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The effects on deficit – Trump vs Biden

By Michael Knox - posted Monday, 16 November 2020


The very similar budget deficits suggest that the addition to real final demand of both programs is similar. Both would add similar amounts of deficit stimulus. This deficit stimulus would add similar amounts of employment in each case. The idea shown elsewhere that the Biden program might provide more stimulus, and hence more jobs, is not consistent with a bipartisan examination of the programs.

A Biden-Sanders Program?

The more familiar we become with the Biden program, the more we can see the influence of Bernie Sanders. In this election, the Democratic primary selection process was cut short by the intervention of the pandemic. The result was that Biden was selected as candidate only after considerable negotiation within the Democratic National Committee, between the supporters of Biden and the supporters of Sanders. The result is that the Sanders supporters have appeared to gain support of an enormous part of their proposals within the Biden program.

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The effect is to increase both the components of "Tax and Spend" within the Biden program. Even though the size of the deficits is similar in the Trump program and the Biden program, the Biden program increases taxes by much, much more and increases spending by much, much more. The taxes selected and the spending selected, strongly reflects the populist nature of the Sanders supporters. There are dramatic increases in spending in the Biden program on childcare and education, healthcare and long-term care, social security and retirement plus major increases in spending on green projects. These green projects are referred to within the Biden program as infrastructure.

Were such proposals to be advanced within a European social democratic structure, they would be financed by an increase in value added tax. This would make the spending economically neutral in terms of its effect on growth. However, within the populist program advanced by Sanders, these proposals are paid for by dramatic increases in taxes on business and investment. These taxes have the result of damaging long-term US growth. Increases in marginal tax rates on high income earners also damage potential private investment.

Childcare and Education

A summary of the proposals within the Trump program and the Biden program is shown in Table 1 above. This is contained within Figure 2 of the CRFB report. Under the Trump program, spending on childcare and education increases the deficit by $US0.15 trillion. Under the Biden program, spending on childcare and education increases the deficit by $US2.7 trillion.

Healthcare and Social Security

Under the Trump program, spending on healthcare and long-term care reduces the budget deficit by $US0.15 trillion. Under the Biden program, spending on healthcare and long-term care increases the budget deficit by $US2.05 trillion. Under the Trump program, there is little change to social security and retirement, meaning that there is no change to the budget deficit. Under the Biden program, spending on social security and retirement increases the budget deficit by $US1.15 trillion.

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Infrastructure

Under the Trump infrastructure program, $US2.7 trillion is added to the budget deficit. The objectives are to win the race to 5G and to continue to lead the world in access to the cleanest drinking water and the cleanest air. Trump has also proposed to invest almost $US20 billion in broadband and internet access. The program allocates $US9 billion to a capital revolving fund, $US75 billion to expanding surface transportation spending and $US190 billion to support major infrastructure investment. Additional spending would support expanding 5G, water and clean air funding.

Under the Biden infrastructure program, $US4.45 trillion is added to the budget deficit. Biden intends to invest in green infrastructure and American innovation. Biden's more recent "Build Back Better" calls for 100% clean energy by 2035. The plan would spend $US2 trillion over four years. Biden also proposes investing $US300 billion over four years to promote research and development of technologies such as electric vehicle technology, artificial intelligence systems and next generation communication networks, as well as $US400 billion over four years on Federal procurement of products made in the United States by domestic workers.

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This article was first published by Morgans.

Disclaimer

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual’s relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.

This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.



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About the Author

Michael Knox is Chief Economist and Director of Strategy at Morgans.

Other articles by this Author

All articles by Michael Knox

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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