Biden to Propose Nearly $3 Trillion in Deficit Cuts

Biden to Propose Nearly $3 Trillion in Deficit Cuts

The president will release his budget on Thursday
By Yuval Rosenberg and Michael Rainey
Wednesday, March 8, 2023

Happy Wednesday! Things are heating up all over. The National Park Service says that a Yellowstone National Park wildlife biologist spotted the first grizzly bear of the year to emerge from hibernation yesterday. And President Biden is set to release his budget request for fiscal year 2024 tomorrow. We’ve got some early details (on the budget, not the bear — for more on the bear see here).

Biden Budget Proposes to Cuts Deficits by Nearly $3 Trillion

President Joe Biden’s budget plan due to be released on Thursday reportedly proposes to cut deficits by nearly $3 trillion over the next 10 years — more than the $2 trillion the president promised in his State of the Union address last month.

Biden is scheduled to talk about his budget at an event in Philadelphia tomorrow, but the White House told reporters Wednesday that the plan would propose to cut deficits by more than previously expected — and by much more than previous Biden budget requests, which aimed to cut deficits by more than $1 trillion over a decade.

Biden’s budget request comes as he prepares to square off with Republicans over debt and spending levels. Congress will need to raise the federal borrowing limit this year, and House Republicans have sought to force Biden to accept spending cuts in exchange for doing so. In the buildup to a likely showdown later this year, Biden has sought to claim the mantle of fiscal responsibility and contrast his economic agenda with that of Republicans, whom he has called on to lay out their own budget proposal and spending cuts.

In the absence of a GOP plan, the White House has claimed that various Republican proposals would increase the debt by more than $3 trillion. Biden’s new budget thus paves the way for the president and the White House to portray the two budget plans as diametrically opposed. The president’s budget, which we will release tomorrow, will cut the deficit by nearly $3 trillion over the next 10 years,” White House press secretary Karine Jean-Pierre told reporters Wednesday. “That’s nearly a $6 trillion difference between the president’s budget and congressional Republican's agenda, which would add $3 trillion to the debt.”

A big boost for federal workers? Biden is also set to propose a 5.2% raise for federal employees, according to The Washington Post. That would reportedly be the largest increase since a 9.1% hike in 1980, but the Post’s Lisa Rein notes that Biden’s proposal “would still fall short of the 8.7 percent raise called for in legislation introduced in the House and Senate and backed by several Democrats and federal employee unions.”

Why it matters: To be clear, Biden’s budget has no chance of being adopted by Congress. The Republican-led House is sure to oppose Biden’s proposed tax hikes and Senate Minority Leader Mitch McConnell (R-KY) said Tuesday that the budget plan “will not see the light of day.”

Republicans are also set to oppose the federal pay hike. “President Biden is continuing to ensure that federal workers’ pay and benefits are insulated from the price-tag of inflation, but it will be paid for by American taxpayers who continue to be harmed by the Biden Administration’s inflationary policies,” House Oversight Committee Chairman James Comer (R-KY) said in a statement to the Post. “We should be putting American taxpayers first, not the federal bureaucracy.”

Still, the president’s budget still matters both as a marker for upcoming talks about raising the debt limit and federal spending plans and as fodder for political campaigning going into the 2024 presidential election.

Republicans Plan for Possible Debt Default

As Republicans gear up for a fight with President Biden over raising the debt limit, some lawmakers want to prepare the federal government for how it should proceed in the event of a debt default.

The House Ways and Means Committee on Thursday will consider a bill that would empower the U.S. Treasury to prioritize payments if it runs low on cash and can’t sell bonds due to the debt limit. The Treasury could reach that point as soon as June, though most projections put the so-called X Date later in the summer, with Moody’s economist Mark Zandi citing August 18 as a possible crisis moment in congressional testimony earlier this week.

The GOP measure, introduced by Rep. Tom McClintock (R-CA) and dubbed the “Default Prevention Act,” would allow the Treasury to continue to issue debt in order to make payments on interest and for Social Security. It would also set up a prioritization system for other types of payments, including for defense and veterans’ benefits. And it would deny pay to members of Congress for the duration of the fiscal crisis.

Rep. Jodey Arrington (R-TX), chair of the House Budget Committee, explained the reasoning behind the bill. “You got to pay your creditors first,” he told Semafor. “That’s the principle our grandfathers taught us. We pay the people that you owe.”

Critics, though, say the untested proposal faces serious questions, including whether it would prevent the kind of global financial crisis that economists have warned could happen if there is an interruption in federal payments. “It just seems silly and stupid,” Rep. Don Beyer (D-VA) said. “Why would we prioritize Chinese bondholders over American military, Social Security, seniors, children? It’s going to drive up costs for American citizens when we put bondholders first.”

Some have questioned whether the theoretical plan is even doable. Brian Riedl of the conservative Manhattan Institute told The Washington Post that the Treasury lacks the necessary infrastructure to run a prioritization program. “Unless they can build a new system in the next four months, it doesn’t matter,” he said.

The White House called on lawmakers to avoid creating a crisis in the first place. “The only way to avoid this kind of economic disaster is for Congress to do its job and prevent default,” Biden spokesperson Michael Kikukawa said in a statement. “Not to put forward half-baked schemes that hurt the American people.”

Republican Study Committee Proposes Policies for Debt Limit Negotiations

The Republican Study Committee, a large group of House conservatives, on Wednesday released a list of proposed spending cuts and other policy reforms, fleshing out an earlier list of seven priorities the group laid out for debt limit negotiations. Those priorities include limiting discretionary spending, increasing domestic energy production and pairing an increase in the debt ceiling with commensurate spending cuts.

In a memo sent to members of the group and highlighted by The Hill, Rep. Kevin Hern (R-OK), the RSC chairman, laid out a host of legislative proposals favored by conservatives, including enacting new discretionary spending caps, passing new work requirements for welfare programs, ending all Covid-related emergencies and rescinding unspent pandemic funds, blocking President Biden’s student debt cancellation plan and many, many more. One proposal would limit federal spending to a percentage of the overall economy.

“Every day, we get closer to a debt disaster that has the potential to destroy our nation and life as know it,” Hern said in a statement. “Spending reforms are necessary, otherwise we’ll be back in this same situation before we know it. I’m proud of the Members of the RSC for submitting substantive policy solutions to help us tackle this problem and get back on track.”

Quote of the Day: Fed Prepared to Hike Faster

"If – and I stress that no decision has been made on this – but if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

Federal Reserve Chairman Jay Powell testifying before the House Wednesday. Echoing his message to the Senate a day earlier, Powell told lawmakers that the Fed’s battle against inflation is far from over, and that more interest rate increases likely lie ahead.

Powell’s testimony this week has helped convince more analysts that the Fed will raise rates higher than previously expected and hold them there for longer, increasing the odds of a recession. “We think there’s a reasonable chance that the Fed will have to bring the Fed Funds rate to 6%, and then keep it there for an extended period to slow the economy and get inflation down to near 2%,” Rick Rieder, a managing director at BlackRock, said in a research note.

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