With the government at risk of defaulting, President Joe Biden on Thursday will make his opening offer in a high-stakes debate over federal finances as he proposes a federal budget that would cut deficits by nearly $3 trillion over the next decade.
It’s part of a broader attempt by the president to call out House Republicans, who are demanding severe cuts to federal spending in return for lifting the government’s legal borrowing limit. But the GOP has no counter offer so far, other than a flat “no” to a budget plan that could form the policy spine of Biden’s yet-to-be-declared campaign for reelection in 2024.
“We see this as a value statement,” White House press secretary Karine Jean-Pierre told reporters Wednesday. “This is something that shows the American people that we take this very seriously when we think about the fiscal responsibility, when we think about how do we move forward.”
Biden’s package of tax and spending priorities is unlikely to pass the House or Senate as proposed. Senate Minority Leader Mitch McConnell, R-Ky., predicted in advance that the plan “will not see the light of day,” a sign that it might primarily serve as a messaging document going into the 2024 elections.
Biden will unveil his spending plan in the battleground state of Pennsylvania, staking out what he believes is popular terrain that will make it hard for Republicans to criticize without risking blowback. Biden wants to impose tax hikes on the wealthy to limit federal borrowing, including a reversal of the 2017 tax cuts made by then President Donald Trump on people earning above $400,000. The added revenues would help to improve Medicare, the government health insurance program for adults over 65.
In the run-up to the plan’s release, Biden has floated a new tax on incomes above $100 million that would target billionaires. He’s called for lower prescription drug prices. The tax that companies pay on stock buybacks would be quadrupled, and those earning above $400,000 would pay an additional Medicare tax that would help to keep the program solvent beyond the year 2050.
Biden’s budget would seek to close the “carried interest” loophole that allows wealthy hedge fund managers and others to pay their taxes at a lower rate, and prevent billionaires from being able to set aside large amounts of their holdings in tax-favored retirement accounts, according to an administration official. The plan also projects saving $24 billion over 10 years by removing a tax subsidy for cryptocurrency transactions.
The official who provided the budget details spoke on condition of anonymity to preview the plan before its official release.
Biden’s budget plan also would:
Expand the ability of Medicare to negotiate on pharmaceutical drug prices, saving an estimated $160 billion over a decade.
Auction off rights to the radio spectrum, generating $50 billion.
Take new steps to reduce identity theft and unemployment insurance fraud.
Target insurance companies that overcharge Medicaid, with anticipated savings of $20 billion through repayments to the government.
End subsidies valued at $31 billion for oil and gas companies.
Scrap a $19 billion tax break for real estate investors.
House Speaker Kevin McCarthy, R-Calif., has called for putting the U.S. government on a path toward a balanced budget. But by refusing to raise taxes or cut Social Security and Medicare spending, GOP lawmakers face some harsh math that makes it hard to slash deficits without risking a voter backlash ahead of a presidential election.
McCarthy told The Associated Press that his plan’s release has been pushed back because Biden’s proposal is only just being issued.
Senate Majority Leader Chuck Schumer, D-N.Y., expressed skepticism in a Monday speech that McCarthy has any coherent plan that House Republicans can coalesce around.
“Enough with the dodging, enough with the excuses,” Schumer said. “Show us your plan. And then show us how it’s going to get 218 votes on your side of the aisle.”
Biden’s deficit reduction goal is significantly higher than the $2 trillion that he had promised in his State of the Union address last month.
It’s a delicate time, with the U.S. economy already in a fragile state because of high inflation. If Biden and Congress fail to increase the statutory debt cap of $31.4 trillion by this summer, the government could default on payments and shove the U.S. economy into a recession.
Rohit Kumar, a former McConnell aide who is now an executive with the tax consultancy PwC, said Biden’s plan does matter “in terms of putting ideas out there.” He said that if Biden won a second term, elements of his spending blueprint could be part of negotiations in 2025 over the expiring provisions in the 2017 tax cuts that President Donald Trump signed into law.
Given the scope of the deficit reduction in Biden’s proposal, Kumar said, it is unlikely that the president’s plan would identify which parts of the expiring tax cuts he plans to keep, as the president has vowed no tax increases on anyone making less than $400,000. But while the White House has charged that Republican plans would increase deficits by $3 trillion, about $2.7 trillion of that total comes from renewing all the Trump-era tax cuts that disproportionately favored the wealthy.
Biden’s budget proposal would reverse some of the 2017 law. It would increase the top marginal tax rate to 39.6% on income above $400,000. For households with $1 million in income, earnings from capital gains—such as stocks or property sales—would no longer enjoy a discounted tax rate compared to wages.
The president would increase the corporate tax rate to 28% and increase the tax rate on U.S. multinationals’ foreign earnings from 10.5% to 21%.
In February, the nonpartisan Congressional Budget Office estimated that the national debt held by the public will grow by more than $20 trillion over the next decade. The publicly held debt — it reflects the cumulative impact of yearly deficits — would be equal to 118% of U.S. gross domestic product, up from 98% this year. Biden’s budget would reduce the debt, though it would still be high relative to historical levels.
Biden has been arguing, first and foremost, that his budget will be fair to workers and middle-class households.
The president contended in a Monday speech that there are around 680 billionaires in the United States and that many of them pay taxes at a lower rate than a typical family.
“No billionaire should be paying a lower tax rate than a firefighter — nobody,” Biden said at a gathering of the International Association of Fire Fighters.Fortune‘s CFO Daily newsletter is the must-read analysis every finance professional needs to get ahead. Sign up today.