A new analysis finds that President Joe Biden’s American Families Plan will spend $700 billion more and generate $200 billion less in tax revenue than the White House is predicting.
The White House has estimated the plan will cost $300 billion over the next decade. The plan offers a combination of trillions in new government spending and taxes that the White House says will assist working-class families, improve early childhood education and narrow America’s wealth gap.
But the $300 billion cost figure is a low-ball number, according to an analysis from the University of Pennsylvania’s Wharton School of Business. Its Penn Wharton Budget Model, a nonpartisan research group at the business school, puts the price tag of the plan at $1.2 trillion, or four times what the White House estimates. Earlier, the same researchers had predicted that wealthy Americans would be able to avoid up to 90% of Biden’s proposed increase in taxes on investment gains.
In a study out this week, a big part of the $900 billion difference cited by the Penn Wharton researchers appears to be what the American Families Plan will spend on education efforts.
The Biden administration is proposing to fully fund two years of universal pre-K for three- and four-year-olds and make two years of community college free for whoever wants it. The Penn Wharton researchers said both of those programs will cost significantly more than the White House estimates, although the research team didn’t specify how much more. The researchers also said proposed tax credits for children and low-income families and spending to fund health insurance premiums will be more costly than the White House estimates.
In all, the researchers said Mr. Biden’s plan will spend $2.5 trillion on programs and tax credits, compared to the White House’s estimate of $1.8 trillion.
On taxes, the Biden administration said the plan will bring in $1.5 trillion for the government by imposing more taxes on Americans who make more than $400,000 a year. Not included in the American Families Plan or the Wharton analysis is the White House’s proposal to raise corporate taxes by $2.1 trillion and spend more than $2 trillion in infrastructure, both of which are part of a different Biden plan.
The Penn Wharton researchers, though, said they believed Mr. Biden’s American Families Plan would bring in $1.3 trillion over the next decade, or $200 billion less than what the Biden administration predicts. The primary difference has to do with how much money the administration believes it can bring in by beefing up the Internal Revenue Service.
Mr. Biden has proposed spending $80 billion in the next 10 years to increase the agency’s staff and improve its audit powers. The White House predicted increased tax compliance will add $700 billion in revenue over the next decade.
The Wharton researchers put that estimate at $480 billion, which is still higher than others have said. A study by the Congressional Budget Office last year suggested that investing $80 billion in the IRS would generate about $200 billion in additional tax revenue over a decade.