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Biden's families plan would have small negative impact on economy: analysis

Biden's families plan would have small negative impact on economy: analysis
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President BidenJoe BidenPutin says he's optimistic about working with Biden ahead of planned meeting How the infrastructure bill can help close the digital divide Biden meets Queen Elizabeth for first time as president MORE’s American Families Plan would have a modest negative impact on the economy, according to an analysis released Wednesday by the Penn Wharton Budget Model (PWBM).

Biden’s plan includes spending in areas such as child care and education, and it would also extend expansions of tax credits that benefit low- and middle-class households. The president is proposing to pay for the plan through tax increases on high-income individuals.

The PWBM analysis found that Biden’s plan would decrease gross domestic product (GDP) by about 0.4 percent in 2050, compared to the current-law baseline.

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“The economy-wide average wage rate is 0.1 percent higher due to the productivity boost from public investments,” the group’s report said. “However, those productivity effects are not enough to offset the negative effect of higher government debt on GDP, which ends up 0.4 percent lower in 2050.”

The analysis comes amid a debate over how Biden’s plan would impact the economy. The administration argues that the plan would make investments in the middle class that would help to grow the economy, while right-leaning groups and business groups have argued that the president’s proposed tax increases would significantly hurt the economy.

Richard Prisinzano, director of policy analysis at PWBM, said that their report shows that Biden’s plan won’t be a huge drag on the economy.

“It’s a modest decrease in GDP,” he said.

Prisinzano said that his takeaway from Biden’s plan is that “there’s a lot of things in here to like,” including his proposal to tax capital gains at death and his extensions of the expanded tax credits.

The White House has said that its new spending would amount to $1.8 trillion and that the tax increases would fully offset the cost over 15 years.

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PWBM estimated that the spending proposals would cost $2.5 trillion over 10 years. The authors of the report said that their cost estimate is higher than the White House's in part because of differences in cost estimates for provisions on universal pre-K and free community college, as well as for extending the tax-credit expansions.

PWBM estimated that Biden’s proposed tax increases on the wealthy and increase in IRS funding for audits would raise $1.3 trillion over 10 years and $2.8 trillion over 15 years.

The White House pushed back on the analysis.

“We strongly disagree with the analysis as do other independent experts,” White House press secretary Jen PsakiJen PsakiBiden, Macron huddle on sidelines of G7 summit Biden to host Germany's Merkel at the White House in July Psaki 'likely will stay longer' than year as White House press secretary MORE said at a briefing when asked about the PWBM study.

She cited a Moody’s analysis showing that GDP in 2030 would be $700 billion higher than it would be without the families plans and Biden's American Jobs Plan, and that found economic benefits would increase over time. Psaki also described the Penn Wharton analysis as flawed.

“It gets the cost of the investments wrong by about $700 billion even though our estimates come from career officials at OMB,” she said.

“We are going to rely on the majority of economic analysis out there and our own analysis in here and we are confident we will be able to reach both our job creation projections and of course do it in a way we can pay for it,” Psaki said. 

Prisinzano said that in some places where PWBM’s estimates differ from the White House’s, the White House may be relying on better data. He said that he thinks his group’s estimates are in the same ballpark as the administration’s.

— Morgan Chalfant contributed.

Updated at 2:20 p.m.