“We are a really big economy in which really big forces are shaping what happens to GDP growth,” said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution and former chief economist at the CBO.
Even these dovish projections from the Biden administration imply that its policies will boost economic activity growth by a few tenths percent each year for a decade. This is significant when compared to the growth that would be expected simply by looking at demographics and historical averages of productivity growth. The forecast is inherently more optimistic about Biden’s policies, and their potential to increase productivity and the size of the workforce, than it might appear at first glance.
- A new year, a new budget: Fiscal year 2022 for the federal government begins on October 1, and President Biden has revealed what he would like to spend thereafter. But any spending requires the approval of both houses of Congress.
- Ambitious total spending: President Biden would like the federal government to spend $ 6 trillion in fiscal 2022, and for total spending to increase to $ 8.2 trillion by 2031. That would bring the United States to its highest sustained levels of federal spending since World War II. Global, while running deficits exceeding $ 1.3 trillion over the next decade.
- Infrastructure plan: The budget outlines the president’s desired first year of investment in his American Jobs Plan, which seeks to fund improvements to roads, bridges, public transportation and more totaling $ 2.3 billion over eight years.
- Family plan: The budget also addresses the other major spending proposal that Biden has already released, his American Families Plan, which aims to strengthen America’s social safety net by expanding access to education, reducing the cost of care. child support and support for women in the workforce.
- Mandatory programs: As usual, mandatory spending on programs like Social Security, Medicaid, and Medicare make up a significant portion of the proposed budget. They are growing as America’s population ages.
- Discretionary expenses: Funding for the individual budgets of executive branch agencies and programs would reach about $ 1.5 trillion in 2022, a 16 percent increase over the previous budget.
- How would Biden pay for it: The president would largely fund his agenda by raising taxes on corporations and high-income individuals, which would begin to reduce the budget deficit in the 2030s. Administration officials have said the tax increases would fully offset employment and family plans over 15 years, which supports the budget request. Meanwhile, the budget deficit would remain above $ 1.3 trillion each year.
“To say that their fiscal policies will boost growth by four tenths of a point seems optimistic, but I can see how they could get there,” he said.
Jason Furman, the former chief economist in the Obama administration, said: “I think there is a problem that people have on their minds: more outlandish ideas about what economic policy can do and how quickly it can do it. When you talk about improving productivity, you talk about compounding that becomes a big problem for a long time. “
In other words, a difference of a few tenths of a percentage of GDP growth may not mean much for a single year, but a gap of that size that persists for many years has a large impact on living standards.
Some of the administration’s policies, by design, would focus on the very long-term impact on the nation’s economic potential. For example, the extra money for community colleges could actually reduce the size of the workforce and therefore GDP in the short term if more adults go back to school. But then the productive potential of these workers would increase and, therefore, their contribution to growth during the following decades.
Conservatives, for their part, believe that Biden’s agenda will likely restrict growth, particularly once tax increases and new regulatory measures take effect. Mulligan, Trump’s adviser, said he believed Biden’s agenda would reduce the nation’s growth path by about 0.8 percentage points a year compared to the trajectory of the Trump era. Douglas Holtz-Eakin, president of the American Action Forum, said he thought Biden’s policies could lead to faster growth in the short term but slower growth in the long term due to taxes and spending.