Democratic Supply-side Economics

Blog Post
Thursday, November 04, 2021

This week on Facing the Future, we discussed the economic strengths and weaknesses of the Build Back Better Act now making its way through Congress. Democrats are pushing to finalize this broad social spending and climate change bill, which would cost about $1.8 trillion over 10 years and be paid for with a number of new tax provisions targeted at large corporations and households earning more than $400,000 a year. Our guest was Bill Gale, a senior fellow in the Economic Studies program at the Brookings Institution.  

 

Gale supports the main goals of the bill, although he believes that political considerations got in the way of some options on the tax side that would have been better from an economic perspective. 

“The general theme of the Build Back Better approach is what you might call Democratic supply-side economics. That is, it focuses on human capital and the role of human capital in the economy,” Gale said.

He cited the emphasis on items such as education, child care, health care, and housing affordability that in his view, “you wouldn’t necessarily directly think of as boosting the size of the economy.” He said, however, that “when you think about how people actually live and what enables them to work and enables them to be productive, these are the types of things that people have in mind. So, I think the goals are good ones.”

He noted that, “It’s not something that is is going to pay off necessarily in the next six months, but in terms of building back better, which is a well-chosen phrase here, this is the type of thing that the economy needs, especially coupled with the infrastructure package that is moving on a parallel course.”

Revenue increases in the bill “are basically in the ballpark in terms of the level” to cover the spending Gale said. “The bigger issue to me is the structure of revenues and I think the nicest thing you can say there is that Democrats have been searching for a politically feasible set of revenue increases -- where political feasibility means getting the support of enough people in Congress.”                

Gale pointed out that in the current situation the vote of every Senate Democrat is needed to pass the bill through reconciliation. That means “every Democrat has a say in what goes into the final package and that, we know, is a recipe for a poorly designed economic package.”

“The main message,” he said, “is that the economic considerations and the police feasibility considerations don’t seem to line up very well.”

Later in the program, we discussed what would be necessary to close the “tax gap," which is the difference between what people owe and what they actually pay. Gale estimated that the annual tax gap is $500 to $600 billion. The Build Back Better Act seeks to close that gap by providing money for enhanced Internal Revenue Service enforcement efforts.

“It’s no great mystery where the money is,” Gale said. “It’s in sole proprietorships, partnerships -- places in the economy where there is no tax withholding or third-party reporting of taxes. The difficulty is that the IRS does not have the resources to go after people.” 

Hear more on Facing the Future. I host the program each week on WKXL, NHTalkRadio.com (Concord N.H.), and it is also available via podcast. Join me and my guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.