US President Joe Biden’s fiscal priorities and outlook

The Biden budget is primarily focused on closing the growing income gap in the U.S. economy over the past several decades. (image file)

By Dr Bappaditya Mukherjee

Biden’s first annual budget request for the fiscal year beginning October 1 of this year was released recently by the White House. This document provides a window into the emerging political consensus in Washington in a variety of problematic areas. Biden’s budget for the next fiscal year is $ 6 trillion and is dominated by spending increases to improve the economic conditions of poor and middle-class Americans, many of whom have been devastated by the COVID pandemic. It also includes a host of proposals for investing in US infrastructure, which are reminiscent of what the country went through after WWII. Since this document and subsequent U.S. Congressional processes include the U.S. government’s defense and international spending, it is of considerable importance to international politics as well. Since the United States is a superpower with a global presence, its budget priorities are a matter of global concern.

However, we must not forget that the American system is characterized by a system of checks and balances between the executive and the legislature. One of the ways this manifests itself is the role of the President in the budgeting process. Right now, the Biden budget is just a wishlist or set of proposals that will undergo significant revisions in the U.S. Congress before being enacted as tax, duty, and expense legislation. The goals of the president’s annual budget request are threefold: First, it communicates the president’s overall US federal tax policy to Congress. Second, the relative priorities of the various federal programs – defense, agriculture, education, health, etc. – of the president are presented. Finally, it describes the tax and spending policy changes desired by the President. These goals are constrained by Congress, which has the power of the stock market. The U.S. government will proceed with a partial government shutdown in October of this year, unless Congress passes an agreement that determines U.S. spending levels. It also faces a deadline this fall to raise the debt ceiling. However, given that Joe Biden’s party, the Democrats control both houses of Congress, enactment of significant parts of his budget proposal seems likely.

The Biden budget is primarily focused on closing the growing income gap in the U.S. economy over the past several decades. This has several distorting effects on the American political and economic system. Given the absence of significant regulations on private and institutional contributions to election candidates and to the two main political parties, the influence of wealthy contributors on policy making and legislation has become embarrassingly obvious. This has led the US government to pass a succession of tax cuts on wealthy Americans and businesses, which have been ruinous in more ways than one. For example, this has made it very difficult to fund current US commitments to social safety net programs. The decline in US government revenues is also making it difficult to control soaring US debt.

On the economic side of the ledger, we can say that inequalities are one of the engines of social unrest, especially along racial lines. A report by the Pew Research Center, a US polling company, released just before the outbreak of the Covid pandemic, concluded that high-income households had made disproportionate income gains in recent years. Simultaneously, the size of America’s middle class has shrunk. In addition, the condition of the poor has deteriorated. These national trends have contributed to the growing hostility of American public opinion against globalization in general and free trade in particular. From the perspective of emerging markets like India, rising protectionism in US domestic politics is bad news. Therefore, the Biden administration’s budget proposals designed to address the issue of income inequality should be welcomed in countries like India that want better access to the US market.

It is proposed that the massive spending outlined in the Biden budget be funded by raising taxes on corporations and the wealthy. In making this proposal, Biden sharply breaks with more than four decades of U.S. tax and revenue generation policy for the federal government. This is a long-standing request from the progressive wing of the Democratic Party that has been blocked by a coalition of Democrats and moderate Republicans. The wealthiest Americans, those with incomes over $ 1 million, will see their taxes rise dramatically. Their maximum tax liability will drop from 23.8% to a maximum rate of 43.4%.

The budget prioritizes the current administration’s grand strategy of countering China’s threat to US global interests through the $ 715 billion that has been allocated to defense. In doing so, Biden is building on the political direction set by his predecessor, Donald Trump. Therefore, it is highly likely that Biden will receive huge bipartisan support for his budget proposals for defense spending. One of the notable aspects of defense-related spending is a 2.7% increase in the salary of the US military. Second, a massive reorientation of resources would be made towards the modernization of the American nuclear arsenal to further strengthen its deterrent capabilities vis-à-vis China. The Biden administration is particularly concerned about China’s ambitions to establish regional hegemony in Asia. US military planners have convinced Biden of the need to expand the US presence that directly confronts China’s regional interests. For example, an American warship sailed on a waterway near the Taiwan Strait, causing howls of protest from China. Those of the American elite and the general public who hoped for a smaller global footprint for the United States would be extremely disappointed with Biden’s national security strategy as encapsulated in this budget.

Given the widespread devastation to lives and livelihoods that the COVID epidemic has wrought in the United States, it is no surprise that the Center for Disease Control (CDC) has received attention. particular in Biden’s budget. At $ 8.7 billion, that may seem like a small fraction of the overall United States budget. However, given that CDC funding was starting from a low base, this is a significant increase. This budget item represents the largest increase in funding for CDC in nearly two decades. The bulk of this funding will go to training epidemiologists and building international capacity in the face of emerging threats such as COVID. This internationalist orientation of the Biden administration should be welcomed by countries like India that need technical assistance from the United States to strengthen their research and technical capacities.

Finally, Biden signaled that he would abandon his predecessor’s cavalier approach to the issue of climate change. Trump was notoriously a climate change denier, and his administration reflected that. Unlike Trump, the Biden administration believes climate change is man-made and a looming global crisis. It has allocated a significant amount of $ 36 billion to tackle the problem of climate change. This is an increase of $ 14 billion from 2021. If passed, national spending on clean energy initiative programs would be the largest ever undertaken by a US government. Significantly, the budget also allocates $ 1.2 billion to a Green Climate Fund that will be used to support developing countries’ efforts to reduce their carbon emissions and address climate change. These budget allocations also signal to the world that the Biden administration is seriously considering joining the Paris Climate Agreement that the United States abandoned during Trump’s tenure. Biden has set an ambitious goal of halving U.S. emissions by 2030, far more than what is required by the Paris Agreement.

(The author is a former State University of New York Professor, Geneseo. Opinions expressed are personal and do not reflect the official position or policy of Financial Express Online.)

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