President Joe Biden’s budget proposal is an opening salvo in the looming impasse with Republicans over raising the debt ceiling and funding the US government.
(Bloomberg) — President Joe Biden’s budget proposal is an opening salvo in the looming impasse with Republicans over raising the debt ceiling and funding the US government.
Biden is expected to defy GOP calls for deep spending cuts, instead proposing new taxes on corporations and Americans making more than $400,000 a year as he seeks to shore up entitlement programs and address budget deficits.
The White House wants the plan, to be released in full on Thursday, to provide political leverage in the approaching standoff with House Republicans, when the $31.4 trillion debt limit must be raised to avoid a US default.
Here is what to watch for:
Deficits
Biden will propose cutting the deficit by nearly $3 trillion over the next decade, according to an administration official. That projection, first reported by the Associated Press, comes largely from proposed tax hikes on the wealthy and large corporations.
The White House is hoping to contrast those revenues with policies proposed by House Republicans that would add to the deficit by rolling back tax increases secured when Democrats controlled Congress, and eliminating Medicare’s insulin cap. But Republicans say they’re seeking significant spending cuts — at least $150 billion in fiscal 2024 reductions, with the ultimate goal of eliminating budget deficits over 10 years — all without touching Social Security or Medicare.
Senator Chuck Grassley, the top budget committee Republican, said before the release that the president should propose to cut 2024 spending to 2020 levels plus inflation. The White House is hoping Republicans will further detail their plans, seeing political advantage in forcing the GOP to spell out what government services they would slash.
Taxes
Biden has already said his plan would raise Medicare taxes on wealthier Americans, and eliminate payroll tax loopholes for people who own businesses. His budget will target other parts of the tax code used by wealthy individuals — including the carried interest loophole on the pay investment managers receive for managing fund assets. Biden will also look to limit the amount taxpayers making more than $400,000 can put in tax-favored retirement accounts, as well as eliminating subsidies for crypto transactions — two moves the White House projects would save $47 billion.
Separately, Biden proposes eliminating $31 billion in subsidies for oil and gas companies over the next decade. And the White House proposes saving $19 billion by closing a tax loophole known as the “like-kind exchange” that allows real estate investors to put off paying taxes as long as they continue to invest in property.
Markets
Neither Biden’s plan or whatever Republicans propose has any chance of coming to fruition, with next year’s spending levels requiring compromise. Yet the gulf between them also underscores the substantial challenges the US faces in avoiding a summer default or autumn shutdown. While markets so far have shrugged off concern, Federal Reserve Chairman Jay Powell warned of the dangers of default Tuesday on Capitol Hill and Fitch Ratings said the high-stakes game of chicken could cause America’s sovereign debt to be downgraded.
Medical Savings
Proposed changes that would allow Medicare to negotiate more drug prices — and sooner after their release — along with new powers to negotiate drug rebates would save some $200 billion over the next decade, the White House said. Biden’s budget will also include a plan that requires insurance companies to refund the government if managed care programs charge more than the cost of patient care. Under such programs, states contract with private insurers to provide benefits — and the change could save the government $20 billion over the next decade, according to the Wall Street Journal, which first reported the plans. Any such changes are certain to face fierce opposition not only from Republicans, but also insurance and pharmaceutical lobbyists.
Economy
The budget will reveal the Biden team’s thinking on whether the US will enter a recession this year and when inflation will cool. Last year, the administration came under heavy criticism for using outdated economic projections that predicted a 4.7% inflation rate in 2022 and a 2.3% inflation rate this year. If the numbers again differ markedly from economic consensus, that could open the White House to charges it’s goosing the books to make the deficit look smaller.
Social Security
Biden has said his budget would protect the program. Without intervention, the trust fund for the Social Security retirement program will be insolvent by 2033, according to the latest official estimate. Biden could propose raising payroll taxes on high earners to address this.
Defense and Ukraine
The budget isn’t expected to outline the next, large tranche of Ukraine assistance, which administration officials will pursue later this year after spending the roughly $45 billion appropriated by Congress late last year. But the defense budget includes a record $170 billion for weapons procurement and $145 billion for research and development. Overall, Biden’s defense budget exceeds $835 billion — up from the $816 billion that Congress appropriated in the current fiscal year. That may anger progressives — and some Republicans who have called for cuts to Ukraine aid — while offering an olive branch to Republican hawks.
2024 Hints
Biden may also seek to highlight initiatives that could prove beneficial to a reelection campaign next year. The White House recently expressed support for overruling District of Columbia laws that would lower sentences for crimes like carjacking, and a substantial increase in policing grants could help blunt GOP efforts to tie him to progressive calls to defund the police.
Domestic Discretionary Spending
A cut to non-defense, non-entitlement spending would send a clear signal that Biden is looking to strike a deal with the GOP, while an increase suggests the White House believes it has the advantage in negotiations — and that government shutdown fights could get ugly. But the president is unlikely to support deep spending cuts, since doing so could unwind legislative successes he achieved while Democrats controlled Congress. The Washington Post reported Wednesday that the president plans to propose a 5.2% pay increase for federal workers, another sign he is looking to increase rather than cut spending. It’ll be important to watch which proposals that didn’t survive negotiations in the last Congress remain in Biden’s budget, as an indication of where the White House is likely to focus its political capital.
New Programs
Biden unveiled ambitious proposals to expand the social safety net, fight climate change and inflation in his previous budgets. This year’s version is likely to be more restrained, but the president might consider bipartisan priorities like opioid treatment, cancer research, and job training for veterans. Biden may also provide fresh details on his proposed overhaul of the nation’s immigration system, as border towns brace for the lifting of pandemic-era protections.
(Updates sections on Medical Savings and Taxes with latest details)
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