President Biden’s $1.8 trillion families plan actually costs $2.5 trillion and would shrink the economy in the long run because of escalating debt, according to projections released Wednesday by an influential budget model out of the University of Pennsylvania.
The study came as Mr. Biden vowed not to add to federal deficits to get his agenda through and pointed to other analyses that are more bullish on his plans.
The pricier estimate comes from a boost in projected costs for tax credits and spending on provisions like universal pre-K and free community college, according to the Penn Wharton Budget Model.
When planned tax hikes are combined with the spending provisions, the broader plan would shrink the economy by about 0.3% by 2031 and by about 0.4% by 2050, according to the model.
It also would increase government debt by close to 5% by 2050.
Mr. Biden defended his tax and spending plans Wednesday, saying he’s willing to compromise but that he’s not going to support proposals that add to federal deficits.
“It’s about growth,” the president said. “I’m open to compromising, yes — it doesn’t have to be exactly what I say. But I’m not willing to not pay for what we’re talking about. I’m not willing to deficit spend.”
The White House has estimated that Mr. Biden’s $4 trillion-plus infrastructure and family plans will ultimately balance over time through higher taxes on corporations and the wealthy.
Richard Prisinzano, the budget model’s director of policy analysis, said he’s confident in the Penn Wharton models.
“I want to give them credit — they might say something that is different than what we’ve estimated here. But I think we in good faith have estimated it and our numbers just don’t add up the way that they’ve presented [them],” Mr. Prisinzano said.
He said their estimates project that two years of free community college for all Americans, including “Dreamers,” immigrants who came to the U.S. illegally as children, would cost close to $300 billion, compared to about $109 billion in the White House plan.
The administration wants to spend $200 billion on universal pre-K programs, but Penn Wharton projected that the cost would be more than $420 billion when factoring in specific estimates on who would benefit.
The model estimates that Mr. Biden’s families plan would generate roughly $1.3 trillion in new tax revenue over a 10-year period, while extending expansions of popular tax credits like the child and earned income credit would cost about $1 trillion.
Analysts projected that increasing the top individual income tax rate from 37% to 39.6% would generate about $111 billion in revenue over a 10-year period.
Stepped-up IRS enforcement and reporting requirements would generate about $480 billion — short of the $700 billion over 10 years the Biden administration has estimated.
“Having been at Treasury a long time, I know what it’s like to deal with the IRS computer system and it’s not great and so updating those things will have some benefit,” Mr. Prisinzano said. “It’s going to take time to get those things in, but it’s going to make audits easier in general.”
The model does forecast that the average wage rate will be 0.1% higher by 2050 because of “productivity boosts” from the increased government spending.
“However, those productivity effects are not enough to offset the negative effect of higher government debt on GDP, which ends up 0.4% lower in 2050,” analysts said.
White House press secretary Jen Psaki said the administration “strongly” disagrees with the Penn Wharton analysis.
The White House pointed to a separate study from Moody’s Analytics that projected the economy in 2030 will be more than $700 billion larger with Mr. Biden’s $4 trillion-plus infrastructure and families proposals than without them.
“We’re going to rely on the majority of economic analysis out there and our own analysis in here and we’re confident we’ll be able to reach both our job creation projections and, of course, do it in a way we can pay for it,” Ms. Psaki told reporters at the White House.