Taxes, income inequality, and energy on Biden’s economic agenda, but his plans depend on Congress

On Jan. 20, Joe Biden will become the 46th president of the United States. Will that make a big difference when it comes to economic policy? It depends. President-elect Biden must get his legislation passed by Congress, and that is in question.

Biden’s and Trump’s economic programs share little common ground. It starts with the president-elect’s view that you cannot get back to a normally operating economy unless you contain the coronavirus. Even the nonpolitical Federal Reserve members have consistently expressed that view.

Biden believes the federal government must take an active lead, not just in vaccine distribution, but also by formulating a national strategy to control the virus' spread until the nation is fully immunized.

Under Trump, there was no overarching federal approach and the result is seen in the surging cases, hospitalizations, deaths, and the slow and tentative introduction of new restrictions.

Slowing the virus' spread would improve economic outcomes, as the equity markets are already indicating.

When it comes to more traditional economic policy, the most glaring difference is in taxes. Biden wants to reverse much of the massive business and upper-income cuts contained in the 2017 Tax Cuts and Jobs Act.

On the corporate side, about half of the tax rate cuts would be reversed.

On the personal side, tax increases are proposed for those earning more than $400,000.

Would the tax increases harm the economy? In this case, probably not much.

Even with the huge corporate tax rate cuts, capital investment did not surge. Instead, as expected, businesses invested in stock buybacks and dividend increases. Those buoyed the financial markets, but the real economy did not benefit greatly — GDP growth in pre-pandemic 2019 was only 2.2%.

The challenge is to use the funds from tax increases to improve the economic environment so that output can grow faster and offset the relatively modest negative impacts.

How will Biden do that?

The president-elect wants to focus on ways to slow if not reverse the massive redistribution of income toward upper-income households. Minimum-wage increases are one example. The underlying philosophy of the tax and labor proposals is to redistribute income back to lower- and middle-income households.

To the extent that this redistribution increases overall spending, growth could accelerate.

Biden wants to expand alternative energy sources and work to limit climate change, policies that Trump has rejected.

You have to think of these policies as looking toward the future rather than the past. Already, consumers and businesses have started embracing alternative energy sources, which now exceed coal as a supplier of energy.

The transition to the future will be painful for some groups; it always is for those left behind. But the long-term opportunities far outweigh the shorter-term costs. These are future industries and markets that need to be embraced.

And, like just about every other politician on this planet, President-elect Biden supports a massive infrastructure rebuild. Though everyone agrees it is necessary, it has been impossible to get a major infrastructure bill passed. Soaring budget deficits will likely make it doubtful that one will pass in the next few years.

Biden will reverse Trump’s restrictive immigration policy. Being anti-immigrant makes for a great political sound bite but terrible economic policy. The business community wants freer immigration policies as much as the left.

And last, but hardly least, is Biden’s view that the Affordable Care Act needs to be improved, not eliminated. As with any massive program, the first go-round had issues. As president, Biden would make corrections while expanding the act.

Roughly 20 million people are covered through the ACA, which was a lifeline for those who lost health insurance due to the pandemic-driven economic crisis. The economic savings, through reductions in loss of life and improved health outcomes, make health insurance a clear economic necessity.

There are many other “priorities” in President-elect Biden’s economic plan, but they are the fairly standard liberal/progressive ones that Democrats run on but rarely can garner enough support in Congress to become law.

And that brings us to the issue of whether as president, Biden can actually get his programs passed.

First, don’t assume that the current battle over the election and the unwillingness of Trump to concede will alter Biden’s proposals. The example is George W. Bush. After his hotly contested election, he quickly came to understand that no matter what people may think, he won the election and he governed accordingly. So will Biden.

The difference is that the Republican Bush had a Republican majority in Congress for much of his first term and was able to pass his programs. While Democrats have control of the House, we will not know until after the two Senate elections in Georgia on Jan. 5 which party controls the Senate.

Over the last 30 years, big things have gotten done only when one party controlled the presidency and both houses of Congress. The political bargaining that gave us president Johnson’s Great Society and civil rights bills and Ronald Reagan’s tax cuts and spending increases no longer exists.

Because raw political power governs Congress, the economic impact of the presidential election will be determined on Jan. 5 or sometime soon afterward. If the Republicans maintain their majority in the Senate, little will be done to implement the Biden agenda. If the Democrats win both Georgia Senate seats, look for them to move rapidly to push through as much as they can in the first year.