President Joe Biden has recently announced an ambitious budget plan estimated at $7.3 trillion, or €6.7 trillion. This proposition, which is anticipated to increase US debt beyond 100% of gross domestic product (GDP) by 2025, is indicative of a policy shift that prioritises extensive public spending, complemented with a saving plan of $3 trillion to be amassed from increased taxes over a decade.
Revealed on Monday, the budget proposal for the year is intended to present a stark difference from the financial strategies of previous President Donald Trump, and to pave the path for the upcoming presidential election in November.
Despite his past measures in instituting widespread tax cuts during his time in power in 2017, Mr Trump has expressed strong resolve in re-establishing these tax reductions and curbing government expenditure. However, the approach of Mr Biden differs significantly, as he intends to elevate taxes on large corporations and the most affluent families to curb financial deficits, provide tax relief for families with children, and ensure continued funding for social initiatives.
Though the new budget plan may possibly be rejected by Congress due to the Republican-dominated House of Representatives’ opposition to Biden’s policies, it communicates the priorities of the current president should he secure a subsequent term and win over Democratic majority in Capitol Hill.
Biden’s financial predictions anticipate that by 2025, US public debt would escalate to 102.2% of GDP, an increase from the 2023 projection of 97.3%, and would further rise to 106% in 2030, before slightly reducing to 105.6% by 2034. Meanwhile, the budgetary gap is slated to attain 6.1% of GDP the subsequent year, with annual interest payments on the US debt projected to exceed $1 trillion by 2026.
Republican House Speaker, Mike Johnson, and his group denounced Biden’s budget as an express route towards the decline of America. Highlighting the massive expenses associated with the president’s budget proposal, they warned against the current administration’s predilection for rash public spending and Democrats’ negligent fiscal policies.
The Congressional Budget Office, the fiscal supervisory entity, hasn’t yet carried out their evaluation of Biden’s updated tax proposals, pending the necessary Congressional approval. However, the institution has previously forecasted that government debt would surge to a peak of 116% throughout the coming 12 years.
Fitch, the ratings agency, lowered the US’s triple A rating in August due to the growing national deficits, commenting that the country’s financial situation may result in a debt load surpassing those of other countries that maintain its superior rating. An increasing unease amongst economists is visible, as significant bipartisan support is lacking in initiatives to manage the deficit.
The government has given assurances that expenditures won’t be curtailed for social security or healthcare, therefore, there may be a fractionally greater financial leeway than initially suggested. These projections were formulated in November and at the time, The Council of Economic Advisers estimated a 2.6 per cent growth in 2023 and a 1.3 per cent growth within this year.
However, recent data indicates an economic expansion of 3.1 per cent between 2022’s last quarter and 2023, leading analysts to adjust their predictions for the current year. This is due to the observed resilience of the labour market which has defied economist’s worries. Copyrighted by The Financial Times Limited 2024.
Connect with The Irish Times on WhatsApp to keep current with the latest developments, and consider subscribing to our business alerts for direct access to top-tier news, reviews and commentary on your mobile device. Don’t miss out on our weekly Inside Business podcast either, where the newest episode is now available.