In Budget Talks, Biden Rejects 'Hard Choices' of the Past

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
President Joe Biden speaks during the House Democratic Caucus Issues Conference in Baltimore., on Wednesday, March 1, 2023. (Doug Mills/The New York Times)
President Joe Biden speaks during the House Democratic Caucus Issues Conference in Baltimore., on Wednesday, March 1, 2023. (Doug Mills/The New York Times)

WASHINGTON — Months after losing control of the House in 2010, President Barack Obama and his vice president, Joe Biden, released a budget proposal that bowed to Republican warnings about the need to rein in spending by promising a freeze in popular programs such as education.

Now president, Biden is confronting the same equation, with an emboldened new Republican majority in the House demanding deep spending cuts. But this time, Biden has made a sharp break from the past.

His proposed budget does contain new steps to reduce deficits, but instead of talking about hard choices and freezing spending, Biden has pledged to defend popular federal programs from Republican attacks and instead rely almost exclusively on taxing corporations and high earners as the way to reduce the growth in the deficit by nearly $3 trillion over the next decade.

Sign up for The Morning newsletter from the New York Times

The shift in strategy by Biden is rooted in his determination not to repeat political and economic mistakes from the Obama era, administration officials say privately. Economists say mistakes from the Obama era slowed recovery from the 2008 financial crisis. And publicly, officials point to polls to contend that voters side with the president on how to reduce deficits.

“The American people are absolutely right that having the super-wealthy and special interests pay their fair share is the right way to reduce the deficit,” said Jesse Lee, a senior communications adviser to Biden’s National Economic Council.

The budget fight is expected to drag out for months as both sides attempt to pin the blame on the other.

Biden is attempting a different sort of budget triangulation from Obama’s plan, as he nods to concerns over the $31.4 trillion national debt but seeks to redefine the issue and turn conservatives’ long-standing antipathy toward tax increases into a negotiating and electoral weapon.

“The Republicans have taken off the table making the wealthy and the well connected pay a little more to help reduce the national debt — that means they’re not really serious about the national debt,” Sen. Elizabeth Warren, D-Mass., said in an interview.

“Higher taxes aimed at billionaires and giant corporations that are hiding their money overseas would have very little effect on our economy, other than the ability to reduce the national debt or to invest more,” she said.

House Republicans are refusing to raise a cap on the amount of debt the United States can have outstanding unless Biden agrees to large federal spending cuts, which could include slashing anti-poverty programs and new measures meant to fight climate change. They say the national debt load and new spending programs approved by the president are weighing on economic growth, partly by driving up borrowing costs for private businesses.

They are trying to assemble their own budget proposal that can pass the House, likely centered on cuts to housing assistance, health care programs and other aid to the poor. In a caucus that fractures on key issues such as how much to spend on the military and whether to raise retirement ages for Social Security and Medicare, members have found common purpose in skewering Biden’s fiscal plans.

“After two years of economic failures, the American people desperately want results,” Rep. Jason Smith, R-Mo., chair of the Ways and Means Committee, said at the start of a hearing on Biden’s budget on Friday. “The budget before us today calls for $4.7 trillion in new taxes and sinks $6.9 trillion in new spending during a staggering debt crisis.”

Biden has refused to negotiate directly over raising the debt limit but says he welcomes a conversation on the nation’s finances — on his own, populist terms.

“What are they going to cut?” Biden mused to an audience in Philadelphia on Thursday, as he formally unveiled his budget and called on Republicans to follow suit.

“What about Medicaid? What about the Affordable Care Act? What about veterans’ benefits? What about law enforcement? What about aid to rural communities? What about support for our military?” he asked. “What will they make — how will they make these numbers add up?”

This debate is happening in an economic moment that is very different from 2011, when Obama issued his budget for the 2012 fiscal year.

At that time, the gross national debt was about $15.5 trillion, or just under three-quarters of what was the annual output of the American economy. But the economy was nowhere close to recovering from the 2009 recession. The unemployment rate was 9%. The economy was running well below what economists call its potential — the amount of goods and services it would be producing at what you might call optimal performance.

Progressive economists pushed Obama to take advantage of low interest rates to continue running large deficits and pump more money into the economy. After losing the House, though, he bowed to Republican demands to reduce deficits and pivoted the other way. His budget proposed caps on government spending and urged Congress “to act now to secure and strengthen Social Security for future generations” by taking steps to shore up its finances.

A bout of brinkmanship later in 2011 between House Republicans and Obama nearly ended with the United States defaulting on its debt, before Obama agreed to a set of caps on future spending increases in exchange for lifting the limit. That deal helped cut the deficit by nearly two-thirds before Obama left office.

Many economists have concluded that those measures dragged out the time it took for the economy to finally run hot enough to generate sustained wage gains for workers.

Today’s economy has run so hot that the Federal Reserve is trying to cool it down to tame high inflation. Unemployment is 3.6%, and companies are having trouble finding workers. Republicans blame Biden’s spending policies for stoking inflation and say his tax proposals would further burden people and business owners struggling with high prices.

Progressive economists disagree — increasingly saying there is little threat to growth from large tax increases on companies and high earners.

Even with his proposed savings, Biden’s budget still foresees the gross national debt increasing by about $18 trillion through 2033, to just above $50 trillion, or 128% of gross domestic product. It projects deficits to average about 1.5% more, as a share of the economy, than Obama projected in his 2012 budget. Yet administration economists say that under their plans, “the economic burden of debt would remain low.”

Some progressive groups criticized Biden last week for focusing at all on deficit reduction in the budget. Others welcomed his emphasis on raising taxes for businesses and people earning more than $400,000.

Budget hawks urged Biden last week to propose more — and more immediate — deficit reduction. Such reductions would pull consumer spending power out of the economy faster by raising taxes or reducing federal expenditures, or both. Advocates of deficit reduction said that could help ease price growth in the economy.

Fed Chair Jerome Powell told lawmakers in the House and Senate last week that federal tax and spending policy was “not contributing to inflation” today. He was pressed on that view by Sen. John Kennedy of Louisiana, a Republican on the Budget Committee.

“It’s undeniable that the only way we’re going to get this sticky inflation down is to attack it on the monetary side, which you’re doing, and on the fiscal side, which means Congress has got to reduce the rate of growth of spending and reduce — reduce the rate of growth of debt accumulation,” Kennedy said.

“Now I get that you don’t want to get in the middle of that fight,” he added. “But the more we help on the fiscal side, the fewer people you’re going to have to put out of work. Isn’t that a fact?”

“It could work out that way,” Powell replied.

© 2023 The New York Times Company