As is often the case with such proposals, the new White House budget should be viewed as a messaging document. With trillions of dollars in new taxes and new spending over the next decade, the budget stands little chance of passing the Republican House or maybe even the Democratic-controlled Senate. After all, Democrats themselves shot down a “billionaire minimum tax” last Congress. This budget does, however, lay down a marker in Biden’s negotiations over the debt ceiling and perhaps set a trap for Republicans.
On the debt ceiling, the Biden White House’s opening offer to Republicans is nothing. While House Republicans have pinned their hopes on closing the deficit through cuts to spending without any tax increases, Biden has instead proposed major tax hikes on the wealthiest Americans, financial transactions (such as stock buybacks), and corporations. These hikes would be coupled with expanded spending on Medicaid, an enlarged child tax credit, industrial policy, housing efforts, and many other programs. Far from sketching a balanced budget, the president’s budget projects that deficits would bob at around 5 percent of GDP for the next decade. Since World War II, the federal deficit has been greater than 5 percent of GDP only during times of major economic pain: the recession of the early 1980s, the Great Recession, and the coronavirus crisis. A “new normal” of deficits of that magnitude would be a major change.
This budget is part of Biden’s gambit to position himself for 2024 in a way that echoes the 2012 Obama–Biden reelection strategy. In 2012, Obama used fears that Mitt Romney and Paul Ryan would push Granny off a cliff to depress working-class support for Republicans; at times, Republicans may themselves have assisted this effort by grimly invoking the “47 percent” of Americans who don’t pay income taxes.
The current debt-ceiling fight could repeat elements of that dynamic. Even as many Republicans have said that the future of the GOP is as a “working-class party,” prioritizing a debt-ceiling fight and focusing on budget cuts as the core of this fight might end up hurting Republican efforts to reach out to the working class. A recent New York Times story illustrates just how politically painful it could be for Republicans to chart a balanced-budget trajectory with cuts to federal supports for housing, health care, food stamps, and other programs. You don’t have to be a mind reader to understand why Biden has said he won’t negotiate on the debt ceiling until Republicans release a budget. His team may hope that Republicans would publicly commit to a series of unpopular spending cuts, which could then be used against the GOP on the campaign trail.
Since the State of the Union, a key element of Biden’s reelection strategy has grown clearer: simultaneously call to expand federal supports for the working and middle classes while also goading Republicans into focusing on budget cuts. Those bread-and-butter issues could help keep working-class voters onside. The White House might calculate that budgetary issues (with the GOP as the foil of austerity) could be more favorable political territory than immigration, education, civic identity, and other issues.
Increasing the tax credit for children or doing more to reduce the costs of medicine might be areas that could garner some GOP support, especially among those Republicans sympathetic to a “realigned” vision of the party. Broadening debt-ceiling negotiations to include policy priorities other than budget cuts might also give Republicans and Democrats a way to get to “yes” in debt-ceiling negotiations. In navigating budgetary politics, Republicans would be wise to keep in mind their bigger policy aims as well as the bigger political picture.