Moneybeat – Biden’s tax policy promises

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: Financial analyst and advisor David Bahnsen joins us now for our weekly conversation. David, good morning.

DAVID BAHNSEN, GUEST: Well, good morning. Good to be with you, Nick.

EICHER: I am curious what you thought was the big story emerging this week. Seemed like a light week. 

What’s top of mind for you?

BAHNSEN: You know, I think the conversation about where the Biden administration is headed on tax increases is probably the big story of the week. The fact they are now in active conversations about where they want to go on tax policy. It isn’t very different from what he campaigned on and what was sort of the understanding of where they were going to go, but it’s now here. The stimulus is passed and I would imagine that’s one of the bigger economic developments. But it’s not going to be a short term story because it’s going to take them awhile to put it together. And then whatever they do end up passing is very likely to not be in effect until 2022. 

But then it may very well be attached to an infrastructure bill. So we could be looking at another multi trillion dollar spending package. Although in this case they would be trying to pay for it with tax increases as opposed to 100-percent debt financing like the other COVID packages. 

So these are just interesting times as we kind of get into these early stages of a post-COVID Biden administration world.

EICHER: It is early, but maybe give us a primer on tax policy, David. When we think of taxes, tax rates, ostensibly to collect revenue, we know the laws of economics tell us that not all taxes are created equal. Some of them collect revenue and create incentives for economic growth and some of them inhibit economic growth and wind up failing at the stated goal, which is to raise revenue. 

But start the conversation on tax policy for us.

BAHNSEN: Yeah, I mean, I think that from my vantage point as a supply-sider—and this is a philosophical statement—I have always believed and history has, I think, reasonably validated that the government has been able to achieve greater revenue when it enacts supply-side reforms that create economic growth. And so they might have lower rates generating more revenue for more economic activity. And you’re getting, you know, if you’re taxing income you’re getting more income created when there’s more incentive to create income. And yet the very tax on income is itself a disincentive. And so that’s what the supply-side movement is based on is reorienting policy around this thing called incentives and the belief that incentives matter in economics. And so I do think lower marginal rates can create higher revenues. 

But I also believe, Nick, and this is really important, that a lot of the things that would be necessary to do to really raise revenue no one wants to talk about. So, at the end of the day it is true that I’m opposed to higher and higher still and higher still marginal rates on wealthy taxpayers. 

A lot of that is because I think it’s wrong. I think a lot of it, though, is it doesn’t generate any revenue. They’re not going to increase revenue to treasury simply by taking one percent of the taxpayers and pushing the rate that they’re paying up a few percent. 

So, really sizeable increase in revenue is only going to come from middle-class tax increases, which are totally and completely politically unacceptable. 

Something like a value added tax where they’re adding a whole dimension of taxation that is not seen by taxpayers but is felt by consumers by taxing various aspects of the supply chain along the way or higher taxes on consumption. That’s another way they could meaningfully move the needle, generate a lot of revenue. But again comes at a huge cost. 

So, there’s not a serious conversation in this country about tax policy. It is either on one hand the certain group on the right that is always and forever “government doesn’t need more revenue, government doesn’t need more revenue.” And of course I agree in theory that what we mean by that is the government shouldn’t be so big that it needs more revenue. But to the extent that it is this big to need more revenue, as far as a conversation about how to get it, I would like to see something that doesn’t disincentivize economic growth. 

Unfortunately from the left, most of the conversations are centered more around class warfare.

EICHER: Before we go, David, economic indicators. I saw the retail sales report was a downer, but what did you see in the data this week that was telling?

BAHNSEN: Yeah, no, it was not actually a very good week for economic data and we haven’t had that many where I would say that. For the most part, it’s really just been a pretty steady beat of economic data that was good and even a bit better than expected across a whole multitude of categories. And this week there was disappointing numbers on retail sales, on the jobs number, on industrial production. None of them were severe, but none of them were really overly optimistic. I think the 10-year bond yield moving all the way to 1.75 percent, again, is still the economy pricing in much higher economic growth expectations. The Fed had been anticipating four percent real GDP growth this year. They’ve upped their estimate to six and a half percent. My guess is that they’re wrong by at least one to two percent. I think you’re going to comfortably get above seven percent, if not eight or nine, real economic growth this year, which is monstrous.

EICHER: Monstrous, in a good way, Roaring back, like a good monster. David Bahnsen, financial analyst and advisor. Sounds like you’re roaring back, too, from your strep throat. Glad you’re better. Have a great week!

BAHNSEN: Well, appreciate it, Nick. Good to be with you.


(AP Photo/Patrick Semansky) President Joe Biden speaks after meeting with leaders from Georgia’s Asian-American and Pacific Islander community, Friday, March 19, 2021, at Emory University in Atlanta, as Vice President Kamala Harris listens. 

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