Biden’s budget plan calls for higher taxes on rich, lower deficits

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President Joe Biden released a budget blueprint Monday that calls for higher taxes on the wealthy, lower federal deficits, more money for police and greater funding for education, public health and housing.

In essence, it tries to tell voters what a diverse and at times fractured Democratic Party stands for ahead of the midterm elections that could decide whether Congress remains under the party’s control.

The bottom line: Biden is proposing a total of $5.8 trillion in federal spending in fiscal 2023, which begins in October, slightly less than what was projected to be spent this year before the supplemental spending bill was signed into law this month. The deficit would be $1.15 trillion.

There would be $795 billion for defense, $915 billion for domestic programs, and the remaining balance would go to mandatory spending such as Social Security, Medicare, Medicaid and net interest on the national debt.

The higher taxes outlined on Monday would raise $361 billion in revenue over 10 years and apply to the top 0.01% of households. The proposal lists another $1.4 trillion in revenue raised over the next decade through other tax increases that are meant to preserve Biden’s pledge to not hike taxes on people earning less than $400,000.

The 156-page plan also shows the splinters that persist in Biden’s coalition and the possible gaps between the promises of what is being offered and the realities of what ultimately emerges. Biden has backed many of these ideas previously without necessarily getting a full buy-in from Congress.

The proposal includes a minimum 20% tax on the incomes of households worth $100 million or more, similar to a proposal Democrats in Congress began debating late last year that failed to clear the Senate.

More money would go to support law enforcement, yet bipartisan efforts at police reform have failed. The budget assumes—with a high degree of uncertainty based on forecasts made last November—that inflation at a 40-year peak gets back to normal next year.

“Budgets are statements of values,” Biden said in a statement, “and the budget I am releasing today sends a clear message that we value fiscal responsibility, safety and security at home and around the world, and the investments needed to continue our equitable growth and build a better America.”

It’s a midterm elections pitch to a nation still off balance from a chaotic few years caused by the pandemic, an economic recession, a recovery, challenges to U.S. democracy, and war in Ukraine. The Biden budget foresees cutting annual deficits by more than $1 trillion over the next decade. Those reductions would occur in large part through higher taxes and the expiration of relief spending tied to the coronavirus outbreak that began in 2020.

While the budget would elevate funding for education, public health and provide $48 billion to increase the supply of affordable housing, it fails to spell out what the broader successor to Biden’s stalled “Build Back Better” agenda would be. That proposal from last year included money for child care, preschool, clean energy and lower health care premiums, but it was blocked by Sen. Joe Manchin of West Virginia, the decisive Democratic vote.

White House Budget Director Shalanda Young told reporters the blueprint does not include line items tied to that possible bill because “discussions with Congress are ongoing.” But the budget plan includes a “ deficit neutral reserve fund” to account for a possible agreement being reached.

The Biden administration looked at a tax increase last year that resembles the 20% minimum on the full income of people worth $100 million or more. But Manchin nixed that idea as divisive. What the Biden administration outlined on Monday would raise $361 billion over 10 years and apply to the top 0.01% of households. The proposal lists another $1.4 trillion in revenue raised over the next decade through other tax changes.

Among the tax changes is a 28% corporate tax rate and top individual rate of 39.6%, both increases.

Undergirding the plan is a forecast that the economy will return to normal next year after the unprecedented spending tied to the pandemic and inflation. The budget forecasts 4.7% inflation this year and 2.3% in 2023, which would be down from 7% in 2021. Yet prices kept climbing in the first two months of 2022, and Russia’s invasion of Ukraine pushed oil, gasoline and natural gas prices higher in ways that could spread across the economy.

Cecilia Rouse, chair of the White House Council of Economic Advisers, said the administration expects “the economy to normalize” as the country works through waves of the pandemic, supply chain pressures ease and the “extraordinary measures” of support tied to the coronavirus roll off the budget. That normalization would imply inflation falling back to its more typical levels, “but there’s tremendous uncertainty,” Rouse said.

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8 thoughts on “Biden’s budget plan calls for higher taxes on rich, lower deficits

  1. When $4 Trillion in federal spending is just automatic instead of subject to the annual authorization by Congress and signed by the president, there is absolutely no hope of getting deficits or the national debt under control.

    1. No, the issue then is that we don’t collect 4 trillion in taxes. If the past 45 years have taught us anything, it’s that trickle down economics doesn’t work.

      One party spends more than they take in. One party doesn’t collect enough for what they spend. The result is the same. The solution is going to be to tax more AND spend less. We can spend less on old people, poor people, or the military. That’s the bulk of the budget.

  2. Joe, you’re right. Here’s something I was writing to 21R while you posted.

    21R, I suspect you have a good point. What do you think are workable, politically feasible solutions? Your $4T figure relates to the so-called mandatory spending for Social Security, Medicare, Medicaid, and net interest on the national debt. This country has a long history of waiting until a crisis arrives when earlier, more modest changes could have softened the blow.

    SS is the proverbial 3rd rail of politics that has barely been tweaked for 20+ years except for *very* slowly raising the age for Normal Retirement Age to 67. People live much longer than they used to 50 years ago, so increasing it by just 2 years over the last 10 years didn’t budge the needle much.

    We all know the demographics aren’t in our favor. In the medium term of the next 20-30 years, the Baby Boomers are retiring and the ratio of workers paying in vs those drawing retirement is unavoidably decreasing. They has been a long-standing increase in the cap on the amount of wage income subject to the SS tax. There has been discussion that they could remove that cap like they did with Medicare. Not too many people talking up that proposal.

    Reducing SS benefits is a non-starter except via means-testing, which we already implemented via the back-door taxation of a good portion of SS benefits if one’s income is “too high”.

    To me, it’s clear they need to continue to do all of these: (1) gradually raise the retirement age; (2) lift the SS cap more aggressively or eliminate the cap completely; and (3) do a full-blown means-test – but – soften the current regime of taxing 50%-85% of your benefits for single people with income of as little as $25,000 (and half of SS counts towards that limit, which is absurd) or married couples with income of $32,000. Maybe something like $40,000 for singles and $50,000 for couples. And I’d go one step further on the means-test and say if you have income of over, say, $100,000-$200,000 in retirement, you’d get a big fat -0-; not just have 85% of it be taxable, but no benefits at all. Yep, that means everything you paid in is gone. And so it goes with most taxes – you don’t get a “fair shake” if you are very successful financially. Get used to it. It’s not right to cut the benefits to a retired person who has $30,000-$40,000 or income.

    Again, had we started phasing in these changes more gradually 20-30 years ago when we knew what was coming would have softened the blow dramatically. But what politician is going to act until the house is burning down?

    Medicare and Medicaid are a big fat mess and are only going to deteriorate faster as the BB age out. Allow MC to negotiate Rx pricing as does the VA.

    Interest on the national debt is non-negotiable. And that is only going to get worse as rates creep up. The Fed can’t keep rates at near zero forever.

    Finally, the above discussion leaves out the $795B for defense, which we know might have some chance of getting trimmed but isn’t ever going to get slashed. And there’s isn’t much appetite for slashing the $915B of discretionary domestic spending, but, alas, it depends on “Whose dog is getting kicked?” One person’s favorite got-to-have-it program is another person’s gross waste.

    1. What income is ” too high”? Who gets to decide what’s too high?

      If a person worked 40-50 years and had a percentage pulled out each pay check ( is it 6% now, and isn’t it over 10% if you’re self-employed?) , doesn’t that person deserve to have what was guaranteed in return ? Regardless of the income earned?

      Already, “full retirement ” is set at age 67. Raise it to a higher age? Male life expectancy in the US is 77 now.

      Are you saying if the retiree has this retirement income with an IRA or a 401(k) that is ” healthy” today – and I assume that is where you imply the $100k retirement income comes from- what happens if the economy tanks and those funds depreciate? What about inflation? What’s wrong with having that amount available, that amount that was saved in some form, to a retiree along with the SS ?

      But to tell a hard working middle class person, especially one that took time to get a degree or learn a trade- and yes, this will involve middle class- not just your top percent earners- that a good portion of their paycheck gets sucked up into the ether , does not accomplish anything.

  3. The federal government estimates it will receive $4.174 trillion in revenue in FY 2022. Most of this revenue is in the form of taxes paid by taxpayers either through income or payroll taxes. The estimate for each type of revenue is as follows:

    1. Income taxes contribute $2.039 trillion or nearly 49% of total receipts.
    2. Social Security, Medicare, and other payroll taxes add $1.462 trillion or 35%.
    3. Corporate taxes supply $371 billion or nearly 9%.
    4. Excise taxes, customs and tariffs contribute $141 billion or a little over 3%.
    5. Earnings from the Federal Reserve’s holdings add $102 billion or a little more than 2%. Those are interest payments on the U.S. Treasury debt the Fed acquired through quantitative easing.
    6. Estate taxes and other miscellaneous revenue supply the remaining 1.5%.

    The government expects to spend $6.011 trillion in 2022. More than $4 trillion of that pays for mandated benefits such as Social Security, Medicare, and Medicaid. Discretionary spending pays for everything else, some $1.688 trillion.

    Interest on the U.S. debt is estimated to be $305 billion. Interest on the approximate $30 trillion federal debt is the fastest-growing federal expense. The CBO expects net federal interest costs to double by 2031 and triple by 2051.

    Finally, the U.S. debt limit hovered at about $28.4 trillion through December 2021, until Congress passed legislation to raise it by an additional $2.5 trillion. As of February 17, 2022, it stood at a little more than $30 trillion.

    1. Good info, Brent – seems right to me without bothering to check. What are your thoughts on a sustainable path forward? There are some who don’t view a somewhat large national debt or deficit as being particularly problematic for several reasons. One obvious one is that many people and most companies take on large debt to purchase long-lived assets, like homes, factories, an education, etc. So in some ways it’s okay to run a deficit to buy things that last, like infrastructure. Most of the spending does not fit that category, unless you view national defense as a long-term good, social stability brought on by keeping as many people out of abject poverty as possible as another long-term good, etc. I tend to think we are an unsustainable path especially since our debt-service burden is heading toward an uncontrollable spiral when rates go up. Targeted tax hikes seem like the most appealing, since most of the spending is difficult to curtail as mentioned in my earlier post. And, yes, tax hikes can dampen productivity, investment, economic growth, etc. and so can be counter-productive if executed poorly. But tax cuts haven’t done the trick for the 98%.

    2. Randy, there are simply no easy or quick fixes that would result in narrowing the gap between revenues and expenditures. The proposal to impose a surtax on the top .01 earners is projected to bring in just $36 billion a year – a drop in the bucket when looking at the annual deficits, let alone the national debt.

      As has been correctly pointed out, two-thirds of the budget goes to entitlements which in and of themselves are not self-sustaining. Politically, it is impossible to think Congress and the president would approve any reform that either reduces benefits (or reduces the number and types of people entitled to them), increases taxes on those beneficiaries to help defray more of the costs, or a combination of the two.

      There is also too little meat on the bones of the remaining to one-third of the budget that can be carved from spending bills to have any significant impact either.

      What we need is a paradigm shift in what we expect from the federal government that more is more properly aligned with what the Found Fathers enshrined as the legitimate functions of the central government, leaving to the states all other matters.

      For instance, since 1979 when the US Dept. of Education was established by President Carter as a “thank you” to the teachers’ unions for helping to elect him, the federal government has spent more than $1 trillion on public education, despite the fact the nowhere does the Constitution grant or even mention a role for the federal government in education. Indeed, the 10th Amendment is very clear that “the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

      Even if you wanted to argue that, well, education is a worthy area of interest where the power of the federal government can exert a positive influence, the evidence suggests our 42-year experiment with that notion is not supported by the facts. Can anyone claim with a straight face that today’s students are better equipped to be productive members of society that were their parents or grandparents? I think not.

      The role and growth of the federal government over the years (enabled by both political parties) has contributed to a disconnect between the “rights of the people” and the “responsibilities of the people” to the point where roughly half of all working American’s pay no federal income taxes. They have no skin in the game, yet they expect and even demand more from the government they do not send tax dollars to. At the other end of the spectrum, the uber-wealthy escape paying federal income taxes by parking their fortunes in bank accounts (either domestically or off-shore), take out loans to live on, and deduct the interest on their loans from their federal tax returns even as they seek ever more tax code favors from politicians who they support with now unlimited dollars thanks to the Supreme Court’s United Citizens decision.

      The Congress (where I once worked many years ago) has turned into a club of elites who frankly care more about their own fortunes than about ours’. Gerrymandering means few, if any, members face serious challenges on election day. They use both our tax dollars and deficit dollars to bribe us with federal programs that do benefit the whole of the country but favor special interest groups and narrow slices of the public.

      Many though electing Donald Trump in 2016 would change all that. It did not. If anything, it got worse in more ways that we could ever have imagined. Our country has never been more polarized.

      In a rational world, we would outlaw gerrymandering, impose term limits, and enact Constitutional amendments repealing Citizen’s United and requiring balanced federal budgets. Some might think these actions too drastic. I fear they may be too late.

    3. Brent – we’re about 90% in agreement. I won’t quibble on the other 10%. What would have the most impact is best stated in your last paragraph: (1) Term limits so there would be some hope that at least a healthy minority, if not a majority, would turn their attention to doing what is right instead of a constant chase after donors to get re-elected (but, alas, it takes these very same people to make that change and they have no incentive to do so); (2) Gerrymandering is plainly corrupt and yet very few states have switched to non-partisan drawing of district maps – here, there is at least some hope?; and (3) overturning Citizen’s United is an okay idea, I suppose, but an almost as effective approach would be to disallow all dark money.