The President’s Budget

Eakinomics: The President’s Budget Yesterday D.C. featured two things that are supposed to happen the first week in February: frigid weather and the release of the President’s Budget. (For a deeper dive on the latter, see the analysis by Gordon Gray here.) If you listen to the White House talking points, the President’s Budget is about fiscal responsibility – reducing deficits by $1 trillion over the next 10 years. It is also about fairness – creating a billionaire’s tax to raise $360 billion from a handful of Americans. And it is about additional funding for security abroad and at home, while preserving the option to pursue components of the Build Back Better agenda in negotiations with Senate Democrats. That’s one viewpoint. A different one is that, over time, the President’s Budget has gradually become an annual entry on the Most Boring Fiction list. This budget, however, is even more detached from reality than usual. To begin, it is built on a fantasy economic forecast that shows Consumer Price Index inflation peaking at 4.7 percent this year and hovering at 2.3 percent every year thereafter. Real gross domestic product (GDP) growth is projected at over 5 percent this year and about 4 percent in 2023, while it sees interest rates rising smoothly and gradually. This forecast is NGH (“Not Going to Happen”). The President’s Budget is also detached from political reality. It relies on raising the corporate rate to 28 percent to raise $1.3 trillion and raising the top individual rate to raise another $180 billion. Both have been taken off the table in Senate negotiations. The so-called billionaire’s tax is a variant of Senate Finance Chair Ron Wyden’s proposal to tax unrealized capital gains. That proposal had a legislative shelf life of 18 hours. NGH. Finally, it is detached from budgetary reality. It features a truly first-rate budget gimmick – a “reserve fund” – that asserts that whatever Build Back Better programs get passed by Congress will not add to the deficit. But that means either there are new tax increases – that we know nothing about – to pay for the spending or that existing taxes proposals will be used. If so, they are being double-counted in the deficit projections. There is no way to tell how much of each is going on, so there is no reason to believe any of the deficit numbers. All we know for certain is: NGH. As a closing observation, the administration is working overtime to wrap itself in the cloak of “fiscal responsibility” – its version of which means raising taxes by $2.5 trillion, but spending “only” more than $1.4 trillion and, thus, lowering deficits by $1 trillion over 10 years. But this is a shallow, numerical version of fiscal responsibility. The whole point of being fiscally responsible is to not have the financial operations of the government harm the opportunities and vitality of the private sector. Does anyone really think that $2.5 trillion in tax increases and raising spending from an average of 20 percent of GDP to nearly 24 percent of GDP is fiscally responsible?