Reuters
When U.S. President Joe Biden rolls out his budget plans at a Philadelphia union hall on Thursday, he will highlight something that merited little mention during his last presidential campaign – a pledge to cut trillions from the government’s deficit.
Biden ran in 2020 on putting money in people’s pockets and rebuilding the middle class, and the U.S. federal deficit wasn’t on a long list of campaign promises. But on Thursday, cutting nearly $3 trillion from the deficit over a decade, by raising taxes on companies and people earning over $400,000 a year, will be a topline goal, according to an administration official.
Biden’s increasing emphasis on the deficit now doesn’t mean the White House sees an imminent crisis looming from the nation’s $32 trillion debt.
Instead, the White House hopes to draw a sharp contrast with Republican threats to refuse to raise the debt limit without sharp spending cuts. Including this fiscal plan in Biden’s agenda can help shore up his economic credibility before his expected 2024 re-election campaign, the White House believes.
Taxing the rich and companies while maintaining Social Security, Medicare and Medicaid has widespread popular support, polls show. Hiking these taxes can help fix bedrock problems in the U.S. economy, Biden aides say.
“We have a fundamental problem with our tax system, which does not support the kinds of investments and commitments that the American people demand and want and expect. And that’s largely because Republicans kept cutting taxes over and over again, primarily for people at the top and for big corporations,” said Michael Linden, executive associate director at the White House’s Office of Management and Budget.
That doesn’t mean that what the White House is proposing is going to happen, of course. Congress’s lower chamber is controlled by Republicans who have said they want to demand sharp cuts on spending on Biden’s initiatives, and extend tax breaks passed under Donald Trump. And while Americans tell pollsters they want higher taxes on the rich, hiking taxes is never a politically savvy move.
“In 2023 and 2024, it is hard to see how any of the administration’s progressive tax proposals get done, but after 2025 is a different story if Democrats manage to get unified control of Congress back,” said Tobin Marcus, a former Biden economic aide and now an analyst for Evercore ISI, an investment bank.
DO AMERICANS CARE ABOUT THE NATIONAL DEBT?
The U.S. annual deficit was 5.4% of gross domestic product (GDP) last year, and the total debt stood above 120% of GDP, higher even than its levels at World War II peak.
Federal Debt to GDP by President https://www.reuters.com/graphics/USA-ECONOMY/RECESSION/byvrlqngxve/
The federal government last turned an annual surplus, which is used to pay down the long-term debt, in 2001, and Democratic presidents have been consistently better at reducing the deficit.
Federal Spending Contribution to GDP https://www.reuters.com/graphics/USA-ECONOMY/FISCAL/akpeqarqwpr/
Nearly six in ten people told Pew Research Center in January that reducing the deficit should be a top Biden administration priority. But when asked whether the government should mostly cut services to lower the debt or increase taxes, Americans are closely divided. Half said they would mostly cut spending, while 46% would increase taxes, according to a Marist poll last month.
Biden’s administration has treated the risk of deficits as more sanguine than was common among Democrats in years prior.
“There has been a sea change in attitudes,” said Jason Furman, a Harvard University economics professor who was former President Barack Obama’s top economic adviser. It has less to do with shifting economic thought than finance, he said. “The bond markets aren’t very worried about debt and deficits.”
Robert Reich, a former labor secretary during President Bill Clinton’s administration, said he did not believe the administration’s top economic officials he has worked with are “deficit hawks.”
He said many had learned from the 2008-2009 global financial crisis, when the U.S. government didn’t spend enough to restore the economy, and made no apologies about spending freely to prevent the same thing from happening in 2021.
“It was also extremely important to get out of the pandemic recession,” he said.
Biden aides believe deficits matter as a fiscal risk to the degree that they create unsustainable interest payments, discourage private sector spending and other investment, or distort the economy by increasing inflation.
None of those are factors now when U.S. 10-year Treasury rates are below 4%, still low by historical standards.
Reuters
