Manchin’s $1.5 trillion plan is still bigger than the Obama stimulus, and would be a major expansion of government’s power to redistribute wealth<\/p>\n\n\n\n
Here’s a novel idea: if the government engages in less taxing, spending, and borrowing, the negative consequences of all that taxing, spending, and borrowing will be limited.<\/p>\n\n\n\n
That’s the bottom line from a pair of recent studies that project the long-term economic consequences of the proposed $3.5 trillion reconciliation bill and a more hypothetical $1.5 trillion spending plan offered by Sen. Joe Manchin (D-W.Va). Manchin, who remains a key holdout in Democrats’ plans to pass the larger package through Congress, says he won’t support the $3.5 trillion bill\u00a0because he’s concerned that adding to the national debt will constrain\u00a0America’s future economic growth. The two studies, both completed by the Penn Wharton Budget Model (PWBM), an economic policy think tank housed at the University of Pennsylvania, support Manchin’s caution is warranted.<\/p>\n\n\n\n
As I wrote last month, when the PWBM published its analysis of the reconciliation bill, the $3.5 trillion spending package\u00a0will leave America poorer in the long run. The PWBM analysis projects a decrease in private wealth, wages, and America’s gross domestic product (GDP) over the next three decades relative to a projection in which the bill is not passed. The larger spending package would increase government debt at a faster rate, which would increase the amount the government has to pay in interest. In the $3.5 trillion scenario, higher levels of spending and higher amounts of government debt “crowds out investment in productive private capital. Less private capital leads to lower wages as workers become less well-equipped to do their jobs effectively,”\u00a0the report\u00a0states.<\/p>\n\n\n\n
Now, the PWBM has completed\u00a0an analysis\u00a0of the $1.5 trillion framework that Manchin reportedly offered as an alternative. In order to do the estimate, PWBM analysts assumed that Manchin’s proposal would increase spending by about $540 billion for means-tested childcare programs, like universal pre-K; $439 billion for a five-year extension of the expanded Child Tax Credit; $260 billion for public infrastructure; and $260 billion for other assorted government spending.<\/p>\n\n\n\n
That’s still a lot of money, and there are still some negative long-term consequences\u2014but the most important part of Manchin’s proposal is that it does not require additional borrowing, and relies on smaller tax increases than what President Joe Biden has proposed. As a result, government debt would actually fall <\/em>slightly over the next 30 years. The tax increases would reduce private capital by less than 1 percent by 2050\u2014as opposed to the 6.1 percent drop that would come with the passage of the larger reconciliation package. Wages and national GDP would remain flat under the $1.5 trillion plan, instead of the projected decline under the $3.5 trillion plan.<\/p>\n\n\n\n
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