Last week, the Penn Wharton Budget Model (PWBM) released its latest analysis of President-elect Joe Biden’s policy platform, a post-election breakdown that focuses on its potential effects on the economy.
The analysis found that the Biden platform, if enacted in its entirety, would raise $3.375 trillion in new tax revenue and increase spending by $5.37 trillion by fiscal year 2030. That tax revenue mostly falls on the top 1% of income earners, and includes raising taxes on corporations, capital income, and foreign profits, to name just a few proposed measures.
The effective tax rate would drop, according to PWBM analysis, for income earners outside of the top 1% when accounting for other programs and proposals—like a childcare tax credit—the Biden transition team has proposed. PWBM also developed a new dynamic distributional model that demonstrates how age groups and income earners fare throughout their lifetime under these policies. Generally, higher income young Americans and wealthy retirees are worse-off over their lifetimes, while working-age and lower income Americans do better. (See chart below)
But, it’s worth bearing in mind the bold assumptions made about the implementation of these policies.
“One thing to highlight, going forward, is the way we do all this analysis is we assume everything gets passed and it starts January 2021, and we know the likelihood of that happening is basically zero,” said Richard Prisinzano, the PWBM’s director of policy analysis, at a virtual presentation on Thursday.
“By considering a candidate’s full set of proposals, we are providing the general public the information about the path the candidate intends to set for the country,” Prisinzano further explains. “We do not see it as our role to decide when or what a candidate can or will get passed. Those are inherently political questions, and we aren’t pundits or political analysts. Our role is to provide the economic analysis of the policies in total.”
Individual and more specific analysis of policy proposals will be presented as they go through Congress, he added.
Under the assumption the policy platform is implemented, though, is a demonstration of steady changes in the economy over time, according to the analysis. By 2030, the model projects GDP would initially be down 0.4% because of high-income tax increases; by 2050, after programs related to areas like education and infrastructure take effect, GDP would go up 0.8%, as compared to what it would be under current law. Average hourly wages would increase by 2.7% in 2030, before dipping to 1.5% by 2050. Hours worked would go down or remain flat by 2050. Debt held by the public would tick up by 0.1% y 2030, and then consistently go down to -6.1% by 2050.
These numbers all, of course, have a relationship with one another. For example, as access to affordable health care increases, there may be less pressure for an individual to work as many hours per week, in turn making labor more scarce and increasing wages.
When probed about what President-elect Biden could do immediately by executive order, Prisinzano said not much among these policy proposals can be executed without Congress. But H1B visa cuts by the Trump Administration could be undone right away, making room for an increase in immigration.
“The obvious one to me that we know is the H1B program. That can change,” he said.
That would influence the economy because H1B visas are reserved for uniquely talented and highly skilled people.
“That immigration really boosts the economy,” explained Prisinzano. “You have more people, immigrants tend to have more kids, and that builds up the economy in a general sense where the pie gets bigger. And high-ability people, there are patents associated with immigrations of H1B, and that kicks in the productivity level for GDP and has a positive boost. It’s a significant increase in things like GDP.”
Data on immigration, he said, has been skewed by the pandemic this year, as international travel and immigration has halted—making the full picture of immigration trends a bit fuzzy. Still, the PWBM model suggests Biden immigration plans would increase the U.S. population by 1.64% by 2050. PWBM previously released an analysis specific to immigration policy.
John Ricco, senior analyst at the PWBM, also noted during the presentation that the economic outlook also depends on the state of the pandemic. Economic progress, he said, is essentially at a standstill as social contact—which doubles as an indicator of infection risk and economic strength—has plateaued, with no federal intervention expected in the near-term.
“We’re stuck in neutral until the virus is suppressed more,” Ricco said. “What does that mean going forward? It depends a lot on policy response, and having a new administration at the federal level, there’s not too many avenues for direct action. A lot of non-pharmaceutical intervention will happen at the state and local level.”
The full data and explanation of how the Biden platform could impact the economy can be explored on the PWBM website. Data on COVID-19 and its relationship to the economy can be found through PWBM’s COVID-19 Tracker tool.