Biden’s Budget Jumpstarts a Discussion on Economic and Racial Inequality in the Policy Community
At the end of May, President Biden proposed a $6 trillion fiscal year 2022 budget with substantial new investments in infrastructure, jobs, education, research, and more. With the expanded funding, the president said he seeks to transform the economy, address systemic inequalities, and lift more Americans into the middle class.
To assess the proposed policies and revenues used to pay for them, the Urban Institute recently convened many of the nation’s leading budget and policy experts in its 32nd annual roundtable on the president’s budget. Representatives from research institutions, academia, and government discussed their varied perspectives on the proposed budget and the US Department of the Treasury’s Green Book, which outlines President Biden’s policy priorities, along with 5- and some 10-year spending and revenue projections.
The lively discussion left most participants agreeing the budget stands out from past proposals in prioritizing social and economic inequality. But they were divided on whether the proposed programs would accomplish those goals and keep the US on sound fiscal footing.
Opportunities to expand economic opportunity, mobility, and equity
Several speakers acknowledged the Biden budget seeks to address long-standing economic and racial inequities exacerbated by the recovery from the COVID-19 pandemic and recession, which has seen higher-wage jobs recover much faster than lower-wage occupations. The recession has also disproportionately affected service-sector jobs held often held by women and people of color. Subsidies for child care, paid leave, nutrition assistance, prekindergarten and other aid in the American Jobs Plan and American Families Plan would bolster services more often relied upon by those groups. Some experts also thought the proposed expansion of child care and early childhood education could help parents of young children return to the labor force.
A few participants also noted the Biden budget would raise taxes on corporations and the wealthy, which could also shrink the inequality gap from the top. Experts from the Tax Policy Center recently found that nearly all the tax increases proposed in the Biden budget would fall on the top 1 percent of earners.
Long-term fiscal and economic sustainability
Along with assessing potential near-term outcomes of the tax and spending plans, the roundtable attendees also debated how would the Biden budget affect the country’s fiscal outlook. The spending proposals thus far are partly offset, so the trajectory of the national debt wouldn’t change dramatically. But that statement comes with a caveat. It assumes the temporary spending increases won’t become permanent, despite indications that policymakers plan to keep them in place. Hence, deficits will rise in the near-term but could continue to grow in the future, on top of the deficit growth projected under current law.
As things stand, the traditional metric of measuring the national debt—as a percentage of gross domestic product—will soon reach a new record. But some roundtable participants argued that real net interest costs are a more accurate measure of whether the US debt is on a manageable path, at least for the near term. The intermediate- and longer-term implications remain open to debate.
There was broader agreement among speakers about the fiscal challenges created by Biden’s pledge not to raise any taxes on Americans earning less than $400,000. Taxing such a narrow group of taxpayers limits the fiscal flexibility of lawmakers and leaves other policy options that could address inequality—such as curbing the home mortgage interest deduction—off the table.
Participants expressed similar concerns about the proposed increases in corporate taxes. Raising the revenue estimated in the budget would require world-wide cooperation recently sought by Treasury Secretary Janet Yellen. The administration got positive news on that front when the G7 countries recently agreed on the framework for a global corporate minimum tax, but it’s still unclear whether the world’s major economies can reach an agreement on a complex tax overhaul.
Also, though economists disagree on who bears the eventual burden of business taxes, one can’t assume corporate tax increases affect only the wealthy and not less wealthy shareholders or workers. The corporate tax proposals would have some effect on people with incomes less than $400,000 and people who hold pension assets.
Reaching consensus on the scope and size of safety net programs—and the best ways to target those programs and finance them—will provide many challenges to lawmakers as they address these plans. But based on a wide range of expert views, the Biden administration’s budget started an important discussion about how better to support historically marginalized and underserved populations. Evidence suggests revamping child care programs, expanding tax subsidies for families, and creating a more equitable tax code are worthy goals that merit careful consideration to get the details right.
The Urban Institute has the evidence to show what it will take to create a society where everyone has a fair shot at achieving their vision of success.
NEW YORK, NEW YORK - JULY 11: Democratic presidential candidate, former Vice President Joe Biden gives a speech on his foreign policy plan on July 11, 2019 in New York City. Biden, who is running for the 2020 Democratic party presidential nomination, spoke about his foreign policy experience and a vision that sees the world in contrast to the policies of President Donald Trump. (Photo by Spencer Platt / Getty Images