A new analysis of the economic impacts of President Joe Biden’s Build Back Better budget reconciliation framework shows that, in contrast to the administration’s claims of a “zero price tag on the debt,” the spending plans would increase the federal debt by 2.6 percent in ten years.
The White House on Oct. 28 released a framework for legislative priorities to be taken up by the Senate in the budget reconciliation process, which provides for $1.87 trillion in new spending over a decade. Provisions include a focus on clean energy and various social programs.
The Biden administration aims to pay for the plan chiefly by raising taxes on wealthier Americans and corporations. It has repeatedly said that the outlays would be fully paid for and not add to the federal debt.
“We talk about price tags. It is zero price tag on the debt,” Biden told reporters at a Sept. 24 briefing. “We’re going to pay for everything we spend.”
That would mean that by 2031, government debt grows by 2.6 percent and GDP shrinks by 0.1 percent compared to the baseline, according to the Wharton analysis. The study also estimates that, in 2040, output would shrink 0.2 percent and the debt would grow by 2.3 percent, and in 2050, GDP would contract 0.1 percent and federal debt would grow 2.0 percent.
Further, the Build Back Better agenda provisions would crowd out some private capital, with Wharton estimating private capital declines of 0.4 percent in both 2040 and 2050, while having neutral impact in 2031.
“The Build Back Better legislation presents a historic opportunity to make investments that will cut costs for families, create good jobs, and increase economic growth for the long term,” Treasury Secretary Janet Yellen said in a statement.
“The investments and revenue provisions of the Build Back Better package would raise over $2 trillion in offsets, making the entire package paid for over ten years and would reduce deficits over the long term,” she added.
Richard Prisinzano, Director of Policy Analysis for the Penn Wharton Budget Model (PWBM), said in an emailed statement that some of the revenue raisers that JCT incorporated in its estimate—for example, the nicotine tax, excessive employee remuneration, reinstatement of superfund excise taxes, state and local deduction—were not included explicitly in the framework outlined by the White House and, as such, were not incorporated in the PWBM analysis.
The estimates regarding the existing provisions in the framework varied for other reasons, Prisinzano added, noting different details than what the PWBM team understood from the White House framework.
“Legislation obviously carries with it necessary details, and JCT likely had access to this information prior to PWBM,” he said, adding that modeling differences also likely played a role.
“JCT and PWBM understand taxes in a similar way, but economists make choices on things like model form or elasticity that can cause differences in revenue estimates,” he said.
“Other differences in estimates include things like the number of taxpayers subject to a certain tax (e.g., the surtax). PWBM has more revenue coming under that provision than JCT which suggests our model projects more taxpayers to be above the threshold,” he explained.
Treasury did not respond to a request for comment.
