Biden Proposes a $7.3 Trillion Budget for 2025

Biden Proposes a $7.3 Trillion Budget for 2025

President Biden on Monday proposed a $7.3 trillion budget for fiscal year 2025 that seeks to lower the costs of prescription drugs, child care and housing while also cutting the deficit by $3 trillion over the next decade through higher taxes on the wealthy and large corporations.

Here’s what you should know about Biden’s budget request:

Why it matters: "The proposal includes only relatively small changes from the budget plan Mr. Biden submitted last year," writes Jim Tankersley of The New York Times. Just like that plan, this request has no chance of being enacted as is — but it represents Biden’s policy pitch for the upcoming election and the second term he hopes to win in November. It’s also a chance for the president to lay out some contrasts with his presumptive opponent, former president Donald Trump. "This budget aims to portray him as a champion of increased government aid for workers, parents, manufacturers, retirees and students, as well as the fight against climate change," Tankersley says.

The big picture takeaway is that over 10 years, his plan would increase spending and tax breaks by some $3 trillion, though the costs would be more than fully offset by about $6 trillion of new revenue and spending cuts, according to the Committee for a Responsible Federal Budget. "By 2031, Biden’s tax increases would push federal revenue as a share of the economy to 20%, a level reached only once since World War II," The Wall Street Journal notes.

Biden proposes some new social spending: Most of the spending in the plan covers mandatory programs such as Social Security and Medicare, Biden would boost base discretionary spending by less than 1% compared with 2023. Overall, the budget projects that discretionary spending over the coming decade will total $19.7 trillion, compared to a baseline projection of nearly $20.2 trillion.

But as part of an emphasis on lowering costs, Biden seeks to offer universal pre-kindergarten for four-year-olds and create a new program to guarantee affordable child care for preschoolers from families making up to $200,000 a year, with most eligible families paying no more than $10 a day.

The budget also proposes a national program providing 12 weeks of paid family and medical leave, tax cuts and credits for middle- and low-income families that the White House says total $765 billion over 10 years and a new "mortgage relief credit" of up to $10,000 over two years for first-time homebuyers.

Mandatory spending continues to rise, as does near-term defense spending: Spending on programs including Social Security, Medicare and Medicaid is projected to climb from just under $4.2 trillion for fiscal year 2024 to nearly $4.4 trillion next year and more than $6.7 trillion by 2034. Net interest costs on the government’s debt are seen rising from $889 billion to roughly $1.5 trillion.

The Biden plan would also provide $895 billion for base defense spending in fiscal year 2025, up from a likely $886 billion this year, but military spending would fall below the baseline projections from 2030 through 2034, such that defense spending over the whole decade would shrink by $146 billion to $9.57 trillion.

Higher taxes on the wealthy and big businesses: The proposed new spending would be more than offset by a net increase in tax revenues of $4.9 trillion — or, as The Wall Street Journal puts it, more than 7% above what the Treasury would otherwise collect.

Biden is pitching higher taxes on top earners and big businesses while continuing to promise to not raise taxes on people making less than $400,00 a year. He would hike the new minimum tax on large, profitable corporations from 15% to 21% and double taxes on the foreign income of U.S. multinationals, also taking it to 21%. Biden is also calling for billionaires to face a minimum tax of 25% and for the elimination of corporate tax deductions for any employee salary over $1 million.

"A fair tax code is how we invest in things that make this country great: healthcare, education, defense and so much more," Biden said in his State of the Union address last week, drawing a contrast between his plan and the $2 trillion tax cut enacted under the Trump administration in 2017, which disproportionately benefited top earners.

Seeks to restore $20 billion in IRS funding: Congressional Republicans succeeded last year in getting Biden to agree to repurpose $20 billion of a promised $80 billion over 10 years in additional funding for the Internal Revenue Service. Biden’s new budget would restore the full funding — and, the White House says, it would "provide new funding over the long-term to continue cutting the deficit by making sure that wealthy Americans and big corporations pay the taxes they owe through tax compliance initiatives and to continue improving service for taxpayers who are just trying to pay what they owe."

Cuts deficits by $3.3 trillion over 10 years: The plan projects that deficits will shrink but remain historically high, dropping from $1.9 trillion (or 6.6% of GDP) for fiscal 2024 to less than $1.8 trillion (6.1% of GDP) next year and $1.5 trillion (4.3% of GDP) by 2029 before rising again.

Over the 10-year budget window, spending would total $86.6 trillion (24.4% of GDP) while revenue would total $70.3 trillion (19.7% of GDP), meaning that deficits would total $16.3 trillion (4.6% of GDP) over the coming decade. That’s $3.2 trillion (0.9% of GDP) less than the White House’s baseline projection of $19.5 trillion. Federal debt held by the public would still climb from 97% of GDP at the end of 2023 to 106% by the end of 2034, though it would be 10 percentage points lower than the Congressional Budget Office’s projection for 2034.

Deficit hawks called Biden’s plan a step in the right direction but urged him to go further. "The President’s call for over $3 trillion of deficit reduction is a welcome start, and he deserves credit for presenting a budget that pays for new initiatives and improves our fiscal situation; but the budget doesn’t go nearly far enough," said Maya MacGuineas of the Committee for a Responsible Federal Budget. She added: "Agreeing that new policies should not add one penny to the debt is a critical first start in addressing our debt situation. Given our dismal fiscal situation, though, we really shouldn’t be passing big new spending programs and tax cuts until we have a plan to fix the debt and responsibly address any policy extensions."

Relies on some asterisks: The Biden budget "lists principles for shoring up Social Security, without specifying a plan," The Wall Street Journal says. "It calls for paying for extensions of tax cuts for most households after 2025 but doesn’t detail how that would be paid for. And it calls for restoring the expanded child tax credit, but only temporarily, lumping that into the broader 2025 tax debate."

Political fights aplenty: As campaign season heats up, the budget plans will provide fodder for attacks and counterattacks. House Republicans quickly blasted the Biden plan Monday, for starters. "The price tag of President Biden’s proposed budget is yet another glaring reminder of this Administration’s insatiable appetite for reckless spending and the Democrats’ disregard for fiscal responsibility," House Republican leaders said in a statement. "The House’s budget plan for the next fiscal year, preceding the President’s proposal, reflects the values of hardworking Americans who know that in tough economic times, fiscal discipline is non-negotiable."

But that House Republican plan would cut Medicare and Medicaid expenditures by a reported $8.7 trillion as a part of an effort to slash deficits by a painful $14 trillion over 10 years. This is one area where Biden will be on the attack. See, for example, his quick response to comments Trump made today suggesting "there’s a lot you can do in terms of cutting" entitlements.

Beyond the election, the looming expiration of some 2017 tax cuts at the end of 2025 also sets up a fight over numerous programs.

The bottom line: Congress is still working on funding the government for the current fiscal year, but the budget battles for 2025 and beyond have begun. We’ll have much more on the budget in the coming days.

Drugmakers Push Back Against Price Negotiations

In his State of the Union speech, President Biden proposed to expand Medicare’s new drug price negotiations to include 50 drugs a year over the next decade. But major pharmaceutical firms are already fighting the federal program that empowers the government to negotiate lower prices for drugs that are widely prescribed in the Medicare system. The Washington Post’s Tony Romm reports Monday that the companies are engaged in a "vigorous legal battle" to undo the new program, which was authorized by the Inflation Reduction Act signed into law by Biden in 2022.

Last week, lawyers for four of the companies affected by the new rule — Bristol Myers Squibb, Janssen, Novartis and Novo Nordisk — filed another lawsuit in federal court, claiming that the price negotiation program is unconstitutional, among other objections. The companies say that negotiating lower prices constitutes an illegal taking of their product and would force them to admit that the new prices are fairer than the pre-negotiated prices. They also say that lower prices would harm their ability to compete, to develop new drugs and to provide sufficient supply to the market.

The industry has been making these sorts of aggressive arguments even since policymakers first floated the idea of limiting prices, Romm notes. AstraZeneca, which makes the diabetes drug Farxiga, one of the first 10 drugs subject to price negotiation, said in court that the new rules are like a "gun to the head" that forces a choice between accepting lower profits on its sales through Medicare and withdrawing from the healthcare programs entirely. But a federal judge in Delaware recently rejected that argument, saying the negotiations provide an "economic opportunity that AstraZeneca is free to accept or reject," and that the government is not required to pay whatever price a given drugmaker wants. AstraZeneca said it may appeal the ruling.

One unfavorable ruling is unlikely to slow the drugmakers’ efforts. Romm reports that the pharmaceutical industry, along with the manufacturers of health products such as nutritional supplements, has spent more than $761 million to lobby Congress since 2022. And PhRMA, the industry’s lobbying group, has donated more than $77 million to candidates for federal office over the same period, and has run advertisements specifically targeting lawmakers who supported the Inflation Reduction Act.

For now, the drug industry is pursuing its battle against negotiations on two fronts. It wants to tie up the program in the courts, in the hope of halting the program as judges sort out the details, with a possible appeal to a Supreme Court dominated by conservatives looming down the road. The industry is also backing Republican efforts to weaken or eliminate the program altogether at the political level. Looking ahead to the fall election, Romm says that a "GOP takeover of Congress and the White House could result in the termination of Biden’s negotiation program."

Quote of the Day

"I got it wrong because, ordinarily, when you raise interest rates it curtails private-sector demand and asset prices and slows things down, but that didn’t happen. …. There was a historic transfer of wealth: The balance sheets of the private sector improved a lot and the balance sheet of the government deteriorated a lot."

− Ray Dalio, founder of hedge fund firm Bridgewater Associates, in a Wall Street Journal piece looking at why some high-profile predictions of economic disaster over the past couple of years turned out to be so wrong.

Chart of the Day

The tax system plays a powerful role in the level of child poverty in the U.S. As The Washington Post’s Jacob Bogage notes, child poverty rates typically plunge in March and April, when many households receive tax refunds. That dynamic informs the effort to increase the Child Tax Credit, as proposed in both President Biden’s 2025 budget and the bipartisan $78 billion tax bill that has stalled in the Senate. Whatever the outcome this year, you can expect the Child Tax Credit to be part of the mix going forward as lawmakers battle over what to do with the individual tax cuts from the 2017 tax law that expire in 2025.

Fiscal News Roundup

• Biden Calls for Broad New Social Programs, Higher Taxes on Corporations and the Wealthy – Washington Post
• Biden’s Annual Budget Hits Populist Economic Themes as General Election Campaign Kicks Off – CNN
• Biden’s Budget Proposal for a Second Term Offers Tax Breaks for Families and Lower Health Care Costs – Associated Press
• Biden’s Budget Expects Cooling Economy, Stubborn Inflation – Bloomberg
• Capital Gains Hikes at Center of Biden’s Second-Term Tax Agenda – Bloomberg
• Trump Floats 'Cutting' Retirement Spending, Drawing Quick Pushback From Biden – NBC News
• Conservatives Are Furious, but They're Not Threatening Speaker Johnson's Job – NBC News
• Sen. Katie Britt Attempts to Clean up Her Misleading State of the Union Response – NBC News
• HUD Secretary Marcia Fudge to Leave Biden Administration Later This Month – CNN
• Retiring in America Increasingly Means Working Into Old Age, New Book Finds – CBS News

Views and Analysis

• Biden’s Budget Underscores Divide With Republicans and Trump – Jim Tankersley, New York Times
• Biden’s $7.3 Trillion Budget Sets Up Tax Fight With Trump – Justin Sink and Erik Wasson, Bloomberg
• Biden's Budget Shows the Limits of Taxing Rich Americans – Neil Irwin, Axios
• The Child Tax Credit Debate Is a Preview of Next Year’s Big Tax Fights – Jacob Bogage, Washington Post
• Biden’s Housing Tax Breaks Are a Start, Not a Silver Bullet – Jonathan Levin, Bloomberg
• And the Award for Best Performance at the State of the Union Goes to … – Gail Collins and Bret Stephens, New York Times
• How Your In-Network Health Coverage Can Vanish Before You Know It – Elisabeth Rosenthal, Washington Post
• If Congress Doesn’t Act Now Many Americans Might Lose Broadband Access – Washington Post Editorial Board