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Government Efficiency and The Future of Biden’s Policies
Today, we are going to take a step backwards and look at the Biden Administration's policies and how they will hold up with the incoming Trump administration. While the incoming new Administration will have a slight mandate in both the House and Senate some of these policies will remain and have significant economic effects throughout the next 4 years.
Inflation Reduction Act:
The IRA, or Inflation Reduction Act was signed into law in August 2022, and aimed to increase investments in clean energy, reduce healthcare costs, and increase taxes through additional investment in the Internal Revenue Services. With a new Administration on the doorstep, the future of the IRA remains uncertain. During the election cycle, President Donald Trump announced that any unspent funds from the IRA would be rescinded. It may have been beneficial to run on repealing the “Inflation Reduction Act”, especially as Americans continued to profess concerns over the costs of goods, but the future of the IRA will be more complicated. As Trump moves into office with a populist movement behind him, is he willing to repeal parts of the act that have brought in private investments to the manufacturing sector? Recently, it was reported by Investigate Midwest, a non-partisan group, that 85% of investments and 68% of jobs added were in Republican congressional districts. To no surprise , 18 Congressional Republicans wrote a letter to Speaker Johnson expressing concern about blindly repealing the IRA, citing private investments and job growth. Like most congressional bills, the IRA will have the good, the bad, and the ugly, packed with too many pages, and lots and lots of useless projects. Ultimately, the future of the IRA will come down to the Trump’s Administration. Will the 47th President embrace a laissez faire economy, or accept his populist identity that landed him back in The People’s House?
Electric Vehicles:
One of the most controversial aspects of the IRA was the electric vehicle or EV tax credits. The federal government would give EV buyers a $7,500 haircut for their purchase, as long as they met certain income requirements which worked out to only exclude the top 5% of earners. Wait, so the federal government was subsidizing upper middle class purchases of EVs in order to save the planet? It was clear that a counter message to these subsidies would catch fire within the working class. Although EVs have continued to gain support across the political spectrum, Americans in blue collar counties were not ready for mandates, or even incentives. For the first time in close to three decades, The Teamsters failed to endorse a presidential candidate. In fact, the union endorsed a Democratic candidate for President in the last 6 elections. Sure, the Teamsters goal is to mainly support truck drivers and not auto workers, but this spoke volumes about the on the ground shifts within the parties. Prior to President Biden leaving the race, the Teamsters supported him by a margin of 44% to 36%.
However, once Vice President Kamala Harris entered the race President Trump led 60% to 34%. There is lots of speculation over this quick flip-flop, but to say that this had nothing to do with her support of the Green New Deal, a agreement that would move the U.S. to be reliant on 100% clean energy by 2030, is missing the mark. Although climate change remains an important issue in our politics today, the economy and safety continued to stay atop of most working class Americans minds, and EV mandates surely pushed voters away. The Trump Administration should have no problem repealing this part of the IRA, and according to polling would be applauded by the working class.
Energy:
The most important determinant to remember about the IRA is that it is not an inflation reducing action by the government. It’s merely the opposite and rather a massive climate change bill with no deflationary agenda. The majority of the funding has gone towards renewable energy through tax incentives and direct stimulus. This has become the largest climate investment ever in the history of the world at a staggering $369 billion dollars. The tax incentives will be used for investments in renewable energies like solar and wind. Additionally, consumers can also receive benefits from installing solar panels and heat pumps. Moving forward, the two most important aspects of the IRA are the incentives for nuclear power and the redevelopment of the energy grid. These two are arguably the most important factors in our energy future as nuclear energy can provide clean base load energy and a stronger power grid is essential to both our national security and future economic growth. If we truly want a reliable renewable energy future there is only one and that is through nuclear energy. While the IRA makes massive investments for solar and wind they do not provide base load energy which is truly the only form of energy we need. If Trump is to modify the IRA these are the two areas we would like to see targeted the most with cuts to solar and wind projects and to bolster incentives on the nuclear and grid front.
CHIPS Act:
In August 2022, President Joe Biden signed into law the CHIPS and Science Act, a massive $53 billion stimulatory bill aimed at revitalizing the declining semiconductor manufacturing sector in the U.S. To understand the rationale and approach behind this bill, we need to step back and examine the history of the semiconductor industry. In the 1990s, 37% of chips were manufactured in the United States, compared to just 12% today. Even more significant is Taiwan's dominance, producing 60% of the world's chips and 90% of the advanced chips used to power technologies like artificial intelligence. Regardless of who leads chip manufacturing, having one country control 60% of the market is a risk to global supply chains and a critical concern for U.S. domestic security, particularly in the military sector. With Taiwan off the coast of China and the rising tensions only exaggerates the need for domestic production. The geopolitical tensions and sharp decline in domestic production gives the Biden Administration a strong case for any reshoring chip manufacturing effort. As of now, the Biden Administration has allocated 90% of the grants to big names like Intel and Taiwan Semiconductor. An important note is that funds have been allocated and not yet secured. While some funds have been secured, there are a few flaws of the implementations of the legislature. First is urgency, the government is historically inefficient and the CHIPS Acts is another example of this. The first contract was awarded a year and half later to BAE systems for $35 million dollars to upgrade its facilities.
The next issue that still persists is regulation. The environmental permits and reviews needed in order to construct the massive Fabs needed to produce chips can take years to pass. Additionally, the CHIPS Act requires the majority of facilities' workforce to be compliant with an endless list of childcare, union, and community empowerment requirements. The reality of government compliances list like the ones previously shown is that they do not lead to growth, but rather stagnation.
Moving forward with the incoming Trump Administration the future of the CHIPS Act remains vague. Pre-election Trump sounded-off on the CHIPS Act and has threatened to dismantle it. As of now he and Republicans have lighted their rhetoric and would likely only modify certain aspects. One important thing to remember here is that regardless of if the Republicans hold both the House and Senate, Washington moves slowly and repealing the act will likely be difficult. Trump has also proposed a significant increase in tariffs on countries like Taiwan in an attempt to try to onshore chip manufacturing. With the upcoming potential tariffs the common warnings that many economists predict is that this will lead to an uptick in inflation. Regardless of if Trump removes the legislation, companies like Foxconn have faced difficulties weighing the economics and struggling to find enough employees.
In order for the world to become less reliant on Taiwan’s chips we will have to pay some sort of tax. We can pay that tax in two forms, one is through inflation and the other is through taxation. Both Trump and Biden's solution to reshoring chips requires a tax but in different forms. With Biden the inflation is coming from government spending and taxes (which you could argue also flows into inflation) whereas for Trump the tax will come through inflation from the tariffs. The media on both sides likes to blame both candidates for creating inflation in certain industries, but the reality is not as much the method but the task. Trying to take away from a country that has a strong hold on 60% of the market will take some financial fight and tax. If we really want to make it easier for companies to reshore, why not consider cutting what is slowing down companies and that is the massive regulations.
Conclusion:
We are now at a national turning point for our federal government's excessive spending. We can either turn in the direction of limiting the government's involvement in the private sector or continue down our doomed path of overspending and inflation. As of now the interest on our debt has surpassed $1 trillion dollars and our debt continues to climb by $1 trillion dollars every 100 days. While this paper has covered the policies of the Biden administration, he is not the only one to blame, Trump and Obama both deserve blame for this as they both were massive overspenders. As we sit a few months out from the inauguration of the next president we remain skeptical about cuts to government spending.
By: Andrew Brown and Charlie Curtis