A typical household’s income will grow an additional $36,000 over the next 10 years, says the Biden administration, because of its economic policies.
But outside economists disagree with the White House’s assessment.
That $36,000 estimate is “way off,” and should be much less, said Efraim Berkovich, director of computational dynamics at the Penn Wharton Budget Model.
Mark Zandi, whose work the White House routinely cites, is more optimistic but projects the boost will be lower at about $29,750 for the typical household.
“The increase in household income is not as significant as they are expecting. But it’s still sizable, meaningful, very positive,” said Zandi, chief economist of Moody’s Analytics.
The concerns among economists contacted by McClatchy: Many economic forecasts don’t see the level of robust growth the White House predicts, and predicting any economic trend 10 years from now is always risky.
White House Council of Economic Advisers Chairwoman Cecilia Rouse told reporters recently that under President Joe Biden’s jobs and families plans, the country would see $4.8 trillion more in economic output over a decade, which in turn would have an enormous effect on income.
The White House’s analysis assumes that more people, and women in particular, would be working if they had affordable child care and paid family and medical leave available to them, initiatives that the Biden plans would help accelerate.
The White House also expects businesses to hire more workers and make greater investments if Biden’s policies are implemented.
White House’s rosy picture
The administration is predicting that by the end of the decade, the economy will be growing at an inflation-adjusted 2% rate, which it says would give the average household an additional $36,000 over the next 10 years if Biden’s plans become law.
But the nonpartisan Congressional Budget Office predicted growth slower than that in the latter half of the decade. It forecast GDP growth of 1.6% from 2026–2031 in February. It put the average GDP at 1.8% for the decade in an April report. The Federal Reserve Board also saw 1.8% growth.
Those projections do not factor in economic proposals in the two plans that Biden has put forward, plans that White House hopes will become law by the end of this year.
Prospects for Biden getting $4 trillion worth of programs in the jobs and families plan he has proposed are seen as slim, though, in a divided Congress.
The White House did not respond to a request for comment and declined to make one of its economists available for this article. It has not offered details about its income estimate, such as how it defines a household.
The administration’s proposals could make as much of a difference in household income as it asserted, economists told McClatchy. But a lot would have to break the right way.
“That strikes me as optimistic but not unreasonable,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics.
Economists cite too many variables to say with any precision what will happen over the next decade. Inflation could balloon. Interest rates could soar.
Will household income really grow?
Many major economic forecasts have recently predicted steady but less robust growth than the Biden administration did in its fiscal year 2022 budget.
The Federal Reserve Board median long term forecast was for growth in the 1.6% to 2.2% range.
“We just don’t see the big growth drivers that these guys (the White House) are talking about,” added Berkovich of Penn Wharton.
Many major forecasters slightly adjusted their outlooks to reflect new government spending after Congress in March passed Biden’s $1.9 trillion American Rescue Plan. The economy has grown significantly in recent months, but economists see a cooldown in the years ahead.
Biden’s proposed American Jobs and American Families plans would cost roughly $4 trillion and would largely be paid for with increased taxes on corporations and wealthy individuals making more than $400,000 a year.
That could slow the economy, some economists said.
“I think there’s no question directionally the net effect of this is to slow economic growth in the United States,” said Douglas Holtz-Eakin, a former CBO director who is currently the president of the conservative American Action Forum.
Holtz-Eakin said he was skeptical of the Biden administration’s assumptions that productivity and the labor force participation would be higher if the jobs and families plans became law.
He projected that Biden’s policies would “drag” down the potential growth rate from roughly 2% to between 1.8% and 1.7%, and households would actually lose $1,200 of income over the next 10 years.
One forecaster who agrees that under Biden’s plans that Americans’ average income would increase is Moody Analytics’ Zandi.
Zandi, whose forecasts the White House routinely cites, projected real GDP growth of 2.2% per year from 2021 to 2031 without Biden’s policies and 2.52% with his policies if they were implemented in 2022.
GDP would be higher if Biden’s jobs and families proposals become law in Zandi’s analysis but not the 0.4% increase that the administration came up with.
Zandi said that regardless of what the initial GDP forecast is, “The bottom line conclusion is, hey, this is something you’d want to do.”