What is the likely impact of Biden's budget proposals?

The Penn-Wharton Budget Model recently came out with a useful and highly informative analysis of Biden's budget proposals.  The short version is that Biden does spend quite a bit of new money on education, public investment, housing, and Social Security, but this is basically offset over the first 10 years from the taxes they raise and the savings from their health care proposals.  After 10 years, the extra public investment in infrastructure expires, so that over future decades the taxes and health care savings end up reducing the overall level of federal debt over that time.  

There is a little quirk, where the headline analysis says that Biden spends $5.4 trillion and raises $3.4 trillion in taxes, indicating a gap of $2 trillion over 10 years, but that this only increases federal debt by a tiny amount of 0.1% by 2030, which only represents an increase of about $20 billion.  I think the way this gets resolved is that Biden plans to lower the Medicare eligibility age from 65 to 60, which increases Medicare spending by the government, but decreases spending by private insurance, lowering health insurance premiums for everyone.  This in turn will reduce health care spending by businesses, which raises the taxable income of workers, since they get to keep a larger portion of their income and money spent on health insurance is not taxable but the take home wages of workers is.  This leads to a lot more tax revenue over time, but doesn't show up in the headline revenue for his tax plan since it isn't one of his formal tax increases.

That means the big takeaway is that even if the debt as a percent of GDP was growing before the pandemic, and went up dramatically because of the pandemic, Biden's proposals over the first 10 years do not make this any worse, and if his infrastructure investments end after only 10 years, then the long run budget situation is made a lot better over the following decades.  The US still has a lot of fiscal space to increase their debt over the short run, and the we should be willing to spend whatever is necessary to get us through the pandemic, but I think it is worth noting that we might need to run significant budget deficits in perpetuity if interest rates stay stuck at zero (as has happened in Japan) so we need to think about what we might do if this development does actually occur.  The answer is not austerity, but perhaps instead making our temporary QE permanent, which might happen automatically if we need to keep doing QE in perpetuity as well.

Again, Biden's plans do no harm in the first 10 years and probably help things over the subsequent decades, so I think it is a very reasonable and responsible budget proposal for our current times.  Plus, liberal economists have been arguing for a long time that we should be increasing public investment now, even if we need to borrow in order to do so, since the benefits pay off over the long run and it is very cheap to borrow more money.  Biden's plan finds a way to do that investment without raising debt significantly over the first 10 years and causes it to decline later on.  Add to that the valuable spending proposals paid for by the top 1%, and there is a lot to like in Biden's budget plan.