On Friday, May 28, the White House released the first official budget proposal of the Biden presidency, asking Congress to spend $6 trillion on the U.S. federal government in fiscal year 2022, which opens this October, and showcasing a policy focus that is diametrically opposed to that of former President Trump.
Some analysis points out that this budget assumes an increase in the U.S. corporate tax rate from 21 percent to 28 percent. Since the vast majority of the budget will be spent on Medicare, Medicaid, Social Security, interest on the national debt and other legally mandated spending, only $300 billion of the $6 trillion is new spending requested for the next fiscal year.
However, according to an analysis of Thursday’s media blitz, the budget would bring ongoing U.S. federal spending to the highest level since World War II.
Even if the U.S. economy fully recovers from the epidemic and begins to grow at the fastest rate since the early 1980s, as previously forecast by the administration, the federal budget deficit will still reach $1.8 trillion next year and the deficit may exceed $1.3 trillion over the next 10 years.
Total debt held by the public will also exceed the total value of economic output. By 2024, the debt as a percentage of GDP will rise to the highest in U.S. history, even exceeding the records of World War II, and will rise to 117% of total GDP by 2031, up from about 100% this year.
White House: should take advantage of historically low interest rates to go into more debt and raise taxes to erase the impact of the deficit in 15 years
The budget fulfills some of Biden’s campaign promises, namely more funding for schools in high-poverty areas, increased direct federal research on cancer, diabetes and Alzheimer’s disease, investments to combat climate change, etc. It also focuses on the differences between Biden’s philosophy of governance and that of the Trump administration, such as the request to increase funding for the Department of Education, the Department of Health and Human Services and the National Environmental Protection Agency by 41 percent, 23 percent and 22 percent, respectively, while funding for the Department of Homeland Security, which assists Trump’s aggressive immigration policies, was reduced slightly and funding for the Department of Defense was increased by only 1.7 percent.
In a briefing released today, the White House said the United States has significantly underinvested in critical public services, social benefits and protections over the past decade, in large part because of overly strict budget caps.
“The United States cannot afford to revert to the structural weaknesses and inequalities of the old economy in the wake of the epidemic and needs to seize the current opportunity to reimagine and rebuild a new American economy.
A budget that increases the long-term deficit will worsen the fiscal situation, but a budget that reduces the current deficit by underinvesting in Americans will lead to slow, inequitable economic growth that is instead more damaging.”
Cecilia Rouse, chair of the President’s Council of Economic Advisers, also told the press that interest rates are at historic lows, making it the ideal time for the federal government to take on additional debt to modernize the economy and expand the Social Security safety net.
She said she expects Biden’s budget proposal to increase productivity and consumer spending over time, thereby “paying for itself,” and that over the next 15 years, tax increases will fully offset the deficit impact of the budget proposal.
Major new investment in climate change increases by $14 billion, and inflation is expected to remain at 2 percent for the next several years
The budget includes the American Jobs Plan, paid for through corporate tax increases and investments in infrastructure, and the American Family Plan, paid for through tax increases for the wealthy, and also calls on Congress to take action this year to reduce prescription drug costs and expand and improve health care coverage.
Meanwhile, under the $1.5 trillion “discretionary spending,” the Biden administration proposes to increase spending on education, health care, research and development, gun violence and renewable energy.
The $36.5 billion investment in high-poverty schools is “historic,” an increase of $20 billion over FY 2021, and the $8.7 billion provided to the Centers for Disease Control and Prevention (CDC) is the largest increase in budget authority in nearly two decades to improve preparedness for future public health crises.
In the new energy sector, major new investments in climate change would increase by $14 billion over 2021 and cover nearly all government agencies, the largest direct investment in “environmental justice” in history. The White House is also seeking to provide $2.4 billion to the U.S. Postal Service to build a fleet of electric vehicles.
In terms of economic forecasts, the White House is as optimistic as ever. The unemployment rate is expected to fall to 4.7 percent by the end of this year, 4.1 percent next year and remain at 3.8 percent in 2023 and for the next seven years.
Inflation is expected to stay around 2 percent in the coming years and no more than 2.3 percent over the next 10 years, suggesting the administration believes that some economists’ fears of runaway inflation are overstated.
Biden plans to change multiple tax laws: increase corporate taxes to 28%, raise taxes on the rich, and strengthen tax enforcement
On the issue of how to pay for these massive domestic expenditures, the Biden budget includes multiple changes to the U.S. tax code, most notably an increase in the corporate tax rate from 21 percent to 28 percent, tax increases for the wealthiest American taxpayers, and enhanced IRS enforcement.
The media found that the tax changes also include a series of incentives for “Made in America” and penalties for offshoring work by U.S. companies, particularly in the area of manufacturing goods.
The White House said reforming the corporate tax rate would incentivize jobs and investment in the United States, revitalize tax enforcement to ensure that high-income Americans pay the taxes due under the law, and eliminate the “wealth over work” incentive loophole.
“Over time, the savings from these reforms will increasingly outweigh the cost of investment, and the American Jobs and American Family programs will be paid for by tax increases over 15 years.
The full set of proposals in the President’s budget would increase the deficit over 10 years, but reduce the annual deficit in 2030 and every year thereafter. In the second decade, the deficit would be cut by more than $2 trillion, improving America’s long-term fiscal health.”
Republicans Oppose Tax Hikes to Expand Spending, White House Shifts Focus to Controlling Debt Interest, Not Eliminating Deficits
The President’s Budget is both a fiscal version of the blueprint for the administration’s priorities and a signal to Congress of what priorities the White House hopes to achieve in the coming years.
Historically, the administration’s budgets have not been able to secure full congressional support and passage, and many changes are bound to be made. But given that Democrats control both houses of Congress, Biden has a better chance of seeing his key priorities reflected in the final outcome.
Currently, congressional Republicans are strongly opposed to raising taxes on corporations to pay for more budget spending, and they have described Biden’s $6 trillion budget as “crazy and out of touch with reality. Republican Senator Lindsey Graham recently asked the nonpartisan Congressional Budget Office (CBO) to calculate how much the deficit would increase if Biden’s tax hikes were not paid for.
The Wall Street Journal analysis says the budget reflects a shift in the White House’s economic thinking, with its focus becoming on controlling interest payments on the government’s debt rather than eliminating the deficit over the next decade. Although total debt will rise to its highest level ever, the U.S. government expects the net interest cost to hover around 2 percent of GDP over the next decade, which is seen as a prudent threshold.
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