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March 28, 2022 at 10:28 AM
What You Need to Know
- The plan calls for a minimum 20% tax rate on income and unrealized capital gains of those worth over $100 million.
President Joe Biden unveiled a $5.8 trillion budget request designed to appease moderate Democrats on Monday, with a proposal that emphasized deficit reduction, additional funding for police and veterans, and flexibility to negotiate new social spending programs.
Congress historically sets presidential budgets aside, but they do form a key messaging device. The White House included measures that would add up to the biggest tax increase in history in dollar terms, helping stabilize deficits relative to the size of the economy.
The 2023 budget calls for $1.598 trillion in so-called discretionary spending — areas that aren’t linked with mandatory programs like Social Security — with $813 billion for defense-related programs and $769 billion for domestic spending.
That marks a 5.7% increase from the omnibus spending bill for the 2022 fiscal year that was signed by Biden earlier this month. The budget would reduce deficit spending by $1 trillion over the coming decade, buoyed by the elimination of pandemic assistance programs.
“We spent less money than the last administration and got better results: strong economic growth, which has increased revenues and allowed us to responsibly scale back emergency spending,” Biden said in a statement. “My budget will continue that progress, further reducing the deficit by continuing to support the economic growth that has increased revenues and ensuring that billionaires and large corporations pay their fair share.”
The president also sidestepped fragile negotiations over the remnants of his “Build Back Better” agenda, putting only placeholder figures in the document in what White House officials acknowledged was an effort to give lawmakers space to negotiate.
The hope in the White House is that Monday’s document can offer momentum to negotiations with lawmakers like Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, who have raised concern over historic spending levels and inflation.
Here are some key takeaways:
Economic Assumptions
Biden’s budget forecasts were prepared in November, before the latest surge in inflation. Economic growth is pegged at 3.8% this year, slowing toward 2% over the next decade. It assumes consumer prices to rise 4.7% this year, with inflation down to 2.3% in 2023 as supply chain disruptions ease.
The forecasts appear unrealistic relative to private-sector inflation and growth projections. White House officials said higher consumer-price increases shouldn’t have a big impact on the deficit expectations, however, given that revenues would also be higher.
Tax Programs
Biden is calling for more than $2.5 trillion in tax hikes on wealthy and large corporations over a decade, on top of the nearly $1.5 trillion of increases included in the House’s version of the Build Back Better plan.
The proposal adds a 20% minimum tax on the unrealized capital gains for households worth at least $100 million, a political win for progressives who have been pushing Biden to target the mega-wealthy. The plan omitted a controversial bank-reporting proposal from last year that would allow financial institutions to share account information with the IRS.
If enacted fully, this year’s plan would be the largest tax hike in history, but it includes several major increases that have already been rejected by some Democrats in Congress.
Biden again called to raise the corporate rate to 28% from 21%, and hoist rates on the highest-earning Americans to 39.6% — changes Sinema has said she won’t support. House Democrats also declined to include a version of the billionaires tax in last year’s social-spending bill.
The budget also omitted a proposal to expand the federal deduction for state and local taxes, or SALT. Several House Democrats have said that raising the $10,000 cap on the valuable tax break is crucial for securing their vote on any legislation that alters the tax code.
