Biden’s Fuzzy Tax Math
Having unveiled a string of ambitious spending proposals, the Biden administration needs to come up with a way to generate an additional $4 trillion in revenue over the next ten years. But while it has no shortage of ideas, it will almost certainly come up short.
NEW YORK – Now that US President Joe Biden’s administration has proposed an American Jobs Plan and an American Families Plan, it is looking for at least $4 trillion in additional tax revenue. Unlike the six pandemic-related fiscal programs enacted between March 6, 2020, and March 11, 2021, these new spending packages are not meant to provide immediate economic stimulus. Because they are social and redistributive programs that focus more on the supply side, they will need to be funded either through higher taxes or spending cuts. And with no such offsetting cuts under consideration, tax increases seem inevitable.
Of course, the revenue gap could end up being considerably larger than $4 trillion if the $1.9 trillion American Rescue Plan enacted this past March turns out not to be fully covered by increased deficits alone. In that case, the Biden administration may need to add another trillion dollars to its tax revenue target. But for present purposes, we will consider what it will take to raise $4 trillion.
The American Jobs Plan is an eight-year spending and tax-credit program requiring $2.25 trillion of new tax funding, and the (still-inchoate) American Families Plan is expected to be nearly the size of the American Rescue Plan. In both cases, the additional expenditures will occur over ten years, thus requiring an additional $400 billion per year for the next decade. This target is achievable, but the burden will most likely fall not just on the wealthy but also on the middle class.