(Bloomberg) — President Joe Biden’s budget on Friday revealed a blueprint for addressing long-standing inequities in the U.S. economy, rather than serving as a game-changer for the nation’s weakened economic-growth trend of recent years.
Biden’s program breaks with recent presidents’ budgets, which promised that policy proposals would turbo-charge gross domestic product. Biden’s central goal is instead societal change — attempting to reverse decades of widening income and wealth gaps that often fall along racial lines.
The budget comes at the tail-end of the Covid-19 recession, which exacerbated these divides and erased years of gains made by American workers.
The administration forecasts no major change in the trend rate for GDP in the coming decade, with the expansion seen averaging about 2% over the coming decade. That’s in line with the average over the 15 years through 2019, before the pandemic struck.
The proposed 2022 budget request includes funding for early childcare and colleges, investing in minority-owned businesses and grants to improve public transportation in poor communities.
“Where we choose to invest speaks to what we value as a nation,” Biden said in a statement released by the Office of Management and Budget. “It is a budget that reflects the fact that trickle-down economics has never worked.”
The idea is that boosting the middle class and the poorest Americans will provide more stable, long-term growth.
It’s an approach that contrasts sharply with the strategy of prior presidents including Ronald Reagan, whose administrations argued that tax cuts and deregulation would strengthen economic expansions — something that George H.W. Bush derided as “voodoo economics.” President Donald Trump also promised to juice the economy, forecasting 3% annual growth.
“Unlike past major investments, the plan also prioritizes addressing long-standing and persistent racial injustice and helps ensure rural, urban, and Tribal communities have a fair shot at prosperity,” the administration said in describing Biden’s infrastructure and jobs plan Friday.
Cecilia Rouse, chair of the Council of Economic Advisers, told reporters Friday that the economic forecasts were developed in early February, and don’t fully reflect the policies proposed in the budget. She said that the White House opted to release the budget, already later than its typical publication date, without further delay to incorporate recent data and progress battling the pandemic, and that she couldn’t currently quantify that full impact.
Still, the steady-state forecast does include some of the impact of the $4 trillion in spending and tax credits in the American Jobs Plan and American Families Plan, Biden’s two-pronged long-term economic programs.
“The administration’s policies thus far are very much targeted at not just growing our way out of this — because that’s always going to be just a part of the solution — but making sure that that growth is equitable,” Jared Bernstein, a Biden economic adviser, said on Bloomberg TV May 11. Equity is mentioned almost 40 times in the budget document, double the references to growth.
The White House sees the budget deficit shrinking from the historic pandemic highs, though remaining well above 4% in the outer years of the coming decade, with 4.7% seen for 2031. Inflation, as measured by consumer prices, is seen remaining contained after its pop this spring, with the pace never exceeding an annual 2.3% in the next 10 years.
Biden’s budget plan, headlined with $6 trillion of requested spending for the fiscal year that starts Oct. 1, along with his longer-term proposals, faces major reshaping in Congress. But it serves as a gauge of White House priorities as negotiations proceed with lawmakers. To fund his spending plans, Biden has pitched tax increases on corporations and wealthy American households.
While the tax system would be more progressive, it would not fully pay for the proposed spending plans over a decade, according to the budget proposal. The discrepancies will present a challenge for Congressional Democrats as many moderates want to scale back some of these tax proposals, as well, which means an even bigger funding gap.
Biden’s Jobs plan would increase taxes on corporations by $2 trillion over the decade. The Families plan includes approximately $1.5 trillion in tax increases on high-earners roughly split from increased rates on income and capital gains, and from increased IRS enforcement and audits. The total spending on tax credits for low-income households, childcare spending and education investments total nearly $1.8 trillion.
Biden’s economic team at the White House has been determined to make good on his campaign pledge to raise taxes on the rich, emboldened by the sharply divergent experiences of those at the top and bottom of the socioeconomic scale during the Covid-19 crisis.
The top 1% of U.S. households experienced a $4 trillion increase in wealth last year, or 35% of total gains, while the poorest half in the country — about 64 million people — saw only 4% of the gains. Much of that accumulated to those investing in stocks and with a college education.
“The president believes strongly that the biggest corporations and those folks who have done extremely well over the last several decades should pay a bit more,” Bharat Ramamurti, a member of the National Economic Council, said in a Bloomberg TV interview earlier this year. While “the wealthiest folks” did well even over the past year, one in seven American families reported going hungry during the pandemic, he said.
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