The bet of the BBB – AAF offer

Eakinomics: the bet on BBB’s offer

As the nation heads for a vigorous fall debate on the Presidential Build Back Better (BBB) ​​(aka “the Reconciliation Bill”), there needs to be some heated speeches about the huge cost. of the plan (true), the enormity of the tax increases (true), the fact that the regime is “paid” (false) and the overall consequences on economic growth. On the latter, the jury is still absent, although there are two strikes against him.

Strike one is the research published by the AAF on the economic consequences of increasing the $ 3.3 trillion in proposed taxes and its exclusive spending on productive infrastructure. The result ? The economy contracts instead of growing, as the negative effects of taxes outweigh even a disciplined focus on productive spending. Since the current BBB is anything but such a disciplined approach, the impacts in the real world will be even more negative.

The second strike is the fact that while the Senate infrastructure bill avoided damaging tax hikes, it did not fully pay for expenses by cutting federal non-investment spending. As discussed in a previous Eakinomics, the Congressional Budget Office released its analysis which suggests that an investment program funded partially or fully by the deficit has more fleeting beneficial effects.

But the case is not yet foolproof for reasons highlighted by the president in his recent remarks on the BBB: “And at the same time, it is true that the long-term investments which bring down the most important costs to families and health care – these investments will reduce direct spending, not increase it. They will get more people to work helping to ease the burden of childcare and eldercare that parents, especially mothers, bear – keeping them out of the workforce ”(emphasis added).

The BBB’s bet is whether the constellation of child tax credits, paid family leave, child care subsidies, expansion of the earned income tax credit, health care to Home and health insurance subsidies will increase the Labor Market Participation Rate (LFPR) – especially for women. Suppose, for example, that the BBB instantly elevates the LFPR for American women to that of Western Europe (taken from recent research by Isabel Soto). That would mean an LFPR of 72.1% instead of 68.9%, or about 3.3 million more workers (at the end of June). This corresponds to a 2.3 percent increase in the workforce in the economy. If productivity is (roughly) the same for new workers, that means a 2.3 percent increase in gross domestic product.

Is 2.3 percent fat? Well, that’s about a year of trend economic growth or $ 520 billion. I’ll let you decide if it’s “big” enough. I would just like to point out that this is hardly a lock. First, a large part of the benefits – child credit, health insurance subsidies, home health care, child care subsidies – are not work-related. Further, as Soto concluded: “Data from European countries that have implemented nationwide paid vacation programs does not support the argument that a state sponsored paid vacation system is increasing. women’s participation in the labor market. There have also been attempts to create paid vacation programs in the United States at the state level, but since the inception of these programs, women’s participation in the workforce has not seen any significant change.

No change in labor market participation means no change in growth on the supply side. If so, hit three.

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