WASHINGTON—President Biden’s $1.9 trillion Covid-19 relief package was financed entirely with borrowed money. Now, he is proposing to spend another roughly $4.5 trillion on infrastructure and social programs—without adding to the red ink.
“We can do it without increasing deficits,” Mr. Biden said in a joint address to Congress Wednesday night, detailing a series of tax increases on the wealthy and corporations to pay for programs ranging from building charging stations for electric cars to subsidizing child care.
Mr. Biden’s ability to achieve that goal depends on a range of political and economic variables, some beyond his control. Among them: Whether moderate Democrats will go along with his proposed tax increases, and whether those increases will stay in place long enough to cover all of the extra costs.
Taken together, the proposals would add roughly $1.3 trillion to government deficits over the next 10 years, according to estimates by analysts at the Committee for a Responsible Federal Budget and Cornerstone Macro Research. They say the shortfalls would eventually be made up in the following years as tax increases continue and some of the spending winds down. Over time, they add, the national debt, which represents decades of accumulated budget deficits, may begin to decline as a share of economic output.
“I think it is clear that the framework for these proposals is to spend early, create a lot of investments that they think are going to have perpetual returns to the economy, and reduce the very long-term debt,” said
senior vice president at the nonpartisan CRFB, based in Washington.
But Mr. Goldwein said relying on revenue more than 10 years in the future is risky. When Democrats passed the Affordable Care Act in 2010, they included provisions to raise revenues that have since been repealed.
Federal deficits, which were historically high and rising before the pandemic, have soared since March 2020 as Congress enacted several spending measures to combat the virus and cushion the U.S. economy from a recession, and as widespread business closures and layoffs weighed on tax revenue.
That drove U.S. debt held by the public from $17.4 trillion before the pandemic hit to $21.6 trillion when Mr. Biden took office, or roughly 100% of economic output—putting the U.S. in a league with highly indebted countries such as Japan. Some economists have warned that deficit-fueled spending could drive up interest rates and boost inflation, though that hasn’t happened in the U.S. or Japan in recent decades.
Republicans have pointed to the rise in government debt as a reason for spending restraint, and they warn that tax increases could hurt the economy by discouraging private investment. Sen. Tim Scott (R., S.C.), who delivered the GOP response to Mr. Biden’s congressional address on Wednesday, called his plans “a liberal wish list of big government waste.”