‘Liberal wish list’ will add fuel to the inflation fire
The increased inflation rates the Federal Reserve calls “transitory” show no signs of slowing, and middle-class families are feeling the squeeze.
Consumer prices rose 5.4% in July, the highest in 13 years.
Food prices are up 3.4%, and Americans are paying 42% more for gasoline and used cars than they did just one year ago. The Producer Price Index saw even higher inflation at 7.8%, the highest on record.
These price increases are erasing increased wage gains from recent years and are especially devastating to the budget of low-income workers and seniors living on a fixed income.
This didn’t need to happen.
After Congress’ unprecedented response to COVID-19 in 2020, President Joe Biden and the Democrat majorities in Congress rushed in March to pass a $1.9 trillion spending bill without a single Republican vote, spending massive amounts on programs entirely unrelated to COVID-19 — and ignoring warnings from economists, including Democrats like Larry Summers, about the inflation that would result from overheating an economy that was already recovering.
The Federal Reserve has similarly exercised an unprecedented intervention in our economy through the monetary policy of Quantitative Easing.
For over a year, the Fed has been purchasing $80 billion in Treasury securities and $40 billion in mortgage-backed securities every month, nearly doubling their balance sheet from $4.2 trillion in January of 2020 to over $8.2 trillion today.
These actions combined increased the money supply from $15.5 trillion in February 2020 to $20.4 trillion today. In other words, nearly 25% of the dollars in existence today have been created in the last 18 months.
While consumers have had more money to spend, their purchasing power has gone down, hurting working families who are living paycheck to paycheck trying to make ends meet as prices are rising around them.
The Democrats’ plan to spend another $3.5 trillion on a liberal wish list of social spending priorities will make things worse, further stalling economic growth and leading to even higher rates of inflation than we’ve seen so far.
What makes this proposal even more concerning is Democrats want to pay for it by including the largest tax increases in history. It would increase taxes on American workers, businesses large and small, farmers, manufacturers, and much more. This increased spending combined with job-killing tax increases could lead to stagflation — low growth and high inflation — that we have not seen since the 1970s.
Instead of pursing partisan and divisive tax and spend proposals, I would encourage both parties to take a moment and remember the strong economy we had before COVID-19.
The 2017 tax cuts and tax and regulatory reforms Republicans in Congress worked with President Trump to enact led to record-low unemployment, higher wages, and the lowest poverty rate since the metric was established in 1959.
Those are the types of smart pro-worker and pro-growth policies we should be focusing on to rebuild our economy, and I believe we still can.
One way is by supporting the bipartisan infrastructure agreement that I have worked to negotiate with my colleagues over the past three months. Because these investments in hard infrastructure will strengthen the supply side of the economy, our bill is specifically designed to grow the economy over the long term and reduce inflationary impacts that our economy is feeling right now.
As conservative American Enterprise Institute economist Michael Strain put it in a recent op-ed, “There are good reasons to believe this bipartisan infrastructure spending won’t be inflationary. Its focus is on improving longer-term productivity, not near-term demand. By strengthening the supply side of the economy, it would ease inflationary pressures. In addition, the spending would be spread out over a decade.”
The Democrats’ $1.9 trillion stimulus back in March and the Federal Reserve’s unprecedented monetary policy intervention combined to light the match on inflation. The last thing our economy needs now is the unprecedented tax increases and massive new social spending represented in the Democrats’ budget resolution leading to next month’s reconciliation bill.
At a time when we should be working to slow inflationary pressures, the Democrats’ $3.5 trillion plus tax and spending spree would only add fuel to the fire.
Rob Portman is the junior United States senator from Ohio. He hails from the Cincinnati area.