A Cherry Blossom Budget
Tourists are back in Washington for spring break after a two-year hiatus and the cherry blossoms are nearing full bloom. In D.C., that can mean only one thing: it’s time for the announcement of the president’s annual budget! Indeed, President Biden offered his fiscal year 2023 spending outline to Congress on Monday.
The White House budget gets a lot of press, and this year has been no exception. But while the release of the budget must come before federal lawmakers can get to work on the next year’s spending bills, how impactful is the president’s budget really? What is in this year’s outline, and will it actually get any traction on Capito Hill?
Those are the million-dollar questions – or, really, the 5.8 trillion dollar questions since that figure reflects the actual heft of the president’s fiscal year 2023 proposal. Let’s take a look.
A BBB Tax Idea Comes Back to Life
Americans still have a few more weeks to file their taxes, but Monday’s news cycle was dominated by analysis of the revenue-generating ideas that President Biden outlined to pay for his fiscal year 2023 spending and his plans to reduce the federal deficit. (More on that goal in a bit.)
First, the Biden administration proposed a so-called “Billionaire Minimum Tax”, which would impact households with net worths totaling more than $100 million. These taxpayers would have to ensure that they paid the equivalent of at least 20 percent of their incomes and unrealized capital gains to the Internal Revenue Service (IRS) each year by making “top up” payments directly to the federal treasury. According to the White House, this proposal would raise an additional $360 billion in revenue over the next decade, more than half of which the Biden administration expects would come from the 700 or so billionaires who call the United States home.
If this plan sounds familiar, it’s because the outline largely mirrors a proposal offered by Senate Democrats last year to pay for the president’s Build Back Better (BBB) spending bill. That outline would have applied the minimum tax to taxpayers whose net worth was more than $1 billion or whose income exceeded $100 million over three consecutive years. House Ways and Means Chair Richard Neal (D-Mass.) had expressed some concerns about that plan and how quickly it could be implemented. So did House Speaker Nancy Pelosi (D-Calif.) and, perhaps more critically, Sen. Joe Manchin (D-W.Va.).
The White House seems to have at least attempted to address some of these worries. Under the new White House plan, for example, taxpayers could spread initial “top-up” payments over nine years and future additional payments on new investment income over five years. Households also could defer payments until future years but would owe interest to the IRS.
Will the adjustments help? Perhaps with Ways and Means Chair Neal and Speaker Pelosi, but Sen. Manchin seemed opposed to the idea in principle. Last fall he said, “People in the stratosphere, rather than trying to penalize them, we ought to be pleased that this country is able to produce the wealth.” He sounded a similarly critical note this week, saying, ““You can’t tax something that’s not earned. Earned income is what we’re based on.” As such, it doesn’t seem that this tax proposal is likely to gain real traction any time soon.
Budget Would Raise Other Taxes As Well
The Billionaire Minimum Tax is not the only revenue raiser included in the president’s budget outline. President Biden also wants to:
Raise the corporate tax rate from its current rate of 21 percent to a higher rate of 28 percent;
Increase the top individual tax bracket to 39.6 percent;
Repeal several tax breaks for oil and gas producers and processors;
Tax carried interest as regular income, or close the so-called carried interest loophole; and
End tax deferrals on the gains from like-kind exchanges.
The White House says these proposals would fix “the tax code to ensure corporations and wealthy people pay the taxes they already owe and close loopholes they exploit.”
Sen. Manchin is not the only lawmaker who is likely to disagree with that message.
With a new report indicating 57 percent of Americans pay no federal income taxes (a figure that is up from 44 percent pre-pandemic), Republicans are even more unlikely than before to agree with Democrats’ arguments that it is time that corporations and the wealthy “pay their fair share.” In fact, Sen. Rick Scott (R-Fla.) is working hard to ensure a bill that would require all Americans to pay at least some income tax is part of the GOP’s campaign platform for the 2022 midterm elections. (Senate Republican leadership has pushed back – hard – against Scott’s proposal.)
Channeling Manchin on Inflation
While Sen. Manchin is more likely to agree with Republicans than the White House on the budget’s tax proposals, he might be swayed by the president’s rhetoric on inflation. Readers might recall that it was Sen. Manchin’s concerns about inflation that sunk the BBB last fall. Sen. Manchin had said he was concerned about the impact trillions of dollars in new spending would have on inflation, the federal deficit, and the national debt.
The president’s budget outline clearly indicates he has not given up on the BBB spending plan, or Sen. Manchin. While the request does not include specific line items for BBB programs, the messaging included in the budget is a definite response to the debate surrounding the BBB. As Axios reported, playing into Sen. Manchin’s hand, the president even admitted deficit spending contributes to higher inflation. In a White House news briefing about the budget, Council of Economic Advisers chair Cecilia Rouse also said, “A lower deficit will help ease long-term inflationary pressures and make our fiscal trajectory more sustainable.”
The budget outline predicts that, under President Biden’s plans, the annual federal deficit would decline each of the next 10 years. Overall deficit reduction would total about $1 trillion over the next decade. That news must have been music to Sen. Manchin’s ears and certainly could be enough to at least keep him at the BBB negotiating table.
Of course, inflation is on the White House’s mind for other reasons as well. According to a new NBC News poll, when asked who they hold responsible for the high inflation rate, 38 percent of respondents said they blame President Biden and his policies. A little more than one quarter (28 percent) blame the pandemic while only 23 percent blame corporate price increases.
The budget also is a messaging document for Democrats facing tough races this fall. And, ultimately, that might be all the president’s fiscal year 2023 budget is.
The Upcoming Budget Process
While the president is required by law to submit a budget to Congress, federal lawmakers don’t have to do anything with it. And they often don’t. Congress doesn’t have to vote on the request and typically both chambers actually write budget resolutions of their own. Often, if the president’s party holds both chambers of Congress, these outlines will reflect the White House’s priorities.
But they don’t have to. And, in addition to the tax proposals, there is plenty in the outline released this week to divide Democrats.
As Fox News reported, for example, Progressive Democrats criticized the president’s proposed increases in military spending. “It is simply unacceptable that after the conclusion of our longest war and during a period of Democratic control of both chambers of Congress, the President is proposing record-high military spending,” the Progressive Caucus posted on Twitter on Monday.
In other words, President Biden’s fiscal year 2023 budget is likely to be just like the cherry blossoms: the talk of the town for a week or so, but just a memory by the end of April.