Biden’s budget strategy: Spend and tax
The first draft of the president’s budget sends a political message
In a budget proposal presented to Congress earlier this month, the White House outlined a plan to plug many of the holes in the country’s needs with dollars that it doesn’t have—yet.
The proposal likely will not pass in its current form, but it sends a message to Republicans in the House and to voters by reiterating long-standing Democratic priorities. And it proposes new taxes as the main mechanism for bringing down the national deficit.
I asked Jared Pincin, an associate economics professor with The King’s College, if he was encouraged that the proposal seemed to acknowledge the growing budget deficit and resulting national debt.
“Well, yes and no,” Pincin said. “Yes, in that there’s a notion that deficits matter at some level, but no in the sense that the savings they’re claiming … aren’t savings at all. It’s just [spending] under what the projections would have been.”
The 176-page spending plan includes $843 billion for the Pentagon for costs such as aid to Ukraine, modernizing America’s nuclear arsenal, and competing with China. About $25 billion is set aside for U.S. Customs and Border Protection to attempt to stem the record-breaking wave of migrants at the U.S. southern border. And there’s $4.5 billion in clean energy and infrastructure projects. In total, the plan is set to cost $6.9 trillion in fiscal year 2024, or an estimated 25.3 percent of the nation’s gross domestic product, according to the White House report.
Lawmakers on both sides of the aisle agree that the bulk of the spending in areas like defense and Social Security should be a priority. They differ on how the country should pay for it.
To finance the budget, President Joe Biden is calling for a hike in the top individual tax rate to 39.6 percent, a 2.5-point increase, as well as increasing the corporate tax rate from 21 percent to 28 percent. Other parts of the plan also call for taxes on investments and interest payments that aren’t currently taxed or are taxed at low rates. The president has promised not to raise taxes on individuals making less than $400,000 annually.
Biden’s proposed hikes on corporate and personal taxes closely mirror a Democratic bill introduced in 2021. It was designed to offset the costs of the $3.5 trillion Build Back Better legislative package. House Democrats proposed raising the top individual income tax rate to 39.6 percent and corporate tax rates to 26.5 percent. That version of the package never passed the Senate.
Erica York, senior economist and research manager for the Tax Foundation, doesn’t think the idea will fare any better this time around.
“A lot of these tax increases are being recycled from legislative attempts that have already failed with Democratic control [in both chambers],” York said. “The president couldn’t get a higher corporate tax rate, couldn’t get a higher individual tax rate, but that’s what the budget is relying on here to address the deficit.”
House Speaker Kevin McCarthy, R-Calif., has made it clear that Republicans won’t vote to increase the national deficit through additional spending. Instead, they have demanded budget cuts. The White House has said it won’t negotiate budget cuts until Congress raises the U.S. debt ceiling, which the country is expected to hit sometime this summer. At that point, the U.S. can’t legally borrow more money to finance its spending.
“President Biden just delivered his budget to Congress, and it’s completely unserious,” McCarthy tweeted. “Mr. President: Washington has a spending problem, NOT a revenue problem.”
Even if Congress adopted Biden’s proposal as-is and reduced the deficit through more taxes, York said the economy overall would suffer.
“It really creates an environment of uncertainty for business,” York said. “Businesses use a multi-year horizon to plan out investments. And if tax policy is fundamentally shifting from a reduction in corporate taxes to a hike in corporate taxes within a small time frame, it makes it very difficult to plan.”
Pincin agreed. He said that the tax increases, both at the corporate and individual levels, would hurt American competitiveness.
“If you’re a multinational company, you’re looking at your next project … your tax rate is going to be part of that,” Pincin said. “And if you can put a particular plant in a country that has a lower tax rate, that’s going to be one of those considerations.”
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