This week on Facing the Future, we discuss the Biden Fiscal Year 2024 Federal Budget proposal in colors. What do I mean by that? Well we had an in-house panel of experts – namely Concord Coalition policy director Tori Gorman and chief economist Steve Robinson – take a look at the Biden Budget through a group of criteria we developed for evaluating the President’s plan released last week. We used three colors for the various categories: Green means the Biden budget meets our criteria; Yellow means the Biden budget takes steps in this area, but it needs more work; and Red means the budget fails our criteria. While you can read our more comprehensive analysis of the Biden FY 2024 budget here, suffice it to say the results are mixed.
The first category was: Does the Biden budget plan for the next fiscal year use plausible economic assumptions? Concord chief economist Steve Robinson gave that category a Yellow.
“The President’s assumptions may have fudged long-term economic growth a little,” said Robinson. “They’re up at 2.2%, whereas most other economic forecasters are at 1.8%. The White House OMB numbers are not wildly divergent from the Congressional Budget Office, the Blue Chip Economists survey, or the Federal Reserve’s assumptions. They’re a little optimistic on the economy side in the long-run, although interestingly the President’s budget assumes the economy is a little worse in the short-run. So if you average it out over the period, it sort of washes out. Where I’m most concerned is they’re assuming inflation by the end of this year will go down to 3%, and it will be 2.3% in 2024 and beyond, that basically the Fed will have achieved its inflation target starting next year. We just had new Consumer Price Index numbers this week and inflation is still running at 6%. Now, that’s better than the 9% we had last year, but we’re still at 6%.”
Next, I took a look at the question of whether or not the Biden FY 2024 budget plan reduces the projected debt to gross domestic product (debt to GDP) ratio over the 10-year budget window. That ratio is now just about 100% – and approaching the all-time record high ratio of 106% that we saw just after the conclusion of World War II.
On that one, the Biden plan gets a green, but it’s not like we should all be dancing in the streets. We calculate reduction from a baseline, and the President’s budget assumes that the debt to GDP ratio would go up substantially. CBO has it around 118% in 10 years, and the President’s budget is slightly less than that. He brings it down in the budget to about 110% of GDP by 2033. So while it does come down, that would still leave the debt to GDP ratio at an all-time high. It also leaves interest costs as a percentage of GDP at an all-time high which is really eye-popping. I have been looking at presidential budgets for a really long time. If somebody said to me the President was going to put forward a deficit reduction plan totalling close to $3 trillion, which is what he does, I would say that’s wonderful, we must be balancing the budget or getting close to a surplus. But the hole we are in is so deep, forget about balancing the budget. A $3 trillion deficit reduction plan doesn’t even stabilize the debt to GDP ratio.
One of the key budget criteria in the last year that we have been looking at is whether or not the proposed Biden defense spending levels accurately reflect ongoing military support for Ukraine in fighting off the Russian invasion. Concord Policy Director Tori Gorman says the Biden Administration earns a Red for that, because there is no such indication in the President’s budget. Until now, the Biden Administration has asked Congress to fund emergency supplemental off-budget military and humanitarian aid packages for Ukraine, totaling $113 billion.
“Russia’s invasion of Ukraine revealed a major vulnerability in U.S. arms manufacturing, as our defense industrial base struggled to keep pace with demand,” said Gorman. “For the first time, the Pentagon is asking Congress to approve multi-year money for the purchase of these weapons. We already do it for ships and aircraft, and there’s a good reason to do it. If the Pentagon can secure bulk discounts, then that approach might actually save money in the long run. What really disappoints me about the Biden budget was the admission that President Biden has zero intention of funding our support for Ukraine through the regular appropriations process. A spokesman for the Administration said specifically that instead, they will rely on supplemental requests on an as-needed basis. They designate this spending as an emergency, even though they probably knew a year ago they would eventually need this. It matters, because it doesn’t require the federal government to prioritize needs vs. wants.”
On the issue of whether or not the President’s budget does anything to improve the solvency of the Medicare and Social Security trust funds, the verdict is decidedly mixed. Concord chief economist Steve Robinson says the Biden budget gets a Red card on Social Security, but while there are some changes of note to Medicare, he still gives the Biden plan a Yellow.
“Somewhere in the budget there is a statement that the President is not going to cut Social Security benefits, and I guess that’s true because he’s not going to cut them, current law will cut them,” Robinson said. “The failure to reform Social Security means that when the trust fund goes insolvent in 2033, benefits will automatically get cut by 22%. So I guess you could say ‘well he didn’t do it,’ but he doesn’t do anything to stop it. So he gets a big red F for that. Medicare is a bit more complicated. He does make an effort to increase the solvency of Medicare. He does that in a couple of ways. One way is real and convincing, and he gets a green light for that. He proposes to raise taxes on the rich, the net investment income tax, and the Medicare surcharge on the wealthy. That additional revenue gets him about $680 billion. That will go into the Medicare trust fund and extend solvency unquestionably. But the other way is not very real and not very convincing, and is more of an accounting gimmick.”
And there are plenty of other gimmicks in the Biden budget, as we also discuss on the program.
Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join our guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.