by Paige Terryberry
Senior Analyst for Fiscal Policy, John Locke Foundation
Fiscal takeaways from the President’s FY23 budget proposal
Biden Marketed His Proposal as “Fiscally Responsible”
On Monday, President Joe Biden announced his budget for Fiscal Year 2023. Though presidents’ budgets are primarily aspirational, they reflect agenda items we can expect to see marketed for the duration of the Administration.
Funnily enough, Biden claimed he values fiscal responsibility above all. Along these lines, he claimed, “this record economic and job growth has made it possible for us to responsibly and significantly cut back on emergency spending.”
The president seemed to imply that government “Covid relief” spending had a use and that it may no longer have that utility. Could the record-high inflation data have anything to do with such claims? Or is Biden trying to appease his more moderate base?
Either way, the plan is nowhere near fiscally responsible.
Chris Edwards of CATO Institute translated the gargantuan numbers to data we can imagine: “Biden proposes to spend $7.2 trillion this year relying on $3.7 trillion in borrowing, and he proposes to push up accumulated debt from $24 trillion this year to $39 trillion by 2031. That is like a family spending $72,000 this year putting $37,000 on credit cards, and then pushing up family debt from $240,000 to $390,000 as it continues spending more than it earns [emphasis added]. Would any financial advisor tell the family that was responsible?”
The federal government would do well to shrink its role, allow states to fund some of the listed programs, and eliminate others entirely.
The Plan Would Raise Taxes
Biden’s budget plan would boost overall spending. It would give a notable 10 percent boost to defense spending and fund programs on climate change, affordable housing, manufacturing investments, and more, including some of his pillar social initiatives. The plan would include a reserve fund as a placeholder for future talks with Congress regarding items from his Build Back Better agenda.
How would he pay for this?
By taxing businesses, billionaires, the oil and gas industry, and unrealized gains (nonexistent money). It is no wonder the IRS would receive an 18 percent budget increase to, among other actions, “facilitate more effective oversight of high-income and corporate tax returns.” Setting aside the political unpalatability of these tax increases, these actions would undulate across the whole economy. While claiming to exclusively “tax the rich” to pay for his social wish list, the financial pain would be much broader. No doubt, this would affect working families.
Raising the federal corporate income tax from 21 percent to 28 percent would harm workers and stifle innovation. The average total corporate tax rate would be 32 percent when state corporate income taxes are included.
This tax burden would land on workers in the form of lower wages and fewer jobs. Working families would also experience higher prices for goods and services as some businesses attempt to pass part of the costs to consumers. Biden says he will not raise taxes on anyone making less than $400,000. But this tax would indirectly raise taxes on all Americans, harming those on the margins most. With inflation already at a 40-year high, low-income families should most oppose this lethal tax plan.
The plan also unveiled a “Billionaire Minimum Tax.” Biden stated, “I’m a capitalist, but … pay your fair share.” It is false to say billionaires pay less in taxes. They pay much more.
Biden proposed to raise $361 billion in revenue over the next ten years by taxing American households making more than $100 million on their “full income.” Full income would include unrealized income from stocks, for example.
But unrealized gains are not income. Taxing billionaires would hamper investment and savings – asking them to pay taxes on unrealized gains on the value of an asset at an arbitrary date – not just when an asset is sold. This could incentivize the wealthy to move their wealth overseas.
As the cost of gas skyrockets, Biden advocates for increasing taxes on gas and oil. This would drive prices up further and threaten crucial energy jobs. Biden’s proposal would repeal expensing of intangible drilling costs, percentage depletion which “recognizes the depreciating value of capital investments in mineral property,” the enhanced oil recovery credit, and a handful of other provisions for the industry. This letter from concerned Members of Congress outlines the specific issues and calls Biden’s plan a “war on the oil and gas sector,” an industry that “supplies nearly 70 percent of America’s energy needs at a low cost for millions of families.”
Though the Biden budget plan represents a wish list and will not necessarily go to Capitol Hill, the goal is dangerous. Punishing businesses and the wealthy is just the tip of the iceberg. These absurd tax increases would have ripple effects throughout the economy. With inflation already eating away at household budgets and wage gains, especially for low-income families, this proposal should be dead on arrival.