President Biden has unveiled a sweeping $6 trillion budget that would slash economic growth in the long run, even as it substantially reduced the public debt level, according to a new analysis published Tuesday morning.
The fiscal 2022 budget request – the first of Biden's presidency – tallies up the administration's eight-year, $2.3 trillion American Jobs Plan and the $1.8 trillion American Families Plan and incorporates them into Biden's $1.5 trillion request for annual operating expenditures, which includes the Pentagon and other federal agencies.
The Penn Wharton Budget Model, a nonpartisan group at the University of Pennsylvania's Wharton School, projected the budget would cause the nation's GDP – the broadest measure of goods and services produced in the country – to shrink 1.5% by 2050. At the same time, the proposal would substantially pay down the public debt, which would decrease by 5.1% over the next three decades.
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"This drop is relatively modest," Richard Prisinzano, director of policy analysis for the Penn Wharton budget model, told FOX Business. "There's a lot of spending in this. And I think when you initially hear the number they want to spend, you think ‘This is really going to put a big drag on the economy. It’s going to be a big negative.’ But they raise revenue through places that make sense."
Biden has called for roughly $4 trillion in new spending, which would be paid for by a slew of tax hikes, including: raising the corporate tax rate to 28% from 21%, nearly doubling the capital gains tax rate paid by wealthy Americans to 39.6% from 20%, restoring the top individual income tax rate to 39.6%, eliminating the stepped-up basis at death and imposing a global minimum of 15% on U.S. companies foreign profits.
The money would be allocated toward dramatically expanding the government-funded social safety net, such as providing free community college and universal pre-kindergarten, extending tax credits for low- and middle-income families, bolstering care for elderly and disabled Americans and combating climate change.
The measure would initially add to the nation's record-shattering debt level due to the massive amounts of federal spending, causing debt to rise 1.1% in 2031, despite the higher levies on wealthy Americans and corporations, the findings show. But once the new spending faded – for instance, Biden has called for extending the child tax credit for just five years – the debt level would begin to subside.
"Given the amount of spending they’re doing and the tax increases, they’ve done a pretty good job to keep the path the same," Prisinzano said.
The budget is merely a proposal, and whether or not it's ultimately implemented hinges on Congress. Republican lawmakers have balked at the scale of Biden's spending plans and have unified to protect the 2017 tax law from any potential rollbacks. Some moderate Democrats have also raised concerns about Biden's proposed tax hikes, warning that higher rates could derail the nascent economic recovery from the coronavirus pandemic.
Biden’s budget projects the economy will grow by 5.2% this year and 4.3% next year, before plateauing to about 1.9% growth in the following years.
Under the plan, the deficit would hit $1.8 trillion in 2022 and would routinely run above $1.3 trillion over the next decade, despite nearly $3 trillion in proposed tax increases.