Biden calls for trillions in tax hikes and new domestic spending

WASHINGTON - The White House revived calls for an aggressive transformation of the economy paid for by massive new taxes on corporations and the wealthiest Americans in its 2024 budget proposal on Thursday, likely to preview President Biden’s reelection campaign - and directly challenging Republicans as the government draws closer to what could be a catastrophic default on the national debt.

The president’s budget calls for paring back the deficit over the next decade while also spending more than $2 trillion on dozens of new domestic policy initiatives, paid for by raising more than $4.5 trillion in new revenue primarily through hefty tax hikes on high earners and large corporations. The White House’s spending blueprint envisions a much more expansive role for the federal government overall, aiming for close to $10 trillion in annual spending by 2033 - up from roughly $6.3 trillion currently, and about $6.9 trillion in the next fiscal year - funded through both the tax hikes and by reining in federal spending on prescription drugs.

The blueprint, which Biden will tout during a speech on Thursday in Philadelphia, will not pass through a Republican-controlled House, as GOP lawmakers already declared it a non-starter. The 182-page document also reveals the numerous challenges the administration faces in crafting federal economic policy that aligns with its political objectives - projecting an increase in the deficit for next year, relatively sluggish economic growth and a federal debt that even the administration says will eclipse $40 trillion a decade from now.

White House Office of Management Director Shalanda Young and Cecilia Rouse, chair of the White House Council of Economic Advisers, told reporters on Thursday that the plan aims to build on the successes of the first two years of the Biden administration.

“It will boost American manufacturing, provide national paid leave, cut taxes for working families, make our communities safer, drive medical breakthroughs, deliver for our veterans and a whole lot more,” Young said. “That’s the right way to continue growing our economy.”

Young stressed the budget plan is aimed at drawing a sharp contrast in spending battles with GOP lawmakers, who hope to use the nation’s borrowing limit - which must be raised sometime this summer to avoid a potentially catastrophic default on U.S. debt payments - to secure cuts to many of the kinds of programs Biden is trying to boost. As Republicans ramp up their demands for extending President Donald Trump’s 2017 tax cuts while cutting government spending programs, Biden’s budget shows the president moving in a starkly different direction.

“Congressional Republicans keep saying they want to reduce the deficit. But they have not put out a comprehensive plan showing what they’ll cut,” Young told reporters. “Will it be Medicare? Social Security? The Affordable Care Act? Veterans’ benefits? We don’t know until they put out a plan. We’re looking forward to seeing their budget so the American people can compare it to what we’re putting out today.”

As the White House released the budget, House Republicans were considering a bill that would set up an elaborate plan to prioritize debt payments if the government runs into the borrowing limit without raising the cap. Ways and Means Committee Chairman Jason T. Smith (R-Mo.) accused the Biden administration of “brinkmanship” for refusing to discuss GOP ideas for broad fiscal reforms.

Biden’s budget calls for reducing the deficit by $2.9 trillion over the next 10 years, achieved almost entirely through unprecedented tax hikes that take aim at affluent investors, billionaires, companies’ stock buybacks, those earning more than $400,000 per year and large corporations. The plan would partially reverse the 2017 Trump tax cuts, including by raising the corporate tax rate from 21 percent to 28 percent. It also includes raising the minimum tax paid by billionaires to 25 percent, restoring the top marginal tax rate to 39.6 percent for those earning more than $400,000 per year and raising the capital gains tax rate to 39.6 percent for those earning more than $1 million.

The new tax plans would bring in so much revenue that the budget also calls for reviving many of the spending plans Biden released at the outset of his administration, which had to be scaled back last year amid opposition from Sen. Joe Manchin III (D-W.Va.). Biden proposed trillions of dollars in new spending to pay for expansions in health care, education and housing - reflecting the administration’s ongoing commitment to transforming broad sections of the U.S. economy with bold new social programs.

The White House budget calls for more than $1 trillion in new spending on programs such as Medicaid, child care, prekindergarten, public housing and free community college. It includes a separate additional $1 trillion in tax credits and breaks aimed at lower- and middle-class Americans, such as reviving the expanded child tax credit that was only approved for one year as part of Biden’s 2021 American Rescue Plan. The expiration of that policy - once viewed as a potential key part of Biden’s legacy - led to a spike in child poverty, though Manchin and Republicans argued the higher credits exacerbated inflation.

Manchin had entertained some of the social spending ideas pushed by the White House before suddenly pulling the plug on Biden’s Build Back Better plan in December 2021. Democrats coalesced over the summer behind a smaller package that included substantial funds for climate mitigation, boosting U.S. manufacturing production, a corporate minimum tax and lower prescription drug costs, among other provisions.

The budget suggests Biden’s initial ambitions to pass a generational expansion of government - similar to that of Franklin Delano Roosevelt’s New Deal or Lyndon Johnson’s Great Society - could return as a key rallying cry for the party in 2024.

“It’s important President Biden use the budget as an opportunity to lay out a blueprint for an alternative, hopeful, forward-looking vision of how government can improve people’s lives,” said Karthik Ganapathy, a political strategist at Left Flank, a political and communications strategy for Democrats, who praised the work Biden had done so far. “That’s not just a good governing strategy - it’s also smart politics that will galvanize all parts of the Democratic Party’s coalition going into 2024.”

Republicans were quick to pan the proposed tax hikes, which they maintain depress economic growth and make the U.S. economy less dynamic. Rep. Ben Cline (R-Va.), who sits on the House Appropriations and Budget committees, criticized the measures.

Biden “is struggling to catch up with movement from the new Republican majority,” Cline said. “He’s recognized that his trillions in woke spending are not going to have any path in a Republican House, and so he’s reworking his numbers and essentially raising taxes in order to continue to try and fund as much of his agenda as possible.”

Doug Holtz-Eakin, a GOP policy analyst, also pointed out that the White House has violated the statutory deadline to put out the budget by the first Monday in February, and released the proposal more than a month late. Republicans have also slammed Biden’s initial record on spending, including the stimulus of 2021, arguing that it exacerbated the highest inflation the U.S. has seen in decades.

“There’s no philosophy here - it’s just an incoherent collection of wishes that don’t add up, and it’s really quite frustrating,” Holtz-Eakin said. “They couldn’t get it through when they controlled both houses; it’s dead on arrival now.”

The budget reflects other top priorities of the Biden administration, as well as some of the difficult economic challenges the White House faces in the next two years.

It shows the budget deficit rising from $1.3 trillion in 2022 to $1.6 trillion in 2023 and then to $1.8 trillion in 2024, before eventually declining gradually. Biden frequently takes credit for the deficit declining between 2021 and 2022, although the expiration of his $1.9 trillion economic stimulus plan was largely responsible for the decline. An increase in the deficit this year and the next would sharply undercut the president’s promises. Asked about the projected deficit increase, Young, the budget director, blamed Trump. “The president inherited historically high deficits from the previous administration,” she said.

The budget also shows inflation remaining elevated at 4.3 percent this year - a significant drop from the year before, but still substantially higher than the Federal Reserve’s 2 percent target for annual price growth.

And despite meteoric economic growth in 2021, the budget also projects a cooling for much of the rest of the decade in the range of 2 percent.

The White House budget shows other key challenges for Biden. The administration released a plan as part of the budget to address the looming shortfall facing Medicare, the health insurance program for the elderly, funded by taxes on high earners and a reduction in drug costs. But despite pressure from Sen. Bernie Sanders (I-Vt.), the White House released no such plan for resolving the funding crisis facing Social Security, which will face automatic cuts to seniors’ benefits in about a decade if no action is taken.

Asked about the lack of a plan on Social Security, Young said Republicans were to blame for trying to cut the program. “The number one threat to Social Security and benefits for folks like my 94-year-old grandmother is those on the other side of the aisle who say they want to cut benefits,” Young said. The White House says its Medicare plan would keep that program solvent for at least another 25 years.

The White House budget also attempts to head off GOP complaints that it is insufficiently concerned about wasteful spending. The budget requests more than $1 billion for prosecuting - and preventing - fraud in pandemic aid programs, especially in unemployment insurance, while also eliminating tax subsidies for oil and gas firms, rescinding unused spending for federal prisons, and closing various tax loopholes that the administration says benefit real estate firms, cryptocurrency transactions and wealthy investment managers.