President Joe Biden on Thursday released a budget proposal for fiscal year 2024 includes about $6.9 trillion in spending and would result in a $1.8 trillion deficit, further adding to the country’s high debt.
Biden's budget proposal, which is not legislation but rather a suggestion for Congress that outlines his priorities, gives a picture of an ambitious tax-and-spend agenda — one that is strongly opposed by the Republican majority in the House. Given a raft of spending proposals, partially offset by taxes, the plan would result in a $17 trillion deficit over the next decade.
In other words, not only does the budget not balance, but it does not even stabilize the debt.
Despite the rising debt, the White House is highlighting how the plan, if passed as proposed, would lop $3 trillion off the deficit in the next 10 years.
The budget allocates more spending, fueled by tax increases, for Medicare and calls for shoring up Social Security, as Biden has sought to present himself as the defender of Social Security and Medicare, two of the main drivers of increased spending and which account for more than a third of government spending.
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Included in the budget is a plan to stave off the insolvency of the Medicare hospital insurance trust fund, which the program's trustees project will be exhausted in 2028.
In addition to expanding drug pricing reforms, the Biden proposal would increase payroll taxes for those earning more than $400,000 to fund Medicare benefits. Specifically, it would raise the Medicare tax rate for taxpayers earning an annual income of more than $400,000 from 3.8% to 5%.
The plan also calls for a return to the expanded child tax credit. Biden’s 2021 pandemic relief legislation temporarily expanded the child tax credit from $2,000 to $3,000 a child, with $3,600 for children under 6, and made it fully refundable. The temporary expansion sunset in 2022.
The budget also targets affordable housing and includes $59 billion in mandatory funding and tax incentives geared toward growing the affordable housing supply, including for extremely low-income households.
Additionally, the budget would provide the Social Security Administration with increased funding, a 10% increase over this year’s spending. The plan invests in staff, information technology, and other improvements.
In order to pay for these and other proposals, Biden’s budget envisions a series of tax increases on the wealthy and promises not to raise tax on those earning below $400,000 annually.
Biden wants to raise the top marginal tax rate on individuals making over $400,000 per year to 39.6% — the rate it was before the Trump tax cuts, up from the current 37% rate. In addition, the budget raises the capital gains tax on those earning over $1 million from 20% to 39.6%. Individuals making in excess of $1 million would also be subject to a federal rate of up to 44.6% on capital gains, as an existing Obamacare surtax on investment income is intended to be increased as well.
Biden also proposed raising the corporate tax rate from 21% to 28% and pitched a 25% minimum tax on the wealthiest people in America, a tax that would only apply to those in the 0.01% of the highest earners.
The accumulated changes in tax policy would result in about $5 trillion in revenue in 2024, a number which rises to nearly $8 billion by 2033, according to the White House’s estimations.
While Biden and Democrats contend raising taxes will help lower the deficit and federal debt, Republicans argue that higher taxes could stifle economic growth and thus might not be as effective at boosting the country’s fiscal health as the White House contends.
The Congressional Budget Office recently forecast that the federal debt, which represents the accumulated annual deficits, is expected to rise to about 120% of annual gross domestic product by 2033. Biden's budget would see the debt at 110% in 2033, versus roughly 100% today.
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Interest rates have been driven up quickly over the past several months as a result of the Federal Reserve’s campaign to drive down inflation by hiking interest rates. The higher rates threaten to dramatically raise the cost of servicing the federal debt, further accelerating the country’s debt reckoning.
Several years of ultralow interest rates, particularly during the pandemic, had allowed the federal government to take on huge amounts of debt with fewer ramifications, but higher rates are now adding to the government’s fiscal problems.