Joe Biden unveiled a $7.3 trillion (€6.7 trillion) budget plan that would push US debt over 100 per cent of gross domestic product in 2025, as the president laid out a fiscal agenda that boosts spending but plans to save $3 trillion 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.
Mr Trump has vowed to renew the sweeping tax cuts enacted during his term in the White House in 2017, and limit government spending, while Mr 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.
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Under Mr 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 $1 trillion per year by 2026.
Republicans, led by House Speaker Mike Johnson, condemned the budget as “a roadmap 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 (CBO), 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 ratings 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. – Copyright The Financial Times Limited 2024
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