An Unserious Budget Proposal
Author: Greg Valliere
March 12, 2024
WITH THE ANNUAL BUDGET DEFICIT apparently stuck at around $1.8 trillion, you’d think there might be a serious effort to cut back on red ink — especially since the economy is strong. But the fiscal 2025 budget released by the Biden Administration yesterday projects another $16.3 in deficits over the next ten years.
THE SPIN WILL BE POSITIVE: Biden aides said the budget deficit would be $3 trillion lower than previously forecasted over the next ten years — assuming massive tax hikes are enacted, which won’t happen.
TO SAY THAT THE $7.3 trillion Biden budget is dead on arrival on Capitol Hill is an understatement; the budget for this fiscal year — which is six months overdue — still hasn’t been passed and may languish for several more weeks.
THE BIDEN BUDGET RELIES ON HUGE NEW TAXES — on profitable businesses and wealthy Americans, with a stock transaction tax, a wealth tax and numerous other tax hikes that have no chance in Congress. The real tax brawl will come in 2025, as the Trump tax cuts must be renewed — still another source of higher deficits, in our opinion.
THE REAL MONEY, OF COURSE, is in the massive Social Security and Medicare programs, which already generated controversy yesterday. Trump told CNBC in an interview that he might consider reforms, which prompted fierce criticism from Biden aides, who pledged not to seek any changes.
DO DEFICITS MATTER? For the past few years politicians in both parties have told us, privately, that the markets can accommodate high deficits. But with net borrowing costs approaching 10% of total spending, and yields on Treasuries staying higher, deficits do matter — and the red ink is beginning to worry Washington.
WHEN WE MEET WITH CLIENTS — especially retail clients — the enormous deficit is their Number 1 concern. They think this story will end badly, with persistently higher rates and inflation. One thing seems certain — the credit rating agencies will be watching carefully as deficits of nearly $2 trillion per year become the norm.
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