Assessing the Biden Domestic Policy Record

Introduction:

As Joe Biden prepares to leave office, the impact and duration of his economic

policies is an open question. The Biden record is at best mixed. Here are my thoughts.

· Biden spending and tax bills helped the nation recover from the pandemic, created many projects, and led to fairly robust economic growth.

· Biden spending likely contributed to the higher inflation rate and higher costs for most American households.

· Some Biden-era policies have either lapsed or will be terminated by the incoming Trump Administration.

· Some Biden-era policies like the electric vehicle tax credit and the CHIP act are regressive.

· Biden subsidies for climate change projects have a large impact on the federal budget but are small compared to the factors impacting climate change.

· The Biden team did little to expand the ACA, a key Democrat priority and the major issue in the contest for the 2020 Democrat nomination for president.

· The more ambitious Biden-era student loan proposals and executive orders will not go forward.

· The Biden Administration was successful in providing substantial student debt relief under existing programs.

· The pension legislation (SECURE Act 2.0) enacted in the Biden years did little to assist households who are having the most difficult time saving for retirement.

· The Biden team did not move forward on Social Security reform or efforts to forestall the pending Social Security crisis.

· Biden priorities were partially shaped by his need to not antagonize the “progressive” wing of his party, rather than notions of economic efficiency or sustainability.

· The ratio of the national debt to GDP remains on an upward trajectory, after four years of Trump and four years of Biden, as we await four more years of Trump.

Discussion of the core spending bills:

Many of the programs which are the core of Bidenomics, were enacted in four major spending and tax bills, the American Rescue Plan March 11, 2021, the Infrastructure and Investment Jobs Act, November 15, 2021, the Chips and Science Act August 9, 2022, and the Inflation Reduction Act August 16, 2022.

These new laws were massive in dollar value and scope. The bills funded infrastructure, subsidized environmental projects and the purchase of electric vehicles, created new tax incentives designed to reduce poverty, help students with loans, and reduced the cost of insurance premiums and some aspects of health care for some Americans.

The Biden White House initially argued that spending bills were necessary to counter the impact of the pandemic and to fix supply chain problems. The White House also argued that the investments in infrastructure, clean energy, and semiconductors were creating new factories and jobs and making the economy more resilient.

Larry Summers, the former Secretary of the Treasury under President Obama, was not supportive of many aspects of the spending bills, especially efforts to prop up U.S. manufacturing through subsidies and tariffs. Summers was also one of the first to note that inflation was emerging as a major problem in the Biden years.

Biden’s supporters argue that their policies were progressive compared to tax cuts designed to trickle down to low-income or middle income taxpayers.

Two Biden-era polices that were not progressive are subsidies for the purchase of electric vehicles and subsidies to the semiconductor industry. This report, by the Heritage foundation, concluded that EV subsidies are highly regressive. The direct recipients of grants in the CHIP act are major tech companies. Perhaps the benefits of these grants will “trickle down,” however, one of the companies receiving grants is laying off workers.

The spending bills also included several progressive policies designed to help low-income and middle-income people financially, however, many of these programs were quickly phased out or are scheduled to phase out under sunset provisions.

The American Rescue plan included a subsidy for health insurance subsidies for people laid off due to Covid, similar to one that was enacted for layoffs during the 2008 recession. These subsidies expired very quickly. The Administration did not consider a permanent expansion of ACA state-exchange health insurance, which would allow more people to keep insurance during layoffs or job transitions.

The American Rescue Plan included an expansion of the premium tax credit for state exchange health insurance, which was extended by the Inflation Reduction Act. The extended ACA premium tax credit expires at the end of 2025.

An expanded child tax credit in 2021 under the American Rescue Plan was reduced in 2022.

The current child tax credit is scheduled to end in 2025.

Typically forgiven debt is income subject to federal tax. A provision of the American Rescue Plan that eliminated federal tax on discharge IDR loan balance is eliminated after 2025.

In general, tax provisions favoring middle-income or low-income households will not be renewed.

By contrast, the electric vehicle tax deduction, which was included in the inflation reduction act, does not expire until the end of 2032.

The economic rationale for protecting health care and childcare tax credits for two or three years while protecting EV credits received by people buying an expensive Tesla is not apparent to me.

The inflation reduction act includes billions in funds for projects to combat climate change. These subsidies and taxes have a large impact on the government budget deficit but a relatively small impact on overall consumption and production in the world economy and overall carbon emissions.

The Biden-era clean technology subsidies may make some environmentally conscious voters feel good but at the end of the day permanent changes in the relative price of technology that lowers emissions is needed to halt climate change. These permanent changes in prices could best be achieved through a carbon tax or possibly a cap-and-trade program. Republicans would oppose these initiatives, but the carbon tax idea could come up in a broad discussion on tax reform.

The combination of the Inflation Reduction Act, the CHIPS act and the infrastructure law is projected to inject over $2.0 trillion dollars into the U.S. economy in roughly one decade.

· Will these injections materially approve living standards and economic growth?

· How will these injections and the ongoing and future Trump tax cuts impact the fiscal condition of the country in the next decade?

My sense is that Biden (through spending) and Trump (through tax policy) are creating a fiscal time bomb. A time bomb that will go off exactly before the depletion of the Social Security is projected to lead to automatic benefit cuts.

Student Debt:

The provision of student loans under existing law was not a high priority of the first Trump Administration. The Biden Administration facilitated timely loan discharges under the IDR or PSLF and under programs allowing loan discharges for students defrauded by non-profit schools.

More ambitious Biden-era administration efforts to expand student debt relief programs through executive order have been overturned by the courts have been delayed by courts or were recently withdrawn by the Biden Administration.

Some of the extremely broad student debt relief efforts, including the one overturned by the Supreme court appear to be designed to mollify the progressive wing of the Democrat party. The Biden team should have led with a more realistic proposal, not tied to COVID relief, perhaps the one it recently withdrew because it would have been withdrawn by the incoming Trump Administration.

The Biden approach to student debt forgiveness relies heavily on expanding Income Driven Replacement loans. This program can be costly to taxpayers and can be inefficient to student borrowers when household income and marital status change, as explained here.

A future Democrat administration should reduce the cost of conventional loans thereby reducing reliance on IDR loans and costs to taxpayers. Key features of this plan include:

· Zero interest on student loans for first three years of repayment when salaries are usually low,

· Partial loan discharges after 60 payments,

· Elimination of all interest charges after 15 years of repayment,

· Use of IRS to administer loan collections for people with outstanding debt converted to a zero interest loan,

· Loss of tax deductions for taxpayers not making payments on zero-interest student loans,

· Elimination of the tax deductibility of student debt,

Go here for a discussion of the alternative plan

The Biden record on student debt is mixed.

· The Biden team did a good job in implementing existing programs.

· The Biden team failed to implement expanded student debt relief efforts largely because it wasted time on a program that was ultimately overturned by the courts.

· The Biden team failed to put forward less expensive student debt relief programs that would have freed up funds for other priorities.

Health Insurance:

The future of health insurance was a major focus in debates during the contest for the Democrat nomination for president in 2020 with the progressive wing of the party calling for Medicare-for-All and the centrist candidates calling for further expansions of the ACA.

The actual health care achievements during the Biden era were relatively modest changes and might easily be reversed.

· The expanded premium tax credit for state exchange insurance will, absent its renewal, lapse at the end of 2025.

· Executive orders restricting the use of short-term health plans and rules changing eligibility for the premium tax credit could be reversed by the incoming Trump administration.

A change to Medicare capping prescription drug costs and the price of insulin for Medicare beneficiaries and rules governing negotiations of prescription drugs under Medicare will be retained unless they are reversed by a future Congress.

Many shortcomings of private health insurance markets, including. -- lack of low-cost health insurance option on state exchanges, high out-of-pocket costs, coverage denials, and limited access to medical specialists, loss of health insurance in job transitions, and inconsistent insurance outcomes due to complex eligibility rules for state health insurance persist.

In 2020, Biden ran on expanding and improving the ACA. He never prioritized these expansions.

The progressive wing of the Democrat party remains strongly supportive of the Medicare-for-all option, which does not receive much support from people in the middle of the political spectrum.

The failure of the Biden team to even consider substantial expansions to the ACA is probably a desire to avoid antagonizing both the progressive part of the party and the political center.

Healthcare has long been an issue that has favored the Democrat party. The Republicans tried to and failed to repeal the Affordable Care Act. Trump, in the recent campaign, acknowledged that he had only a concept of a plan to improve health care. Harris was unable to capitalize on Trump’s lack of interest in health care and his previous efforts to repeal the ACA, largely because the Biden Administration did very little to expand the ACA.

Fundamental health care reform is difficult given the divided government and a lack of Republican support. However, progress in some areas was possible if the Biden team was willing to reduce the size of its spending programs and alter its priorities.

There would have likely been bipartisan support for measures like, the elimination of the use-or-lose stipulation on flexible savings account and the expanded use of health savings accounts, which would have mitigated the impact of higher out-of-pocket health care costs.

Other useful but more controversial initiatives include:

· Expanded use of state-exchange health insurance and the premium tax credit for small business insurance,

· Creation of a low-cost public or hybrid public-private health insurance option,

Go here for a wider discussion of the health care path not taken during the Biden years and the path that could be followed in the future.

Private Savings for Retirement:

The major change in incentives impacting private retirement savings during the Biden years was the Secure Act 2.0. The Secure Act 2.0 described here was very beneficial for the Wall Street firms sponsoring 401(k) plans and for more affluent retirees. The Act did not do much to help workers without access to a 401(k) plan, workers who frequently switched jobs, and low-income workers.

Potential reforms not considered include:

· Automatic enrollments and contributions to IRAs for workers without 401(k) coverage, similar to the Secure Act 2.0 automatic 401(k) contribution provisions,

· Automatic rollovers to low-cost IRAs from 401(k) plans for workers changing jobs,

· Tax free matching contributions to IRAs for employees and independent contractors without 401(k) plans.

· A limitation on distributions from retirement plans prior to retirement.

The Biden Administration did not take a leading role on this issue, which is unfortunate, because it will be very difficult to make the necessary changes to Social Security without expanded private retirement savings for households currently unable to save and for younger workers.

Tax Reform:

The incoming Trump administration and the new Congress will have a large impact on the tax code because several provisions of the 2017 Tax Cuts and Jobs Act, expire in 2025. Go here for a list of the provisions of the Tax Cuts and Jobs Act Scheduled to expire in 2025. Also, the fate of several provisions of the tax code enacted in the Biden years expire in 2025 will be determined by the Trump team.

The Biden Administration could have impacted these provisions by seeking tax provisions that did not terminate so quickly and by altering Trump provisions when they were in power.

Social Security Reform:

The most recent report by the Social Security Trust fund projects the depletion of all assets in the fund by 2033 leading to a 17 percent reduction in benefits. The Democrats appear to support a plan that would leave benefits unchanged and rely entirely on new revenue.

It is likely a political compromise on this issue would require some adjustment in the retirement age for young workers, additional revenue earmarked for the Trust fund, and a transfer of some funds from the general fund to the Trust fund. A decision to not compromise and do nothing will under existing law lead to automatic benefit cuts.

The Biden Administration did not facilitate dialogue which would lead to a broad discussion of possible solutions. The incoming Trump Administration also appears content to delay meaningful discussion of this problem.

Go here for a discussion of the Social Security issue.

Concluding Remarks:

Defenders of President Biden argue that many of his legislative achievements were transformative. Some useful programs were enacted but these efforts were large and expensive but not transformative.

The nation is not on a path leading to lower student debt, better health care, more savings for private retirement, a more financially sound Social Security system or lower deficits.

The Biden team will be better remembered for the problems and policy proposals it ignored or eschewed than their actual signature achievements.