President Biden recently released his federal budget proposal for the upcoming fiscal year. The 158-page document lays out his spending priorities and acts as the first step in his administration’s negotiations with Congress.
Don’t have time to read it all? We’ve got you covered. Here are three things you should know:
1. New spending will be offset by new taxes.
Over the next decade, President Biden aims to lower federal deficits by over $1 trillion. But at the same time, he’s proposing $1.4 trillion in new spending. The spending will be offset by $2.5 trillion in new taxes on corporations and the wealthiest Americans.
Why is deficit reduction a top priority for the president? Most likely due to the COVID-19 pandemic.
Deficits are high relative to historical norms because of all the economic recovery spending that’s occurred over the last two years. During the height of the pandemic in 2021, government spending reached $6.8 trillion. In comparison, the 2023 budget proposal calls for $5.8 trillion in spending.
Under the proposed framework, 2023 deficits would fall to $1.18 trillion from $2.78 trillion two years ago.
2. The proposal reflects several changes in the president’s priorities.
President Biden has focused his 2023 budget priorities on the continued response to COVID-19, fixing supply chain issues, addressing climate change, investing in infrastructure, and bolstering national defense in response to Russia’s invasion of Ukraine.
In many ways, the budget proposal looks very similar to last year’s. But here are a few key differences:
- More spending on K-12 education and college affordability - $383 billion over ten years.
- More public health spending, particularly in “preparedness, mental health, tribal health, and other areas” - $365 billion over ten years.
- A new minimum tax of 20 percent on billionaires, which would actually apply to those with wealth over $100 million. Side note, this component of the proposal seems unlikely to pass in the Senate, but it would raise $361 billion over ten years.
- Higher corporate and income tax rates which would raise roughly $1 trillion over ten years.
Note the focus on taxes. The president is relying on several changes to tax codes in order to cover new spending and shore up deficits. For example, the 2017 Tax Cuts and Jobs Act lowered the corporate tax rate from 35 percent to 21 percent—President Biden aims to raise it to 28 percent.
He also proposes increasing the top income tax bracket from 37 percent back up to 39.6 percent, taxing capital gains at ordinary income rates for higher-income earners, and reforming corporate tax laws overseas.
3. The Build Back Better Act is mostly absent.
There is one huge omission in the budget proposal. It doesn’t include any specific figures from the Build Back Better Act (BBB), President Biden’s signature tax and spending plan that’s still floating around from 2021.
Hidden away in a footnote is a tacit nod that BBB is still in play, but the proposal treats it as deficit-neutral and doesn’t offer any specific numbers.
Using the Congressional Budget Office’s scores for BBB last year, we can assume it would add $2.4 trillion in additional spending over ten years with about $2.1 trillion in offsets. Thus, if the president gets BBB back on the menu in 2023, his deficit projections might still hold. However, federal spending and revenues will increase to accommodate the additional programs.
As we mentioned earlier, the president’s proposal is only the first step in a long negotiation process with Congress. The items in the document are aspirational and represent the president’s priorities for the upcoming fiscal year. We can expect to see several changes and additions over the coming months.