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Stephanie Kelton on why Biden can ‘go bigger’ with his infrastructure plan

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Stephanie Kelton, author of ‘The Deficit Myth’, joined Yahoo Finance Live to discuss Biden’s infrastructure plan and why she thinks he can go bigger.

Video Transcript

SEANA SMITH: All right. And we want to turn to Washington, because President Biden's plan for his $2.2 trillion infrastructure package-- of course, he's also laid out plans to raise taxes in an effort to pay for it. But we want to talk about this with our next guest.

We have Stephanie Kelton, a Professor of Economics and Public Policy at Stony Brook. And, professor, it's great to have you on the show. And I know you recently wrote in an op-ed in the "New York Times" titled, "Biden Can Go Bigger and Not Pay for It the Old Way," essentially making the argument that Dems are going about this the wrong way. So how should they be thinking about fiscal responsibility, then?

STEPHANIE KELTON: Well, look, you know, we've had Congress pass a series of spending packages, right, to deal with coronavirus and the economic fallout. So, of course, we had the big CARES Act last March-- $2.2 trillion. We got $900 billion in December. And then we had the $1.9 trillion COVID rescue package last month. Now, all of these were passed without offsets.

In other words, they weren't quote unquote "paid for." They were just pure spending bills. So we get to infrastructure, and now Congress is deciding, the Biden administration is saying, listen, we want to do it differently this time. We want to try to quote unquote "pay for this." So what does that mean?

It means that they want to try to offset the spending so that they can demonstrate that they have a plan to take $1 out of the economy in the form of taxes that fall on someone for every $1 they want to spend into the economy. And the point of doing it this way is just to keep the thing deficit-neutral. That's really what this is about.

And you know, from where I come from, the point should not be to minimize the impact on the deficit. The point should be to minimize any adverse impact on inflation. So I'd much rather see them approach this in a very different way where you're trying to figure out how much low-hanging fruit remains in the economy. How much fiscal space is still out there that you can take advantage of before you have to begin raising taxes?

ADAM SHAPIRO: And when you wrote about this, you said it should be recognized that raising taxes will do relatively little to offset the spending pressures. So when you talk about the other things the government could do, this gets to immigration, this gets to making sure there is a supply not only of labor, but of the input goods that are necessary to produce so that we get an outcome without driving prices up.

STEPHANIE KELTON: Yeah, that's exactly right. And when you say that I said in that "New York Times" piece that raising taxes would do little to mitigate any inflationary pressure, it's because of the particular kind of taxes that the Biden administration is talking about raising. When you say, you're only going to increase taxes on people making more than $400,000 a year, you're only going to increase taxes on corporations, you're not really hitting the kind of people who were going to turn around and spend a lot of that income that you're taxing away from them.

So yeah, the point is that if you're going to roll out a multi-trillion dollar infrastructure spending program, what you need to make sure that you're doing is that you've got the real resources that you're going to need from start to finish through that rollout of that infrastructure spending. You've got to have the construction workers, the architects, the engineers.

We're talking about care work. You need to have people to do elder care and child care. We're going to need people to put up EV charging stations and solar panels. So you have to manage the rollout of the infrastructure spending, keeping in mind that you could possibly run up against some supply constraints along the way, and that there are ways to mitigate that.

You mentioned immigration as one. I talk about that in the piece. Building capacity itself is a way to relieve strain on the productive capacity, because as you build out your infrastructure, of course, you're adding more productive capacity, into which you can grow with that higher spending.

SEANA SMITH: And, Stephanie, this mixes in a lot of the other things that you also laid out-- you also mentioned trade policies and some of the reforms that we could see there. But stepping back just a little bit, not so much specifically looking at the inflation impact that higher taxes could or potentially couldn't have, but also just the fact of potentially raising taxes at a time like this when the economy is still recovering from the pandemic, when there certainly is much uncertainty ahead. Is that a real risk, do you think, of derailing some of the progress that we have made?

STEPHANIE KELTON: I mean, it would be more of a risk if the taxes were going to fall on people who were actually going to be spending a lot of the income, and helping to support jobs, and helping to support the recovery. Because these particular tax increases, again, fall mostly on corporations and wealthier people, it's less risky in that sense.

But I hear you and I agree with you that the point of doing infrastructure spending is both to give us better infrastructure-- both human and physical infrastructure-- but why do anything that in any way counters the effectiveness of the stimulus if you don't have to? So that's why I keep coming back to the low-hanging fruit, the fiscal space-- if you can do this without the offsets, without doing anything that creates a drag on the economy, then my position is, take full advantage of the fiscal space that you have, and don't do anything unnecessarily to create drag.

ADAM SHAPIRO: What's the likelihood that people on Capitol Hill would even listen to this discussion, though?

STEPHANIE KELTON: Well, I'm headed there tomorrow morning, and I've got meetings for three days. So I'm going to say, pretty high.

SEANA SMITH: Well, we'd love to invite you back on, then, to tell us about exactly how those meetings went. But, Stephanie Kelton, Professor of Economics and Public Policy at Stony Brook, we really appreciate you taking the time to join us here today.