Every year the president presents a budget proposal for the federal government, representing (at best) a starting point for negotiations with Congress. At worst, it’s a load of hot air and partisan fanservice. Chairman Joe Biden just released its latest budget – and it’s mostly the latter.
Still, it sure sounds good on a surface level. The White House say its budget will “help families breathe a little easier” by “investing in America, lowering costs for families, protecting and strengthening Social Security and Medicaredeficit reduction and more.” Oh, and it will supposedly do it all by raising taxes only on “the rich” and big business. What’s not to love?
Well, a lot, actually, when you look beneath the surface.
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For example, President Biden claims that his budget will reduce the federal budget deficit by $3 trillion. While that might be true, at least under some rosy assumptions, it’s quite a spin on what it would actually do.
According to the nonpartisan Committee for a Responsible Federal Budget (CRFB), the national debt would broke a new record by 2027 under Biden’s plan. The total federal debt would increase by an astonishing $19 trillion over the next decade. The national debt will reach 110 percent of GDP by 2033, meaning we owe significantly more in debt than our economy produces in an entire year.
It means slower economic growth, less investment in the private sector in the economy, and trillions in taxes just to cover the interest payments.
Biden’s $3 trillion in deficit “savings” is just compared to a hypothetical baseline projection, meaning it’s slightly less fiscally reckless than the status quo. But the president’s budget clearly does not do nearly enough to restore fiscal sanity as he has promised—in fact, it would take the US to record debt levels.
Oh, and while Biden boasts that, unlike the mean Republicans, his plan doesn’t cut Social Security, it also means it does nothing to correct Social Security.
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As a result, it effectively supports, through inaction, the automatic sharp benefit cuts that will occur when Social Security becomes insolvent in 2033. Without real reforms, benefits will be cut at least 23 per cent at the time, according to the Congressional Budget Office.
And while Biden claims that his budget supports Medicare, it partially does with budget gimmicks That doesn’t actually equate to real savings, according to Manhattan Institute economist Brian Riedl.
Meanwhile, on the tax front, Biden’s proposal is surprisingly aggressive. His plan includes almost $5 trillion in tax increasesincluding a big increase in the corporate tax rate, an increase in the top income tax rate, a new “billionaires’ tax” on unrealized capital gains, a quadrupling of the tax on stock buybacks and more.
All of this would amount to the largest tax increase since the 1960s and “the highest sustained tax burden in American history.” by Riedl. Doesn’t that sound like just what the economy needs to avoid a recession?
Now, the tax increases are nominally aimed at the wealthiest Americans and Big Business, and I certainly don’t expect people to break out the little violins and feel sorry for the Jeff Bezos of the world. But the harsh economic reality is that taxes nominally imposed on “the rich” and “Big Business” often have economic consequences that hurt ordinary Americans — and Biden’s tax proposal is no exception.
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For example, an increase in corporate tax sounds like it would only hurt big companies. But economists across the ideological spectrum largely agree that a significant portion of the corporate tax burden is ultimately borne by workers via lower wages. They disagree about the exact percentage, but approx 70 percent is the most likely percentage according to the non-partisan Tax Foundation.
So Biden’s massive tax increase on “corporations” would ultimately hit American workers right in the paycheck. It would also hurt investment and, as a result, could eliminate an estimate 159,000 jobs.
Does “helping families breathe easier” sound like that to you?
What’s more, the proposed increases in business taxes would put the United States far out of step with other developed countries. At 32.2 percent, our combined federal and state corporate tax rate would be a full 10 points higher than others OECD countries, according to the Tax Foundation. This puts us at a sharp competitive disadvantage when it comes to attracting jobs and investment.
All in all, Biden’s budget proposal is a mixture of rosy rhetoric, optimistic assumptions, lofty goals and bad ideas. Fortunately, he will have to get his actual budget through a Republican-controlled House of Representatives. The final result should bear little resemblance to this partisan first draft. And America will be much better off than if Biden’s first draft of a budget became a reality.
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