Bide’s budget proposal aims to cut deficits by $3 trillion

It is part of a broader attempt by the President to challenge House Republicans, who are demanding drastic cuts in federal spending in exchange for lifting the government’s statutory borrowing limit. But the GOP has had no counteroffer so far, other than a flat “no” to a budget that could form the political backbone of Biden’s yet-to-be-declared campaign for re-election in 2024.

“We see this as a value statement,” White House press secretary Karine Jean-Pierre told reporters Wednesday. “This shows the American people that when we think about financial responsibility, when we think about how we’re moving forward, we take this very seriously.”

Biden’s package of tax and spending priorities is unlikely to pass the House or Senate as proposed. Senate Minority Leader Mitch McConnell, R-Ky., predicted in advance that the plan “will not see the light of day,” a sign that it could serve primarily as a news document for the 2024 election.

Biden will unveil his spending plan in the battleground state of Pennsylvania, marking out what he believes is popular territory that will make it difficult for Republicans to voice criticism without risking a backlash. Biden wants to impose tax increases on the wealthy to limit federal borrowing, including a reversal of the 2017 tax cuts then-President Donald Trump made for people earning over $400,000. The additional revenue would help improve Medicare, the government’s health insurance program for adults over 65.

Ahead of the plan’s release, Biden introduced a new tax on income over $100 million that would target billionaires. He calls for lower prescription drug prices. The tax companies pay on share buybacks would be quadrupled, and those earning over $400,000 would pay an additional Medicare tax that would help keep the program solvent beyond 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 could prevent billionaires from setting aside large amounts of their holdings in tax-deferred retirement accounts . such an administrator. The plan also envisages saving $24 billion over 10 years by eliminating a tax subsidy on cryptocurrency transactions.

The official who provided the budget details spoke on condition of anonymity to preview the plan ahead of its official release.

Biden’s budget plan would also:

• Expand Medicare’s ability to negotiate pharmaceutical drug prices and save an estimated $160 billion over a decade.
• Auction rights to radio spectrum, raising $50 billion.
• Take new steps to reduce identity theft and unemployment insurance fraud.
• Target insurance companies that overcharge Medicaid with expected savings of $20 billion from government paybacks.
• End $31 billion in subsidies to oil and gas companies.
• Forego a $19 billion tax break for real estate investors.

House Speaker Kevin McCarthy, R-Calif., has called for the US government to move towards a balanced budget. But by refusing to raise taxes or cut Social Security and Medicare spending, GOP lawmakers face hard math that makes it difficult to cut deficits without risking voter backlash ahead of a presidential election.

McCarthy told The Associated Press that the release of his plan has been delayed because Biden’s proposal is just about to be released.

Senate Majority Leader Chuck Schumer, DN.Y., expressed skepticism in a speech Monday that McCarthy has a coherent plan for House Republicans to rally around.

“Enough with the dodges, 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 target is well above the $2 trillion he pledged in his State of the Union address last month.

It is a delicate time as the US economy is already in a fragile state due to high inflation. If Biden and Congress fail to raise the $31.4 trillion legal debt ceiling by this summer, the government could default and plunge the US economy into recession.

Rohit Kumar, a former McConnell advisor who is now a senior executive at tax consultancy PwC, said Biden’s plan is important “to get ideas out there.” He said if Biden wins a second term, elements of his spending plan could be part of negotiations in 2025 on the expiring provisions of the 2017 tax cuts that President Donald Trump signed into law.

Given the size of the deficit reduction in Biden’s proposal, Kumar said the president’s plan is unlikely to show which parts of the expiring tax cuts he wants to keep, given the president’s pledge of no tax increases for those earning less than $400,000 to make dollars. But while the White House claims Republican plans would increase deficits by $3 trillion, about $2.7 trillion of that total comes from the renewal of all the Trump-era tax cuts that disproportionately favored the wealthy.

Biden’s budget proposal would reverse part of the 2017 law. It would raise the upper marginal tax rate to 39.6% on income over $400,000. For households earning $1 million, income from capital gains — such as stocks or real estate sales — would no longer enjoy a reduced tax rate compared to wages.

The President would increase the corporate tax rate to 28% and the tax rate on foreign earnings of US multinationals from 10.5% to 21%.

In February, the bipartisan Congressional Budget Office estimated that public debt will grow by more than $20 trillion over the next decade. The national debt – reflecting the cumulative impact of annual deficits – would be 118% of US GDP, up from 98% this year. Biden’s budget would reduce debt, although it would still be high compared to historical levels.

Biden has primarily argued that his budget will be fair to workers and middle-class households.

The President claimed in a speech Monday that there are around 680 billionaires in the United States and that many of them pay less in taxes than a typical family.

“No billionaire should pay a lower tax rate than a firefighter – nobody,” Biden said at a gathering of the International Association of Fire Fighters.

wealthThe CFO Daily Newsletter is the analysis every finance professional needs to read to get ahead. Sign up today.