Washington Wednesday - Pulling toward the middle

NICK EICHER, HOST: It’s Wednesday the 27th of October, 2021.

Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Nick Eicher.

MARY REICHARD, HOST: And I’m Mary Reichard. First up, the president’s multi-trillion-dollar spending bill.

For months President Biden pushed a spending plan that was ambitious or reckless, depending on who you ask.

The price tag: $3.5 trillion dollars.

But among the people who found it to be reckless were two moderate Democrats, Senators Kyrsten Sinema and Joe Manchin.

EICHER: They balked at the price tag, forcing the White House and Democratic leaders to scale back. The bill is now expected to cost under $2 trillion. Still a massive sum, but not nearly what Democratic leaders were hoping for.

In an evenly divided Senate, Democrats cannot afford even a single defection. So they can’t ignore the objections of the moderates.

And just a reminder, this proposal is separate from the roughly $1 trillion bipartisan infrastructure bill that has already passed the Senate.

REICHARD: Democrats would pass the bigger spending bill using the reconciliation process in the Senate. That would allow them to pass it without any Republican votes.

Joining us now to talk about it is Joel Griffith. He studies spending and financial regulations in Washington for the Heritage Foundation.

Joel, good morning!

JOEL GRIFFITH, GUEST: Hello, good morning. Thank you for having me.

REICHARD: Glad to have you. Well, from what you’ve heard, at least as of yesterday, how close were Democrats to getting a deal done?

GRIFFITH: Well, I think that they’re still far apart because there’s a growing recognition not just among senators but probably more importantly with the public that this spending proposal is quite dangerous to our long term economic prosperity. And that’s why you see many conservatives, many moderates in the Senate, and even several Democrats that have been expressing concern about this vast expansion of government power, the vast expansion of government spending, and of course to fund that spending, the borrowing and the rampant money printing by our central bank that will be required to make this plan a reality.

REICHARD: Joel, what are the biggest items Democrats have had to take out of the proposal in order to cut this down from its original $3.5 trillion price tag?

GRIFFITH: Well, to cut this down from that $3 trillion has been a lot of actually accounting gimmickry. A lot of the price estimates already were filled with gimmicks. For instance, only planning on some of these spending proposals to last for 10 years, such as the child tax credit, for instance, and they’d have an arbitrary expiration date of 10 years in order to keep the total price over that window lower. Of course we know that once you have a government program established, it's very difficult to actually roll that spending back. And so what this scaled back version did was actually add more of those gimmicks. And for instance, just having a program last for a few years, or start a few years later, and then expire two or three years later. There's a lot of gimmickry in this in order to make this price tag seem lower than it will likely be.

REICHARD: It looks like Democrats are very much leaning toward a wealth tax on billionaires now as part of this plan. What would that entail?

GRIFFITH: Well, an actual wealth tax will be unconstitutional. Congress can only enact taxes according to that which the Constitution provides. So, we can have an estate tax, the income tax, these all fit within our Constitution. To actually tax wealth would take a constitutional amendment, because we have a provision, thankfully, in our Constitution that forbids the taking of private property without just compensation. So as a workaround to this prohibition, a number of those on the left in Congress have proposed taxing unrealized capital gains. Well, that's a big danger. Number one, it does violate the Constitution. It does operate as a wealth tax. And this is going to wreak havoc on our system. Of course, for the beginning, it might only apply to those at the very upper end of the wealth scale. But that will have repercussions throughout the broader economy as individuals are forced to sell assets prematurely in order to pay tax on a gain that they haven't actually realized. And think about any of us that have even a small investment account. When you have a stock that increases from $10 to $15, well, until you sell that asset, you don't actually have that cash in hand. And that's why our system only taxes us when we actually realize and we actually sell the investment. This will be a very dangerous precedent. It's going to wreak havoc on the investment world and it's going to deter people that do have wealth from investing over the longer term.

REICHARD: What about the early talks of basically reversing the 2016 Republican tax cuts? Is that no longer in the works?

GRIFFITH: Well, increasing taxes on business operations, that is still under consideration. Now, there seems to be some movement on a compromise of just how high those taxes will go on businesses. But the initial proposal was to raise taxes on companies to a level that is actually higher than communist China. And that's dangerous, not just to those that are actually business owners, or that started these businesses. But this is also going to be harmful to those that are smaller and medium investors in our stock market, or if you save for retirement. Because when you start taking more of the profits that a company earns, well, that means that there's less profit available to distribute to shareholders. It also means that there's fewer financial resources available to actually invest in new technology or new business opportunities.

So politicians might enjoy the boost in the revenue so they can spend more, but once again, longer term our economy suffers because we're going to deprive our economy the resources that we need to actually invest in the technology and new business ventures that help not just the wealthy but that help families all across the income scale.

REICHARD: Let’s talk about Senators Manchin and Sinema now. They were the two lawmakers preventing the $3.5 trillion plan from moving forward. What were their biggest concerns with the original plan?

GRIFFITH: Well, just their concerns are really just on the massive expansion of government that it will elicit, it will entail. And in an era over the past year in which families, regardless of income level are really experiencing this price squeeze when you go to the grocery store, when you go to fill up your car, when you go to buy a new house, I think people are really starting to connect the dots between government policy—whether it's shutdowns or borrowing or printing more money—and economic pain. And I think there's a realization now within not just conservatives, but those that typically favor an expansion of government, I think there's a realization that we are getting close to that fiscal precipice. We're starting to experience that pain now. What I find a bit amusing are that even these two senators that are now opposing—Senator Sinema, Senator Manchin—opposing this $3.5 trillion package, they actually supported a number of other proposals, as did most senators, over the past year and a half that ramped our government spending up to unprecedented levels. I mean, think about what we've spent over the past year combined with what's been proposed over the next year, we're talking about over $9 trillion in just a 12 month period. That's almost $100,000 per family of four. And these numbers have gotten so big that now you're considered a moderate if you only supported a few trillion dollars of additional spending over this past year. Just a few years ago, that would have been considered radical, and it shows just how awful the fiscal mismanagement has become where a trillion and a half sounds like a compromise when before that would have been a historically large spending explosion.

REICHARD: Many people have probably heard about liberal activists harassing Manchin and Sinema, particularly Senator Sinema. There’s video of activists following her into a bathroom to harass her over not supporting the full spending plan.

Talk about their role in the Democratic party. Obviously they seem to be on something of a lonely island, but while progressives may not like it, they’re pretty much in the driver’s seat, right ?

GRIFFITH: I think that's very true. The far left has always been present within the Democrat party, but it has become stronger in terms of actual electoral success over the past few years.

I mean, think about Senator Bernie Sanders, who caucuses with the Democrats. He's a self identified socialist. He is one of the most powerful senators. He runs the appropriations committee. Or Senator Elizabeth Warren, who is amongst the most radically left wing senators we've seen in our nation's history alongside Bernie Sanders, and she is really running the Banking Committee agenda about what our financial regulatory future will look like. So they've gained a lot of power in the Senate and in the Congress, and this piece of legislation that is working its way through—this $3.5 trillion bill—is really a product of their far left agenda.

REICHARD: Joel Griffith with the Heritage Foundation has been our guest. Joel, thanks so much!

GRIFFITH: Thanks for having me.

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