WASHINGTON — As political gridlock puts the government at risk of defaulting, President Joe Biden on Thursday is making an opening offer with a budget plan that would cut deficits by $2.9 trillion over the next decade — a proposal that Republicans already intend to reject.
It’s part of a broader attempt by the president to call out House Republicans who are demanding severe cuts to spending in return for lifting the government’s legal borrowing limit. But the GOP has no counteroffer so far, other than a flat “no” to a Biden blueprint with tax increases on the wealthy that could form the policy backbone of Biden’s yet-to-be-declared campaign for reelection in 2024.
“Congressional Republicans keep saying they want to reduce the deficit, but they haven’t put out a comprehensive plan showing what they’ll cut,” said Shalanda Young, director of the White House Office of Management and Budget. “We’re looking forward to seeing their budget so the American people can compare it to what we’re putting out today.”
Biden’s package of tax and spending priorities is unlikely to pass the House or Senate as proposed.
House Speaker Kevin McCarthy, R-Calif., said the president’s proposed deficit reduction was inadequate. “It just seems like it’s going to create the biggest government in history. I don’t think that’s what we need at this time,” he said.
The president was traveling to the political battleground state of Pennsylvania to promote the plan, staking out what he believes is popular terrain that will make it hard for Republicans to criticize without risking blowback. White House officials separately released polling as part of the budget that they say shows public support for their policies, evidence that they want to set up the 2024 election as a contest of ideas.
In addition to deficit reduction, Biden’s 10-year budget largely revolves around the idea of taxing the wealthy to help fund programs for the middle class, older adults and families. It would raise $4.7 trillion from higher taxes, with an additional $800 billion in savings from changes to programs.
The tax increases include a reversal of the 2017 tax cuts made by President Donald Trump on people earning more than $400,000 a year. Biden has floated a new tax that would target billionaires and called for lower prescription drug prices. The tax that companies pay on stock buybacks would rise fourfold and those earning more than $400,000 would pay an additional Medicare tax that would help to keep the program solvent beyond the year 2050.
But there also would be $2.6 trillion worth of new spending, including the restoration of the expanded child tax credit that would give families as much as $3,600 per child, compared with the current level of $2,000. That credit would be “fully refundable,” which means households could receive all of that sum even if they don’t owe any taxes.
At a time of increased tensions with Russia and China, the budget shows a decline in military spending as a share of the U.S. economy over the next decade. But federal spending would be equal to roughly one-quarter of economic output as the spending on Social Security and Medicare climbs, essentially keeping the government the same size as it is currently.
The 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.
McCarthy 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 reduce deficits without risking a voter backlash before a presidential election.
The Republican speaker has 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 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.
The budget also shows the shadow of Trump’s legacy, as provisions in his 2017 tax cuts will expire after 2025. Biden’s proposal would eliminate parts of his predecessor’s overhaul, under the argument that lower taxes failed to produce the growth that Trump promised would occur.
Biden’s proposal 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 with 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%.
Cecilia Rouse, chair of the White House Council of Economic Advisers, said that the signature economic achievement of Trump’s presidency did little for the economy.
“That really has had no impact that economists have been able to determine on economic growth — it’s been exaggerated,” she said.
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, which reflects the cumulative impact of yearly deficits, would be equal to 118% of U.S. gross domestic product, compared with 98% this year. Biden’s budget would reduce the debt, though it would still be high relative to historical levels.