President Joe Biden has proposed the nation’s largest budget since the end of World War II.
Joe Biden intends to invest heavily in supporting the middle and lower classes, infrastructure, climate protection and education. His critics, though, fear inflation.
The first draft of Biden’s $6 trillion budget contains the most ambitious proposals, including investments in infrastructure and the labor market worth $2.3 trillion, $1.8 trillion to be transferred to supporting families and $1.5 trillion to federal agencies. In total, by 2031, the project draft assumes expenses of $8 trillion, but also a record-high budget deficit of over $1.3 trillion. As has not happened since World War II, within a decade the national debt is projected to reach 117% of gross domestic product in 2031, and only then to start falling.
The reward is to have stable economic development. “[T]his budget is an agenda for robust and sustainable economic growth and widely shared prosperity. It will create a strong economy now and for decades into the future,” said Shalanda Young, acting director of the White House’s Office of Management and Budget.
The Rich for the Poor
The expenditure plan includes investments in infrastructure for environmental protection, and also an increase in assistance for social programs. This will include education subsidies, the reduction of child care costs and funding for sick leave. “Our prosperity comes from the people who get up every day, work hard, raise their family, pay their taxes, serve their nation,” said Biden.
In a sense, this is a Robin Hood-style budget, since the president proposes to fund the spending on infrastructure and social plans with tax increases on corporations and the wealthiest.
The “frontloaded investments are more than paid for through permanent tax reforms that will ensure corporations and the wealthiest Americans pay their fair share,” said Young.
Biden’s tax reform is a slap in the face to his predecessor, Donald Trump, who cut taxes. The incumbent president has promised not to increase taxes for Americans earning less than $400,000 a year, and he doesn’t intend to extend the tax cuts introduced by the former administration, which are set to expire in 2025.
Good Forecasts Not Convincing
Republicans remain skeptical about the increase in taxes. They warn that this will slow economic growth and harm America’s competitiveness in global markets. The current president’s administration argues that the increase in taxes will restore economic balance, which will benefit businesses as well as workers, who are expected to earn more. Government investments in infrastructure as well as research and development are intended to help American businesses compete with China and other countries dominating the high-tech sector. On the other hand, everyone will benefit from the transition from fossil fuels to clean energy sources.
According to Biden’s budget plan, the U.S. economy will grow by 5% in 2021, rebounding after the pandemic, by 4.3% over the next year, and then by 2% per year. These are very optimistic estimates since the U.S. economy hasn’t grown by more than 4% of GDP per year in 20 years. The current forecast is not much different from the previous ones; for example, Wall Street experts predict growth at 4.7% in 2021. According to the White House, unemployment is expected to fall from 6.1% in April this year to 4.1% next year, and then to remain at 3.8%.
The Republicans are sounding the alarm that Biden’s plan will lead to drastic inflation. The White House, on the other hand, contends that economic growth will not be accompanied by a drastic decline in the value of money, despite the rising prices in the past two months, which it calls “transitory.” Biden’s administration estimates that prices will rise by slightly more than 2% over the next decade.
The Washington Post has noted that a positive attitude toward economic indicators always accompanies White House budget proposals. Some economists who have spoken to the newspaper stress that it is hard to assess economic growth over the next couple of years in the current situation, since it is not certain whether, when and which sectors will go back to pre-pandemic activity.
To Convince Republicans
Nevertheless, optimistic attitude and visions of a robust economy provide hope for the Democrats who are running in the congressional midterm elections in 2022. Last year, they lost some seats in the House of Representatives, and historically, the incumbent president’s party usually loses seats in the lower chamber.
As far as the budget is concerned, everything depends on Congress, which can now sit at the negotiating table to decide if and how many of the president’s proposals will be implemented. Biden has little chance to push his vision of the budget with Democratic votes alone, but there is a group of Republicans in the Senate who are negotiating an agreement with the president to invest in building infrastructure, including roads and bridges.
According to commentators, Biden will not succeed in convincing Republicans to agree to tax increases; the prospect of economic growth that his budget draft provides for will not help him with that.