President Biden believes that investing in America, growing the economy from the bottom up and middle out, lowering costs for families, and reforming our tax code to reward work and not wealth are economic and fiscal imperatives. Strong and shared growth that benefits all Americans isn’t just good for the economy; it will also lead to better fiscal outcomes. At the same time, President Biden believes that long-term investments in our Nation and its people should be paid for. And his Budgets have consistently paid for all of his investments and improved the Nation’s fiscal outlook.
The President took office after his predecessor signed into law a reckless and unpaid for tax cut that was skewed to the wealthy and large corporations, adding nearly $2 trillion to the deficit. He also inherited a poorly managed pandemic response. The President has taken a different, responsible approach. He enacted a bold agenda to rescue the economy and get the American people vaccinated. Because of the strength of the recovery and responsible winding down of emergency programs, the deficit fell by $1.7 trillion in the first two years of the Biden-Harris Administration compared to the year before the President took office. And the Inflation Reduction Act that the President signed into law last year will reduce the deficit by more than $200 billion over the next decade, relative to deficit projections without that law.
Building on that record of fiscal responsibility, the President’s Budget improves the fiscal outlook by reducing the deficit by nearly $3 trillion over the next decade. The Budget achieves this deficit reduction while lowering costs for families, investing in our economy and our future, and protecting the most vulnerable Americans because it proposes tax reforms to ensure the wealthy and large corporations pay their fair share and tackles wasteful special interest giveaways.
Improving the Nation’s Fiscal Outlook
The President’s Budget improves the Nation’s fiscal outlook and reduces long-term fiscal risks by reducing the deficit, stabilizing deficits as a share of the economy, and keeping the economic burden of debt within historical norms. Specifically, the Budget reduces the deficit by nearly $3 trillion over the next decade, compared to deficits without the President’s policies. The deficit reduction in the Budget increases over time, with $500 billion of deficit reduction in 2033.
The Budget also reduces the deficit, as a share of the economy, from current levels. Under the Budget policies, the deficit would decline over the next several years, stabilizing at around five percent of the economy throughout the remainder of the 10-year window. This compares to deficits increasing to around 6 percent without the President’s policies.
Finally, under the President’s Budget, the economic burden of debt would remain in line with historical norms over the next decade. Real net interest as a share of the economy directly measures the cost of servicing the debt: resources that must go towards paying off old debt rather than investing in the future or providing services to Americans now. The Budget forecast takes into account recent increases in interest rates and projected future increases in line with private-sector forecasters. Nonetheless, the Budget keeps real net interest payments as a share of the economy at or below the average for the last several decades, around 1 percent of GDP, and well below the 2 percent level of the 1990s.
Reducing the Deficit by Making the Tax System Fairer and Ending Special Interest Giveaways
The President believes that the best way to reduce the deficit is to reform our tax code to reward work and not wealth, ensure that the largest corporations pay their fair share, and end giveaways to special interests. For example, the Inflation Reduction Act he signed into law cracked down on wealthy tax cheats and took critical steps forward in ensuring that large corporations pay their fair share, including a 15% corporate minimum tax and a surcharge on large, publicly-traded corporations that buy back their own stock. The Inflation Reduction Act will save taxpayers more than $150 billion through reforms that cut what Medicare pays to Big Pharma.
The Budget builds on this progress and reflects the President’s ironclad belief that we need to reward work, not wealth—and ensure the wealthiest Americans and biggest corporations don’t pay lower tax rates than teachers or firefighters.
To date, Republicans in Congress have put forward a much different approach, calling for more than $3 trillion in tax giveaways to the rich and large corporations and handouts to special interests. While they haven’t said how they would pay for those giveaways and also reduce the deficit, their past proposals have cut Social Security and Medicare, repealed the Affordable Care Act, slashed Medicaid, and made deep cuts to other programs that drive economic growth and that seniors, people with disabilities, and families count on.
Instead of making reckless cuts to programs that millions of Americans count on, the President’s Budget takes the following steps to reduce the deficit.
Making the Wealthy Pay Their Fair Share
- Proposing a Minimum Tax on Billionaires. The tax code currently offers special treatment for the types of income that wealthy people enjoy. Whereas the wages and salaries that everyday Americans earn are taxed as ordinary income, billionaires make their money in ways that are taxed at lower rates, and sometimes not taxed at all. This special treatment, combined with sophisticated tax planning and giant loopholes, allows many of the wealthiest Americans to pay an average tax rate of just 8 percent on their full incomes, less than many middle-class households pay. To finally address this glaring problem, the Budget includes a 25 percent minimum tax on the wealthiest 0.01 percent.
- Raising Taxes on the Wealthiest Americans to Improve Medicare Hospital Insurance (HI) Trust Fund Solvency by At Least 25 Years. The Budget includes key reforms to the tax code to ensure high-income individuals pay their fair share into the Medicare HI trust fund. Specifically, it closes the loophole that allows some wealthy investors with passthrough businesses to avoid paying the tax on their investments that everyone else pays, and it directs that tax into the HI trust fund as was originally intended. It also raises the tax rate that households earning more than $400,000 per year pay into the Medicare trust fund – by just 1.2 percentage points. These reforms will extend the life of the trust fund without cutting any benefits, or raising costs for beneficiaries.
- Repealing the Trump Tax Cuts for the Wealthy and Reforms Capital Gains Tax to Ensure the Wealthy Pay Their Fair Share. The 2017 tax law lowered tax rates for the wealthiest Americans, delivering an average tax cut of more than $50,000 for the top 1% and more than $190,000 for the top 0.1%. The Budget repeals those cuts, restoring the top tax rate of 39.6 percent for those making more than $400,000 a year. It also proposes taxing capital gains at the same rate as wage income for those with more than $1 million in income, closing the capital gains loophole that allows the wealthy to avoid ever paying tax on their appreciated investments, and finally closing the carried interest loophole that allows some wealthy investment fund managers to pay tax at lower rates than their secretaries.
Making Large Corporations Pay Their Fair Share
- Reversing the Trump Tax Giveaway to Large Corporations. The Budget includes an increase to the rate that corporations pay in taxes on their profits. Corporations received an enormous tax break in 2017, cutting effective tax rates for corporations to an average of 7.8 percent in 2018, compared to 16 percent in 2016. While their profits have soared, their investment in the economy did not. Their shareholders and top executives reaped the benefits, without the promised trickle down to workers, consumers, or communities. The Budget would set the corporate tax rate at 28 percent, still well below the 35 percent rate that prevailed prior to the 2017 tax law. This tax rate change is complemented by other proposals to incentivize job creation and investment in the United States and ensure large corporations pay their fair share.
- Stopping the Race to the Bottom in International Corporate Tax and Ending Tax Breaks for Offshoring. For decades, countries have competed for multinational business by slashing tax rates, at the expense of having adequate revenues to finance core services. Thanks in part to the Administration’s leadership, more than 130 nations signed on to a global tax framework to finally address this race to the bottom. Building on that framework, the Budget proposes to reform the international tax system to reduce the incentives to book profits in low-tax jurisdictions, stop corporate inversions to tax havens, and raise the tax rate on U.S. multinationals’ foreign earnings from 10.5% to 21%. These reforms will ensure that profitable multinational corporations pay their fair share.
Ending Wasteful Spending to Special Interests
- Expand Medicare’s Ability to Negotiate Drug Prices. The IRA finally gave Medicare the power to negotiate with drug companies on the high prices they charge for prescription drugs, and the Budget builds on that progress. The Budget cuts Federal spending by $160 billion: increasing the number of drugs Medicare can select for negotiation and bringing more drugs into the negotiation process sooner. (All estimates are for savings over 10 years.) These reforms will not only cut costs for the Federal government; they will also save billions of dollars for seniors.
- Expand the IRA’s Requirement that Drug Companies Pay Rebates When They Increase Prices Faster than Inflation. Thanks to the IRA, drug manufacturers must now pay rebates to Medicare if their price increases for certain drugs exceed inflation. The Budget builds on the IRA by requiring rebates for commercial drug sales, as well as sales to Medicare. That will save the Federal Government $40 billion, further curb prescription drug price inflation, and reduce health insurance premiums for people with private health insurance coverage.
- Eliminating Tax Subsidies for Oil and Gas. The President is committed to ending tens of billions of dollars of Federal subsidies for oil and gas companies, leveling the playing field for clean energy. Oil companies had record profits in 2022 and undertook record stock buybacks that benefited executives and wealthy shareholders, all while continuing to benefit from tax subsidies worth billions of dollars. The Budget eliminates special treatment for oil and gas company investments, as well as other tax preferences.
- Lower Medicaid Spending by Addressing Excessive Payments to Medicaid Managed Care Organizations. The Budget will lower Medicaid costs by over $20 billion by requiring that insurance companies that are charging Medicaid far more than they actually spend on patient care pay back some of the excess. Currently, only about half of states require private insurance companies that provide Medicaid coverage to pay money back when they realize outsize profits. Without this requirement, insurance companies are keeping millions of dollars each year in excessive payments. The Budget would apply this requirement nationwide, consistent with similar requirements in Medicare Advantage and Affordable Care Act plans. With it, insurance companies will no longer be able to charge for unnecessary administrative expenses or sacrifice quality care to increase their profit margins, and if they charge too much, they will have to pay it back to the Medicaid program rather than keeping the profits and, in some cases, making larger payments to shareholders.
- Eliminate Tax Subsidies for Real Estate. The Budget saves $19 billion by closing the “like-kind exchange” loophole, a special tax subsidy for real estate. This loophole lets real estate investors put off paying tax on profits from real estate deals indefinitely as long as they keep investing in real estate. This amounts to an indefinite interest free loan from the government. Real estate is the only asset that gets this sweetheart deal.
- Eliminate Tax Subsidies for Cryptocurrency Transactions. The Budget saves $24 billion by eliminating a special tax subsidy for crypto currency and certain other transactions. Right now, crypto investors aren’t subject to the same rules of the road that investors in stocks or other securities have to follow, allowing them to report excessive losses. For example, a crypto investor – unlike an investor in stocks or bonds – can sell a cryptocurrency at a loss, take a substantial tax loss to reduce their tax burden, and then buy back that same cryptocurrency the very next day. The Budget eliminates this tax subsidy for crypto currencies by modernizing the tax code’s anti-abuse rules to apply to crypto assets just like they apply to stocks and other securities.
Official news published at https://www.whitehouse.gov/briefing-room/statements-releases/2023/03/09/fact-sheet-the-presidents-budget-cuts-the-deficit-by-nearly-3-trillion-over-10-years/