President Biden has proposed a sweeping $6 trillion budget that would slash economic growth over the next decade while killing tens of thousands of jobs, according to a new analysis published Wednesday 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 Tax Foundation, a nonpartisan think tank based in Washington, projected the budget would cause the GDP – the broadest measure of goods and services produced in the U.S. – to shrink by 0.9% over the course of 10 years. At the same time, the proposal would cost the economy about 165,000 jobs and would cause wages to shrink by about 0.8%.
Biden has called for roughly $4 trillion in new spending, money that would cause the GDP to rise about 0.3% if it were not accompanied by a slew of new tax hikes, the analysis shows. To fund the various proposals, Biden has pushed for 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%, closing the stepped-up basis at death and imposing a global minimum of 15% on U.S. companies foreign profits.
"This positive economic effect is entirely offset by the increase in corporate and individual taxation, resulting in less work and investment," the analysis said.
Meanwhile, gross national product – a measure of American incomes – would fall by 1% in the long-run, the study shows, due to deficit spending and increased taxation, which reduces U.S. savings and increases payments to foreign owners of U.S. assets.
Still, the spending plans would make the tax code more progressive by raising the rates paid by higher earners and corporations, while expanding a number of tax credits for low- and middle-income families. In fact, while the top 1% of earners would see their after-tax income drop by 4.5% in 2022, the bottom quintile would see after-tax income rise by roughly 16% in 2022 on a conventional basis.
As part of his "families" plan, Biden would temporarily extend through 2025 an expanded version of the child tax credit that Democrats passed earlier this year with the American Rescue Plan, and would make permanent the expansion of the earned income tax credit for childless earners.
Of course, the budget is merely a proposal – 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.
The gap between what the government spends and what it collects in revenue would grow to nearly $1.6 trillion by 2031.