President Joe Biden on Thursday is expected to use his budget proposal to score political points with his base rather than seriously engage in negotiations with Republicans about government finances as the U.S. nears the legal limit on borrowing.
House Republicans have called for significant cuts to federal spending in exchange for lifting or suspending the debt ceiling. Senator Joe Manchin, the Democratic Senator from West Virginia, has criticized his party for refusing to cooperate with Republicans on “reasonable and responsible” budget cuts.
Biden’s package of tax hikes and spending increases is unlikely to pass either the Republican-controlled House or the Democrat-controlled Senate—something the White House is well aware of. Instead, it is meant to signal Democrat priorities.
“We see this as a value statement,” White House press secretary Karine Jean-Pierre said Wednesday.
Biden’s budget will include a 5.2 percent raise for federal workers, according to reports.
The Associated Press reports:
Biden will unveil his spending plan in the battleground state of Pennsylvania, staking out what he believes is popular terrain that will make it hard for Republicans to criticize without risking blowback. Biden wants to impose tax hikes on the wealthy to limit federal borrowing, including a reversal of the 2017 tax cuts made by then President Donald Trump on people earning above $400,000. The added revenues would help to improve Medicare, the government health insurance program for adults over 65.
In the run-up to the plan’s release, Biden has floated a new tax on incomes above $100 million that would target billionaires. He’s called for lower prescription drug prices. The tax that companies pay on stock buybacks would be quadrupled, and those earning above $400,000 would pay an additional Medicare tax that would help to keep the program solvent beyond the year 2050.
Biden’s budget would seek to close the “carried interest” loophole that allows wealthy hedge fund managers and others to pay their taxes at a lower rate, and prevent billionaires from being able to set aside large amounts of their holdings in tax-favored retirement accounts, according to an administration official. The plan also projects saving $24 billion over 10 years by removing a tax subsidy for cryptocurrency transactions.
The official who provided the budget details spoke on condition of anonymity to preview the plan before its official release.
Biden’s budget plan also would:
— Expand the ability of Medicare to negotiate on pharmaceutical drug prices, saving an estimated $160 billion over a decade.
— Auction off rights to the radio spectrum, generating $50 billion.
— Take new steps to reduce identity theft and unemployment insurance fraud.
— Target insurance companies that overcharge Medicaid, with anticipated savings of $20 billion through repayments to the government.
— End subsidies valued at $31 billion for oil and gas companies.
— Scrap a $19 billion tax break for real estate investors.
House Speaker Kevin McCarthy, R-Calif., has called for putting the U.S. government on a path toward a balanced budget. But by refusing to raise taxes or cut Social Security and Medicare spending, GOP lawmakers face some harsh math that makes it hard to slash deficits without risking a voter backlash ahead of a presidential election.
McCarthy told The Associated Press that his plan’s release has been pushed back because Biden’s proposal is only just being issued.
Senate Majority Leader Chuck Schumer, D-N.Y., expressed skepticism in a Monday speech that McCarthy has any coherent plan that House Republicans can coalesce around.
“Enough with the dodging, enough with the excuses,” Schumer said. “Show us your plan. And then show us how it’s going to get 218 votes on your side of the aisle.”
Biden’s deficit reduction goal is significantly higher than the $2 trillion that he had promised in his State of the Union address last month.
It’s a delicate time, with the U.S. economy already in a fragile state because of high inflation. If Biden and Congress fail to increase the statutory debt cap of $31.4 trillion by this summer, the government could default on payments and shove the U.S. economy into a recession.
Rohit Kumar, a former McConnell aide who is now an executive with the tax consultancy PwC, said Biden’s plan does matter “in terms of putting ideas out there.” He said that if Biden won a second term, elements of his spending blueprint could be part of negotiations in 2025 over the expiring provisions in the 2017 tax cuts that President Donald Trump signed into law.
Given the scope of the deficit reduction in Biden’s proposal, Kumar said, it is unlikely that the president’s plan would identify which parts of the expiring tax cuts he plans to keep, as the president has vowed no tax increases on anyone making less than $400,000. But while the White House has charged that Republican plans would increase deficits by $3 trillion, about $2.7 trillion of that total comes from renewing all the Trump-era tax cuts that disproportionately favored the wealthy.
Biden’s budget proposal would reverse some of the 2017 law. It would increase the top marginal tax rate to 39.6% on income above $400,000. For households with $1 million in income, earnings from capital gains—such as stocks or property sales—would no longer enjoy a discounted tax rate compared to wages.
The president would increase the corporate tax rate to 28% and increase the tax rate on U.S. multinationals’ foreign earnings from 10.5% to 21%.
In February, the nonpartisan Congressional Budget Office estimated that the national debt held by the public will grow by more than $20 trillion over the next decade. The publicly held debt — it reflects the cumulative impact of yearly deficits — would be equal to 118 percent of U.S. gross domestic product, up from 98 percent this year.
Biden’s budget is expected to include claims that it would reduce the debt from those levels, although debt would still be far higher than it is today and would be elevated by historical norms.