President Biden’s Budget Misses the Mark

By Romina Boccia and Dominik Lett of Cato.

"President Biden finally released his annual budget blueprint for fiscal year 2024, more than a month late. This year’s presidential budget is filled with excessive spending, higher taxes, and misguided policies.

The President proposes to reduce deficits by $3 trillion over the next ten years. That goal, while moving in the right direction, falls far short of the $8 trillion in deficit reduction that’s needed to stop federal debt from growing to a new record‐​high. Moreover, the President’s plans to reduce deficits also put the cart before the horse by primarily raising taxes to close a spending‐​driven budget gap. President Biden’s budget fails to stabilize the debt over the next decade, as higher tax revenues chase ever higher spending.

Congress should take note of the policy areas in which President Biden is willing to consider reforms, especially in Medicare, and counter with a credible budget plan that reduces the growth in spending, reforms entitlement programs, and enables more rapid economic growth.

Following is a brief summary and analysis of the President’s budgetary wish list.

Higher Spending

The administration claims to value deficit reduction and fiscal responsibility but maintains and accelerates an unsustainable spending trajectory. Debt is already at high and economically damaging levels, fueled primarily by the rapid growth in federal spending. By 2024, the Congressional Budget Office projects that debt will exceed the entire annual economic output of the United States as measured by gross domestic product (GDP). By 2033, debt is expected to reach 118 percent of GDP. Even under the President’s optimistic assumptions, the federal debt will still rise to 110 percent of GDP.

Over the last three years, Biden has added more than $4.8 trillion in new projected borrowing (see a breakdown in Figure 1 below). Infrastructure, technology, and green energy subsidies, pandemic emergency spending, student loan forgiveness, and elevated interest payments have dramatically expanded the deficit. By 2033, CBO estimates deficits will reach $2.9 trillion or seven percent of GDP—levels only exceeded by the unprecedented spending sprees seen during the Great Recession and the Covid‐​19 emergency. Excessive borrowing drives up inflation and crowds out private investment, worsening overall economic prospects by reducing growth and opportunity.

Legislators and the executive also spent $6 trillion to respond to the Covid‐​19 emergency—that’s comparable in size to the entire federal budget for 2023 or the GDP of California, Texas, and New York combined. Biden’s budget calls for $82.2 trillion in spending over the next decade—that’s more than $2.3 trillion in higher annual spending than is currently projected. Put another way, that’s more than $16,000 in new spending per household. Debt would skyrocket from $24.6 trillion today to more than $43.6 trillion over the next decade.

Instead of adding to the deficit, Congress should make immediate and significant reductions to the growth in federal spending. House Republicans have proposed freezing discretionary levels for nondefense spending, which has outpaced the growth in defense spending for more than 50 years. Freezing discretionary spending at 2023 levels could cut projected spending growth by $4 trillion. That’s a trillion dollars more in deficit reduction than the Biden administration proposed in its budget, and about half of what’s needed to stabilize debt as a share of GDP.

Higher Taxes

Biden’s budget proposes $4.7 trillion in harmful tax increases that will reduce economic growth. That doesn’t account for the $2 trillion in across‐​the‐​board tax increases that are scheduled to take place under current law after 2025 when large portions of the Tax Cuts and Jobs Act expire. Federal revenue is already projected to be above historical levels over the next decade. By 2033, CBO expects federal revenue will reach 18 percent of GDP. Under Biden’s budget assumptions, revenues will rise to 20.1 percent of GDP by 2033. Meanwhile, spending will grow to 25.2 percent of GDP—an increase of one percentage point between 2024 and 2033. Congress should tackle spending to stabilize the growth in deficits and debt. Cato’s Chris Edward’s explains,

“Spending cuts not only would reduce pressure for tax increases, but also would spur growth by retaining more resources in the productive private sector.”

Entitlement Reform

Major entitlements, primarily Social Security and federal health care programs, are the primary drivers of rising deficit spending. Combined, they make up 60 percent of projected spending growth. Increases in interest costs from servicing the national debt and discretionary spending make up the remaining projected spending growth at 22 and 18 percent, respectively. Absent legislative action, Medicare and Social Security will face indiscriminate benefit cuts when trust funds are depleted in 2028 and 2033, respectively.

President Biden put forth several changes to the Medicare program in this budget. Biden proposes expanding the range of drugs for which Medicare may negotiate drug pricing and accelerating existing drug pricing provisions established under the Inflation Reduction Act. He also advocates for increasing and broadening investment taxes on high‐​income individuals and transferring both the savings from drug price negotiations and new revenue from net investment income taxes to Medicare’s Hospital Insurance trust fund.

Regretfully, President Biden’s proposal does not change the underlying causes of trust fund insolvency: higher spending as a result of health care cost growth and longer life expectancies, as the eligibility age has stayed the same. The President also proposes a general revenue transfer, shifting money from other parts of the budget toward temporarily shoring up the Medicare Trust Fund. Transferring funds accomplishes nothing toward improving Medicare’s finances. It would leave the so‐​called “Medicare trust fund” as empty as it is now. This is a shell game that ultimately misleads the public about Medicare’s dire financial picture.

Overall, the President’s Medicare changes are merely a band‐​aid fix on a gushing wound that’s bleeding deficits. It would also make real Medicare reforms that much harder to accomplish.

Lawmakers should work together to reduce Medicare costs, while increasing choice and competition. This would put spending on a more sustainable path and improve the quality of care. As Michael Cannon explains:

“Medicare is junk insurance. For more than 50 years, Medicare has had a negative impact on the quality of health care that both enrollees and nonenrollees receive. […] The key to improving health care for Medicare enrollees and reducing the burden Medicare imposes on taxpayers is to make [each enrollee’s subsidy] voucher explicit and as flexible as possible—that is, to subsidize Medicare enrollees with cash and trust them to spend it, just as Social Security does.”

Missing the Mark

This President’s budget misses the mark on ensuring a sustainable fiscal future for the United States. As federal debt is set to reach new record‐​highs that exceed borrowing levels last seen during World War II, Congress should reject the President’s lofty policy goals and present a responsible budget plan that will stabilize the debt over the next ten years and avoid a future fiscal crisis."