Former Vice President Joe Biden said Friday that the Trump administration’s tax cuts had hurt the government’s ability to support the economy in the pandemic and that emergency loans were only going to big business, leveling the baseless claims even as he blamed the White House for programs under the purview of the Federal Reserve.
“Let’s reverse the Trump Tax Cut. Imagine if we had that $2 trillion now, as we go into, God willing, a recovery, which is a long way away as I see it right now,” Biden said in an interview with the anchors of CNBC’s “Squawk Box.”
While Biden’s sentences were more a word jumble than a clear policy statement, the presumptive Democratic nominee for president appeared to be arguing that the historic 2017 tax cuts had deprived the U.S. government of funds needed now that the economy has been thrown into the deepest slump since the Great Depression.
Claims that tax cuts cripple government or leave it unable to spend have been leveled for years by Democrats, though no evidence of such tax-based constraints has been found. To the contrary, Congress has been able to authorize trillions in new spending and the Trump administration has signed three phases of economic aid so far—and it already planning a phase four deal.
Stephanie Kelton, a former economic adviser to Bernie Sanders’ campaign, explained the lack of fiscal constraint several months ago in an op-ed for Bloomberg.
“First, the tax cuts didn’t weld the fiscal door shut. There’s nothing to prevent lawmakers (in this Congress or any other) from voting for legislation that will further expand budget deficits. It’s purely a political choice,” Kelton wrote.
The government has borrowed the funds to pay for the additional spending but that borrowing has not driven up interest rates. In fact, the yield on the 10-year Treasury note is now a full percentage point below where it was before the pandemic struck the U.S. In any case, the government would have had to engage in the additional borrowing even if the tax cuts had never passed because any additional revenue that higher tax rates might have generated would have been appropriated for spending on programs before the coronavirus hit.
In other words, despite Biden’s confusing claim, the government would not under any imaginable circumstances have $2 trillion now if the tax cut had not been enacted.
Also in the interview, Biden confused the Main Street Lending Program launched by the Federal Reserve with programs, such as the Paycheck Protection Program, run by the Trump administration. He incorrectly said the Fed program was launched 3 months ago. And he claimed, falsely, that a vast majority of the funding for the administration’s programs have gone to large corporations.
“The vast majority of the money has gone to the very wealthy and the major corporations,” Biden said in the CNBC interview. “Not a single penny has gone to the Main Street fund that was set up, not one penny in the last three months. And the PPP, what happens? People are getting locked out. And so, look, I mean, we didn’t advertise — that’s not what it was advertised to do.”
The Main Street Lending program was established in April, not three months ago. It is funded by a small capital contribution from the U.S. Treasury out of funds authorized by the CARES Act, which was passed on March 27, and loans from the Federal Reserve. Initially, the loans were limited to businesses with no more than 10,000 employees and less than $2.5 billion in revenues for 2019. Recently, the Fed announced the program would be expanded to businesses with up to 15,000 employees an $5 billion in revenues. The Boston Fed, which is running the program, is still working to operationalize it, a complex task as it will be the first time the Fed will run a loan facility directed outside the financial sector.
While some of the PPP loans have gone to public companies, the vast majority of the hundreds of billions of loans have gone to small businesses. Just $500 million out of the more than $510 billion of approved loans went to public companies, according to the best estimates. Many of those companies returned the funds after the loans came under media scrutiny and the Trump administration made it clear it did not think large companies should receive them.
The average loans size for the first round of PPP loans was over $200,000. Now, that average has dropped to about $120,000. So the program is largely doing what it was “advertised to do” despite Biden’s false claim.