation by the grace of his subjects’ lack of political culture and common sense, has accomplished the time tested Russian feat of gradually downgrading his reign from a benevolent autocrat to a despotic bungler. While celebrating his “Special Military Operation” cum illegal military invasion of the sovereign state of Ukraine, his over two decades old antediluvian despotism has been writhing in its death pangs. Now, almost a hundred days after his failed war on Ukraine and counting, President Putin has already made himself a laughingstock across the globe. His abysmal performance during the May 9th celebrations displayed a slightly deranged person, who has gotten buried up to his neck in his self-generated mis-and-disinformation lies. Indeed, no politician worth his pound of integrity has any confidence in and respect for him. The events following February 24, 2022, have proven that President Putin is neither a smart political and military strategist, nor even a good tactician and soldier, but simply a below average gambler, an individual with no persona who oscillates from one vile extreme to the other without any reason, a man no sane person could fear as an enemy, and who deserves no serious consideration.
Putin’s Russia presents a far greater threat to the peace and stability of Europe and the rest of the world than even China or Iran. With his childish propaganda of Denazification, for which he cited among other fake evidences the Jewish and originally only Russian speaking President Volodymir Zelenskyy, President Putin’s dezinformacija campaign has been nothing but the ephemeral creation of his KGB-ideology poisoned sick mind. Thus, contrary to his intentions, his military offensive and his accompanying official Russian Nationality ideology have collapsed, preserving only a political abyss, which has begun swallowing up the Russian nation.
A fix point in this Putin-generated madness is the President of Ukraine, Volodymir Zelenskyy. His narrative has been straightforward and uncompromising. A “Putinic” peace would preserve the evolving status quo in its most dangerous form. Therefore, it is unacceptable. Russia must withdraw from all the territories it has occupied since 2014, including the Crimea. Thus, the dismemberment of Ukraine is out of the question. For the sake of its present and future security, Ukraine, like Finland and Sweden, must join the European Union and NATO. The burdens of reconstruction must be borne to the fullest by Russia that has illegally invaded his country. The heinous war crimes committed by the Russian military must be investigated by the international community and the guilty must be punished. In the ultimate reckoning with Russia’s crimes, all governments and all international organizations must work along the well-established principles of international law and all the relevant bilateral and multilateral agreements. Among those principles, two are the most important. The principle that occupying territory does not create sovereignty will help to restore order and stability throughout the European continent. The other major principle is that political opposition must always be peaceful and not aggressive.
Thus, in the present situation, the Ukrainian President is one of the few politicians who understands that Russia, with its ephemeral victories and paradoxical wars which will never end will only accomplish the complete destruction of itself. By chasing the mirage of a superpower and by threatening the entire European system, Putin’s Russia is signing its own death sentence into its unattainable ambitions. Prevented from realizing that the unrealistic expansion of Russia will definitely end in a strategic cul-de-sac and the continuation of each war will only mean the beginning of new preparations for a greater one, President Putin’s dream of a restoration of the Empire will perish because he cannot comprehend that civilized states must renounce in their relations with other states the exclusive use of violence. Otherwise, Russia’s cruel games of political insanity will isolate it from the rest of the world forever.
Budget proposal requests millions for 'climate crisis'
While the Biden administration’s small business budget references environmental initiatives more than 20 times, it makes no mention of inflation’s impact on businesses—a contrast that Republican lawmakers say shows a disconnect between the White House and American voters.
The Small Business Administration’s 2023 budget proposal, which the White House in March submitted to Congress for approval, lists the “climate crisis” as an agency priority, requesting $10 million toward environmental initiatives such as the replacement of federal government vehicles with zero-emission cars. The request, meanwhile, makes no mention of rising consumer prices, which in March hit a four-decade high of 8.5 percent—even as recent polling shows inflation is a top concern for business owners. Four out of five small business owners say their companies have “suffered” from inflation, according to an April Goldman Sachs report.
Sen. Joni Ernst (R., Iowa), a member of the Senate Small Business Committee, said the budget is “out of touch with America and reality.”
“The president and his SBA administrator are more focused on appeasing climate activists than helping Americans on Main Street,” Ernst told the Free Beacon. “They need to get a clue.”
The Small Business Administration told the Free Beacon that while inflation is not explicitly mentioned in the budget, the agency’s proposed funding for domestic production and global supply chain programs will help small businesses struggling with rising prices.
“We remain committed to advocating for all our entrepreneurs, including supporting several initiatives in the FY22 budget dedicated to lowering costs for Americans,” an agency spokesman told the Free Beacon.
The White House in recent months has blamed rising prices on global supply chain shortages and the war in Ukraine. Some economists, however, have warned that the Biden administration’s record spending has been the main driver of surging inflation. President Joe Biden’s American Rescue Plan, which Congress passed last year, cost an estimated $3.5 trillion. The Small Business Administration, through its Paycheck Protection Program, has forgiven $714 billion in loans to businesses that maintained their staff amid the pandemic.
“This inflation is caused by trillions of newly ‘minted’ dollars flowing through the economy and government-created supply shortages from overregulation and restrictions on society the past two years,” Joel Griffith, a research fellow at the Heritage Foundation who focuses on financial regulations, told the Free Beacon.
Congress will review the Small Business Administration’s proposed budget as it prepares to draft appropriations packages later this year. Several Republicans on the House Small Business Committee, including Beth Van Duyne (Texas), Byron Donalds (Fla.), Dan Meuser (Pa.), and Blaine Luetkemeyer (Mo.), told the Free Beacon the administration is putting left-wing policies above pressing economic concerns.
The budget “does just the opposite of addressing inflation: more reckless spending on policies straight from the Democrats’ radical and extreme agenda,” Luetkemeyer told the Free Beacon.
A Gallup poll in March found that climate change is the top issue for only 2 percent of Americans. Inflation and increased cost of living, meanwhile, are the top concern for 17 percent. Sen. Marco Rubio (R., Fla.), also a member of the Small Business Committee, said the Small Business Administration’s priorities are misaligned.
“Every small business owner I talk to is being hammered by inflation, and that’s on top of supply chain delays and a labor shortage,” Rubio told the Free Beacon. “But no one in the Biden Administration seems concerned about the fate of small businesses because they’re too busy pushing some radical, woke nonsense that won’t help anyone on Main Street.”
Inaction by the Biden administration and an aversion towards long-term strategic policy goals has put the United States in an exceedingly vulnerable position, with China and our adversaries aggressively advancing their plans to overtake the United States on the world stage.
Our nation’s current leadership has failed to act on forward-thinking initiatives to strengthen the economic and national security of America. It is imperative that new voices be sent to Washington who recognize future challenges and implement strategic plans to protect the wellbeing of American industry, security and freedom.
The Russia-Ukraine conflict underscores the need for a comprehensive plan to confront geopolitical and domestic challenges before they arise. This conflict was driven by Joe Biden’s withdrawal of United States Energy Independence at the world stage, all while the intelligence community and lawmakers having advance knowledge of a Russian invasion into Ukraine. Instead of acting to deter the Russian threat, lawmakers and the Biden administration failed to issue a preemptive sanction package. By lacking the foresight and courage to act, Biden disgraced American diplomacy and strength on the world stage.
It’s paramount that our next class of lawmakers address the needs of tomorrow’s America and develop long-term policies that strengthen United States national security and economic interests. I led the fight for energy independence and stood with President Trump’s successful policies by suing the Biden administration over the cancellation of the Keystone XL Pipeline and filed suit against Biden’s disastrous ‘Social Cost of Greenhouse Gas’ rule. We must strengthen the American energy sector, and never become a pawn of another nation’s exports.
The lab leak in Wuhan, China exposed critical vulnerabilities in our country’s national security and economy. As Missouri Attorney General, I’ve fought China at every turn, suing the Communist Chinese Party in 2020 to hold them accountable for unleashing COVID-19 on the United States. But more must be done. We must eliminate funding for gain of function research, as seen in the NIH-funded Wuhan lab. The United States, through financing the NIH lab in Wuhan, placed an economic weapon in the hands of our greatest adversary.
This is an unacceptable lack of foresight our country can never allow to happen again. In the U.S. Senate, I will be relentless in my pursuit to hold accountable, whether foreign or domestic, those responsible for unleashing the pandemic on the world.Through Iran-Contra-like investigations, I will ensure that our enemies will never have the opportunity to use American research funding against us again.
Energy independence and opposing China, along with the foresight and willingness to take on these big fights like President Trump did so effectively is what our country needs, with the threat to our nation at the highest point in decades. International turmoil, rising inflation, and economic stagnation embolden our enemies and have been perpetuated by the Biden administration. We must do better. We need fighters. And we need long-term solutions. That’s why I’m running for the United States Senate.
I joined the Marine Corps two weeks out of high school, deployed to Afghanistan, and earned my degree using the GI Bill
By Fox News•
As President Biden considers forgiving student loan debt, there are important factors to consider, including the impact on our military and veterans who earned opportunities to pursue an affordable college education.
For most veterans, the choice to join the military was foremost about serving our country. But for many, it was also about receiving benefits to attend college without debt. Earning the GI Bill meant giving up years of their lives, serving in dangerous jobs and situations. The student loan debate is leaving out the impact cancellation will have on the veteran and active-duty community.
That’s probably why, in a recent Mission Roll Call poll of 6,202 veterans, 77% opposed student loan forgiveness.
College is expensive, and it’s only getting pricier. But since an undergraduate degree — even if unrelated to one’s subsequent career — has become a barrier to entry for most professional career tracks, most prospective students feel like they have no other option. They become saddled with student loans that don’t go away in bankruptcy and can delay important life events like buying a home or having children.Video
But there has always been a path to free higher education. For over 80 years, military service and the GI Bill have enabled millions of Americans to pursue college debt-free, or nearly free. Serve in the military, and the federal government will help ensure you have the resources necessary for success without burdensome debt.
For over 80 years, military service and the GI Bill have enabled millions of Americans to pursue college debt-free, or nearly free
Already in college? Join the ROTC. In the military and want to use the GI Bill for graduate school? Use tuition assistance. Not sure what you want to do out of high school? Enlist and earn your GI Bill. Already have a degree or want to make the military your career? Transfer the GI Bill to your kids.
I joined the Marine Corps two weeks out of high school, deployed to Afghanistan, and earned my degree using the GI Bill. I know firsthand the sacrifices service members made to earn that benefit. They all made a choice. In most cases, joining the military meant receiving the GI Bill and the chance to go to school for little to no cost. They earned that opportunity.
The U.S. military is an all-volunteer force; the active-duty component makes up less than 1% of the total civilian population. Every year, hundreds of thousands of Americans earn the GI Bill as an incentive for their service. It isn’t something freely given, and it isn’t something any civilian can feel entitled to.
For veterans and active troops who want to pursue a debt-free education through honorable service, policies that forgive student loan debt minimize their efforts and experiences.
Joining the military is not the only way to attend college, but it’s a vital option for service members who want a degree without having to saddle themselves with tens of thousands of dollars in debt. It was certainly the right of those who chose not to serve to find different options, but it should not be at the literal and figurative expense of those who served our nation.
Serving in uniform takes commitment and courage. And as our nation’s leaders discuss student loan forgiveness, we hope they adequately consider the life-changing decisions service members make for our country and honor their service in this debate.
Our predictions about the law’s effects on business investment, wages and tax revenue were correct.
As Karl Popper demonstrated, evaluating a scientific proposition requires falsifiability—theories or hypotheses can’t be proved or disproved if they can’t be subjected to empirical tests. When the 2017 Tax Cuts and Jobs Act was passed, we were criticized for being overly optimistic about the effects we predicted it would have. Now the evidence is in. Our critics were wrong, and the economic data have met or even exceeded our predictions.
In 2017, we predicted that reducing the federal corporate tax rate to 21% from 35% and introducing full expensing of new-equipment investment would boost productivity-enhancing business investment by 9%. Though growth in business investment had been slowing in the years leading up to 2017, after tax reform it surged. By the end of 2019 it was 9.4% above its pre-2017 trend, exactly in line with the prediction of our models. Looking solely at corporate businesses—those most directly affected by business-tax reform in 2017—real investment was up by as much as 14.2% over the pre-2017 trend, slightly more than we expected. Among S&P 500 companies, total capital expenditures in the two years after tax reform were 20% higher than in the two years prior, when capital expenditures actually declined.
Citing an extensive empirical literature, we also predicted that by enhancing worker bargaining power and increasing new investment in domestic plant and equipment, the average household would see real income gains of $4,000 over three to five years. In 2018 and 2019 real median household income in the U.S. rose by $5,000—a bigger increase in only two years than in the entire eight years of the preceding recovery combined. In 2019 alone, real median household income rose by $4,400, more than in the eight years from 2010 through 2017 combined.
Those extra wages contributed extra tax revenue as well. We predicted that despite a short-term drop in corporate income-tax revenue as companies expensed new-equipment investment, the combination of increased economic growth and reduced incentives to shift corporate profits overseas would result in a long-run net positive revenue effect. Before the reform, U.S. firms moved their profits overseas to avoid the highest tax of any advanced economy. After the reform, we predicted that more profits would be booked at home. For each dollar booked at home there would be a gain for the U.S. Treasury, since 21% of a positive number is much larger than 35% of zero.
Commentators have recently noticed that in the 2021 fiscal year, not only did federal corporate tax revenues come in at a record high, but corporate tax revenue as a share of the U.S. economy rose to its highest level since 2015. Actual corporate tax revenue in 2021 was $46 billion higher than the Congressional Budget Office’s post-reform forecast. Even though the U.S. economy was only slightly larger in 2021 than the CBO had projected, corporate tax revenue as a share of gross domestic product was 21% higher (1.7% versus 1.4%).
Some have attributed this good news to transitory effects related to the pandemic rather than 2017 tax reform. Yet in President Biden’s latest budget, the administration’s own baseline forecast for corporate tax revenue (i.e., before the revenue effects of its budget proposals) is now above the CBO’s pre-2017 forecast for every year from 2023 through 2027. This is true for both the level of corporate tax receipts and as a share of GDP. This optimistic forecast is consistent with our views about the long-run nature of the effects of tax reform and inconsistent with critics’ claim it has no effects.
Why are corporate tax receipts coming in not only at much higher levels, but also as a bigger share of the U.S. economy? The reason is exactly as we foreshadowed in the 2018 and 2019 Economic Reports of the President. By neutralizing the favorable tax treatment of selling intellectual-property services overseas via a foreign subsidiary, and by taxing past corporate earnings previously sheltered in those foreign subsidiaries, the 2017 tax law effectively created an incentive for multinational enterprises to move their profits home.
As a result, not only did domestic pretax earnings grow by a greater percentage than total pretax earnings between 2019 and 2021, they also grew by more for companies with greater foreign-derived income from intellectual property, meaning these firms were either repatriating intellectual property to the U.S. or locating less new intellectual property outside the U.S.
This is reflected in aggregate international transactions data from the Bureau of Economic Analysis, which shows that firms were repatriating only 36% of prior-year foreign earnings, and reinvesting 70% abroad, in the years leading up to 2017. Since 2019 they have on average repatriated 57%, and reinvested only 47% abroad. Overall since 2017, firms have repatriated $1.8 trillion in past overseas earnings.
In addition, the average annual dollar value of acquisitions by U.S. companies of foreign assets in 2018 and 2019 was 50% higher than in the two preceding years, while acquisitions of U.S. assets by foreign companies declined by 25%. Multinationals find the idea of domiciling in the U.S. and pursuing outbound acquisitions increasingly appealing. U.S. companies, on the other hand, are increasingly uninterested in being acquired by foreign multinationals and domiciling in lower-tax jurisdictions.
One of the exciting aspects of academic discovery is the opportunity to test theories and hypotheses against real-world data. In 2017, we put our hypotheses about the effects of corporate tax reform in the public record and have passed the test. The White House and Democrats in Congress should think twice about undoing the corporate tax reform and partisan economic pundits should point their criticisms at something else.