Experts predict that US President Joe Biden’s proposed federal budget plan, which includes spending proposals and higher taxes on the wealthy, is unlikely to become law due to stiff opposition in Congress. Republicans won control of the House of Representatives in November’s midterm elections, making it difficult for Biden to enact large parts of his plan. However, the proposal is a political statement that directly defies Republican House Speaker Kevin McCarthy’s threat to block an increase in the $31.4 trillion limit on federal borrowing unless Biden agreed to rein in federal spending.
Biden’s plan aims to cut the nation’s deficit by nearly $3 trillion across 10 years by raising taxes on those earning more than $400,000 a year and ending some corporate tax breaks enacted in 2017 under then-President Donald Trump. The White House said that Biden proposed funding higher outlays and closing the deficit by imposing a 25 percent minimum tax on billionaires and doubling the capital gains tax from 20 percent.
The budget includes a proposal to raise the corporate tax rate to 28 percent, higher than the current level but still below the 35 percent tax rate that prevailed before 2017 tax cuts enacted by his predecessor Donald Trump. It also aims to reduce the cost of childcare and ensure free preschool for all of the country’s four-year-olds. The budget also proposes cutting tens of billions of dollars in tax benefits currently enjoyed by oil and gas companies, real estate investors, fund managers, wealthy retirement savers and cryptocurrency traders.
Former Vice President Mike Pence, a Republican who is considering running in the 2024 presidential election, called the budget plans “a mishmash of shell games, budget gimmicks, and massive tax hikes that will harm economic growth while merely delaying Medicare’s insolvency by a few more years”. He said Biden could eliminate hundreds of billions of dollars from the deficit by repealing some of his policies, including a student loan forgiveness plan.
John Gimigliano, a senior tax executive at the accounting firm KPMG, said that while Biden’s proposals had “little-to-no shot” at becoming law, they served an important political purpose. “While the tax proposals that will be put forth by the administration later today are unlikely to get much traction in a divided Congress, it is the job of the president to reinforce the current administration’s view of the tax system for the American people and to keep these ideas alive in their minds as we head into the 2024 elections,” he said in a statement.
Republicans have said Biden’s spending during his first two years in office drove inflation to nearly 40-year highs last year. The Federal Reserve estimated that COVID-related federal spending under Trump and Biden in 2020 and 2021 added 2.5 percentage points to US inflation. Republicans are already readying $150bn in cuts to non-defence discretionary programmes, including about $25bn from the Department of Education, cuts in foreign aid and programmes aimed at preventing sexually transmitted diseases. They have said that would save $1.5 trillion over a decade. Republican Representative Ben Cline told Reuters that there is “very little” common ground between Republicans and Democrats on this issue.