If Oprah had a car for everyone, then President Joe Biden’s $6.9 trillion tax and spending budget has a program for everyone.
Once again, the President’s budget for fiscal 2024 avoids difficult decisions, dangerously minimizes the impact of government spending sprees on the broader economy, and rests once again on the tired theme that higher taxes can solve any problem. The President adamantly believes that trillion-dollar tax hikes for high earners and businesses can fund new spending and reduce both the federal budget deficit and $31.4 trillion in national debt.
This is a imagination and a dangerous circle closure. There are legitimate discussions about the tax code and whether high earners pay their fair proportion. However, the Biden budget mixes the potentially toxic concoction of hefty government spending and tax hikes at a time when the Federal Reserve is raising interest rates to curb inflation. This is the economic equivalent to pour petrol into the inflation fire that tries to extinguish the Federal Reserve.
All of this represents the collision of monetary and fiscal errors over time. At the moment, consumers are paying an inflation tax. The Fed’s easy-money policies and extraordinary bailout of the global financial system in 2008 sparked an historic stock bull market and accelerated economic growth. But all drugs have side effects. Continued easy money policies, tax cuts and hefty federal government spending prompted reckoning with inflation and economic uncertainty.
The few modest spending cuts in the president’s budget account for less than 1% of the total budget, compared to spending increases four times that size, according to the Federal Budget Good Governance Committee, a fiscally conservative research group. In addition, the committee warns that the budget is built on “somewhat optimistic economic assumptions” about long-term growth, lower unemployment and lower long-term interest rates, and contains many “costly proposals without first fixing the nation’s finance house.”
In the short term, the budget deficit would increase slightly in 2024 due to the impact of rising interest rates from debt servicing and spending not fully offset by proposed tax increases. Longer-term, the committee notes that the president may be able to meet the administration’s $3 trillion 10-year deficit reduction target. A sensible reduction in the deficit ultimately has to be almost three times as large, they also conclude.
A factional battle over the President’s budget is likely to drag on for months, and most likely the near-term patches will continue to weigh on the long-term debt threats for a future generation. The nation will also face a looming debt ceiling deadline that could be a political, if not an economically, crippling fiasco. The nation operated under the pretext that debts are not overwhelming and that money can be printed as desired without consequences. Now we endure the effects if we do not face our economic challenges directly.
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