A new analysis by the Penn Wharton Budget Model casts doubt on whether Biden’s aggressive social-welfare reforms would produce the economic bang Biden claims. Yahoo Finance's Rick Newman weighs in.
JULIE HYMAN: There's new economic analysis of the Biden administration American Families Plan. It's come to us from the Penn Wharton Budget Model. Rick Newman has been digging into it. So Rick, what does this tell us about the sort of bang for the buck, so to speak, of this plan?
RICK NEWMAN: Right, this is one of the first independent analyses of the Biden Families Plan. For people who get them mixed up, the Families Plan is the big social welfare program that Biden wants to do, universal preschool, a lot of help for parents with child care and other things like that. So Penn Wharton finds this would cost more than the Biden administration says it will cost. Cost would be higher. And it would actually add to the deficit.
So Biden says he has tax hikes that would cover the cost of this. Penn Wharton says, ah, we don't think so. And because it would add about $700 billion to the deficit over about 10 years, they think it would actually modestly lead to a modest decline in GDP, compared with what we'd have otherwise. It's very small, but it's not a big growth driver, I think is one of the takeaways.
Another part of this analysis that caught my attention was they're looking at the revenue raisers, the tax hikes that they think would raise the most revenue. And the thing that would bring in the most money is not a tax hike. It's stronger or tougher IRS enforcement, which is just getting people who legally owe taxes to pay what they owe. So Penn Wharton thinks that would bring in about $480 billion over a decade. That is a ton of money. And it's more money than would come from any other tax hike Biden has in that plan. So, as Congress considers how to put together this legislation, that is where to look.
JULIE HYMAN: And just quickly, of this stuff, of the various direct family and child initiatives, which of these do they think is going to be the most effective?
RICK NEWMAN: They don't get into effectiveness. They just tell you how much they think it's going to cost and how Biden will pay for it. But I will point out that the expansion of the child tax credit, which would really put a lot of money into the pockets of middle and income and lower income families, that would be very expensive. That's the most expensive element of Biden's plan. But there's a lot of research that says that that also would be very effective. So research shows that that would do a lot to cut child poverty. So just because it's expensive doesn't mean Congress shouldn't do it.