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

By Yuval Rosenberg

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.”

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