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Biden’s Spending Binge Is Costlier Than Advertised


The Internal Revenue Service building in Washington.



Photo:

erin scott/Reuters

President Biden’s first three domestic spending programs will give taxpayers a $5.7 trillion sticker shock, with advertised costs of $1.9 trillion for Covid-19 relief, at least $2 trillion for infrastructure, and $1.8 trillion for family benefits. Not seen are the hidden costs and burdens that will accompany the tax increases he proposes. When a private company invests in a new factory or warehouse, the costs are clear. The company has to pay for architects, materials and contractors who build the facilities. There are no hidden costs or excess burdens.

That’s not the case for the government. There are hidden costs and excess burdens associated with the imposition of taxes. The Internal Revenue Service, for example, must extract taxes from taxpayers, and the costs of operating the IRS are significant. Look no further than Mr. Biden’s proposal to increase IRS funding $80 billion to collect the taxes to fund his new big-government programs.

There are also burdens placed on taxpayers that go well beyond the visible tax payments they make. These include myriad compliance costs: record-keeping, studying tax laws, making calculations, filling out forms, grappling with enforcement actions, and so on.

These administrative and compliance costs are relatively easy to comprehend. A more difficult concept is the excess burden of additional taxes—the disincentives and distortions they impose on the economy. Without those taxes, the economy would generate more income and do it more efficiently.

The hidden costs associated with IRS administration and taxpayer compliance are estimated to be in the range of 10 cents to 25 cents for each additional dollar of tax revenue collected. The late

Martin Feldstein,

in a 1999 article for the Review of Economics and Statistics, estimated the excess burden of federal taxes to be $3 for each additional dollar of revenue. The late

William A. Niskanen,

in an article published by the Federal Reserve Bank of Dallas, put the figure at $2.65.

The hidden costs plus excess burdens amount to roughly $3 per additional tax dollar collected. Therefore, to determine the real cost of the big-government proposals put forward by President Biden in his first 100 days in office, we must multiply their $5.7 trillion sticker price by 3. That yields a true cost of $17.1 trillion, or 80% of last year’s gross domestic product. And all this after less than 100 days in office.

It’s time for Mr. Biden to start following the science of public finance and deliver a transparent account of how much his plans will actually cost American taxpayers. The Joint Committee on Taxation and the Congressional Budget Office should follow suit and include the hidden costs and excess burdens of taxation in their projections and scorekeeping exercises. It’s time to shine some light on the federal government’s fiscal fakery.

Mr. Hanke is a professor of applied economics at Johns Hopkins University.

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