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Biden budget pivots to deficit concerns while boosting military, domestic programs

White House introduces $5.8 trillion budget plan that includes significant reduction to national deficit relative to current trajectory

President Biden has introduced his budget proposal for the fiscal year that begins in October. (Sarah Silbiger for The Washington Post)

President Biden unveiled a $5.8 trillion budget plan on Monday that reflects a major administration pivot to rein in future borrowing, introducing a proposal that would reduce the national deficit by roughly $1 trillion over 10 years.

The new White House budget — which reflects an opening offer in broader negotiations with Congress — calls for substantial funding increases for the military and police, more money for a slew of domestic programs and a “Bipartisan Unity Agenda” focused on cancer prevention, mental health care and veterans services. The deficit reduction would be achieved almost entirely through changes in the tax code, which could include a new minimum tax on ultrawealthy households.

While the debt would continue to grow even if all of the administration’s proposals are enacted, the White House document reflects a new focus on fiscal prudence. Last year, the White House budget would have increased the nation’s deficits over 10 years by almost $1.4 trillion. By contrast, the White House’s budget this year would reduce the annual deficit every year after its enactment.

“We’re making real headway cleaning up the fiscal mess I inherited,” Biden said when introducing the budget on Monday. “We’re returning our fiscal house to order.”

The administration’s newfound emphasis on deficit reduction comes amid a potential revival of negotiations over its economic agenda with Sen. Joe Manchin III (D-W.Va.), who has repeatedly emphasized his interest in a budget deal that would reduce the nation’s fiscal imbalance. Inflation has also emerged as a key worry of voters coming out of the coronavirus pandemic, and reducing government borrowing in the long term may help allay those concerns ahead of the 2022 midterm elections.

Sometimes, lawmakers scrap big parts of the annual White House budget proposal, as they did last year with the Biden administration’s call for new tax increases. Other times, lawmakers will engage the White House on a budget proposal and reach a deal, as they did with the White House’s push last year for an infrastructure package. The documents can also become fodder for both parties during midterm elections, as Democrats and Republicans spar over each other’s priorities as they make their case to voters.

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Biden’s push on deficits could pose a political challenge to the Republican Party, which has traditionally modeled itself as more fiscally responsible than the Democratic Party. Both of the past two Republican presidents, George W. Bush and Donald Trump, oversaw enormous increases in the federal debt during their administrations. And the Republican Party has resisted releasing its own economic blueprint for America, with Senate Minority Leader Mitch McConnell (R-Ky.) rebuffing members of his own party for attempting to craft a policy vision for the 2022 midterms.

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But the deficit argument has uncertain implications for Democrats as well. Biden spearheaded a $1.9 trillion economic relief plan last year that many voters believe contributed to the worst spike in prices in four decades. Biden’s initial plans for transforming the domestic economy, the Build Back Better agenda, fell apart amid criticism from centrist Democrats that it would do too much to fuel runaway federal spending. Republicans were quick to argue Monday that the budget increased spending too dramatically while simultaneously hurting economic growth through tax increases.

“What this budget shows is that President Biden values more spending, more debt, more taxes and more pain for the American people,” said Rep. Jason T. Smith (Mo.), a top Republican on the House Budget Committee.

The Biden administration’s new budget both includes and excludes the Build Back Better items that the president has made the cornerstone of his economic agenda — not including the provisions as counting in the overall budget calculations but still touting them in the budget document.

Administration officials told reporters Monday that they did not incorporate the spending or revenue from Build Back Better in their budget projections because of the uncertain status of negotiations. The White House has pledged its economic spending package will not increase the deficit, meaning the deficit would not be larger if the Build Back Better provisions are passed.

Instead, 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 toward new spending programs, while the remainder goes toward reducing the deficit, said Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, a group that advocates lower deficits.

“That’s like a $2.5 trillion swing — last year, the White House was increasing the deficit by $1.4 trillion, and now they’re decreasing it by over $1 trillion,” Goldwein said.

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The budget reflects useful indications of the administration’s goals and priorities heading into the midterms and for the rest of Biden’s first term, as well as how its thinking on key issues has changed over time.

“It’s clear the administration is, at least in terms of tone and messaging, trying to pivot from expansionary fiscal policy to deficit reduction‚” said Ben Ritz, director of the Center for Funding America’s Future at the Progressive Policy Institute, a think tank.

Biden is proposing increasing national security spending to more than $800 billion per year, citing Russia’s invasion of Ukraine as a justification for more spending on the Defense Department. The White House is also asking Congress for more than $30 billion to fight crime, as the administration seeks to distance itself from some liberals who have called for defunding the police.

The White House is also including a “Bipartisan Unity Agenda” focused on mental health, fighting cancer and addressing the opioid epidemic.

That agenda includes a provision to ensure that all private health plans cover mental health and substance use disorders. It would also heavily invest in mental health providers, youth mental health and suicide prevention programs, and scholarships to address a shortage of mental health providers.

It also includes a major $119 billion investment in the Department of Veterans Affairs — a 29 percent increase. The administration is also seeking $3 billion for veterans’ homeless programs, $2 billion for caregivers and billions more to improve the department’s health-care delivery systems.

The White House budget also includes $82 billion for the Department of Health and Human Services to prepare for pandemics and “other biological threats”; $21 billion for clean energy programs and climate resilience outside the president’s existing Build Back Better proposals; and substantial education funding increases.

For the Centers for Disease Control and Prevention, the budget would devote $748 million for global health activities and $200 million to upgrade the quality of public health data, including to track the pandemic. The administration is proposing a Vaccines for Adults program, at a cost of $2 billion in its first year if Congress approves the idea. The goal would be to increase vaccination among the uninsured, who disproportionally are Black Americans and Latinos less likely than other adults to receive all federally recommended shots. The spending plan also would increase the funding of efforts to reduce the nation’s high rate of maternal mortality.

The spending plan includes $5 billion for an Advanced Research Projects Agency for Health that Biden proposed last year as a new engine for biomedical research, but a dispute lingers over whether it should be housed within the National Institutes of Health or the main part of HHS.

The broader emphasis on deficit reduction would not completely close America’s fiscal imbalance.

The U.S. government spends more money than it brings in through revenue, creating an annual budget deficit. It borrows money to cover this balance by issuing debt, which it must pay interest on. The Obama administration and Republicans in Congress reached a deal a decade ago to scale back future spending, which helped reduce the deficit, but Trump sought to push the deficit wider during his administration with a big tax cut package and a burst of new spending.

The government’s response to the pandemic pushed the deficit to even larger levels, peaking at $3.1 trillion in 2020. The deficit contracted in 2021 because some of that rescue spending expired, but Democrats and Republicans have sparred over how aggressively the deficit should be addressed in the next few years.

The White House projects the U.S. government’s deficit will fall from roughly 12.4 percent of the nation’s overall economy in 2021 to just 4.8 percent by 2032. But deficits would remain high by most historic measures, however, falling to roughly $1.3 trillion per year by the middle of the decade before increasing to close to $1.8 trillion by 2032.

Crucially, Biden is aiming to achieve deficit reduction without advancing any painful spending cuts. In 2012, President Barack Obama sought to lower deficits by introducing cuts to the growth of Social Security, Medicare and other government spending programs, whereas Biden’s budget envisions spending increases on both military and domestic programs over the next 10 years.

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The White House is also attempting to emphasize the deficit reduction it is achieving now — a message viewed more skeptically by some budget experts.

Congress in 2020 and 2021 approved trillions of dollars in emergency spending programs to protect American households during the coronavirus pandemic. Biden led the passage of the $1.9 trillion rescue plan in March 2021 that was approved only with Democratic votes. Those programs were always intended to expire, but the administration is now claiming that the expiration reflects their responsible fiscal stewardship.

“It’s strange to take credit for the expiration of your own deficit-increasing policies as deficit reduction,” said Goldwein, of the Committee for a Responsible Federal Budget. “What the administration should focus on is the actual savings they’re proposing in this budget.”

Some other budget experts criticized the administration for excluding the Build Back Better agenda items from its budget.

“I don’t understand the point of releasing a White House budget proposal that excludes the massive centerpiece of its agenda,” said Brian Riedl, a conservative policy analyst at the Manhattan Institute, a center-right think tank. “If the point is that Congress will have its say too, that’s true for all proposals. Why even release a budget proposal?”

The budget also projects that economic growth will slow down after its tremendously fast pace rebounding from the pandemic. The White House says the U.S. economy grew by roughly 5.5 percent last year but will slow to 4.2 percent in 2023, before leveling off to below 3 percent for the rest of the decade.

The White House budget is based on interest rate projections from the fall — meaning they do not incorporate rate hikes by the Federal Reserve that are almost certain to make the cost of federal borrowing substantially higher.

Amy Goldstein contributed to this report.