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The following article was written by Kody Carmody from the Penn Wharton Budget Model. (Also, listen to a podcast above featuring Richard Prisinzano, director of policy analysis for PWBM, discussing the potential economic impact of Joe Biden’s proposals.)
Former U.S. Vice President and current Democratic presidential nominee Joe Biden’s campaign has released a substantial set of policy proposals, with (at the time of this writing) 46 separate pages on the campaign’s website ranging from “The Biden Plan for Climate Change” to Biden’s “Made in America” plan for manufacturing.
On September 14, we at the Penn Wharton Budget Model (PWBM) — a nonpartisan, independent applied research organization housed at the Wharton School of the University of Pennsylvania — released a comprehensive accounting and analysis of the Biden campaign’s policy platform. We split the Biden platform into eight focus areas — immigration, taxes, education, research and development (R&D), housing assistance, Social Security, health care, and paid leave — and projected the budgetary and economic effects of Biden’s proposals.
Here are five key takeaways from our analysis:
1. Biden is proposing large public investments over the next 10 years.
Those investments include $1.9 trillion for education, including universal pre-K, more funding for schools serving low-income students, two years of guaranteed-debtless college, and tuition-free public college for lower-income families, along with $1.6 trillion for water and transit infrastructure, other green infrastructure projects, and clean energy R&D.
2. Biden is also proposing a large expansion of health care, although it’s much smaller than progressive proposals like Medicare for All, and it’s offset by his drug savings plan.
Other than expanding the Affordable Care Act marketplaces and subsidies for middle-class Americans, the Biden health care plan also invests heavily in expanding elder care and making Medicare available to those as young as 60 — collectively, a $1.6 trillion increase in spending over 10 years. This increase is offset by $1.2 trillion in savings from Biden’s proposals to lower prescription drug prices by, for example, using Medicare to negotiate prices with pharmaceutical companies.
3. The Biden platform would increase spending by $5.37 trillion over the next decade.
In addition to public investments and health care, over 10 years Biden proposes $650 billion of new housing assistance, $547 billion for 12 weeks of universal paid leave, and $290 billion to boost Social Security benefits for beneficiaries with low earnings histories.
4. The Biden tax plan would raise $3.375 trillion over 10 years, with 80% of the new revenue coming from the top 1% of households by income.
The Biden tax plan is explicitly designed to not raise taxes directly on those with adjusted gross incomes (AGI) of $400,000 per year or less, focusing instead on higher income households and corporations.
Corporate taxes, however, eventually fall on households in the form of lower investment returns and wages. As a result, households with AGI at or below $400,000 (mostly those on the higher end of that group) would see their after-tax incomes decrease by an average of 0.9% under the Biden tax plan. Those above $400,000 AGI (the top 1.5%) would see their after-tax incomes decrease by an average of 17.7%.
“One notable caveat is that this 0.8% boost to GDP might actually understate the benefit of the Biden platform to people’s well-being.”
5. But in the long run, by 2050, the Biden platform would reduce the federal debt by 6.1% and boost GDP by 0.8%.
PWBM’s integrated model captures interactions between Biden’s policy proposals, as well as feedback effects from their macroeconomic and health effects. For example, Biden’s immigration and health care policies both increase the size of the population over time — by encouraging immigration and by making health care more accessible, respectively — which, in turn, means more workers and more tax revenue.
Additionally, while most of Biden’s proposed tax and spending increases are permanent — we assume, for example, that the campaign does not intend for 60-year-olds to suddenly stop being eligible for Medicare again in 2031 — the Biden infrastructure and R&D plans are relatively short-term, ending after 2030. Although new spending on these projects ceases, the new transit systems, water infrastructure, research results, and other projects stick around, making the rest of the economy more productive.
Together, these positive health and productivity effects, along with other factors like incentives for corporations to shift investments to the United States, outweigh disincentives to work and save, with the Biden plan increasing economic output by 0.8% by 2050.
As we’ve mentioned before, one notable caveat is that this 0.8% boost to GDP might actually understate the benefit of the Biden platform to people’s well-being. For example, better, more affordable health insurance would mean that workers don’t have to work and save as much to protect against the financial strain of bad health. While this reduction in work and saving would reduce GDP, people might still be better off as they enjoy working less and worrying less about their health and finances. PWBM is working on an analysis exploring these welfare effects of the Biden platform that we plan to release in the coming weeks.
Read our full write-up of the PWBM Analysis of the Biden Platform, which goes into more detail on the economic effects of different combinations of Biden’s policy plans.