President Joe Biden’s recent budget for fiscal year 2024 comes with a glaring contradiction hiding in plain sight. To wit, the policies pursued by “Middle Class Joe” — a sobriquet that The Washington Post notes Biden bestowed upon himself — will only work to accelerate the demise of the working classes. After suffering the ill effects of two decades of flawed fiscal and monetary policy, the middle class badly deserves a change of course.
On the surface, the budget seems like a boon to the middle class, proposing ever-larger government largesse. The fiscal plan includes “free” child care, universal preschool, a permanent extension of enhanced Obamacare subsidies, money for home-based care in Medicaid, “free” community college, and paid medical and family leave — all funded by higher taxes on “the rich” and corporations. Not long after the party attacked Republicans for fighting two wars on three tax cuts, Democrats apparently believe they can reduce the deficit by creating or expanding half a dozen entitlements.
Washington insiders know Biden’s budget is a fantasy. The president claims to support a permanent increase in the child tax credit — the budget only includes a two-year extension — and measures that preserve Social Security’s solvency without reducing benefits. Yet the administration dared not offer specific measures funding either proposal, knowing full well it lacked enough “rich” people to dun for cash without needing to raise taxes on other Americans.
But even under the administration’s rosy assumptions, the middle class will suffer. Consider that the budget Biden proposed, even after its trillions in higher taxes on “the rich,” will yield deficits averaging 5.2 percent of GDP over the coming decade. In the years since World War II, the federal government has never run sustained deficits that high, doing so only temporarily during the recession of 1982-83, the Great Recession, and the Covid-19 pandemic.
The middle class will pay for these deficits. The perpetual gusher of red ink will exacerbate the inflation that continues to hit working-class families the hardest. Federal borrowing will crowd out private investment, raising interest rates on things like mortgages and car loans. And higher taxes, even if nominally assessed on “the rich,” will squeeze economic growth across the board, with the working classes bearing the brunt of the effects via lower incomes and fewer jobs.
Middle Class Pays for Fed Bailouts
The stagnation prompted by Biden’s fiscal policies comes on the heels of ill-considered monetary policy that has exacerbated inequality. Federal Reserve policies have led to negative real interest rates for most of the last two decades and successive rounds of quantitative easing over the past 15 years. By encouraging excessive risk-taking via loose monetary policy, the Fed has created a boom-and-bust economy where the wealthy can capitalize upon easy money during the boom times, while the middle class gets stuck with the hangover.
Wealthy Americans have seen a golden age this century, due in large part to asset prices artificially raised by Federal Reserve interventions. The bull market that started in March 2009 resulted in a quadrupling of stock prices, goosed in part by three successive rounds of quantitative easing. A fourth round of Fed asset purchases after Covid hit meant the wealth of billionaires soared still higher, as bubbles emerged in areas ranging from cryptocurrencies to non-fungible tokens to real estate.
Meanwhile, middle-class families have suffered successive crises, from millions of foreclosures in the years surrounding the financial crisis, to job losses and economic stagnation in the years after it. Purportedly “transitory” inflation has persisted, the result of trillions in spending by Washington — much of it encouraged by Federal Reserve Chairman Jerome Powell — and years of quantitative easing. And most recently, middle-class families discovered that their bank accounts would suffer higher costs, via a Federal Deposit Insurance Corporation “assessment,” to pay for the bailout of wealthy uninsured depositors at Silicon Valley Bank.
Powell and Biden both claim to want to aid the middle class. But given the effects of their “assistance” to date, Washington should tell them to cease and desist, while the vestiges of a middle class still remain.
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