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Biden’s $7.3 Trillion Budget Sets Up Tax Fight With Trump

(Bloomberg) -- President Joe Biden’s $7.3 trillion fiscal 2025 budget proposal lays out a second-term vision that would deliver more services, middle-class tax breaks and price controls to voters funded through higher taxes on the wealthy and corporations.

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The document, unveiled Monday, details Biden’s opening salvo in his reelection battle with former President Donald Trump — building on the State of the Union address he delivered Thursday. Little of the budget stands a chance of becoming law in a divided Congress.

Under the proposal, some homeowners would receive monthly tax credits to offset high mortgage rates, parents would receive subsidies for child care, and the government would use new powers to lower prescription drug prices. Those programs would be offset by sweeping changes to the tax code, including a hike in corporate taxes and a new minimum rate to be paid by billionaires and larger companies.

The plan is aimed at enticing voters, even as the rising deficits in the budget risk fueling attacks by Republicans. Convincing skeptical Americans to back his agenda is crucial ahead of November’s election and into 2025, where the calendar will be dominated by debates over the debt ceiling and Trump’s expiring tax cuts.

The president would spend $1.671 trillion in so-called discretionary spending — areas that aren’t linked with mandatory programs like Social Security — seeking $895 billion for base defense-related programs and $621 billion for domestic spending. The non-emergency funding increases 1.6% in line with budget cap agreements struck with Congress.

Biden also proposes increasing the Justice Department’s antitrust budget by $63 million ahead of a potential flurry of cases affecting tech giants. Lawmakers last week changed that office’s ability to access premerger fees.

The proposal is designed to give Biden leverage as he battles to ensure full funding of the government and secure assistance for Ukraine and Israel. Biden will travel to New Hampshire later Monday to discuss his vision, with trips to Michigan and Wisconsin slated for later this week.

“While my administration has seen great progress since day one, there is still work to do,” Biden said in a letter to lawmakers sent with the request. “My budget will help make that promise real.”

Here are key takeaways:

Taxes

Those with incomes under $400,000 wouldn’t see an increase in their federal payments and would benefit from a series of proposed credits. Biden has proposed giving homeowners $400 a month for the next two years to offset high mortgage rates, making permanent a subsidy for those purchasing their own health care and fully restoring a pandemic-era child tax credit for a year.

Those costly programs would be offset by raising the corporate tax rate from 21% to 28%, setting a minimum corporate tax rate at 21% for corporations valued at $1 billion or more and quadrupling the tax companies must pay for stock buybacks. Biden would also increase the cap on payroll taxes to boost Social Security.

Biden imposes a minimum tax on billionaires – including on unrealized capital gains – of 25%, which would bring in an estimated $500 billion in tax revenue over the next decade. He is proposing taxing capital gains at the same rate as wages for those making more than $1 million.

Biden also renews his call for Congress to end some $35.3 billion worth of tax incentives cherished by the oil and gas industry.

Those savings help offset $500 million to help developing countries combat climate change and $6.5 billion to help rural electric providers adopt zero-emission power and to build out grids.

Debt and Interest Rates

Republicans pounced on the plan’s deficit and debt projections, shortfalls made worse by higher interest rates.

“The price tag of President Biden’s proposed budget is yet another glaring reminder of this Administration’s insatiable appetite for reckless spending and the Democrats’ disregard for fiscal responsibility,” House Republican leaders said in a statement, calling the plan “a roadmap to accelerate America’s decline.”

Under Biden’s proposal, the deficit would decline to $1.78 trillion next year from $1.86 trillion currently projected for 2024.

But over the next decade, Biden’s budget sees adding $16.3 trillion to deficits, about $3 trillion less than the current path. The annual deficit would decline as a percentage of the economy from 6.6% to 3.9% in 2034, but US debt owed to the public would rise from $28 trillion today to $45 trillion in that time.

The budget proposal keeps in place for 2025 discretionary spending caps agreed to with Congress in last year’s debt ceiling deal.

House Republicans released their own proposal last Thursday, which would cut $14 trillion in deficits and claims to balance in ten years while avoiding tax increases.

Biden’s budget doesn’t explain how to pay for extending Trump’s tax cuts for the middle class past 2025, something that could cost trillions more.

Prescription Drugs

Biden has proposed a massive expansion of the government’s ability to negotiate prescription drug prices.

His plan banks those savings, even though they are fiercely opposed by the pharmaceutical industry.

While the administration is currently bargaining with drugmakers to reduce the cost of ten popular drugs for seniors on Medicare, Biden envisions expanding that program over the next decade. The administration projects it would save $200 billion in taxpayer money that would otherwise go to drug companies.

Drug companies take another hit in Biden’s budget, which would raise taxes on multinational corporations to 21%. Health insurers also take a cut, via a call for capping prescription drug costs at $2,000 for all Americans – not just seniors on Medicare.

Unity Agenda

Biden also details his self-proclaimed “unity agenda,” a package of proposals he argues can garner support from both parties.

Those items include $12 billion next year for a new office to promote women’s health, as well as funding for programs to combat opioid abuse and $5 billion in new funding for a health-care and benefit fund for service members exposed to toxic chemicals.

Other proposals include $258 billion to build or preserve over 2 million units of affordable housing and expanding Pell Grants for students from low-income families.

--With assistance from Jennifer A. Dlouhy.

(Updates to add House Republican statement in paragraphs 15-16, details on taxes in paragraph 21)

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