PHILADELPHIA — As political gridlock puts the government at risk of defaulting, President Joe Biden on Thursday made an opening bid with a budget plan that would cut deficits by $2.9 trillion over the next decade — a proposal that Republicans already intend to reject.
It’s part of a broader attempt by the president to call out House Republicans who are demanding severe cuts to spending in return for lifting the government’s legal borrowing limit. But the GOP has no counteroffer so far, other than a flat “no” to a Biden blueprint with tax increases on the wealthy that could form the policy backbone of Biden’s yet-to-be-declared campaign for reelection in 2024.
Striding around a stage at a union training center in Philadelphia, Biden seemed to be in full campaign mode as he spoke about his plan for the government’s finances and how his values contrasted with Republican priorities.
“I just laid out the bulk of my budget,” Biden said. “Republicans in Congress should do the same thing. Then we can sit down and see where we disagree.”
Yet the president doubted GOP lawmakers could make their numbers match their calls for a balanced budget and he suggested that any efforts to do so could come at the expense of middle-class families.
“How are they going to make the math work?” Biden said. “What are they going to cut?”
Biden’s package of tax and spending priorities is unlikely to pass the GOP-run House or the Senate, where Democrats hold a slim edge, as proposed.
House Speaker Kevin McCarthy, R-Calif., said the president’s proposed deficit reduction was inadequate. “It just seems like it’s going to create the biggest government in history. I don’t think that’s what we need at this time,” he said.
In addition to deficit reduction, Biden’s 10-year budget largely revolves around the idea of taxing the wealthy to help fund programs for the middle class, older adults and families. It would raise $4.7 trillion from higher taxes, with an additional $800 billion in savings from changes to programs.
The tax increases include a reversal of the 2017 tax cuts made by then-President Donald Trump on people earning more than $400,000 a year.
Biden has floated a new 25% minimum tax on households worth $100 million or more. Also, the tax companies pay on stock buybacks would rise fourfold and those earning more than $400,000 would pay an additional Medicare tax that would help to keep the program solvent beyond the year 2050. Medicare could negotiate on the prices of more prescription drugs, helping to save the government money.
Accompanying that would be $2.6 trillion worth of new spending, including the restoration of the expanded child tax credit that would give families as much as $3,600 per child, compared with the current level of $2,000. That credit would be “fully refundable,” which means households could receive all of that sum even if they don’t owe any taxes. The budget proposal would impose a $35-a-month cap on insulin prices, matching a change that Biden already put in place for Medicare recipients.
At a time of increased tensions with Russia and China, the budget shows a decline in military spending as a share of the U.S. economy over the next decade. But federal spending would be equal to roughly one-quarter of economic output as the spending on Social Security and Medicare climbs, essentially keeping the government the same size as it is currently.
The budget would seek to close the “carried interest” loophole that allows wealthy hedge fund managers and others to pay their taxes at a lower rate, and prevent billionaires from being able to set aside large amounts of their holdings in tax-favored retirement accounts. The plan also projects saving $24 billion over 10 years by removing a tax subsidy for cryptocurrency transactions.
McCarthy has called for putting the U.S. government on a path toward a balanced budget. But by refusing to raise taxes or cut Social Security and Medicare spending, GOP lawmakers face some harsh math that makes it hard to reduce deficits without risking a voter backlash before a presidential election. He has said his plan’s release was pushed back because Biden’s proposal was only now coming out.
Senate Majority Leader Chuck Schumer, D-N.Y., expressed skepticism McCarthy has any coherent plan that House Republicans can coalesce around. “Enough with the dodging, enough with the excuses,” Schumer said. “Show us your plan. And then show us how it’s going to get 218 votes on your side of the aisle.”
Biden’s deficit reduction goal is significantly higher than the $2 trillion that he had promised in his State of the Union address last month.
With the economy already in a fragile state because of high inflation, if Biden and Congress cannot agree to raise the statutory debt cap of $31.4 trillion by this summer, the government could default on payments and perhaps shove the country into a recession.
The budget also shows the shadow of Trump’s legacy, as provisions in his 2017 tax cuts will expire after 2025. Biden wants to eliminate elements of that overhaul, arguing that lower taxes failed to produce the growth Trump promised. But Biden’s budget does not address tax cuts that benefited households making less than $400,000: Their expiration could amount to a tax increase that would violate a pledge by Biden to only raise taxes on the wealthy.
Based off the data, the cost of extending the tax breaks for people making less than $400,000 would be $1.5 trillion, according to Kyle Pomerleau, a senior fellow at the center-right American Enterprise Institute. That would halve the deficit savings being promoted by Biden, but Pomerleau cautioned his estimates might be high because the president’s plan includes the cost of the expanded child tax credit.
Biden’s proposal would increase the top marginal tax rate to 39.6% on income above $400,000. For households with $1 million in income, earnings from capital gains, such as stocks or property sales, would no longer enjoy a discounted tax rate compared with wages. The president would increase the corporate tax rate to 28% and increase the tax rate on U.S. multinationals’ foreign earnings from 10.5% to 21%.
In February, the nonpartisan Congressional Budget Office estimated the national debt held by the public will grow by more than $20 trillion over the next decade. The publicly held debt, which reflects the cumulative impact of yearly deficits, would be equal to 118% of U.S. gross domestic product, compared with 98% this year. Biden’s budget would reduce the debt, though it would still be high relative to historical levels.
