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President Biden’s Fiscal Year 2024 Budget outlines several major tax increases that would add up to nearly $4.8 trillion in new taxes targeted at businesses and high-income individuals. After $833 billion in expanded tax credits, it would raise nearly $4.0 trillion in new taxes on net. Additionally, the Biden budget would expand spending by $1.4 trillion on net, leading to a $2.5 trillion reduction in the deficit through the end of 2033 on a conventional basis.

While the Biden budget aims its tax increases at corporations and high-income individuals, the economic effects of higher marginal tax rates would be more widespread. Using the Tax Foundation’s General Equilibrium Model, we estimate the Biden budget would reduce long-run economic output by about 1.3 percent and eliminate 335,000 full-time equivalent jobs.

Our estimate likely understates the full economic harm from the budget because we do not model the effects of the 25 percent “billionaire minimum tax” on unrealized capital gains of high-net-worth taxpayers or the impact of certain international tax changes, such as the undertaxed profits rule (UTPR).

The Office of Management and Budget (OMB) estimates the FY 2024 federal budget would reduce the debt-to-GDP ratio by about 7 percentage points from its baseline estimate of 117 percent by the end of 2033 to 110 percent. But by reducing economic output, we estimate that the budget would lead to a smaller improvement in the debt-to-GDP ratio on a dynamic basis, reducing it by about 4.5 percentage points by 2033. Forty years from now, we estimate the plan reduces the debt-to-GDP ratio by about 17 percentage points.

The actual deficit reduction is highly uncertain, as at least $1 trillion of the estimated reduction comes from untested revenue sources (e.g., the billionaire minimum tax and UTPR). Further, if certain policies discussed in the budget were extended, it could wipe out all of the projected deficit reduction, while still harming long-run economic output:…