President Biden released his fiscal year 2024 budget on Thursday. Though the budget request will be met with skepticism from both parties on Capitol Hill, it serves as a starting point for Congress in negotiating a spending deal ahead of the start of the fiscal year on October 1.
Here are some key facts and figures from the President’s budget request, especially as it compares to the recent budget baseline released by the nonpartisan Congressional Budget Office (CBO) in February.
Fiscal Year 2024: $400 Billion in New Spending, $200 Billion in New Revenue
Although President Biden has touted the 10-year deficit reduction in his budget request, his budget would actually increase the deficit in fiscal year (FY) 2024:
- Total spending would be $6.883 trillion compared to $6.493 trillion projected in CBO’s baseline, a $390 billion increase;
- Total revenues would be $5.036 trillion compared to $4.838 trillion projected in CBO’s baseline, a $198 billion increase; and
- The total deficit would be $1.846 trillion compared to $1.655 trillion projected in CBO’s baseline, a $191 billion increase.
Policymakers in both parties often propose increased spending or decreased revenues in the immediate future and promise savings in the latter years of a 10-year window. Taxpayers should be skeptical that, if the Biden budget request were enacted, policymakers would actually follow through on the tough budgetary choices years down the road that are supposed to “pay for” new spending today.
The Ten-Year Outlook: $2.3 Trillion in New Spending, $5.5 Trillion in New Revenue
President Biden’s budget would reduce deficits by more than $3.1 trillion from FYs 2024 through 2033 relative to CBO’s baseline, even though he proposes spending $2.3 trillion more in the same time period than CBO projects.
This is because Biden’s request would provide for $5.5 trillion more in new revenue from FYs 2024 through 2033 than CBO has projected. Revenue would be more than nine percent higher on average than in CBO’s baseline: 19.65 percent of GDP over the 10-year period in the Biden budget, rather than 17.96 percent of GDP in CBO’s baseline.
Spending will actually be at least $100 billion higher in every single year of the 10-year window than what CBO projected just last month. It will be $390 billion higher in FY 2024, $1.530 trillion higher from FYs 2024-28, and $792 billion higher from FYs 2029-33.
The Biden budget request projects higher net interest costs on federal government debt for each of the first four years of the 10-year budget window: $50 billion more in FY 2024, a total of $127 billion more from FYs 2024-29, and then $362 billion less than CBO projections from FYs 2029-33. In total, the Biden budget projects the U.S. will make $10.2 trillion in net interest payments on the debt from FYs 2024 through 2033.
Net interest payments amount to spending solely on past consumption, and serve no useful present-day or future purpose to American taxpayers. Under the Biden budget proposal, net interest will account for 15.67 percent of revenue collected over the next 10 years – nearly one in every six dollars, even accounting for the budget’s significant revenue increases.
Key Spending Proposals
Part of the reason why President Biden’s budget spends $2.3 trillion more than CBO projects for the 10-year window is because of his proposals to increase or create new spending in key categories, including:
- $429 billion to expand the child tax credit on a temporary basis (includes $40.8 billion in revenue decreases);
- $424 billion in new child care spending “for low- and middle-income families”;
- $325 billion on a federal paid family and medical leave program;
- $200 billion in new spending for “free, universal preschool”;
- $200 billion to extend health coverage to low-income individuals in states that did not expand Medicaid under the Affordable Care Act (ACA);
- $183 billion for permanently expanding premium tax credits (PTCs) that offset the cost of private health insurance in the ACA exchanges (currently a temporary expansion of PTCs is set to expire after 2025);
- $156 billion to expand the Earned Income Tax Credit permanently for childless workers (includes $19 billion in offsetting revenue increases);
- $150 billion to expand Medicaid’s “home and community-based” care services;
- $96 billion to expand the Pell Grant program that offsets the cost of college for low-income families; and
- $90 billion to “[f]und free community college.”
These are only the largest spending proposals in the budget. Even though the President’s budget reduces deficits relative to CBO’s baseline – because the budget includes $5.5 trillion in revenue increases – the trillions of dollars in additional spending outlined above cut into the deficit reduction the Biden budget could otherwise achieve.
Key Revenue Proposals
The reason the President is able to claim the budget reduces deficits over 10 years is because, even though it spends $2.3 trillion more than CBO’s current baseline, it raises $5.5 trillion more in revenue than in CBO’s current baseline.
Key revenue increase proposals include:
- $1.326 trillion from increasing the corporate tax rate from 21 percent to 28 percent;
- $549 billion from adopting the undertaxed profits rule negotiated by dozens of countries at the international level;
- $493 billion from tax increases on U.S. corporate income earned abroad;
- $437 billion from a billionaire minimum income tax;
- $344 billion from increasing the net investment income tax (NIIT) rate and Additional Medicare Tax rate for taxpayers making more than $400,000;
- $306 billion from expanding the NIIT base to pass-through income;
- $238 billion from quadrupling the stock buyback tax;
- $235 billion from increasing the top individual income tax rate from 37 percent to 39.6 percent;
- $214 billion from taxing capital gains as ordinary income for those with more than $1 million in income; and
- $116 billion from repealing the foreign-derived intangible income deduction U.S. companies can claim for exports.
These combined proposals total to $4.258 trillion in additional revenue from fiscal years 2024 through 2033.
Discretionary Spending
President Biden is proposing $1.695 trillion in discretionary spending – the slice of spending controlled by Congress annually – in FY 2024, which would be a $77 billion or 4.76 percent increase over FY 2023 enacted levels:
- Defense discretionary spending would receive a $28 billion boost, or 3.26 percent, from $858 billion in FY 2023 to $886 billion in FY 2024; and
- Nondefense discretionary spending would receive a $49 billion boost, or 6.45 percent, from $760 billion in FY 2023 to $809 billion in FY 2024.
The Biden budget request proposes moving Veterans Affairs (VA) Medical Care Program funding into its own, separate third category. This is the second time the Biden administration has proposed such a budgetary adjustment. If successful this reform could put upward pressure on non-defense discretionary spending in the future, given VA medical spending is currently included in the non-defense category and Congressional Democrats often argue for dollar-for-dollar (or percentage) “parity” between defense spending increases (favored by Republicans) and non-defense spending increases (favored by Democrats).
Takeaways
Overall, the President’s budget should be concerning to taxpayers for a few key reasons:
- It raises revenues by nearly $5.5 trillion in the next 10 years relative to CBO’s baseline, or an average of 1.7 percent of GDP per year, which could negatively impact business investment and economic growth in the years ahead;
- It raises spending by $2.3 trillion in the next 10 years relative to CBO’s baseline, or an average of 0.8 percent of GDP per year, which eats into the deficit reduction the budget could otherwise achieve from the aforementioned revenue increases; and
- It fails to stabilize debt-to-GDP levels, which under the President’s budget will increase slower than CBO’s current baseline but still rise from 98 percent of GDP in FY 2023 to nearly 110 percent of GDP by FY 2023.
NTUF looks forward to scrutinizing the President’s budget further, as well as the House Republican response expected later this spring.