Sleepy Joe’s Fiscal Shit-Show, Part 1

It doesn’t get any more ludicrous than this. Sleepy Joe’s minders are peddling the risible line that the $6 trillion of Covid-Lockdown bailouts have been such a roaring success that, well, American voters are now ready for a real eruption of Big Government!

This time it’s in the form of the worst $2 trillion swap ever imagined—a tax extraction of that magnitude from productive American businesses in order to fund the most extensive, waste-ridden pork barrel Washington has ever imagined.

The president’s advisers have said the Covid-19 pandemic shifted American attitudes about the role the government should play in their lives, making political space for once-in-a-generation federal investments that could reshape the country.

Holy Moly, these people apparently have no clue that the term “federal investment” is an oxymoron. And that’s especially the case—

  • On the heels of the big spending Obama and Trump years, capped off with the veritable explosion of outlays during Washington’s Covid-fighting hysteria—a spree which has enlarged the government sector to an all-time high share of peacetime GDP;
  • Given that upwards of 95% of the funds outlined below are for purposes that are no business of the Federal government in the first place or are not needed in any case.

For want of doubt, here is the 19 year path of total government spending including state and local outlays, which are heavily driven by Federal mandates ( e.g. Medicaid) and grants (e.g. education). Government outlays have essentially tripled from $3 trillion to $9 trillion since the turn of the century.

Moreover, since nominal GDP has only doubled during that period, the government share of GDP has soared from 30.6% in the year 2000 to an off-the-charts 43.7% of GDP in 2020.

Total Government Expenditures, 2000-2020 (trillions)

In short, with total public sector outlays approaching the levels of Europe’s so-called democratic socialism, this newest Biden Boondoggle would amount to the fiscal coup d’ grace.

Indeed, when you scan the list of major expenditures announced today, it basically Federalizes what is already government spending by the state and local sector and nationalizes hundreds of billions of outlays which are already more than adequately funded by private businesses and user funded agencies like port and airport authorities.

Here’s a breakdown of the innards of the $2 trillion proposal by broad category. To add insult to injury, these outlays over 8 years are to be funded by the elimination of tax preferences for fossil fuel companies, raising the corporate tax rate to 28% from 21% and imposing sweeping additional taxes on the overseas earnings of US companies.

  • $180 billion for research and development
  • $115 billion for roads and bridges
  • $85 billion for public transit
  • $80 billion for Amtrak and freight rail
  • $174 billion to encourage electric vehicles (EVs) via tax credits and other incentives to companies that make EV batteries in the US instead of China
  • $42 billion for ports and airports
  • $100 billion for broadband
  • $111 billion for water infrastructure
  • $300 billion to promote advanced manufacturing
  • $400 billion for in-home care
  • $100 billion for programs to update and modernize the electric grid
  • $46 billion for government agencies to buy fleets of EVs
  • $35 billion in R&D programs for “cutting-edge” new technologies
  • $50 for dedicated investments to improve infrastructure resilience
  • $16 billion for programs to help fossil fuel workers transition to new work
  • $10 billion for a new “Civilian Climate Corps.”
  • $156 billion for other pork, waste and booty

Even perusing the list is enough to produce heart palpitations among people who have not yet lost their faculties completely. And we should mince no words as to where this fiscal insanity came from.

To wit, the Fed has so recklessly monetized the public debt and so brutally and artificially suppressed interest rates and the carry cost of the nation’s humongous debts that politicians no longer even know what $10 billion or even $100 billion really means in terms of the still scare resources of real economic life. Funding now comes in $10 billion dollops, and these dollops are nothing more than figures on a  scratch sheet to be awarded to the squeakiest wheels and highest bidders.

Likewise, after the Trumpifed-GOP ran up the public debt by nearly $9 trillion in just four years and sent Federal spending soaring from a little over $4 trillion per year in 2016 to nearly $7 trillion in 2020 there was no voice of fiscal sanity left in Washington.

It was bad enough that Federal spending grew by 5.0% per year between 2000 and 2016— a rate far higher than the 3.8% annual growth of nominal GDP. But during the four Trump years, Federal spending growth accelerated to a 13.5% annual rate, even as nominal GDP crawled forward at only 2.8% per annum.

Stated differently, the GOP opened the barn door wide, and should not be surprised that the donkeys are now stampeding through it at will. Sleepy Joe’s policy planners had every reason to think that budget resources are unlimited because the Donald himself had told them so.

Of course, they have made a pro forma showing of “fiscal responsibility” via their insane $2 trillion increase in corporate taxes over the next 15 years. But they also know that the boys, girls and robo-traders on Wall Street will stage a raging hissy fit if these tax increases were ever to be enacted.

In fact, today’ soaring stock indices in the face of the largest proposed tax increase since World War II tells you all you need to know.

When push comes to shove, the geniuses on Capitol Hill will front-load Biden’s $2 trillion pork barrel spending bacchanalia, back-load the taxes into the distant future and call it a wash—while winking that if the economy’s not strong enough when the time comes these tax “increases” can be deferred into the even more distant future.

In other words, Washington has become a fiscal shit-show.

The only possible source of push-back left is the aging and decrepit  “bond vigilantes” who have recently been showing a flicker of life. Even then, the insouciant high rollers on Wall Street confidently assume these relics of yesteryear will be eventually clubbed to death like baby seals by the brain dead cowards in the Eccles Building.

Federal Spending, 1980-2020

In the meanwhile, consider some of the most egregious items in the new Biden Pork Parade.

For crying out loud, $80 billion for Amtrak and freight rail?!

As to the latter, America’s freight rail companies are immensely profitable and have prodigiously reinvested in tracks and rolling stock. The big asset managers and hedge funds which own most of their public stock don’t need any help from Uncle Sam’s depleted treasury, and especially not Warren Buffett, who owns a big chunk of the Burlington Northern Sante Fe.

The latter, in fact, posted $23.5 billion of sales, $5.5 billion of net income and $3.6 billion of CapEx during 2019. And the figures for the other big publicly held railroad companies are similar.

For instance, the LTM results for the Union Pacific show $19.5 billion of sales, $5.3 billion of net income, a 27.4% net profit margin and $3.0 billion of CapEx. The also show something else more than pertinent to the matter at hand.

To wit, during the past three years the Union Pacific has posted $17.2 billion of net income on cumulative sales of $64 billion, making it one of the most profitable railroads of all time. Indeed, it was taking in so much cash that it actually funded nearly $25 billion of stock buybacks and dividends over the same three year period (2018-2020).

That’s right. The company returned to Wall Street 144% of its net income over that three year period, thanks to prodigious borrowings enabled by the Fed’s ultra-cheap rates.

And now these cats in the Biden White House want Uncle Sam to fund their CapEx?

The only thing more insane within this $80 billion rail bucket is that a goodly chunk of it will undoubtedly go to that all-time white elephant called Amtrak. We actually had the privilege of writing up a screed against its creation for our Congressman boss way back in the early 1970s.

Since then, it has wasted upwards of $44 billion of taxpayer subsides ($70 billion in current $) and for no good reason except to pacify the railroad workers unions who are outrageously over-paid and provide no useful service to the US economy that merits even a dime of Federal funding.

The reason is simple. After 50 years of huge Federal subsidies, Amtrak still does not amount to more than a pimple on an elephants ass when it comes to moving the American public from place A to place B.

In fact, here is the estimated passenger miles per year per the DOT for various forms of domestic transportation. Amtrak down there at the bottom—-below walking, motor cycles and bicycles— is apparently Washington’s idea of a bad joke.

Annual Passenger Miles (2019):

  • Passenger auto: 4,893 billion;
  • Air travel: 754 billion;
  • Highway buses: 361 billion;
  • Walking: 34 billion;
  • Motor cycles: 23 billion;
  • Local transit buses: 18 billion;
  • Bicycles: 8 billion;
  • Amtrak: 6 billion.

As the man says, you can’t make this stuff up. Actually, we will show in Part 2 that there is tons more where that came from.

In the interim, the whole Biden Boondoggle is being marketed on the old saw that the nation’s highways and bridges are crumbling. Actually, that’s what they told Ronald Reagan way back in 1982 when they sneaked a similar “infrastructure” boondoggle past him against our heated objections.

They have been playing the crumbling infrastructure card every 5-10 years since then, and as we will show in Part 2, it is not remotely true; and any investment that needs to be done is overwhelmingly in the state and local highway and roads system, not the Interstate Highway system, which is the only appropriate Federal responsibility.

Still, there is no case whatsoever that even state and local roads are being starved for funding. As shown below, spending for this purpose has rising by 112% since the year 2000, a level well ahead of the gain in GDP.

If that isn’t doing the job of maintaining the highway and bridge infrastructure, the issue is one of waste and priorities, not a case for another $115 billion from Sleepy Joe.

State and Local Highway Spending, 2000-2019