The good and the bad in Biden’s family plan
The vision sounds appealing: to provide more government support to working parents and disadvantaged families, so that they can participate more fully in the robust parts of the economy.
As details creep in, the difficulty of moving President Biden’s families’ U.S. plan from a political concept to passable legislation becomes more evident. And a new analysis of Penn Wharton’s budget model casts doubt that Biden’s aggressive welfare reforms would produce the economic bang Biden claims.
Penn Wharton’s new analysis reveals that Biden’s family plan, if fully implemented, would cost hundreds of billions of dollars more than advertised and reduce GDP growth slightly. Biden says his plans would cost $ 1.8 trillion over the next decade, but Penn Wharton thinks it will look more like $ 2.5 trillion because Biden underestimates the costs of universal preschool education for children. three- and four-year-olds, and a tax credit for families with children. Higher spending would lead to higher federal deficits, crowding out private investment a bit and pushing GDP down 0.34% from what it would be without any of the Biden measures.
The new analysis also gives clues as to which elements of the plan could yield the most bang for their buck and possibly become legislative priorities. One winner would be the large increase in IRS funding Biden has proposed. Biden wants an additional $ 80 billion in IRS funding over a decade, which would increase the budget for the tax collection agency by more than 50% per year. Biden says more listeners and better technology would help him rack up $ 700 billion in taxes that wealthy Americans legally owe but don’t pay. That would be almost a 9-to-1 return on those extra dollars to the IRS.
Penn Wharton believes that a better funded IRS would generate just $ 480 billion in new revenue over a decade. That’s still a 6-to-1 return, and that’s more than any tax increase proposed in the families plan would generate. Biden’s plan to almost double the capital gains tax rate on wealthy taxpayers would generate just $ 376 billion, and raise the top tax rate from 37% to 29.6% would only bring in $ 111 billion. From a legislative standpoint, this makes more IRS funding a no-brainer: it would generate more revenue without raising taxes, and it’s politically defensible because the government is only making people pay what they owe and tries to hide from Uncle Sam.
Tax breaks for families
There are tax breaks for middle and low income families, and the costliest of these would be an expanded family child tax credit that begins to wane off at family income of $ 150,000. About 90% of families could claim this tax credit, for an average annual benefit of almost $ 4,400. But that would cost $ 439 billion over 10 years, according to Penn Wharton, and that’s assuming the more generous credit expires at the end of 2025, as the Biden plan calls for. It’s more likely – as Biden surely knows – that there would be intense pressure to make the credit permanent once it was in place for a few years. So the likely cost of this over a decade could approach $ 1 trillion.
There is substantial evidence that expanding the child tax credit would directly benefit millions of low-income children, including many who would lift themselves out of poverty. And unlike most tax breaks, it benefits low-income families as well as higher-income families, even if they don’t pay tax. So it shouldn’t be on the chopping block just because it’s expensive.
The next most expensive tax break in the family plan is an extension of Affordable Care Act grants to help people purchase health insurance, primarily for older Americans who are not yet eligible for Medicare and need to purchase medicines. individual plans. It would cost $ 378 billion in a decade. Next comes an extension of the earned income tax credit to childless workers, which would cost $ 125 billion.
In total, the tax breaks in the plan for families would cost the government about $ 1 trillion, according to Penn Wharton. There would also be around $ 1 trillion in new spending for programs like universal preschool for three and four year olds, two year free community college for all, new child care grants and paid holidays on the government tab for people who do not already enjoy such a benefit. Biden claims his tax hikes would pay for his spending plans, but Wharton’s calculations turn out to be different: Spending and tax cuts would total $ 2.5 trillion, with just $ 1.3 trillion in new revenue to cover the cost.
That $ 1.2 trillion in deficit spending over the next decade would cause GDP to decline slightly, as more federal borrowing reduces private borrowing that could generate a higher rate of return to economic growth. Of course, Washington borrowing has skyrocketed during the coronavirus pandemic, and on an annual basis, $ 120 billion in additional deficits could be much more acceptable than before.
Other analyzes suggest that the Biden plan would be more stimulating. Moody’s Analytics believes the Biden families plan will pay for itself within 15 years, and it found that a separate Biden initiative, the U.S. Jobs Plan, would produce higher GDP and more jobs than the economy does. would generate without it.
As Congress finds out how to incorporate Biden’s broad proposals into legislation, formal economic impact analyzes will be carried out by the Congressional Budget Office and the Congressional Joint Committee on Taxation. Parts of the Biden plan will likely fall to the side, as a handful of Democrats in the Senate oppose the cost or concentration. Biden will declare victory no matter what Congress ends up going through, and then we can spend the next few years determining if he’s right.
Rick Newman is the author of four books, including “Rebounders: How Winners Go From Failure To Success.”Follow him on Twitter: @rickjnewman. You can also send confidential advice, and click here to get Rick’s stories by email.
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