You are here
President Biden’s Budget Would Reduce Deficits by Raising Taxes on the Wealthy and Corporations
Today, the Biden Administration released its budget for fiscal year 2024, calling for a reduction in federal deficits by $2.9 trillion over the next decade relative to current law. The budget includes policies that would increase revenues over the next 10 years, more than offsetting the proposed spending increases over that period. While this is a start for addressing the country’s fiscal trajectory, it does not fully address the underlying structural imbalance that defines our fiscal outlook in the decades ahead.
Below are the key takeaways from the budget:
- The President’s budget would reduce deficits by $2.9 trillion over the next decade, relative to current law. If the Administration’s budget were enacted, annual deficits would total $17.1 trillion over the next 10 years, less than the $19.9 trillion cumulative deficit the Administration projects under current law. As a percentage of gross domestic product (GDP), the deficit would drop from 6.8 percent of GDP in 2024 to 5.1 percent in 2033; however, those levels would remain above the 50-year average of about 3.5 percent.
- Despite a reduction in deficits, debt would rise under the President’s budget. While the Administration’s proposals would reduce deficits relative to current law, federal spending would still outpace revenues — causing the national debt to grow. According to the Administration, debt held by the public would increase from 102 percent of GDP at the end of 2024 to 106.3 percent in 2027 — eclipsing the historic high of 106.1 percent recorded in 1946. Debt would continue climbing in the following years, eventually reaching 110 percent in 2033.
- The President’s budget would significantly increase federal revenues and spending. Under the Administration’s budget, federal revenues would be $4.7 trillion higher than they would be under current law largely due to new or increased taxes. Spending under the President’s budget, meanwhile, would be $1.9 trillion larger than it would be under current law — most of which is due to increased investments in programs such as child care, early learning, higher education, and more. Federal outlays on Medicare and Social Security would remain largely unchanged under the President’s budget.
- The President’s budget will increase revenues primarily by raising or establishing taxes on wealthy households and corporations. The Administration’s budget would raise the corporate tax rate and implement other changes to the corporate tax code; it would also increase tax rates for high-income households.
- After rising in FY2024, discretionary spending — covering both defense and nondefense programs — would decrease as a share of the economy under the President’s budget. For FY2024, the Administration’s budget incorporates an increase of about 5 percent in base funding for discretionary programs (not including funding for emergencies and certain other categories) compared to the levels enacted for FY2023. The budget authority for nondefense discretionary programs would increase by 7.3 percent, whereas the request for defense funding would increase by 3.3 percent. The budget does not include funding in 2024 for Ukraine; overall, emergency funding would fall from $91 billion in 2023 to $11 billion in 2024. Over the 2024-2033 period, total discretionary spending would be $311 billion lower than under current law. It would also be considerably lower as a share of GDP than it is today — falling from 6.6 percent of GDP in 2023 to 5.2 percent in 2033.
- The President’s budget assumes that inflation and interest rates will fall. The Administration’s budget, which is based on their economic assumptions formulated in November 2022, assumes that inflation and interest rates will moderate in the coming years, before stabilizing over the next decade. For example, the Administration assumes that interest rates for 3-month Treasury securities will rise from 2.0 percent in 2022 to 4.9 percent in 2023 and then gradually recede over the next few years, hovering between 2.2 percent and 2.5 percent from 2026 to 2033. The Administration also expects that 10-year Treasury rates will fall from 3.9 percent in 2023 to 3.5 percent by the end of the period. The President’s budget assumes inflation will moderate from its 40-year high of 8.1 percent in 2022, falling to 4.3 percent in 2023 before stabilizing around 2.3 percent over the next decade.
- Interest payments on the national debt would still be high under the President’s budget. Under the Administration’s budget, net interest costs would rise from $789 billion, or 2.9 percent of GDP in 2024, to $1.3 trillion, or 3.3 percent of GDP, in 2033. Under the President’s budget, such costs would total $10.2 trillion over the next decade. By comparison, the Administration projects that such costs would total $10.5 trillion over that period under current law — similar to the Congressional Budget Office’s projections last month.
The President’s budget proposes a number of tax reforms affecting corporations and high-income earners
| Policy Proposal | Deficit Reduction (Billions) |
|---|---|
| Increase the corporate tax rate from 21% to 28% | $1,326 |
| Reform international taxation | 667 |
| Close Medicare tax loopholes and increase Medicare payroll tax for high-income earners | 650 |
| Global minimum tax and related reforms | 493 |
| Increase the top marginal income tax rate to 39.6 percent and reform taxation of capital gains | 449 |
| Establish a minimum income tax on wealthy households | 437 |
| Increase excise tax on corporate stock buybacks from 1% to 4% | 238 |
SOURCE: Office of Management and Budget, Budget of the United States Government: Fiscal Year 2024, March 2023.
NOTE: Deficit reduction is over the 2024–2033 period. Estimates are based on OMB’s economic assumptions.
© 2023 Peter G. Peterson Foundation
President Biden deserves credit for putting forward a budget that reduces deficits by nearly $3 trillion over the next decade. However, as deficits are projected to total nearly $20 trillion during that timeframe, this budget is not sufficient to solve the country’s fiscal challenges. A more comprehensive budget proposal would fully address the structural drivers of our debt. As budget season gets underway, the President and Congress should work together to establish priorities that ensure economic growth and put America on a more solid fiscal foundation.
Related: Interest Is Skyrocketing, And The National Debt Will Reach An All-Time High In Just 5 Years
Image credit: Photo by Getty Images