A framework for the goals Biden intends to pursue in his second term was provided by the Biden Administration's budget plan for 2025. (Photo : by Chip Somodevilla/Getty Images)
A framework for the goals Biden intends to pursue in his second term was provided by the Biden Administration's budget plan for 2025. While the budget maintains President Biden's promise to not raise taxes on any household earning less than $400,000 annually and contains some commendable initiatives and real revenue increases to support them, it also uses gimmicks to hide the fact that the president cannot sustainably finance his proposed agenda.
The Biden budget calls for an increase in expenditure of almost $3 trillion over the next ten years to support significant programs that would support working families, such as Medicaid expansion, universal preschool, and an increased child tax credit.
Additionally, Biden suggests raising taxes on corporations and rich Americans in order to generate an additional $5 trillion in revenue. Biden's proposed corporate tax increases include lifting the corporation alternative minimum tax rate from 15% to 21%, increasing the corporate income tax rate from 21% to 28%, and taxing a larger portion of firms' international profits.
Regarding the individual side of things, Biden proposes raising Medicare taxes for high earners, bringing back the pre-2017 income tax rates for people over $400,000, and imposing a 39.6% capital gains tax on people over $1 million. He also wants to create a new tax on centi-millionaires that will include unrealized income.
Over the following ten years, the president's budget is credited with decreasing deficits by around $3 trillion, largely due to these tax rises and some small suggested spending cutbacks. Regretfully, most of these savings are imaginary. A large number of the 2017 tax cuts are now set to expire in 2025; however, the Biden budget suggests making the tax cuts permanent for all households-roughly 98% of all households-whose incomes fall below the $400,000 threshold.
Apart from a vague reference to "additional reforms to ensure that wealthy people and big corporations pay their fair share," the costs, which come to about $1.7 trillion over ten years, are not explained in any way. Other expensive tax provisions, like Biden's proposed extension of the Child Tax Credit and continuing a temporary increase in health insurance subsidies from the Inflation Reduction Act, are also assumed to be offset by unspecified tax increases after 2025.
Republicans' reckless plans to extend the 2017 income tax cuts universally, which would cost $2.6 trillion plus interest over 10 years and disproportionately benefit the wealthiest Americans, are undoubtedly preferable to Biden's strategy.
Balancing Program Extensions Without Breaking Tax Promises
However, Biden will have a difficult time raising the extra money required to balance the programs he favors extending without breaking his $400K tax vow given the billions in tax rises on the wealthy that are already planned in his budget.
As PPI shown in a previous analysis, Biden's commitment eliminates more than 80% of the average person's yearly income. If the tax policies outlined in Biden's budget were implemented, the tax rates on the remaining 20% of income would probably be near to their revenue-maximizing rates.
This would make it extremely unlikely that future tax hikes on this income would result in greater offsets. For instance, the average tax rate that firms pay, which is 25.8%, is already at the OECD average when the federal and state rates are combined. With Biden's suggested changes, it would rise to 33.8%, the second-highest percentage among our peer nations.
Furthermore, given that people frequently pay state taxes on capital gains, a top federal rate of 39.6% would surely leave little leeway for future hikes, even if experts disagree on precisely how high capital gains taxes may be raised without impairing growth or decreasing revenues.
The unfunded promises our government has already made would not have any money left over, even if Biden could extract enough money from the very wealthy to completely balance his new spending plans. As our population ages, spending on Social Security and Medicare is increasing faster than the money required to fund them.
Unless fundamental imbalances in the funding of these programs are addressed, current legislation will automatically reduce their benefits over the next ten years. This year, Biden's budget plan essentially uses the same budgetary tricks as previous years to cover up the issues.
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