Joe Biden has proposed big tax increases for US corporations, investors and the wealthiest Americans as part of a sweeping budget plan that the White House said would reduce the federal deficit by nearly $3tn over the next decade.
Biden laid out his budget plans in a speech in Philadelphia on Thursday afternoon, as the Democratic US president seeks to draw a sharp contrast with Republican lawmakers ahead of a looming battle on Capitol Hill over the debt ceiling.
With Republicans in control of the House of Representatives following November’s midterm elections, the budget will almost certainly not become law but instead offers Biden a chance to set out his economic vision ahead of his expected run for a second term in the White House in 2024.
Republicans have said they will not sign on to raising the federal borrowing limit unless Democrats push through significant budget cuts.
Republican House leadership issued a joint statement on Thursday calling Biden’s proposal “reckless” and “unserious”. They urged lawmakers to “cut wasteful government spending”. Republicans have yet to publish an alternative budget or specify how they would go about bringing down the deficit.
While Biden’s budget includes trillions of dollars in spending on a range of Democratic policy priorities — from continued support for Ukraine and Nato to more healthcare investment for senior citizens and the poor — the White House was adamant that the plan “more than fully pays for its investments” by raising taxes on big companies and high earners.
The proposed tax rises include a 25 per cent minimum tax for billionaires, a 28 per cent corporate tax rate, and a doubling of the tax rate on US multinationals’ foreign earnings from 10.5 per cent to 21 per cent.
The White House has also called for a quadrupling of the tax rate on corporate stock buybacks, from 1 per cent to 4 per cent, and a reversal of Donald Trump’s tax breaks for Americans earning more than $400,000 a year.
The administration’s plan also includes a proposal to increase the rate of tax on capital gains for people with annual incomes of more than $1mn, and end the so-called carried-interest loophole that reduces the tax burden for fund managers.
The White House has also laid out plans to claw back money from pharmaceutical companies and big oil groups by expanding the government’s ability to negotiate drug prices and eliminating tax subsidies for oil and gas companies, among other proposals.
The budget comes at a critical juncture for the US economy, which has roared back since the depths of the Covid-19 pandemic but is now saddled with one of the worst bouts of inflation in decades.
To get price pressures under control, the Federal Reserve has embarked on a historic campaign to raise interest rates, having lifted the federal funds rate by nearly 4.75 percentage points in a year. In congressional testimony this week, Jay Powell, the Fed chair, warned that the US central bank may have to be more aggressive than expected and that further rate rises were forthcoming.
Speaking with reporters on Thursday, Cecilia Rouse, the outgoing chair of the Council of Economic Advisers, said that while inflation remained “too high” and policymakers still had “more work to do to lower it”, there were signs that price pressures had begun “gradually easing”.
According to the economic assumptions underpinning the budget, the White House expects the consumer price index to fall to 4.3 per cent in 2023 and 2.4 per cent in 2024 — a significant step down from its current 6.4 per cent level. The unemployment rate, meanwhile, is projected to rise to 4.3 per cent in 2023 and climb another 0.3 per cent in 2024 to peak at 4.6 per cent. It currently hovers at a multi-decade low of 3.4 per cent.
Growth is also set to slow, according to the White House, with real gross domestic product growth registering a 0.6 per cent year-on-year pace in 2023 before rebounding to 1.5 per cent in 2024.
“We’re confident we’ll get back to steady and stable growth. However, the road there will continue to be a bumpy one,” said Rouse.