Biden Takes a Huge Swing at Reshaping U.S. Economy

Biden Takes a Huge Swing at Reshaping U.S. Economy

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Plus, the budget details you need to know
Friday, May 28, 2021
 

Biden’s First Budget by the Numbers

The White House on Friday released President Joe Biden’s budget request for 2022, detailing proposals to invest in areas such as infrastructure, education and health care.

The $6 trillion budget ties together Biden’s previously announced plans on infrastructure, the $2.3 trillion American Jobs Plan, and social programs, the $1.8 trillion American Families Plan, along with other proposed changes that fall under the government’s $1.5 trillion in annual discretionary spending. Combined, the budget amounts to an ambitious expansion of the federal government’s spending and taxation aimed at reshaping the U.S. economy to make it more equitable and competitive with countries like China.

“Put together, this budget is an agenda for robust, durable economic growth and broadly shared prosperity,” said Shalanda Young, Biden’s acting White House budget director. “It will deliver a strong economy now and for decades into the future.”

The blueprint will face stiff pushback from congressional Republicans who object to its increases in spending, taxes and debt, but the release will also allow Democrats to move ahead with the special budget process called reconciliation that could provide them a path to enact their agenda without GOP support.


Here’s an overview of the key numbers in Biden’s budget:

$6 trillion: Biden’s proposed level of federal spending for fiscal year 2022. That’s down from a projected $7.2 trillion this year and about $6.6 trillion in 2020 — but spending in those two years was elevated due to emergency pandemic-related legislation. Federal spending first topped $4 trillion in fiscal year 2018 and grew to just over $4.4 trillion the following year. Biden’s budget calls for sustaining spending at a much higher level for years, and it projects annual federal outlays growing to more than $8.2 trillion by 2031.

$5 trillion: The total amount of new spending and tax breaks Biden proposes over 10 years.

$1.8 trillion: The 2022 deficit under Biden’s budget (equal to about 7.8% of GDP), down from $3.7 trillion (or 16.7% of GDP) in 2021. Deficits under Biden’s budget would fall after next year but still top $1.3 trillion a year through 2031. As a share of GDP, the deficit would stay between 4.2% and 5.6% for the rest of the decade, averaging 5.2% from 2022 through 2031.

$1.4 trillion: The debt Biden’s proposals would add by 2031 (equal to about 0.5% of gross domestic product) relative to the White House’s baseline projections. The added debt would bring the cumulative total over the next 10 years to $14.5 trillion.

The $5 trillion in new initiatives Biden proposes is partially offset by $3.6 trillion in tax increases, though the administration says that the higher tax revenues will fully offset the added spending after 15 years. “Because new spending in the budget is heavily frontloaded, the proposal would reduce deficits beginning in 2030 and would fully offset new spending by 2038,” the Committee for a Responsible Federal Budget explains. The White House says that the budget proposals would reduce deficits by more than $2 trillion in the second decade.

117%: The projected level of debt as a share of the economy by the end of fiscal year 2031, up from 100% at the end of fiscal 2020 and a projected 110% at the end of this year.

$914 billion: Projected net interest costs in 2031 under Biden’s proposal, up from $303 billion this year. The budget projects that interest on public debt as a share of the economy will rise from an estimated 1.6% this year to 2.9% by 2031, as those interest payments climb from about 5% of total outlays to nearly 12%. But the budget says that inflation-adjusted interest “would remain at or below 0.5 percent of the economy throughout the next 10 years, well below the historical average.”

16.5%: Biden’s proposed increase in non-defense discretionary spending for 2022. The Department of Education would see a 41% bump, the Department of Commerce would get a 20% increase and the Department of Health and Human Services would get a 23% boost.

1.6%: Biden’s proposed increase in defense spending. Over the longer term, military spending under Biden’s plan would decline as a share of the economy. Republicans say that the president is shortchanging national defense by calling for $224 billion less in defense spending over the next decade than under current law, while progressives are pushing for steeper cuts.

1.9%: Average annual GDP growth projected in Biden’s budget from 2027 through 2031. “Some analysts suggested that the administration is essentially admitting that its proposed surge in federal spending — which administration officials hope to offset over time with higher taxes on the rich and corporations — won’t actually boost the economy much at all,” Politico’s Ben White reports.

The White House said that the economic forecasts were prepared in February, before the White House formally introduced the American Jobs Plan and the American Families Plan, and did not fully factor in those proposals.

Council of Economic Advisers Chair Cecilia Rouse also told reporters that seemingly small differences in GDP growth can add up to trillions of dollars in additional economic output over time. Other sources told Politico’s White that Biden’s plans could produce stronger growth, but current models can’t account for that. The White House reportedly was also looking to be conservative with its forecasts, in contrast to the Trump administrations’ track record of overly rosy projections.

What They’re Saying About Biden’s Budget

Some highlights from the debate over President Biden’s budget proposal:

This budget is meant to challenge 40 years of Reaganomics: “The budget is built around a fundamental understanding of how our economy works and why, for too long and for too many, it has not,” President Biden says in an introductory message to his budget request. “It is a budget that reflects the fact that trickle-down economics has never worked, and that the best way to grow our economy is not from the top down, but from the bottom up and the middle out.”

"Overall, the Budget represents a comprehensive strategy to build an economy that works for everyone, not only the wealthy and well-connected,” the budget document says. “These investments would pay dividends for decades to come and would help build a high-skilled workforce, spur faster growth, and create more jobs, higher wages, more security, less poverty, less racial inequity, and broader prosperity.”

At a time when interest rates are low: The budget says that low interest rates create an opportunity: "In the current economic environment, the Federal Government has the fiscal space to make critical investments to expand the productive capacity of the economy, while also keeping real interest cost burdens low by historical standards. In fact, failing to make investments now that support growth and shared prosperity would leave future generations worse off."

With the aim of transforming the economy: “With critical investments in job creation, clean energy, infrastructure, education, child care, public health, and more this budget will bring our country into the 21st century and ensure every family has the opportunity to succeed,” says House Budget Committee Chair John Yarmuth (D-KY). “For too long, self-inflicted austerity has been mistaken for fiscal responsibility, to the detriment of American families and our nation’s economy. The Biden budget ends this era of chronic underinvestment in America’s potential, and addresses deficits in our communities that have been exposed and exacerbated by the pandemic.”

Including a historic decrease in poverty: “Having followed Presidents’ budgets for >40 years, I think it’s fair to say that while I might modify some things in the new Biden budget, it would, if enacted, do more to reduce poverty and inequality than any other budget in modern US history,” says Robert Greenstein of the Brookings Institution, who founded the Center on Budget and Policy Priorities.

The White House says it’s fiscally responsible: “A budget that added to long-term deficits would worsen fiscal health, while a budget that reduced deficits today by underinvesting in the American people would result in slower, more stratified growth that would cause more damage than one that invests appropriately,” the White House says in a fact sheet accompanying the budget. “The president’s budget responsibly balances these needs and risks by charting an economically and fiscally sound course for the near term and the long term.”

But there are worries about more deficits and debt: “We are encouraged that the President continues to offer concrete proposals to pay for his legislative agenda over time, and we strongly support the administration’s insistence on offsetting new spending," the Committee for a Responsible Federal Budget says. Yet the President’s budget takes too long to pay for his initiatives and does little to address our high and rising debt, lower health care costs, or secure major trust funds headed toward insolvency.”

And questions of political will: “This proposal includes significant temporary spending within 10 years that’s paid for over 15 years with permanent revenues,” says Michael Peterson, CEO of the Peter G. Peterson Foundation, which advocates for deficit and debt reduction. “While this certainly projects out more favorably than pure deficit spending, in the end it will only be as fiscally responsible as our future fortitude to actually stop the spending and continue the revenues.” (The Fiscal Times is an editorially independent news service funded separately by Peterson.)

The budget doesn’t factor in lots of future spending and debt: “These staggering figures do not even represent the entire Biden agenda,” Brian Riedl, a senior fellow at the conservative Manhattan Institute think tank, writes in the New York Post:

“They account only for the recently-enacted ‘stimulus,’ a massive discretionary spending hike, and the trillions in (creatively-defined) ‘infrastructure’ spending proposed by the President over the past two months. However, during last fall’s campaign, Biden also proposed trillions in new spending for health care, Social Security, Supplemental Security Income, climate change, college aid, and other priorities. The White House has signaled that these new spending initiatives are still in the pipeline.

"Including these forthcoming proposals, the President would push spending and deficits far above any levels that have ever been sustained. The national debt — which was just under $17 trillion before the pandemic — would exceed $44 trillion a decade from now.”

Republicans will oppose tax increases: “I continue to disagree with the Administration’s bids to pay for budget-busting spending with job-killing tax hikes,” says Senate Finance Committee Ranking Member Mike Crapo (R-ID).  “This colossal $6 trillion proposal includes tax increases that will inevitably hurt all Americans and businesses, not just a slim minority of individuals. ... At a time when the U.S. should be maximizing economic growth and providing an environment for job creation to reach pre-pandemic levels, the Administration is putting forth proposals that will do the opposite.”

And a key Republican says Biden’s budget is DOA: “President Biden’s budget is dead on arrival – just like all other presidential budgets,” says Sen. Lindsey Graham (R-SC), the ranking member of the Senate Budget Committee. “It is insanely expensive. It dramatically increases nondefense spending and taxes. Over time it will result in a weakened Department of Defense. There will be serious discussions about government funding. But the Biden budget isn’t serious and it won’t be a part of those discussions.”

But Democrats are already preparing to pass the budget on their own: “I look forward to working with the Administration and my colleagues to write and to pass a reconciliation package that builds upon President Biden’s proposal as soon as possible,” says Sen. Bernie Sanders (I-VT), the chairman of the Senate Budget Committee. “As a first step in that process, the Budget Committee will soon be holding a hearing on the President’s budget.”

We salute our fallen on this Memorial Day weekend. We'll be off on Monday and back in your inbox on Tuesday. Email us at yrosenberg@thefiscaltimes.com.

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