Biden to propose US$6 trillion budget to make US more competitive

WASHINGTON (NYTIMES) – President Joe Biden will propose a US$6 trillion (S$7.9 trillion) budget Friday that would take the United States to its highest sustained levels of federal spending since World War II as he looks to fund a sweeping economic agenda that includes large new investments in education, transportation and fighting climate change.

Documents obtained by The New York Times show that the budget request, the first of Biden’s presidency, calls for total spending to rise to US$8.2 trillion by 2031, with deficits running above US$1.3 trillion throughout the next decade. The growth is driven by Biden’s two-part agenda to upgrade the nation’s infrastructure and substantially expand the social safety net, contained in his American Jobs Plan and American Families Plan, along with other planned increases in discretionary spending.

The proposal for the 2022 fiscal year and ensuing decade shows the sweep of Biden’s ambitions to wield government power to help more Americans attain the comforts of a middle-class life and to lift US industry to better compete globally.

The levels of taxation and spending in Biden’s plans would expand the federal fiscal footprint to levels rarely seen in the postwar era to fund investments that his administration says are crucial to keeping the United States competitive. That includes money for roads, water pipes, broadband Internet, electric vehicle charging stations and advanced manufacturing research. It also envisions funding for affordable child care, universal pre-kindergarten and a national paid-leave programme – initiatives Republicans have baulked at bankrolling. Military spending would also grow, although it would decline as a share of the economy.

“Now is the time to build the foundation that we’ve laid, to make bold investments in our families, in our communities, in our nation,” Mr Biden told a crowd in Cleveland on Thursday. “We know from history that these kinds of investments raise both the floor and the ceiling of an economy for everybody.”

Mr Biden plans to finance his agenda by raising taxes on corporations and high earners and the documents show budget deficits shrinking in the 2030s. Administration officials have said the jobs and families plans would be fully offset by tax increases over the course of 15 years, which the budget request also anticipates.

The documents forecast that Mr Biden and Congress will allow tax cuts for low- and middle-income Americans, signed into law by then President Donald Trump in 2017, to expire as scheduled in 2025. Mr Biden has said he will not raise taxes on people earning less than US$400,000 a year. It is possible that he could propose to extend the Trump tax cuts for those earners in a future budget, potentially coupled with additional tax increases on high earners or businesses.

While his plan projects additional tax revenue down the line, the United States would run significant deficits as it borrows money to finance his plans. Under Mr Biden’s proposal, the federal budget deficit would hit US$1.8 trillion in 2022, even as the economy rebounds from the pandemic recession to grow at what the administration predicts would be its fastest annual pace since the early 1980s. The deficit would recede slightly in the following years before growing again to nearly US$1.6 trillion by 2031.

Total debt held by the public would more than exceed the annual value of economic output, rising to 117 per cent of the size of the economy in 2031. By 2024, debt as a share of the economy would rise to its highest level in US history, eclipsing a World War II-era record.

Republicans warned Thursday that Mr Biden’s spending and tax plans would saddle the economy with dangerous levels of debt and accused him of abandoning his pledge not to raise taxes on the middle class.

“President Biden’s budget blunder sets us up for an even worse economic recovery than the Obama-Biden record of the slowest in history,” said Representative Kevin Brady of Texas, the top Republican on the Ways and Means Committee. “Lower- and middle-income families are already suffering under the stealth tax of higher prices. Now the president wants their income taxes to go up as well.”

Some fiscal hawks also sounded a cautious note, welcoming Mr Biden’s commitment to paying for new spending but warning that the nation faces daunting fiscal challenges.

“This proposal includes significant temporary spending within 10 years that’s paid for over 15 years with permanent revenues,” said Mr Michael Peterson, chief executive officer of the Peter G. Peterson Foundation, which supports curbing the national debt over time. “While this certainly projects out more favourably than pure deficit spending, in the end it will only be as fiscally responsible as our future fortitude to actually stop the spending and continue the revenues.”

The budget is simply a request to Congress, which must approve federal spending. But with Democrats in control of both the House and Senate, Mr Biden faces some of the best odds of any president in recent history in getting much of his agenda approved.

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Still, he must find a way to appease moderate Democrats like Senator Joe Manchin of West Virginia, who has said he would not back as high a corporate tax rate as Mr Biden’s budget proposes, while not alienating House progressives who have pushed Mr Biden to spend even more. With Republicans and the White House still far apart on the president’s infrastructure proposal, the President will most likely need to secure votes from every Democrat in the Senate to get his spending plans through.

Mr Biden’s budget, like those proposed by his predecessors, includes assumptions about how the economy will perform if his policies are enacted. But in a break from the recent past, the Biden team is conservative in its forecasts – predicting small gains in economic growth even if Congress approves trillions of dollars in new spending.

Mr Biden’s aides predict that even if his full agenda were enacted, the economy would grow at just under 2 per cent per year for most of the decade, after accounting for inflation. That rate is similar to the historically sluggish pace of growth that the nation has averaged over the past 20 years. Unemployment would fall to 4.1 per cent by next year – from 6.1 per cent today – and remain below 4 per cent in the years thereafter.

The forecasts continue to show his administration has little fear of rapid inflation breaking out across the economy, despite recent data showing a quick jump in prices as the economy reopens after a year of suppressed activity amid the pandemic. The budget projects that consumer prices will never rise faster than 2.3 per cent per year and the Federal Reserve will only gradually raise interest rates from their current rock-bottom levels in the coming years.

Mr Biden has pitched the idea that now is the time, with interest rates low and the nation still rebuilding from recession, to make large upfront investments that will be paid for over a longer time horizon. His budget shows interest costs for the federal government remaining below historical averages for the course of the decade. Interest rates are controlled by the Federal Reserve, which is independent of the White House.

Even if interest rates stay low, payments on the national debt would consume an increased share of the federal budget. Net interest payments would double, as a share of the economy, from 2022 to 2031.

If Mr Biden’s plans were enacted, the government would spend what amounts to nearly a quarter of the nation’s total economic output every year over the course of the next decade. It would collect tax revenues equal to just under one fifth of the total economy.

In each year of Mr Biden’s budget, the government would spend more as a share of the economy than all but two years since World War II: 2020 and 2021, which were marked by trillions of dollars in federal spending to help people and businesses endure the pandemic-induced recession. By 2028, when Mr Biden could be finishing a second term in office, the government would be collecting more tax revenue as a share of the economy than almost any point in the last century; the only other comparable period was the end of president Bill Clinton’s second term, when the economy was roaring and the budget was in surplus.

The documents suggest Mr Biden will not use his budget to propose major additional policies or flesh out plans that the administration has thus far declined to detail. For example, Mr Biden pledged to overhaul and upgrade the nation’s unemployment insurance system as part of the American Families Plan, but such efforts are not included in his budget.

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Administration officials have said the budget reflects the policies Mr Biden has pushed Congress to enact this year and does not rule out future initiatives that are not included in this plan.

“What the budget will reflect is that he is going to continue to deliver on his priorities,” Ms Jen Psaki, the White House press secretary, told reporters Thursday. “And those proposals – the American Jobs Plan, the American Rescue Plan, the American Families Plan – will put us on better financial footing over time.”

Mr Biden’s spending requests also do not include money for a so-called public option for healthcare, which would allow Americans to choose to enrol in a public health insurance plan like Medicare instead of a private plan. But Mr Biden will call on Congress to create such a public option as part of his budget proposal, a document obtained by The Times shows.

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