Biden’s proposed economic plans reverse recent history. Will voters follow?

Is a major change in economic philosophy coming to Washington?

Joe Biden is proposing a set of programs that could fundamentally alter the government’s role in the economy. If his proposals become law, there will be a reversal of the last 40 years, where government focused on lowering business and individual taxes, while limiting investment in major infrastructure and social programs.

Instead, we will have a government willing to spend money and raise taxes to rebuild, restructure and rebalance the economy.

During the Great Depression, Franklin Roosevelt ushered in an era of government involvement in economic and social programs that spanned decades. Future Democratic and Republican presidents either followed or expanded many of the programs. It wasn’t just Lyndon Johnson’s “Great Society.” Dwight Eisenhower increased Social Security; the Environmental Protection Agency was created during Richard Nixon’s presidency; and George W. Bush massively expanded Medicare prescription costs.

The 1980 election of Ronald Reagan began a shift. Reagan pushed to lower taxes and reduce the government’s role. Yes, he expanded spending, the budget deficit increased during his time in office, and he signed a set of tax increases after he initially cut taxes.

» READ MORE: President Biden to the nation and world: ‘America is rising anew’

But the perception has persisted that he was a strict fiscal conservative and it is that image that has driven politics for decades.

Reagan’s vision of a less involved, lower-tax economy was sustained even through the administrations of Bill Clinton and Barack Obama. Clinton may have raised taxes initially, but he implemented welfare reform, cut federal employment by more than 10%, and ran budget surpluses during his second term. Obama may have pushed for expanded social program funding, but except for the Affordable Care Act, his ability to pass new social and economic legislation was limited by a Republican Congress. When he left office, the inflation-adjusted budget deficit, which soared due to the Great Recession, was nearly the same as it was in George W. Bush’s final year.

The low-tax, less government-supportive economy had its benefits and its costs. Job gains were strong, though growth peaked early in Reagan’s first term and decelerated after that. The stock market soared, providing capital that helped restructure the economy from manufacturing toward technology.

The “trickle-down,” business-first economics philosophy also had a major impact on income distribution. The middle-class was hollowed out, while income flowed dramatically to upper-income individuals. The skewing of income distribution accelerated during the pandemic.

There have been almost no significant infrastructure bills passed during the past 40 years. Maybe the best known one, Obama’s “Shovel Ready” program, though big on hope, was modest in scope. With the federal government largely removed from the planning and funding of major new infrastructure programs, there were few long-term, big-idea projects. Even traditional physical capital programs, such as maintenance of roads, ports, airports, rails, buildings, and the like, lacked sufficient funding. Spending on human capital enhancements was left largely to the states, which usually did nothing.

And now Joe Biden has come along and wants to change everything once again.

He is advocating a massive rebuilding of not just the nation’s physical infrastructure, but also heavy investments in human capital, especially education and health care. His proposals include not just financial payments, but programmatic support, such as universal pre-K programs, free or low-cost community colleges and childcare for workers.

Biden aims to set goals for production technology, transportation, and the environment. Targets for electric vehicle use and the phasing out of carbon-based energy are examples of Biden’s policy goals.

He favors paying the cost by raising taxes on businesses and individuals, especially higher-income households. His argument is simple: If income distribution is skewed toward high-income households, those who benefit the most should pay more.

But the cost of his plans is extremely high.

Anything and everything the government does requires an expenditure, either directly through the payment of funds or indirectly through the loss of revenues (economists call special tax provisions “tax expenditures”). The next time a tax cut pays for itself will be the first time that happens, at least if you believe 60 years of economic research.

We shall see as soon as the November 2022 elections whether people want this new Biden approach or really do like what they have been getting.