Biden’s Budget Details Economic Goals

April 3, 2024 | Biden, Update | By

Update 762 — Menu for the Next  Trifecta:
Biden’s Budget Details Economic Goals

President Biden submitted his FY25 budget proposal to Congress on Monday, not a program anyone expects to see this Congress enact, but a set of policy aspirations and a full-blown vision of a progressive agenda for the campaign ahead and a menu of options for the next Democratic trifecta. 

The plan, as ambitious as the one he proposed last year but more thematic on priorities, is worth studying and evaluating as a set of solutions to protect and expand programs like Social Security and Medicare, fix the imbalance and inequity in the tax code, and start addressing the national debt. How does it stand up by those measures? And how do these sometimes competing aspirations fit together? See below…

Best,

Dana

Just last week, President Biden spoke before Congress and over 32 million Americans to deliver his 2024 State of the Union address. He used this moment in the spotlight to highlight the Administration’s records and wins and to make the case for his agenda moving forward in a speech designed to establish contrasts with Trump and the GOP as the 2024 election cycle ramps up. 

On Monday, the Administration released its FY25 Budget, outlining the President’s priorities for the fiscal year to start in October and beyond. The budget would secure a broad range of policy goals, doing so by ensuring that wealthy individuals and large corporations pay their fair share —reinforcing the message that Biden articulated in the SOTU and is central to his re-election campaign.  

Neither the House Budget Committee Concurrent Resolution on the Budget released last week, nor the President’s Budget are technically legislative proposals in their current form. Rather, they serve as starting points for Congress as it considers funding priorities for FY25. In an election year, the President’s Budget also offers a policy roadmap for his administration if given another four years in office. 

Biden’s Budget Based on Raising Revenue 

In addition to opposing full-scale extension of Trump’s Tax Cuts and Job Act (TCJA) provisions for corporations and for individuals making more than $400,000 and corporations, the President’s Budget proposes changes that make the Tax Code more progressive and balanced. These policy provisions would generate trillions of dollars in additional federal revenue while ensuring that wealthy Americans and corporations do not pay effective tax rates lower than those paid by working-class Americans. 

Individual tax provisions in the budget proposal would raise an additional $2 trillion in revenue over 10 years and include:

  • instituting a minimum tax of 25 percent for the 0.01 percent of individuals with over $100 million in wealth;
  • increasing the top marginal income tax rate from 37 percent to 39.6 percent for individuals who make more than 400,000 a year and couples who make more than $450,000 a year;
  • bringing the tax rate for capital gains in line with individual income tax rates for families who make more than $1 million. This would increase the long-term capital gains rate for wealthy individuals from 20 percent to 39.6 percent; and
  • closing loopholes related to carried interest, retirement incentives, life insurance tax shelters, and the stepped-up basis for gains on inherited assets. 

Corporate tax provisions in the budget proposal would raise an additional $2.7 trillion in revenue over 10 years and include:

  • raising the corporate tax rate from 21 percent to 28 percent; 
  • raising the Corporate Alternative Minimum Tax (CAMT) from 15 percent to 21 percent;
  • implementing the OECD Pillar Two agreement by preventing the offshoring of profits to tax havens and raising the tax rate for foreign earnings by U.S. multinationals from 10.5 percent to 21 percent;
  • eliminating corporate subsidies for employee compensation over $1 million; and
  • increasing the stock buyback tax implemented through the IRA from one percent to four percent. 

The President’s FY25 Budget also prioritizes funding for the IRS so the agency can enforce the Tax Code through expanded audits and crack down on wealthy tax cheats. The investment promotes a fairer Tax Code and generates a return in federal revenue that can be returned in benefits for the American people and for communities.

Expanded Returns for the American People 

The additional federal revenue generated by the tax provisions listed above would help pay for sweeping investments in housing, children/families, and higher education among other priorities. These investments would support and build the lower- and middle-class economies instead of relying on resources and opportunities to “trickle down” from the wealthy and corporations. 

  • Housing

In addition to the $72.6 billion for HUD – essentially level funding since last year – the President’s Budget would provide $258 billion for a combination of new and existing measures to increase housing supply and improve housing affordability, including:  

  • $56 billion in housing tax credits, including an expansion of the Low Income Housing Tax Credit and a new Neighborhood Homes Tax Credit, which would build or preserve 1.6 million homes and rental units;
  • $7.5 billion in additional funding for the preservation and redevelopment of public housing;
  • $20 billion for competitive grants for state and local affordable housing initiatives; and 
  • $7.5 billion for HUD’s Project-Based Rental Assistance program for extremely low-income households. 

In keeping with his SOTU objectives, the President proposes provisions to help first-time homebuyers, notably including a $10,000 tax credit for first-time homebuyers, a $10,000 tax credit to encourage homeowners to sell their starter homes, and $10 billion for a first-generation homebuyers down payment assistance program.

The budget proposal would bolster efforts at the federal, state, and local levels to decrease evictions and reduce homelessness. The initiatives include $8 billion for a grant program to rapidly expand temporary and permanent housing for people experiencing or at risk of homelessness, $4 billion in Homeless Assistance Grants, and $3 billion for state and local efforts to curtail evictions.

  • Child Tax Credit and Childcare

President Biden’s Budget reinforces the Administration’s commitment to providing much-needed relief for American families. Under the proposal, the Child Tax Credit (CTC) would be restored to the full American Rescue Plan Act’s expansion level, a standing Democratic priority. Families receiving $2,000 per child would be eligible for up to $3,000 per child six years old and over and $3,600 per child under six. The proposal would also make the CTC fully refundable for families who do not meet the income requirements for the current CTC. The President’s Budget highlights that these sweeping expansions cut child poverty in half when implemented in 2021. Additionally, families would have the option of receiving the credit in advance monthly installments rather than as an annual lump sum refund.  

This Child Tax Credit proposal comes at a time when a House-passed tax package — that would pair a more modest expansion of the CTC with three business-friendly tax provisions in a bipartisan compromise — is stalled in the Senate. In contrast with the President’s sweeping expansion to complete ARPA levels, the package waiting for consideration: 

  • phases in the credit on a per-child basis
  • increases refundability yearly until 2025 with a maximum of $2,000, 
  • adjusts the credit for inflation, and 
  • introduces a “lookback” provision that allows recipients to choose their year’s income to set the credit’s value. 

Senator Mike Crapo (R-ID) continues to block the bill over concerns about the bill’s lookback provision, perhaps aimed at preventing a perceived CTC win for Biden and Democrats this election cycle. 

The President also introduced a new program for families with incomes less than $200,000 to access affordable high-quality childcare from birth through kindergarten, at a maximum of $10 per day for most families. This program would reach over 16 million children and save American families over $600 monthly in childcare costs.

  • Education Finance

President Biden includes several provisions to provide student debt relief and reduce the cost of higher education. His proposal includes $625 million in additional funding for the Federal Student Aid office to better support the 46 million student loan borrowers. Part of this funding will go towards modernizing the student loan repayment system and streamlining the Free Application for Federal Student Aid, or FAFSA, application process. President Biden also proposed increasing the maximum Pell Grant award to $8,145 and allocating $12 billion for a Reducing the Costs of College Fund to support initiatives that would improve graduation rates while making costs affordable for students.

Paths Forward for Social Security and Medicare 

The President’s FY25 Budget also works to extend the solvency of Social Security and Medicare while expanding benefits and services for beneficiaries who pay a portion of each paycheck into the programs. Currently, Social Security and Medicare are projected to become insolvent by 2034 and 2031, respectively, which would result in across-the-board benefit cuts. 

On the same day the FY25 Budget was released, presumptive Republican nominee Donald Trump stated, “There is a lot you can do in terms of entitlements, in terms of cutting.” When contrasted with the President’s plan for Social Security and Medicare, voters should feel secure in choosing President Biden as a champion for securing the benefits they have earned. 

Social Security

Biden’s FY25 Budget does not include detailed proposals to address the projected insolvency of Social Security. It does include promises to prevent benefit cuts, widen the scope of the Social Security payroll tax to cover income over the current cap of $168,600 and expand benefits for seniors and people with disabilities. 

The President’s FY25 Budget would also offer an additional $1.3 billion in funding for the Social Security Administration (SSA) in FY25, which is facing the highest number of beneficiaries in history with dwindling staff capacity. Adequate funding for the SSA is crucial to protecting access to Social Security Benefits, as OMB Director Shelonda Young noted while testifying in front of the Senate Budget Committee yesterday. 

Medicare

The President’s FY25 Budget would extend Medicare solvency indefinitely by modestly increasing the Medicare payroll tax rate on wages and investment income from 3.8 to 5 percent for those who make more than $400,000 a year. It would also eliminate a loophole that allows individuals to avoid paying Medicare payroll taxes on pass-through business income and ensure that revenue collected from the program’s Net Investment Income Tax (NIIT) is passed directly to the Medicare Hospital Insurance Trust Fund.  

The blueprint also expands the authority for Medicare to negotiate drug prices past what was enacted in the Inflation Reduction Act (IRA). This is expected to generate billions of dollars in savings for the federal government and individuals. Under the President’s Budget, savings on drug costs would be passed onto the Medicare Trust Fund, further protecting funding and funding an expansion of services. 

Senate Budget Discusses Biden Proposal

On Wednesday, the Senate Budget Committee held a hearing to discuss the President’s Budget for FY25 as the Committee does each year. Chair Sheldon Whitehouse (D-RI) opened the hearing, praising the proposal for highlighting tax fairness and investing in important priorities while lowering the deficit and the debt-to-GDP ratio. Other Democratic Senators echoed this sentiment and thanked OMB Director Shelonda Young and the Administration for offering funding for investment in their priority issue areas and the communities they represent. 

Committee Republicans took shots at the budget framework’s partisan nature, noting that many of the proposals should not and could not pass in their current form as mostly representative of Democratic values and priorities. They focused on the impact of spending on the nation’s fiscal condition without acknowledging Republicans’ historic contributions to the deficit through fiscally irresponsible tax cuts during the Bush and Trump administrations. 

Road Ahead: Congressional Process and the Campaign 

Republicans will continue to argue that spending alone is to blame for the nation’s circumstances and outlook regarding the national debt and deficit. Despite the many investments in the American people included in the President’s FY25 Budget, it would cut deficits by $3 trillion and stabilize the debt-to-GDP ratio over ten years, while ensuring that taxes do not increase for the 98.2 percent of Americans who make less than $400,000 a year. 

The President’s FY25 Budget paints a picture of tax fairness and economic prosperity, one not possible with revenues currently crippled by the 2017 TCJA, which cut taxes for the wealthy and corporations and added $2 trillion to the national debt. It envisions a future where resources flow more fairly from the wealthy and corporations to lower and middle-income Americans instead of vice versa. 

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