Analysis-Biden's focus on deficit in budget is targeted at Republicans
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[March 09, 2023]
By Trevor Hunnicutt
WASHINGTON (Reuters) -When U.S. President Joe Biden rolls out his budget
plans at a Philadelphia union hall on Thursday, he will highlight
something that merited little mention during his last presidential
campaign - a pledge to cut trillions from the government's deficit.
Biden ran in 2020 on putting money in people's pockets and rebuilding
the middle class, and the U.S. federal deficit wasn't on a long list of
campaign promises. But on Thursday, cutting nearly $3 trillion from the
deficit over a decade, by raising taxes on companies and people earning
over $400,000 a year, will be a topline goal, the White House says.
Biden's increasing emphasis on the deficit now doesn't mean the White
House sees an imminent crisis looming from the nation's $32 trillion
debt.
Instead, the White House hopes to draw a sharp contrast with Republican
threats to refuse to raise the debt limit without sharp spending cuts,
aides and officials say. Including this fiscal plan in Biden's agenda
can help shore up his economic credibility before his expected 2024
re-election campaign, the White House believes.
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Taxing the rich and companies while maintaining Social Security,
Medicare and Medicaid has widespread popular support, polls show. Hiking
these taxes can help fix bedrock problems in the U.S. economy, Biden
aides say.
"We have a fundamental problem with our tax system, which does not
support the kinds of investments and commitments that the American
people demand and want and expect. And that's largely because
Republicans kept cutting taxes over and over again, primarily for people
at the top and for big corporations," said Michael Linden, executive
associate director at the White House's Office of Management and Budget.
That doesn't mean that what the White House is proposing is going to
happen, of course. Congress's lower chamber is controlled by Republicans
who have said they want to demand sharp cuts on spending on Biden's
initiatives and extend tax breaks passed under Donald Trump. And while
Americans tell pollsters they want higher taxes on the rich, hiking
taxes is never a politically savvy move.
"In 2023 and 2024, it is hard to see how any of the administration's
progressive tax proposals get done, but after 2025 is a different story
if Democrats manage to get unified control of Congress back," said Tobin
Marcus, a former Biden economic aide and now an analyst for Evercore ISI,
an investment bank.
DO AMERICANS CARE ABOUT THE NATIONAL DEBT?
The U.S. annual deficit was 5.4% of gross domestic product (GDP) last
year, and the total debt stood above 120% of GDP, higher even than its
levels at World War II peak.
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The U.S. Capitol dome is seen in the
morning sun in Washington, U.S., March 8, 2023. REUTERS/Mary F.
Calvert
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The federal government last turned an annual surplus, which is used
to pay down the long-term debt, in 2001, and Democratic presidents
have often been better at reducing the deficit.
Nearly six in ten people told Pew Research Center in January that
reducing the deficit should be a top Biden administration priority.
But when asked whether the government should mostly cut services to
lower the debt or increase taxes, Americans are closely divided.
Half said they would mostly cut spending, while 46% would increase
taxes, according to a Marist poll last month.
Biden's administration has treated the risk of deficits as more
sanguine than was common among Democrats in years prior.
"There has been a sea change in attitudes," said Jason Furman, a
Harvard University economics professor who was former President
Barack Obama's top economic adviser. It has less to do with shifting
economic thought than finance, he said. "The bond markets aren't
very worried about debt and deficits."
Robert Reich, a former labor secretary during President Bill
Clinton's administration, said he did not believe the
administration's top economic officials he has worked with are
"deficit hawks."
He said many had learned from the 2008-2009 global financial crisis,
when the U.S. government didn't spend enough to restore the economy
and made no apologies about spending freely to prevent the same
thing from happening in 2021.
"It was also extremely important to get out of the pandemic
recession," he said.
Biden aides believe deficits matter as a fiscal risk to the degree
that they create unsustainable interest payments, discourage private
sector spending and other investment, or distort the economy by
increasing inflation.
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None of those are factors now when U.S. 10-year Treasury rates are
below 4%, still low by historical standards.
(Reporting by Trevor Hunnicutt and Howard Schneider; Additional
reporting by Andrea ShalalEditing by Nick Zieminski and Heather
Timmons)
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