Biden’s Big-Spending Budget: 6 Takeaways

By Yuval Rosenberg

Biden’s $6 Trillion Budget for 2022: 6 Takeaways

President Joe Biden is set to propose a $6 trillion budget for
the coming fiscal year that envisions maintaining federal spending
at its highest sustained levels since World War II and would result
in a decade of deficits topping $1.3 trillion a year, according to
reports.

The budget request, slated to be released on Friday, fleshes out
the full picture of Biden’s plans as the president pushes for
trillions of dollars in new spending and taxes that the
administration says are needed to reverse years of chronic
underinvestment and ensure that the United States can compete with
China and other nations. The budget blueprint also offers
longer-term projections of how the administration believes Biden’s
agenda would affect the economy.

Here, six takeaways from the details that have been reported so
far.

A surge in spending: The Biden budget calls for spending
to rise to $8.2 trillion by 2031, according to
The New York Times, driven by Biden’s $4.1
trillion in proposed spending packages for infrastructure and the
social safety net and by increases in annual discretionary
spending. The White House in April issued a discretionary spending
request that called for a nearly 16% increase in outlays for
non-defense programs, including large increases for health care and
education, and a 1.7% increase for defense.

For context, the federal government spent about $6.6 trillion in
fiscal year 2020, or $2.1 trillion more than in fiscal year 2019 as
a result of emergency pandemic response.

In all, Biden’s budget reportedly calls for $5 trillion in
new federal spending over the next decade, according to
CNBC.

“In each year of Mr. Biden’s budget, the government would spend
more as a share of the economy than all but two
years since World War II: 2020 and 2021, which were
marked by trillions of dollars in federal spending to help people
and businesses endure the pandemic-induced recession,” the Times’s
Jim Tankersley writes.

A decade of trillion-dollar deficits: Deficits were
already projected to be
historically large over the coming decade, and
Biden’s blueprint would expand them even further.

The deficit for 2022 would come in at $1.8 trillion, even as the
economy is projected to grow briskly — the administration projects
the fastest annual pace since the early 1980s, according to the
Times. And annual deficits under Biden’s budget would run higher
than $1.3 trillion throughout the decade. In all, Biden’s $5
trillion in proposed new spending is partially offset by $3.6
trillion in additional revenues over the same period, CNBC says,
leaving $1.4 trillion in expanded deficits over 10 years.

Total debt held by the public would climb to 117% of gross
domestic product by 2031, compared to 107% under the Congressional
Budget Office’s long-term
outlook published in March. And interest payments on the
national debt would reportedly double as a share of the economy
between 2022 and 2031.

At the same time, the administration’s projections show budget
deficits shrinking in the 2030s, in keeping with earlier White
House projections that the costs of the president’s infrastructure
and social spending plans would be fully offset over 15 years by
his proposed tax increases.

Treasury Secretary Janet Yellen defended the budget in testimony
Thursday before a House Appropriation subcommittee, calling it
“fiscally responsible” and arguing that it balanced much-needed
near-term spending with longer-term deficit reduction. “The
president’s proposal, you’ll see, will have a temporary period of
spending and permanent increases that beyond the budget window will
result in lower deficits and more tax revenue to support those
expenditures,” Yellen said, according to
Bloomberg News.

That argument isn’t likely to ease the concerns of deficit hawks
who have called for faster action to address ongoing structural
imbalances and stabilize the ratio of debt to GDP. Instead, we’re
likely headed for renewed political debate on deficits and debt,
with Democrats touting
the promised economic benefits of their proposed spending and
Republicans warning about the dangers of historically large
deficits and debt.

Trillions in tax hikes — and some controversial new ones,
maybe: Biden has proposed to at least partially reverse some of
the tax cuts for corporations and top earners included in the 2017
Republican tax overhaul. His budget projects that federal tax
revenues as a share of the economy will grow larger than at any
time since the Clinton administration. It also projects that the
president and Congress will allow the GOP law’s tax cuts for low-
and middle-income Americans to expire as scheduled at the end of
2025.

That could conflict with Biden’s repeated pledge not to raise
taxes on people making less than $400,000 a year, though Biden
could still seek to extend those tax cuts in future budgets.
Lawmakers in both parties will certainly be loath to allow tax
hikes on those lower earners.

“This is the latest example of President Biden abandoning his
lofty promise that he can fund trillions of dollars in new spending
simply by taxing the wealthy or corporations alone,” House Ways and
Means Committee Republicans said in a statement. “In fact,
President Biden’s budget relies on expiration of middle-class tax
cuts in order to achieve a historically high level of tax on
Americans."

Some more modest economic assumptions: Biden’s budget
includes conservative forecasts for economic growth — “a break from
the recent past,” Tankersley notes. The blueprint reportedly
projects a burst of about 5% growth in 2021 that cools to 4.3% next
year and then falls to just under 2% a year for much of the rest of
the decade, even if Biden’s full agenda is put in place.

The budget also predicts that unemployment will drop to 4.1% by
next year and stay below 4% over the rest of the decade. At the
same time, the forecast also shows inflation staying relatively
tame and interest rates rising slowly, contrary to concerns from
some economists that soaring federal spending could lead the
economy to overheat.

Some big campaign promises left out for now: Biden’s
budget does not include some major proposals that he campaigned on,
including a “public option” for government-run health coverage
under the Affordable Care Act, a plan to lower the Medicare
eligibility age and allow Medicare to negotiate drug prices, and
student debt forgiveness of up to $10,000. Those omissions could
cause Biden some headaches, as progressives have urged him to
tackle those items now.

(The White House budget reportedly does include language
pressing lawmakers to create a public option, allow people 60 years
old and up to enroll in Medicare and enact legislation cutting
federal prescription drug spending, but those goals are not
incorporated into the outlined spending.)

Budget battles loom: Democrats control both the House and
Senate, meaning that, as Tankersley writes, “Biden faces some of
the best odds of any president in recent history in getting much of
his agenda approved, particularly if he can reach agreement with
lawmakers on parts of his infrastructure agenda.” Even so,
lawmakers — including those in Biden’s party — aren’t likely to
embrace all of the president’s proposals. Instead, the president’s
budget request will jump start months of budget battles.

Biden’s proposal to spend $753 billion on defense is sure to be
a particular point of contention, as it has already faced sharp
pushback from Republicans who want a higher increase — and spurred
some divisions among Democrats, with progressives calling for
cuts.

Republicans are already criticizing Biden’s overall blueprint,
with Sen. Mike Braun (R-IN)
calling it “unbelievable” and “crazy.” Sen.
Cynthia Lummis (R-WY)
tweeted, “Biden’s budget has the highest debt/GDP ratio
in American history. Congress needs to wake up. We can’t continue
spending future generations into oblivion.”

Republicans Release $928 Billion Counteroffer on
Infrastructure

A group of Senate Republicans unveiled the outline of a $928
billion infrastructure proposal Thursday, a counteroffer to
President Joe Biden’s scaled-back $1.7 trillion plan.

As expected, the
one-page outline focuses on what lead Republican
negotiator Sen. Shelley Moore Capito of West Virginia called “core
physical infrastructure” and leaves out many of the more expansive
provisions included in the Biden plan, such as community-based
elder care and investments in green energy — elements that GOP
negotiator Sen. John Barrasso of Wyoming called “socialism
camouflaged as infrastructure.”

The basic infrastructure provision called out in the “Republican
Roadmap” include $91 billion for roads and bridges, $48 billion for
water infrastructure, $25 billion for airports, $65 billion for
broadband, $22 billion for freight and passenger rail and $6
billion for water storage in the West.

Also as expected, the topline number includes billions of
dollars in baseline funding, which has already been budgeted. The
total increase in spending above the baseline comes to about $257
billion over eight years, according to
The New York Times, leaving a roughly $1.4
trillion gap between the Democratic and Republican proposals with
respect to new spending.

As far as paying for the plan, the GOP senators made it clear
that they had no interest in reversing any of the 2017 tax cuts, as
Biden has proposed, and would rely instead on “a combination of
repurposed funding from previous COVID relief packages, user fees,
and infrastructure financing.”

White House is concerned: Press Secretary Jen Psaki said
the increase in the size of the GOP proposal was “encouraging” and
that the president welcomed new provisions related to roads,
bridges and rail. But overall, Psaki’s comments Thursday took on a
more critical tone.

“[W]e remain concerned that their plan still provides no
substantial new funds for critical job-creating needs, such as
fixing our veterans’ hospitals, building modern rail systems,
repairing our transit systems, removing dangerous lead pipes, and
powering America’s leadership in a job-creating clean energy
economy, among other things,” she said.

Though details were few, the way Republicans propose to pay for
their plan also drew criticism. “[W]e are concerned that the
proposal on how to pay for the plan remains unclear: we are worried
that major cuts in COVID relief funds could imperil pending aid to
small businesses, restaurants and rural hospitals using this money
to get back on their feet after the crush of the pandemic,” Psaki
said.

Critics outside the White House were more direct in expressing
their disapproval. Sen. Bob Casey (D-PA) referred to it as a
“non-starter,” while Sen. Sherrod Brown (D-OH) said it was “not
particularly genuine.”

Political scientist Norm Ornstein of the American Enterprise
Institute offered a more colorful assessment: “It is a sham, just
like the ‘counteroffer’ on the rescue plan. Kabuki theater,
designed to get journalists to portray them as serious
negotiators,” he
tweeted.

Defending their proposal, Republicans argued that it falls
within the parameters set by the White House. “We believe this
counteroffer delivers on what President Biden told us in the Oval
Office that day and that is to try to reach somewhere near $1
trillion over an eight-year period that would include our baseline
spending,” Capito said. “We have achieved that goal with this
counteroffer.”

And Sen. Roy Blunt (R-MO) spoke in favor of reusing funds that
were intended to bolster the response to the pandemic. “There's a
lot of Covid-specific money,” he said. “Better to use that money
for something that we all want to do than have it sit around there
for somebody else's pet project at some time in the future.”

What comes next: Biden said he plans
to meet with Capito next week to discuss the proposal but warned
that time is running short. “We’re going to have to close this down
soon,” Biden told reporters as he headed to Ohio to give a talk on
the state of the economy.

Numbers of the Day

406,000: New jobless claims fell to a pandemic-era low
last week, with 406,000 people filing for unemployment benefits at
the state level. Another 94,000 applied for benefits through the
temporary Pandemic Unemployment Assistance program, which aids
workers who are usually unable to participate in the unemployment
system, bringing the weekly total to 500,000.

“Total initial claims are now well under half where they were
the first week of March, less than three months ago. This is a
remarkable improvement,” said
Heidi Shierholz of the Economic Policy Institute. “However, total
initial claims are still 2.6 times what they were before COVID,”
she added.

$391 billion: The U.S Treasury says it has made 167
million direct payments since the American Rescue Plan Act became
law in March. With the latest batch of Covid relief payments worth
as much as $1,400 per person, the total level of support provided
to individuals comes to $391 billion, CNBC
reports.

Congress allocated $410 billion for the program. Most of
the recent activity involves “plus-up” payments that are sent after
some people file their taxes. Nearly 7 million of those payments
have been made so far.

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