The showdown over the future of the federal budget is taking shape as President Joe Biden releases his fiscal year 2024 spending proposal and House Republicans prepare to leverage their new majority to block the plan.
The White House suggested an increase in the federal budget from $5.8 trillion to $6.9 trillion over the next fiscal year while reducing cumulative deficits by $3 trillion over the next decade through a number of tax hikes on businesses and wealthy individuals. Households with more than $100 million in wealth would be subjected to a 25% minimum tax, while the top marginal tax rate would also be increased to 39.6% from the current 37% rate. Businesses would see an increase in the corporate tax to 28%, which would split the difference between the current 21% rate and the previous 35% rate that was in effect before the Tax Cuts and Jobs Act of 2017.
The proposal, which also suggested new health care and education subsidies, largely adheres to the Democratic emphasis on redistributive fiscal policy. “This budget builds on our economic progress by making smart, fiscally responsible investments, which would be more than fully paid for by requiring corporations and the wealthy to pay their fair share,” Treasury Secretary Janet Yellen said in a statement. “The budget’s growth-enhancing investments will continue the economic progress of the last two years and further boost the economy’s productive capacity.”
Republican officials, who have not yet countered the budget with a proposal of their own, meanwhile contested various elements of the plan. “President Biden just delivered his budget to Congress, and it is completely unserious. He proposes trillions in new taxes that you and your family will pay directly or through higher costs,” remarked House Speaker Kevin McCarthy (R-CA). “Washington has a spending problem, not a revenue problem.”
The release of the budget proposal coincides with negotiations between Biden and McCarthy over the debt ceiling, a measure established by Congress that disallows the federal government from spending beyond the predetermined statutory limit of $31.4 trillion. Yellen warned lawmakers that the Treasury Department was forced to implement “extraordinary measures” earlier this year to fund the government until early June, after which the government will default.
The House Freedom Caucus, which withheld votes from McCarthy at the beginning of the present Congress until he committed to negotiating with Biden on efforts to reduce the national debt, announced that members would likewise refuse to support raising the debt ceiling unless various White House policies are rescinded.
Among the initiatives that the Republican lawmakers want to repeal are the $400 billion student debt cancellation executive order, the $80 billion allocation to the IRS enacted under the Inflation Reduction Act, and all unspent stimulus funds earmarked during the lockdown-induced recession. Votes in favor of raising the debt limit are also contingent upon capping discretionary spending at fiscal year 2022 levels for the next decade with a 1% annual growth allowance.
Business leaders and government officials have cautioned that a default would likely induce a worldwide financial crisis. Increases in the national debt, however, are unsustainable: the federal government’s obligations surpassed $31.5 trillion, equivalent to roughly 120% of the nation’s gross domestic product. Maintenance costs are meanwhile increasing due to the present rise in interest rates.
An analysis from economists at the University of Pennsylvania’s Wharton School recently concluded that a 30% decrease in spending or a 40% increase in taxation would be necessary to handle current deficit spending and future obligations. Republican and Democratic administrations alike have overseen surges in debt over the past several decades.