President Biden unveiled a nearly $6 trillion budget plan on Monday that seeks to slim future borrowing, increase spending for defense and other domestic programs, and change the tax code, possibly through a new minimum tax on billionaires.
“We can restore fiscal responsibility and safeguard our security at home and abroad while meeting the third value I call ‘building a better America,’ ” Biden said Monday.
Cutting the deficit
A major focus of Biden’s budget is deficit reduction.
This year’s proposed budget would reduce the annual deficit every year after its enactment. The federal deficit is the difference between spending and federal revenue, usually from taxes, and those deficits have been climbing over the past several administrations.
Under this budget, thanks in part to higher taxes on the most wealthy and a decrease in some spending — both of which would have to be implemented by Congress — the White House projects America’s deficit falling from roughly 12.4 percent of the nation’s overall economy in 2021, to 4.8 percent by 2032.
“We spent less money than the last administration and got better results: strong economic growth, which has increased revenues and allowed us to responsibly scale back emergency spending,” Biden said in a statement Monday. “My budget will continue that progress.”
Indeed, the White House’s budget document included a slew of new tax hikes on the rich and corporations that to this point do not appear to be part of the congressional negotiations. Among the new tax measures incorporated into the budget is a “Billionaire Minimum Income Tax” that would levy a 20 percent minimum tax on all income — including unrealized capital gains — for Americans with assets worth more than $100 million.
The White House budget includes roughly $2.5 trillion in new tax revenue. Of that $2.5 trillion, roughly $1.5 trillion goes to new spending programs, while the remainder goes toward reducing the deficit.
The message around deficit reduction could be aimed at assuaging a key Democratic vote on Capitol Hill: Sen. Joe Manchin III (D-W.Va.). Manchin has made clear that he wants legislation that wouldn’t add to the deficit.
Moreover, with prices at 40 year highs, and Americans increasingly worried about inflation, Manchin has warned against federal spending that he argues would push inflation up even higher. He has cited inflation concerns as a big reason he opposed the Biden administration’s Build Back Better spending package, which aimed to overhaul the country’s health care, education, climate, immigration and tax laws.
Build Back Better isn’t accounted for in the budget
The Build Back Better agenda has disappeared from the accounting of this budget.
After a year of heavy campaigning on a signature package of spending proposals, the White House largely dropped those measures from this budget, which lacks specific calculations for those proposals. However, the budget does tout some of the policy provisions throughout the document.
Negotiations on Biden’s spending bill have stalled since Manchin III said he couldn’t support that package, which aimed to cement a lot of the promises Democrats made on the 2020 campaign trail, from more child-care and eldercare support, universal pre-K and huge investments in green energy.
Administration officials said line items were not calculated into the budget because negotiations between lawmakers on Capitol Hill were still in flux. Instead, the proposal includes a deficit neutral reserve fund that administration officials say can account for any future legislation or deal.
Shalanda Young, director of the Office of Management and Budget, told reporters that the intention is “to allow congressional negotiators the room to do what President Biden has asked.”
Outdated expectations around inflation
Biden’s budget was built around some outdated ideas about inflation. The economic forecasts built into Biden’s budget were finalized in mid-November. At the time, the administration’s expectation was that inflation would drop substantially in 2022, to 4.7 percent, according to documents released by the administration on Monday.
In reality, the past four months have told a completely different story on surging prices. Inflation has soared to 40-year highs and hit 7.9 percent in February, compared with the year before and could go even higher. Russia’s invasion of Ukraine has complicated any semblance of what’s to come, although most expect energy market prices to climb even higher. The Federal Reserve is embarking an ambitious plan to get inflation under control, having raised interest rates to tackle rising prices this month, with six more rate increases penciled in for the rest of 2022.
“The expectation going into this year was that we would basically see inflation peaking in the first quarter, then maybe leveling out,” Fed Chair Jerome H. Powell said this month. “That story has already fallen apart.”
Biden’s budget acknowledges the mismatch between its November projections and the current situation, especially since Russia invaded Ukraine one month ago. Asked about the outdated inflation estimates, Cecilia Rouse, chair of the Council of Economic Advisers, told reporters on a conference call that “if we were looking at it today, we would look at it somewhat differently.”
Rouse pointed to expectations among many other policymakers and economists from late last year that inflation would turn around as supply chains healed, and the effects of covid-era support from the Fed and federal government faded away. That was all before Russia’s invasion, and or inflation’s continued spread into the economy.
“There is tremendous uncertainty,” Rouse said.
Spending on defense and other departments
As Russia’s war in Ukraine escalates, Biden’s proposal requests $773 billion for the Defense Department, up $69 billion, or almost 10 percent, from the 2021 enacted level. The proposal aims to fund deterrence against China and Russia, and additional threats from North Korea, Iran and extremist organizations. The budget also invests in nuclear modernization programs and cybersecurity programs.
The budget also requests $11.7 billion to the Commerce Department, up $2.8 billion, or 31.2 percent. A major focus of the funding would go toward strengthening supply chains and boost American manufacturing.
The budget proposal also sets aside $135 billion for the Department of Veterans Affairs, up $31 billion or 29 percent increase. The funding focuses on VA medical care, health-care training programs, suicide prevention and mental health services.
Jeff Stein contributed to this report.