Mar 11, 2024 - Economy

Biden's budget shows the limits of taxing rich Americans

President Biden at the State of the Union address

President Biden at last week's State of the Union address. Photo: Chip Somodevilla/Getty Images.

President Biden's budget contains $3 trillion in deficit reduction, as administration officials are eager to tout. Large as that number may seem, though, the details show the limits of trying to reduce the United States' worrying fiscal situation on the backs of the ultra-rich.

Why it matters: The U.S. is facing a large deficit as a share of the economy — even if the Biden administration were to secure the tax increases on billionaires and large corporations it seeks.

  • The budget sticks to the president's pledge to protect families making under $400,000 from tax increases, expands tax benefits for working-class families, and rules out cuts to Social Security and Medicare.

Driving the news: The budget includes, among many other provisions, an increase in the corporate income tax to 28% from 21% and a minimum 25% tax on families worth more than $100 million a year. It eliminates corporations' ability to deduct the cost of salaries over $1 million.

By the numbers: The budget projects that the fiscal deficit will be $1.78 trillion in the 2025 fiscal year, 6.1% of GDP, down from a projected 6.6% in 2024.

  • The deficit then gradually falls as a share of the economy, to 4.7% in 2027, 4.3% in 2029, and 3.9% in 2034.

Between the lines: Those are the kinds of deficit numbers that have usually only occurred in times of national crisis, such as a deep recession, major war or pandemic.

  • But the Biden budget is premised on steady, non-recessionary GDP growth and a continued low unemployment rate at or just below 4%.
  • For example, the 6.1% of GDP deficit projected for 2025 is wider than that the U.S. ran in any year between 1962 and 2019, per Congressional Budget Office data, other than the aftermath of the global financial crisis from 2009 to 2012.
  • The 3.9% deficit as a share of GDP that the Biden budget pencils in for 2034 is higher than it was in any year from 1993 to 2007, a period that included a recession and wars in Iraq and Afghanistan.

The other side: In a briefing with reporters Monday morning, Biden administration officials emphasized the downward trajectory for the deficit in their budget and manageable interest expenses in the projections.

  • "It's important to look at the deficit as a share of the economy," Jared Bernstein, chair of the Council of Economic Advisers, said. "GDP is growing significantly over these years. We have a deficit that goes down considerably as a share of GDP."
  • The officials noted that net interest expense for the U.S. government remains below 2% of GDP in the budget forecast, which is not far out of line with historical norms.
  • "We consider that to be a positive indicator of fiscal responsibility," Bernstein said.

Yes, but: The budget is premised on short-term interest rates falling to below 3% later this decade. If rates stay persistently higher, the interest cost would become more onerous.

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