The Biden Budget — a Campaign Document, Dead on Arrival
Author: Greg Valliere
March 9, 2023
THE BIDEN BUDGET, leaked all week, will be officially released today — with a reliance on major new tax hikes. It’s strictly aspirational, a 2024 campaign document that has no chance of passage in the conservative House.
THERE’S BIPARTISAN AGREEMENT on two fronts: defense spending will get another major boost, and something must be done to shore up Medicare and Social Security funds. How to pay for that? Biden’s proposed new taxes on corporations and wealthy individuals are simply campaign noise.
DEMOCRATS KNOW THAT, and are eager to press Republicans to come up with a GOP plan, which will rely almost exclusively on deep spending cuts and benefit curbs.
THERE’S AN ADDITIONAL COMPLICATION this year — the need to raise the debt ceiling and avoid a default on U.S. bonds, notes and bills. There’s been no progress on this, and probably won’t be until summer. We expect a last-minute deal, but
the markets are still too sanguine on odds for passage, which we peg at only 60-40 in favor.
ONE ADDITIONAL COMPLICATION: Further aggressive interest rate hikes from the Federal Reserve will make it more likely that big new taxes and massive spending cuts will have no chance. Why? The Fed’s medicine could increase chances of a recession later this year, which suddenly has become more likely after Jerome Powell’s hawkish testimony this week.
WITH MONETARY POLICY STILL TIGHT, does it make sense to tighten fiscal policy now? The Biden approach — relying on more taxes — and the Republican call for huge spending cuts are exactly the wrong prescription if a recession looms.
WHY PAY ATTENTION TO TODAY’S PROPOSALS if they have no chance of passage? They’re interesting reading for analysts because this is the Democrats’ wish list, a preview of what specifics on taxes may come a few years from now as Congress addresses how to pay for Medicare and Social Security.
NOT TO BE TOO CYNICAL, but the Biden proposal today is simply the first step in a battle over who can win the spin debate, as everyone in Washington begins posturing ahead of the 2024 election. The next election is always the key factor in this city.
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