About a week after former Vice President Joe Biden was elected to be the next president of the United States, the team behind the Penn Wharton Budget Model (PWBM) presented to the public its research on what the economy will be like under his administration.
PWBM, a nonpartisan, research-based initiative that conducts economic analysis of public policy’s fiscal impact, is led by Kent Smetters, a professor in the Department of Business Economics and Public Policy at The Wharton School. Back in September, the org released an analysis of each candidate, including their plans for immigration, tax, education, infrastructure and research and development, housing, Social Security, and healthcare.
The short-run economic outlook is closely tied with the coronavirus pandemic, said Senior Analyst John Ricco during a recent press briefing on the analysis. And some of the boosted economic activity we’re seeing today is because of the decreasing spread of the virus in the summer and things reopening, per Smetters.
But we’re heading toward a “pretty dire situation,” Ricco said of where we are with the pandemic now. A continued rise in cases puts an “upper limit” on the possible economic recovery, since businesses would likely face future closures and unemployment will stay high until the pandemic is under control.
A new federal administration won’t change the situation too much, he said, as most of the non-vaccine related strategies like mask mandates and lockdowns are done on a state or city basis. And data show the jobs recovery has slowed in recent months after the initial bounce-back: In October, it stood at 6.9%, or about 11.1 million people.
But regardless of the pandemic, analysis of Biden’s proposed platform shows more spending in areas like public investment, education, infrastructure, R&D and housing assistance compared to the current administration. The largest areas of new net spending over the next 10 years are in education, with $1.9 trillion, and infrastructure and research and development, at $1.6 trillion.
One point of contention between President Donald Trump and Biden voters was Biden’s tax plan, which, the report shows, only affects the top 5% of income earners. Households making $400,000 a year or less won’t see a change in their income tax in the 2021 fiscal year. Most provisions of Biden’s tax plan focus on raising taxes on corporations, capital income and ordinary income of high-income filers, the report shows.
“Relative to current law, the Biden plan leaves the income and payroll taxes of almost all households below the 95th percentile of income unchanged. Many of those households end up shouldering some burden from the corporate income tax in the form of lower investment returns or lower wages over time — when the corporate income tax is included, households below the 95th percentile of income see their effective tax rates increase by half a percentage point or less under the Biden plan,” the report says.
Essentially, it’s the older, richer people who don’t like Biden’s plan, said Richard Prisinzano, the director of policy analysis. Under his plan, they’d face more taxes, while younger and lower-income people benefit.
And Biden’s plans look good for GDP — eventually, the report shows, as a slow burn. Over the 10-year budget window of 2021 through 2030, the Biden platform would raise $3.375 trillion in additional tax revenue and increase spending by $5.37 trillion. At first, projected in 2030, the GDP would stand at -0.4%, but the average hourly wage will grow by 2.7%, and the federal debt increase by 0.1%.
Including macroeconomic and health effects, by the year 2050, the Biden platform looks like it would decrease the federal debt by 6.1% and increase GDP by 0.8% relative to current law. Nearly 80% of the increase in taxes under the Biden tax plan would fall on the top 1% of the income distribution.Read the full analysis
Knowledge is power!
Subscribe for free today and stay up to date with news and tips you need to grow your career and connect with our vibrant tech community.