New Wharton research finds discrepancy in American Families Plan funding

President Joe Biden’s American Families Plan (AFP), released on April 28, proposes using $1.8 trillion in new federal spending for purposes such as childcare, education, healthcare and transfers to low-income households.

Of the $1.8 trillion dollars, $1 trillion would be spent on initiatives primarily related to education, whereas $800 billion would be spent on tax credits and transfers to qualifying households, such as the Child Tax Credit, health and nutrition programs, and extending the Affordable Care Act’s premium tax credit.

But while the plan suggests that new taxes on high-income households and changing IRS regulations can offset the new spending, a new report from the Penn Wharton Business Model found significant differences in what those figures would actually look like.

Some key figures from the report:

• According to PWBM estimates, over a 10-year window from 2022 to 2031, the AFP would cost Americans $2.5 trillion, marking an almost $700 billion difference in the cost first estimated by the White House.
• PWBM also estimates that over the same 10-year window, the AFP would raise $1.3 million in new tax revenue; nearly $480 billion of that revenue would come from new IRS tax collection practices.
• The effects of larger debt on the economy will overshadow the productivity gains that come with new spending programs. As a result, the AFP would raise the amount of government debt by nearly 5% and lower GDP by 0.4% by 2050.

In a press briefing Wednesday, PWMB Director of Policy Analysis Richard Prisinzano said his team was unsure where the White House had derived its GDP numbers from for its calculations.

“Taking our estimates and looking at theirs, we don’t show what they’re claiming,” he said. “We in good faith have estimated it and our numbers don’t add up to the way they’ve presented them.”

Economist Kent Smetters affirmed the PWBM’s findings, and emphasized that the added tax revenue would have to come from increased taxes at the state level. The AFP is ambitious in scope, but unless it can account for the difference in tax rates that the PWBM found, he said, it can’t help in the intended way.

The PWBM also analyzed Biden-proposed American Jobs Plan’s potential long-term impact. Check out our breakdown of the breakdown.