Editors’ Note: We have noticed a number of commentators suggesting that Biden is the second coming of Jimmy Carter and “economic malaise.” Professor Henderson makes a number of salient points, particularly regarding economic regulation, that Biden is actually far worse than Carter. As bad as Carter was, he deregulated major industries, actually cut taxes, and appointed Paul Volker to the Fed. It was Volker and Reagan who eventually broke the back of inflation, at the cost of extremely high-interest rates. Carter governed as a Liberal to be sure, but Biden is governing like a Marxist. One final point: Carter’s excesses came at a time when Federal debt as a percentage of national output was far lower than it is today. As such, we now have far less margin for error.

I’ve been following economic policy closely since Richard Nixon’s assault on economic freedom with his August 15, 1971, economy-wide price controls. While there have been ebbs and flows in economic freedom in the fifty years since then, I have never seen anything like the full-court press against economic freedom exercised by President Biden and his administration. To the extent it succeeds, it will not only reduce our freedom but also slow the growth of our real income.

If you think Biden’s policies compare to Jimmy Carter’s, you would be wrong. Carter’s energy policies were horrendous. He continued Nixon’s and Ford’s price controls on oil and gasoline until he finally started to phase them out in his last year in office; he dictated minimum and maximum temperatures for buildings, and he set energy standards for appliances that have made them less useful and more expensive. In one of his worst hires, he appointed G. William Miller as chairman of the Federal Reserve and Miller went on to print more money and cause more inflation. But Carter was a leader in ending economic regulation of airlines, of trucking, and of railroads. Airline deregulation made airline travel cheaper and made it much easier for middle-class people to fly multiple times a year. Trucking and rail deregulation made those shipping modes more efficient and cheaper. And in 1979 he appointed Paul Volcker as Fed chairman and Volcker went on to follow a semi-monetarist policy that, under President Reagan, brought inflation down to low single digits. Carter also signed a tax bill in 1978 that reduced the tax rate on long-term capital gains.

Nothing that the Biden administration has done or is proposing on economic policy is comparable to Carter’s accomplishments. On every front, Biden and his appointees are pushing for massively higher spending, taxes, and regulation. Moreover, simply looking at the budget numbers, scary as they are, understates the damage because of the particular way the proposed programs are structured. Many of the programs set up bad disincentives and also intrude in private decision-making that has worked out fairly well.

Spending

By the end of his second month in office, Biden had signed a $1.9 trillion coronavirus relief bill. I’ve written about that bill in “An Unnecessary ‘Stimulus’ ” (Defining Ideas, March 5, 2021) and “The ‘Stimulus’ and the Damage Yet to Come,” (Defining Ideas, March 18, 2021.) I also warned (in “Child Tax Credits Feed Debt and Dependency,” Defining Ideas, April 23, 2021) that politicians of both parties would push to extend the hugely expensive child tax credit beyond its expiration date of December 2021. Sure enough, an extension of the child tax credit to the end of 2025 is a major part of Democrats’ $3.5 trillion budget reconciliation bill. Presumably, the Democrats are thinking that once even high-income Americans have had almost five years of getting thousands of dollars annually from the government simply for having of-age children, many of them will advocate extending the payments beyond 2025. Unfortunately, they’re probably right.

Another major expenditure in the $3.5 trillion budget bill is for a federal child care program. University of Chicago economist Casey B. Mulligan has a habit of actually reading and thinking through long congressional bills. In his October 14 blog post, titled “Childcare in ‘Build Back Better,’ ” Mulligan gives a detailed description of the child care provisions of the bill. Those provisions are so extensive that they would, if implemented, upend child care. The bill would prevent federal funds from going to child care providers unless the workers were paid as much as elementary-school teachers. How much is that? Mulligan cites data from the Bureau of Labor Statistics showing that in 2019 elementary-school teachers were paid an average of $63,930 per year. By contrast, in 2019 child care workers earned an average of only $25,510 annually. Thus, the federal bill would make child care much more expensive.

Moreover, the bill would price child care, based not on the value that the parents perceive, but on the parents’ income. Consider households whose income is between 75 percent and 150 percent of the median household income, which, in 2019, was $69,560. (Median income in 2020 was even lower, $67,521, because of COVID-19 and the regulations imposed by state and local governments, but presumably, that was temporary.)  Households in the 75–150 percent range would have income between $52,170 and $104,340. That would include most families in America. A family with an income in this range would pay an extra $7 for one child’s care for every additional $100 in family income. A family with income in that range and two children in child care would pay an extra $14 for child care for each additional $100 of income. That amounts to an implicit marginal tax rate, just based on child care alone, of 14 percent. A family in the 22 percent federal tax bracket and a state tax bracket of 4 percent would also face a 7.65 percent tax rate for Social Security and Medicare (or a whopping 15.3 percent tax rate if self-employed). That family’s marginal tax rate already amounts to 33.65 percent. Adding 14 percentage points for two children in child care makes the implicit marginal tax rate for that family a stiff 47.65 percent…..

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Continue reading this article published on October 21, 2021 at the Hoover Institution.