Joe Biden proposes higher taxes, spending and debt in $7.3tn budget

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Joe Biden unveiled a $7.3tn budget plan for 2025 which would push US debt over 100 per cent of gross domestic product, as the president laid out a fiscal agenda that boosts spending but plans to save $3tn through higher taxes over 10 years.

The administration’s fiscal projections were announced in its annual budget proposal on Monday, which is designed to draw a sharp contrast with former president Donald Trump’s economic plans ahead of the presidential election in November.

Trump has vowed to renew the sweeping tax cuts enacted during his term in the White House in 2017, and limit government spending, while Biden is planning to raise taxes on big businesses and the wealthiest households to reduce deficits, offer tax credits to families with children, and help preserve funding for social programmes.

Many of the provisions in Biden’s budget are unlikely to be adopted by Congress, given that Republicans opposed to his policies control the House of Representatives. But the plan signals the president’s priorities if he were to win a second term in office and is able to secure Democratic majorities on Capitol Hill.

Under Biden’s projections, the US debt held by the public would hit 102.2 per cent of GDP in 2025, up from 97.3 per cent at the end of 2023, and rise further to 106 per cent by 2030, before falling back to 105.6 per cent by 2034.

The budget deficit was set to come in at 6.1 per cent of GDP next year, while interest payments servicing the US debt would rise above $1tn per year by 2026.

Republicans, led by House Speaker Mike Johnson, condemned the budget as “a road map to accelerate America’s decline”.

“The price tag of President Biden’s proposed budget is yet another glaring reminder of this administration’s insatiable appetite for reckless spending and the Democrats’ disregard for fiscal responsibility,” the party said in a statement.

The Congressional Budget Office, the official fiscal watchdog, is yet to deliver its own assessment of Biden’s latest tax plans, which would require congressional approval.

However, the CBO said earlier this year that it projected government debt to hit a high of 116 per cent over the next 12 years.

Widening US deficits led rating agency Fitch to strip the US of its triple A rating in August, saying the country’s fiscal predicament meant its debt burden would far exceed levels seen in other nations that held its top rating.

Economists are also becoming increasingly concerned about the lack of bipartisan support for efforts to rein in deficits.

The administration, which has committed to not cut spending on social security or healthcare, may have slightly more fiscal room than expected.

The projections are based on forecasts made in November, when the Council of Economic Advisers expected that growth would come in at 2.6 per cent in 2023 and 1.3 per cent this year.

Data has since shown that the economy expanded by 3.1 per cent between the fourth quarter of 2022 and 2023, and analysts are upgrading their forecasts for this year too on the back of signs that the labour market has remained more resilient than many economists feared.

Also included in Monday’s proposals was a request for $895bn for the overall defence and national security budget, an increase of just 1 per cent rise over the 2024 budget because of a deal struck with Congress last year to avoid a government default.

Analysts said the modest increase would mean less money for areas such as procurement and research, and would delay efforts to rebuild US weapons stocks worn down by support for wars involving Ukraine and Israel.

The request from the Pentagon for more money next year comes even as Congress has failed to agree an overall budget for 2024, preferring to roll over spending plans through stop-gap measures known as continuing resolutions. The Pentagon says the budget uncertainly hinders longer-term planning.

The latest budget demand is also separate from the White House’s request for more funding for Ukraine, Israel and other allies.

“We need Congress to come together. The world is watching what we do in this moment, it’s tracking whether we can unite and overcome the headwinds facing our national security and our democracy,” said deputy defence secretary Kathleen Hicks.

She added: “Our adversaries in particular are observing our willingness to step forward for our allies and partners.”

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