According to the White House, President Biden will unveil his FY 2023 budget on Monday, March 28. The proposal is expected to be a traditional budget, meaning it will include detailed supplemental information such as the economic projections that underpin the budget baseline and year-by-year cost estimates for each of the Administration’s tax and spending proposals.
When the Biden budget arrives, The Concord Coalition will be looking for the following telltale signs of a credible, responsible plan:
Annual budget deficits get smaller each year. Between 2020 and 2021, the federal government spent $5 trillion on pandemic relief. As the budgetary effects of those programs fade, deficits this year and next will shrink, perhaps markedly. This “pandemic dividend” will be short-lived, however, as the structural imbalance that pre-dated COVID returns and large, sustained annual budget deficits re-emerge. Concord hopes to see a deficit path in the Biden budget that trends steadily and smoothly downward such that the projected deficit in each year is smaller than the year before.
The economic projections that underpin the budget baseline are plausible. The COVID rebound surprised everyone, but our economy cannot sustain 5-6 percent real growth every year in perpetuity. Slow labor force growth (attributable to low birth rates) and lackluster labor productivity gains will constrain the “steady state” economy. Prior to COVID, most economists predicted annual real GDP growth below 2.0 percent over the 2022-2030 period. Baseline projections that predict substantially more than this would be suspect. Other economic projections we will assess for plausibility: inflation, unemployment, and interest rates.
The budget is transparent—no gimmicks. University of Chicago Economist Milton Friedman famously said, “There’s no such thing as a free lunch,” but budgets often try to serve us one anyway. Past presidential budgets from both political parties have resorted to gimmicks that make it difficult to evaluate the true budgetary effects of their plan. Examples include: tax cuts that are intentionally sunset to hide the expense of making them permanent; projection windows that are shortened (e.g. from 10 years to 5) to cloud the long-term deficit effects of spending proposals; packing policy changes (like the extension of temporary tax cuts) into the baseline when the costs instead should be attributed to the president’s post-policy totals; the inclusion of zero-cost “placeholders”—policy outcomes the administration wants to achieve but decided to punt to Congress. Simply put: a fiscally responsible budget is a transparent budget.
Trends in the topline aggregates are plausible. Discretionary spending that grows at a rate less than inflation, mandatory spending that slows without cause, robust revenues attributable to unrealistic economic growth, and net interest costs that are incompatible with projected deficits and debt are all hallmarks of a budget that isn’t built from the ground up, but rather assembled from a patchwork of “plugs” that have no real world connection. Concord will be looking for plausible trends in topline aggregates.
The budget fully offsets the cost of any new programs or tax cuts. Even before COVID, the federal budget was burdened by a structural and persistent imbalance between spending and revenues. To avoid exacerbating an already unsustainable trajectory of deficits and debt, the Biden budget should fully offset the cost of any new program or tax cut in each year of the budget window: No more stuffing offsets into the last year of the budget window and relying on a future Congress to preserve them.
The budget does not abuse the “emergency” designation. According to budget law, the term “emergency” refers to a situation that is unanticipated, meaning “sudden, urgent, unforeseen, temporary” (sec. 250(c)(20) of the Balanced Budget and Emergency Deficit Control Act). The designation is powerful in that it allows the associated spending or tax provision to avoid pay-as-you-go rules. Unfortunately, too often the designation is attached to matters that Congress should have predicted (e.g., appropriations for the decennial census). As we move into the third year of the pandemic, it’s time for Congress and the Administration to move away from emergency-designated COVID spending and find a way to offset ongoing costs. COVID isn’t going away and we should budget accordingly.
The plan includes savings that are capable of attracting bipartisan support. A serious and sustainable deficit reduction plan will require all parties to compromise. Starkly partisan budget proposals may appeal to party loyalists, but a plan to reduce the deficit is unlikely to succeed over the long-term without sufficient political will to enforce it. A successful plan must be capable of resisting current and future political pressure to undo it. The best way to ensure that a plan can stand up over time is to infuse it with broad bipartisan support from the beginning. If President Biden hopes to implement even a portion of his agenda in a closely divided government, his budget must include bipartisan proposals with accompanying offsets that Republicans can support. Up to now, the Administration's agenda has relied on partisan tax increases siloed among the ultra-wealthy to offset the costs of new policies (e.g., a millionaires surtax and a higher marginal rate on corporate income to pay for an expanded child tax credit, universal pre-k, paid family leave, etc.).
The budget is fair to future generations. For too long, presidential budgets have relied on a spend-now-pay-later approach to fiscal policy, foisting the repayment burden of debt-financed consumption onto future generations. This is a shameful and immoral legacy to leave our children and grandchildren. Instead, the burden of payment should be shared by those who benefit—current taxpayers.
Other program-specific lines of inquiry:
How does the Biden budget treat expiration of the 2017 individual income tax cuts? The Tax Cut and Jobs Act of 2017 reduced marginal tax rates for corporations and individuals, as well as small businesses that file as individuals like partnerships and S-corporations. To keep costs within the constraints imposed by budget rules, however, the tax cuts for individuals and small businesses were written to expire after 2025. Will the Biden budget allow the tax cuts to expire as scheduled? If not, how is the extension of the tax cuts reflected in the budget? Are the costs offset somewhere else?
What assumptions does the Biden budget make about defense spending and foreign aid? The 2022 Biden budget infamously low-balled defense spending, knowing the Administration would have to negotiate with Republicans on the final number. With the war in Ukraine and NATO’s desire to shift to a more aggressive defense posture in eastern Europe, our national defense budget will certainly grow—and grow more than the 2 percent increase President Biden sought in last year’s budget. The federal government will also play a role in the reconstruction of Ukraine once the war ends, a multi-year effort that will increase the foreign aid budget. How are these realities reflected in the Biden budget?
What assumptions does the Biden budget make regarding Medicare? The Medicare Part A trust fund is projected to be insolvent as early as 2026. Last year, the administration’s budget reflected a significant deceleration in Medicare spending, but did not include detailed policy proposals or cost estimates for the large-scale policy changes that President Biden has endorsed: a federal public option, a reduction in the Medicare eligibility age, and the expansion of Medicare benefits. Instead, his budget left Congress to hash out the details in future legislation. A presidential budget that fails to propose meaningful reforms that ensure financial viability of this essential program would lack credibility.
Does the budget plan propose policies that help the nation prepare for the retirement of the baby boom generation and subsequent generations? Like Medicare, the Social Security retirement trust fund is on a similar path towards insolvency. According to the most recent trustees report, after 2033 retirees can count on receiving only 78 percent of the scheduled benefit—a politically untenable outcome. To prepare the public for the hard choices that will be necessary to preserve Social Security and prevent the benefit “cliff,” every presidential budget from here forward should include proposals that help equalize program revenues and outlays.
The Biden administration’s second-year agenda was drafted amidst the fog of multiple crises: a global health pandemic that won’t go away, supply-side shocks that are fueling near record-setting inflation, a war in eastern Europe that threatens NATO, an ascendant and increasingly hostile China, climate change, and the growing risk of a Federal Reserve-induced recession (or worse, stagflation). Moreover, all of this is happening against a backdrop of a $30 trillion national debt and accelerating net interest costs, both of which will spiral out of control if left unaddressed. For these reasons, it is critically important that the president put forward a budget that offsets the costs of any new initiative and includes credible efforts to help rein in the drivers of our debt so that the United States is adequately prepared to meet the current crises—and any others that lie over the horizon.