Like clockwork, we can count on a study showing how the economy does better under Democratic presidents than Republican ones. This year, the New York Times obliges.
To say such analyses are overt efforts to soften up Americans for an increasingly activist government to come may be too cynical. Given the recent release of President Biden’s proposal to raise taxes and spending however, one can’t be too sure.
To understand the impact of policy, it’s best to keep things simple. When you pay taxes, some effects are seen, while others are unseen.
Every dollar the state takes is one less dollar of income a seller has when you don’t buy what he has created. Consequently, he is one step closer to laying off an employee, or going out of business altogether.
Or, it’s one less dollar you can invest in yourself, whether on an idea you have, or more education/training.
It might be someone else’s idea to which you’ve one less dollar able to commit. It could be as modest as your daughter’s pet grooming venture, or as big as a Fortune 500 company.
It’s one less vote of confidence in an enterprise that creates such value for society that additional employees are needed. It’s one less dollar of business for that machinery company that produces the capital needed to help those employees.
It’s also one less dollar of a return for you. Instead, it finds its way into a couple of dead-ends.
First, it might go toward a tax specialist who helps you avoid running afoul of the Internal Revenue Service (IRS). For many of us, this can cost more than $100.
It’s also an hour or more not spent with your kids, or on hobbies, the latter of which could flower into marketable activities.
And that’s just for us consumers. Producers spend even more time and/or money complying with tax authorities.
In addition to the investment their businesses do not see, it’s fewer dollars they would be able to donate to a scholarship fund, or fewer hours they could spend serving on a school board.
Instead, these earnings are vacuumed into the deadweight loss of government.
This is not to denigrate public sector employees. There are good people there. But their talents are wasted turning this pilfered wealth back out into society, where it deadens much of what it comes into contact with.
It’s a cruel irony that resources taken from private sector companies subsidize organizations, such as the U.S. Postal Service or renewable energy companies, that they compete with in the marketplace.
It materializes on the international stage when older firms cling to their legacy at the expense of innovation. Consumers subsidize this complacency by paying higher prices via tariffs on more efficient competitors.
In an increasingly free and interconnected world, these industries appeal to base instincts like “Buy American.” Nevermind the larger damage done to domestic companies that use the protected goods as inputs.
The only thing these favored corporations need to do is stay in good with their political benefactors so the scales stay tilted in their direction.
All this incentivizes organizational dependency just the same as it does for individuals, who also bear the brunt of subsequently higher prices.
The president’s three-pronged effort to stem the costs of pre-K child care reflects this double-whammy.
First, he would “partner with states” to “provide universal preschool.” Next would be to “provide direct support to families” to cap child care costs at “7% of their income.”
Finally, the child care tax credit would be expanded.
The last two measures would certainly relieve parents of some financial stress. However, due to the ensuing increase in demand, providers would likely raise prices to rebalance the market.
Parents wouldn’t know this though, since the expanded programs act like insurance. They would therefore be shielded from these price signals.
Universal pre-K, along with pre-existing state and local programs, would exacerbate this, subject as it is to artificially inflated wages, and prone as it would be to unionization and its own plodding nature.
More strain on fiscal budgets would be unavoidable.
The Wall Street Journal recently reported that, combined with prior relief legislation and bulging personal savings, the spending portion of President Biden’s plan will likely overwhelm the tax side, and therefore boost the economy.
That’s probably true in the near-term, but it would come at the expense of the eroded base from which long-term prosperity springs.
No law can prevent or mitigate these perverse incentives, and there’s no defying the math when the detrimental consequences inevitably add up.
