That said, the Biden program does not need the income from a higher corporate tax rate.

The budget resolution that will move this agenda forward if Sinema and Senator Joe Manchin can be involved does not require that all future investments be fully paid. In fact, it allows you to borrow up to $ 1.75 trillion. What if opposition from the management wing of the Democratic Party – can we stop calling them “moderates”? – avoid tax increases, it is better to borrow than not to invest.

Should we fear that the increase in borrowing could threaten the solvency of the United States? No. The interest rate on long-term federal debt is only about 1.65%, so even adding $ 1.75 trillion in debt would only mean about $ 30 billion added to interest charges. annual – 0.15% of gross domestic product, which is insignificant.

And even this calculation greatly overestimates the true debt burden, which should be calculated using the real, i.e. inflation-adjusted, interest rate, which is negative.

What about fears that deficit-financed spending is inflationary? Again, it’s important to do the math. If the United States were to end up borrowing an additional $ 1.75 trillion, it would be over a decade, not a single year – and the Congressional Budget Office predicts a total GDP of $ 288 trillion over the next. decade. So while it may seem like we are talking about huge deficit spending, the extra deficit would only be 0.6% of GDP, which is just not a big deal.

In fact, given the arithmetic, you might wonder why Biden always wanted to raise taxes enough to fully pay for his investment program. The answer, I think, was more about politics than the economy – that presenting his plans as deficit neutral was supposed to reassure politicians who have not caught up with current mainstream economic thinking and still view budget deficits as a major threat. .

At this point, however, it looks like a final budget deal, if there is one, will need to involve substantial borrowing. And that’s OK. We can deplore the influence of companies which can block certain justified tax increases, but borrowing to invest for the future is not a bad thing in itself. Hey, businesses do it all the time. Democrats should therefore go.


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