Do deficits matter anymore? Biden’s first budget signals they don’t

Old economic textbooks taught that running big deficits to fund government spending would lead to unwanted side effects such as overheating and inflation. But a growing number of economists say this is a unique moment in time to borrow cheaply and make investments in education and infrastructure that will pay off for years to come. What complicates this discussion is that the deficit picture is likely to look worse than the Biden team shows. The tax increases on corporations and the wealthy that Biden proposes to raise new revenue wouldn’t provide enough money to pay for the new spending until about 15 years out. And that’s the best-case scenario. Congress actually has to approve all the tax hikes, which appears unlikely. The rosy budget projections also include substantial savings from former president Donald Trump’s tax cuts expiring at the end of 2025 along with Biden’s expanded child tax credit sunsetting. Both would mean a big tax increase on the middle class, violating one of Biden’s campaign pledges. Top White House officials are quick to emphasize that the time is right to make these big investments. Borrowing is cheap now, they argue, and thus won’t burden the nation with hefty debt service payments down the line. Biden’s key focus, they say, is getting millions of Americans back to work quickly and ensuring that the nation remains competitive with China.