Biden Family Plan Will Cost $700 Billion More, Penn Wharton Says

President Joe Biden’s American Families Plan will cost about $700 billion more than advertised because the White House underestimated the cost of its child-care and education policies, according to a new analysis by the Penn Wharton Budget Model.

The plan, which includes child tax credits, paid leave and tuition-free community college, would boost government spending by $2.5 trillion over a decade, compared with the $1.8 trillion estimated by the White House, according to the widely used model developed at the University of Pennsylvania.

The analysis found that the program’s tax increases on wealthy households and corporations would raise $1.3 trillion in revenue over the next decade, rather than the $1.5 trillion that the government expects, if implemented in full. It would also trim about 0.3% off gross domestic product by 2031.

The family plan is widely expected to undergo some revisions in Congress, where Biden has the narrowest of majorities as he seeks to push through spending programs worth some $4 trillion, as well as tax hikes. Penn Wharton’s higher price-tag may give ammunition to Republican critics of the plan, or to Democrats seeking to lower its cost.

Other economists have reached different conclusions. A study by Moody’s released this week found that while Biden’s plan may cost a bit more than expected -- almost $2 trillion after combining direct spending and tax credits -- it would largely pay for itself by raising more than $1.7 trillion in revenue.

©2021 Bloomberg L.P.

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