Democrats' tax plan would cost US economy more than it raises in new revenue: analysis

Democrats' tax plan couold slash long-term GDP

President Biden's signature social spending and climate bill promises to offset nearly $2 trillion in spending with higher taxes on corporations and the wealthiest Americans, but a new analysis shows how the U.S. economy would actually lose more in revenue than is generated in the long run. 

The newest "Build Back Better" proposal – pared down from the original $3.5 trillion request – would expand Medicaid, establish universal preschool, provide new funding for child care and offer green energy tax credits, though it notably omits progressive priorities like free community college and Medicare coverage of dental and vision. It relies on $1.95 trillion in new taxes, including a 15% corporate minimum and a 5% surcharge aimed at incomes above $10 million and an additional 3% on incomes above $25 million. 

The White House has billed the measure as a "once-in-a-lifetime" investment that will spur economic growth and create millions of new, good-paying jobs.


But findings from the Tax Foundation, a nonpartisan group, suggest Democrats' tax plan could actually slash long-term GDP, the broadest measure of goods and services produced in a country, by about 0.4%. At today's current baseline, that represents about $129 billion of lost output annually. 

That's because the tax hikes and other offsets in the plan would raise about $124 billion annually in new revenue in the long run, or about $124 billion annually. Under that scenario, the economy would actually lose more than revenue gains. 

President Biden gives a speech on his Bipartisan Infrastructure Deal and Build Back Better Agenda at the NJ Transit Meadowlands Maintenance Complex on Oct. 25, 2021 in Kearny, New Jersey.  (Photo by Michael M. Santiago/Getty Images / Getty Images)

"Due to the plan’s economically costly and inefficient tax increases, we find that long-run GDP would drop by a little over $1 for every $1 in new tax revenue," the analysis said. 

In the first year that the plan was enacted, GDP would drop by about 0.05%, or roughly $11 billion. That would increase to a 0.26% drop in 2031 (about $86 billion). By 2050, the legislation would result in a cumulative GDP loss of about $531 billion from 2022 through 2031. That $531 billion drop is worth about 70% of the revenue the plan would raise through tax  changes on a conventional basis over the same time period.

Although the White House initially proposed steep increases in corporate taxes, capital gains taxes and income taxes, the bulk of those plans appear to have fallen to the wayside after pushback from Sen. Kyrsten Sinema, D-Ariz. The majority of former President Donald Trump's signature 2017 tax law, which substantially lowered rates for corporations and well-off Americans, will likely remain intact in the newest Build Back Better plan.

The framework that Biden rolled out relies on a 15% corporate minimum tax, surtaxes on the top sliver of U.S. households, stricter tax enforcement, taxes on corporate stock buybacks and higher taxes on U.S. companies' foreign earnings. The White House estimated that it would raise about $1.995 trillion in new revenue. 

House Speaker Nancy Pelosi of Calif., listens to a question from a reporter during a news conference on Capitol Hill in Washington, Thursday, Oct. 28, 2021. (AP Photo/Andrew Harnik) (AP  / AP Newsroom)

It's still unclear whether Democrats will be able to overcome intra-party fighting and pass the measure using their incredibly slim majorities in the House and Senate amid growing concerns about surging inflation. 

Sen. Joe Manchin, a moderate West Virginia Democrat who has become one of the most powerful votes in the upper chamber, raised concerns that the new spending could exacerbate the hottest inflation that Americans have seen in decades.


"By all accounts, the threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse," Manchin said in a statement after the government reported consumer prices rose 6.2% year-over-year in October. "From the grocery store to the gas pump, Americans know the inflation tax is real and D.C. can no longer ignore the economic pain Americans feel every day."

If Biden succeeds in passing this proposal along with a $550 billion bipartisan infrastructure plan, Congress will have approved a staggering $5 trillion in spending in the less than one year since he took office, an unprecedented level. The nation's debt level is already at a historic high of $28 trillion and is on track to surpass $30 trillion.