“We’re a really big economy where really big forces are driving GDP growth,” said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution and former CBO chief economist.
Even these modest projections by the Biden government suggest that its policies will increase economic activity growth by a few tenths of a percent each year for a decade. This is important when comparing it to the growth one would expect if one just looked at demographics and historical averages of productivity growth. The forecast is inherently more optimistic about Mr Biden’s policies – and their potential for increasing productivity and the size of the workforce – than it may seem at first glance.
Biden’s 2022 budget
- A new year, a new budget: Fiscal year 2022 for the federal government begins October 1, and President Biden has announced what he plans to spend from that point on. However, all editions require the approval of both Congress Chambers.
- Ambitious overall spending: President Biden wants the federal government to spend $ 6 trillion in fiscal 2022 and total spending to rise to $ 8.2 trillion by 2031. This would bring the United States to its highest sustainable federal spending level since World War II, while running deficits above $ 1.3 trillion for the next decade.
- Infrastructure plan: The budget describes the President’s desired first year of investment in his US employment plan, which aims to fund improvements to roads, bridges, public transportation and more with a total of $ 2.3 billion over eight years.
- Family plan: The budget also addresses the other major spending proposal that Biden has already put forward, his American family plan, which aims to strengthen the United States’ social safety net by expanding access to education, reducing childcare costs, and bringing women in the workforce are supported.
- Compulsory programs: As usual, mandatory spending on programs like Social Security, Medicaid, and Medicare is a significant part of the proposed budget. They grow as the American population ages.
- Discretionary issues: Funding for each agency and executive program budget would reach approximately $ 1.5 trillion in 2022, a 16 percent increase from the previous budget.
- How Biden would pay for it: The president would fund his agenda largely through tax hikes for businesses and high earners, which would lead to a decline in budget deficits in the 2030s. Administration officials said tax increases would fully offset plans for jobs and families over the course of 15 years, which the budget request confirms. In the meantime, the budget deficit would stay above $ 1.3 trillion each year.
“The claim that your fiscal policies will increase growth by four tenths of a point seems optimistic, but I can see how they can get there,” she said.
Jason Furman, the former top economist in the Obama administration, said, “I think there’s one problem people have on their mind – more extravagant ideas about what economic policy can do and how quickly it can do it. When you talk about increasing productivity, you’re talking about compounding, which is going to be a big deal for a long time. “
In other words, the difference of a few tenths of a percent in GDP growth might not mean much for a single year, but a gap that size, which lasts for many years, has a huge impact on the standard of living.
Some of the administration’s policies would inherently focus on the very long-term effects on the country’s economic potential. For example, additional money for community colleges could in the short term depress the size of the workforce, and therefore GDP, as more adults return to school. But it would then increase the production potential of these workers and thus the contribution to growth for the following decades.
For their part, conservatives see the Biden agenda as likely to hold back growth, especially once tax hikes and new regulatory measures come into effect. Mr Mulligan, the Trump advisor, said he believed the Biden agenda would reduce the nation’s growth path by about 0.8 percentage points per year compared to its Trump era. Douglas Holtz-Eakin, president of the American Action Forum, said he thinks Mr Biden’s policies could result in faster growth in the short term, but slower growth in the long term due to taxes and spending.
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