The $6 trillion price tag on President Biden’s spending plans in just his first 100 days has turned heads, but it’s only a fraction of the real cost, warns a Johns Hopkins economist.
Steve Hanke, a professor of applied economics director of the Troubled Currencies Project at the Cato Institute contended in a Wall Street Journal op-ed that the true cost is closer to $17.1 trillion.
That amounts to about $119,000 per federal taxpayer.
In an interview with Brad Polumbo of the Foundation for Economic Education, Hanke pointed out many of the “hidden costs.”
For one, the collection of the taxes proposed to “pay” for the bills is not a “costless exercise.”
There’s the cost to the Internal Revenue Service, then there’s the cost to the taxpayer to prepare their taxes and “to adjust their economic activity to comply with the tax code.”
Those two costs total 10 to 25 cents per dollar in tax revenue collected, which can amount to hundreds of billions to trillions in total.
But there are many more hidden costs that are must bigger.
Among them is the “excess burden,” what economics call “deadweight loss,” associated with increases in taxation.
It’s the cost associated with all “the distortions” that taxes put into the economy, including discouraging work and investment.
“[Such] distortions cause the economy to generate a lot less revenue and income than would otherwise be the case,” Hanke told FEE.
Multiple studies, he pointed out, show the excess burden of taxation is between $2.65 and $3.
“So, any new government expenditures you’ve got to multiple them by three to get the true cost,” he said.
Hanke was asked why no one else is talking about these costs, including nonpartisan institutions like the Congressional Budget Office.
The CBO and others, he explained, commonly don’t factor in the excess burden of tax increases, using instead face-value “frictionless” revenue assumptions.
Taking such crucial figures would be “politically incendiary,” Hanke said, and very few spending proposals would ever pass a cost-benefit analysis.
When the full costs are taken into account, Hanke says, it’s “almost inconceivable” that Biden’s spending proposals would be regarded as worth the expense.
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