Biden’s economic agenda is a nonstarter in this economy

The Democratic Party’s tax-and-spend attitude is bad economics and bad politics and threatens to upend President Joe Biden’s chances of winning a second term in office.

Last week, Biden issued a plea in his State of the Union address to the already-unfriendly House Republican caucus to “find consensus” with Democrats, particularly on economic issues. Yet, this ask almost certainly fell on deaf ears, in light of the progressive proposals that followed.

Advocating for higher taxes and more spending is a losing strategy politically, and an ineffective approach practically. Instead, Biden and Democrats should avail themselves of a more centrist and bipartisan fiscal platform, which would arguably address the issues of inflation, budgetary policy and entitlement protection more seamlessly than his current proposals.

In his address, Biden pitched a billionaires’ minimum income tax, an idea that has been popularized by prominent leftists like Sens Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), but realistically has no chance of passing in a divided Congress.  

The president proposed a similar tax last March in his federal budget, and some Democrats pushed for one in October 2021 to fund their domestic spending agenda. Both times, the proposal gained little traction, even though Democrats controlled both chambers of Congress. 

In addition to administrative concerns about the IRS’s bandwidth to enforce such a tax, there is also a lot of uncertainty as to whether it could “pass a constitutional muster,” as Tax Foundation senior policy analyst Garrett Watson previously said in reference to the legal questions that have been raised surrounding the proposal. 

Biden also proposed in prime-time, a quadrupling the federal tax on corporate stock buybacks, from 1 percent currently to 4 percent. The Democratic Party frequently uses corporate stock buybacks as a boogeyman to highlight economic inequality, suggesting that the current law is a gift to the wealthy. 

Yet, Biden and other Democrats fail to account for the fact that it is also a gift to the roughly 75 percent of Americans with retirement accounts who depend on a stable stock market. Raising this tax will disproportionately hurt Americans older than 50, and will lead companies to increase the pay of the very executives Democrats bemoan, per an analysis from the Harvard Business Review. 

Having been in Washington for five decades, Biden is well aware of the hurdles that both economic proposals would face. In all likelihood, the president chose to include each in his State of the Union as a “messaging bill to highlight some of the problems with our tax code,” as Steve Rosenthal, a Senior Fellow at the Urban-Brookings Tax Policy Center, put it. 

Nevertheless, Biden would have been better off underscoring the importance of a bipartisan approach to reforming the tax code to close loopholes, and reducing federal spending, while also protecting broadly-popular entitlement programs. 

The mixed public reception to Biden’s cornerstone spending bills — the $1.9 trillion American Rescue Plan and the nearly $1 trillion Inflation Reduction Act — ultimately underscores the need politically for Democrats to pivot from their tax-and-spend posture toward embracing more inclusive, pro-growth economic agenda.  

While it would be misleading to blame Biden and Democrats for inflation, voters have difficulty separating this problem from the massive domestic spending that this administration has authorized.

Indeed, voters tend to blame Democrats for inflation and aren’t all that receptive to Biden’s touting of his administration’s economic accomplishments, which include an impressive 12 million jobs created and a historically low unemployment rate of 3.4 percent. 

Three-quarters of the public is also worried about an impending recession, and just around one-third (35 percent) approve of Biden’s handling of the economy. Independent voters are also nearly twice-as-likely to trust Republicans (43 percent), rather than Democrats (24 percent) to manage the economy. 

Further, small business owners, who drive nearly half of the country’s GDP, are even more pessimistic about Democrats’ economic policies. According to CNBC’s January Small Business Owner survey, majorities of small business owners expect the Biden administration (57 percent) and the Democratic-controlled Senate (53 percent) to have a negative impact on their business over the next year. 

The Democratic Party’s theory on the economy and tax policy holds that redistributing wealth by raising taxes on the rich and on businesses is both politically viable and practically sound — but based on past history and my own experiences, it is neither. 

With Republicans now in control of the House, Democrats need to be willing to come to the negotiating table to reduce government spending, while also making a commitment to fiscal prudence that involves ruling out advancing any tax increases or new spending initiatives that lack broad bipartisan support. 

A compromise to this effect has been successful in previous divided governments. The budget agreement reached in 1997 by President Bill Clinton and House Speaker Newt Gingrich (R-Ga.) protected Medicare and Social Security, reduced government spending, decreased the debt and deficit and achieved a balanced budget. 

If Biden and the Democrats don’t make an effort to advance a similar proposal, the party could very well end up losing the White House and the Senate, in addition to remaining the minority party in the House, in 2024. 

Douglas E. Schoen is a political consultant who served as an adviser to President Clinton and to the 2020 presidential campaign of Michael Bloomberg. His new book is “The End of Democracy? Russia and China on the Rise and America in Retreat.”