The Fiscal Times
President Joe Biden is set to propose a $6 trillion budget for the coming fiscal year that envisions maintaining federal spending at its highest sustained levels since World War II and would result in a decade of deficits topping $1.3 trillion a year, according to reports. The budget request, slated to be released on Friday, fleshes out the full picture of Biden’s plans as the president pushes for trillions of dollars in new spending and taxes that the administration says are needed to reverse years of chronic underinvestment and ensure that the United States can compete with China and other nations. The budget blueprint also offers longer-term projections of how the administration believes Biden’s agenda would affect the economy. Here, six takeaways from the details that have been reported so far. A surge in spending: The Biden budget calls for spending to rise to $8.2 trillion by 2031, according to The New York Times, driven by Biden’s $4.1 trillion in proposed spending packages for infrastructure and the social safety net and by increases in annual discretionary spending. The White House in April issued a discretionary spending request that called for a nearly 16% increase in outlays for non-defense programs, including large increases for health care and education, and a 1.7% increase for defense. For context, the federal government spent about $6.6 trillion in fiscal year 2020, or $2.1 trillion more than in fiscal year 2019 as a result of emergency pandemic response. In all, Biden’s budget reportedly calls for $5 trillion in new federal spending over the next decade, according to CNBC. “In each year of Mr. Biden’s budget, the government would spend more as a share of the economy than all but two years since World War II: 2020 and 2021, which were marked by trillions of dollars in federal spending to help people and businesses endure the pandemic-induced recession,” the Times’s Jim Tankersley writes.A decade of trillion-dollar deficits: Deficits were already projected to be historically large over the coming decade, and Biden’s blueprint would expand them even further. The deficit for 2022 would come in at $1.8 trillion, even as the economy is projected to grow briskly — the administration projects the fastest annual pace since the early 1980s, according to the Times. And annual deficits under Biden’s budget would run higher than $1.3 trillion throughout the decade. In all, Biden’s $5 trillion in proposed new spending is partially offset by $3.6 trillion in additional revenues over the same period, CNBC says, leaving $1.4 trillion in expanded deficits over 10 years. Total debt held by the public would climb to 117% of gross domestic product by 2031, compared to 107% under the Congressional Budget Office’s long-term outlook published in March. And interest payments on the national debt would reportedly double as a share of the economy between 2022 and 2031. At the same time, the administration’s projections show budget deficits shrinking in the 2030s, in keeping with earlier White House projections that the costs of the president’s infrastructure and social spending plans would be fully offset over 15 years by his proposed tax increases. Treasury Secretary Janet Yellen defended the budget in testimony Thursday before a House Appropriation subcommittee, calling it “fiscally responsible” and arguing that it balanced much-needed near-term spending with longer-term deficit reduction. “The president’s proposal, you’ll see, will have a temporary period of spending and permanent increases that beyond the budget window will result in lower deficits and more tax revenue to support those expenditures,” Yellen said, according to Bloomberg News. That argument isn’t likely to ease the concerns of deficit hawks who have called for faster action to address ongoing structural imbalances and stabilize the ratio of debt to GDP. Instead, we’re likely headed for renewed political debate on deficits and debt, with Democrats touting the promised economic benefits of their proposed spending and Republicans warning about the dangers of historically large deficits and debt. Trillions in tax hikes — and some controversial new ones, maybe: Biden has proposed to at least partially reverse some of the tax cuts for corporations and top earners included in the 2017 Republican tax overhaul. His budget projects that federal tax revenues as a share of the economy will grow larger than at any time since the Clinton administration. It also projects that the president and Congress will allow the GOP law’s tax cuts for low- and middle-income Americans to expire as scheduled at the end of 2025. That could conflict with Biden’s repeated pledge not to raise taxes on people making less than $400,000 a year, though Biden could still seek to extend those tax cuts in future budgets. Lawmakers in both parties will certainly be loath to allow tax hikes on those lower earners. “This is the latest example of President Biden abandoning his lofty promise that he can fund trillions of dollars in new spending simply by taxing the wealthy or corporations alone,” House Ways and Means Committee Republicans said in a statement. “In fact, President Biden’s budget relies on expiration of middle-class tax cuts in order to achieve a historically high level of tax on Americans." Some more modest economic assumptions: Biden’s budget includes conservative forecasts for economic growth — “a break from the recent past,” Tankersley notes. The blueprint reportedly projects a burst of about 5% growth in 2021 that cools to 4.3% next year and then falls to just under 2% a year for much of the rest of the decade, even if Biden’s full agenda is put in place. The budget also predicts that unemployment will drop to 4.1% by next year and stay below 4% over the rest of the decade. At the same time, the forecast also shows inflation staying relatively tame and interest rates rising slowly, contrary to concerns from some economists that soaring federal spending could lead the economy to overheat.Some big campaign promises left out for now: Biden’s budget does not include some major proposals that he campaigned on, including a “public option” for government-run health coverage under the Affordable Care Act, a plan to lower the Medicare eligibility age and allow Medicare to negotiate drug prices, and student debt forgiveness of up to $10,000. Those omissions could cause Biden some headaches, as progressives have urged him to tackle those items now. (The White House budget reportedly does include language pressing lawmakers to create a public option, allow people 60 years old and up to enroll in Medicare and enact legislation cutting federal prescription drug spending, but those goals are not incorporated into the outlined spending.) Budget battles loom: Democrats control both the House and Senate, meaning that, as Tankersley writes, “Biden faces some of the best odds of any president in recent history in getting much of his agenda approved, particularly if he can reach agreement with lawmakers on parts of his infrastructure agenda.” Even so, lawmakers — including those in Biden’s party — aren’t likely to embrace all of the president’s proposals. Instead, the president’s budget request will jump start months of budget battles. Biden’s proposal to spend $753 billion on defense is sure to be a particular point of contention, as it has already faced sharp pushback from Republicans who want a higher increase — and spurred some divisions among Democrats, with progressives calling for cuts. Republicans are already criticizing Biden’s overall blueprint, with Sen. Mike Braun (R-IN) calling it “unbelievable” and “crazy.” Sen. Cynthia Lummis (R-WY) tweeted, “Biden’s budget has the highest debt/GDP ratio in American history. Congress needs to wake up. We can’t continue spending future generations into oblivion.” Like what you're reading? Sign up for our free newsletter.
