A Detailed Macroeconomic Analysis of President Biden's 2020 Campaign Tax Proposals

This paper provides a detailed exposition of the effects of President Biden’s 2020 campaign proposal on the U.S. economy and budget that are summarized in Page et al. (2021).  The analysis is done using the open source OG-USA macroeconomic model jointly with the TPC microsimulation model.  We find that the Biden campaign proposals represent a tax increase on the highest income taxpayers and a tax cut on the low- and middle-income taxpayers. We find that while the policy raises significant revenue, revenue gains are about 20% lower in the first 10 years of the policy than those suggested by a static analysis because of a large behavioral response by high earners. The policy reduces GDP by 0.37% per year, on average, for the first 10 years. However, the revenue increases reduce government debt and, due to the reduced crowding out of private capital, this results in an increase in GDP after 2038. After 20 years, the debt to GDP ratio would be about 20 percentage points lower under the proposed changes in tax policy.