WASHINGTON (AP) — President Joe Biden intends to propose a minimum tax of 20% on households worth more than $100 million and reduce projected budget deficits by more than $1 trillion over the course of of the next decade, according to a fact sheet released Saturday by the White House budget office.
Introducing the minimum tax on the wealthiest Americans would represent a significant reorientation of the tax code. It would apply to the wealthiest 0.01% of households, with half of the expected income coming from households worth at least $1 billion. The minimum tax would effectively prevent America’s wealthiest slice from paying lower rates than families who consider themselves middle class, while helping to generate revenue to fuel Biden’s national ambitions and rein in the deficit relative to the US economy.
In its proposal expected on Monday, the decline in deficits also reflects the resurgence of the economy as the United States emerges from the pandemic. It is a sign that the government’s balance sheet will improve after a historic explosion in spending to fight the coronavirus.
The waning of the pandemic and growth have allowed the deficit to grow from $3.1 trillion in fiscal year 2020 to $2.8 trillion last year and a projected $1.4 trillion this year. . That deficit spending paid off in the form of the economy expanding at a 5.7% pace last year, the strongest growth since 1984. But inflation at a 40-year high has also accompanied these robust gains, as high prices weighed on Biden’s popularity.
For the Biden administration, the proposal for the budget year that begins Oct. 1 shows that the spending explosion has helped fuel growth and stabilize public finances for years to come. A White House official, insisting on anonymity because the budget has not yet been released, said the proposal shows Democrats can deliver on what Republicans previously promised with little success: faster growth and declining deficits.
Yet the Biden budget would pledge to do so through a kind of wealth tax that many Republicans say would hurt the economy by cutting private investment in the companies that create jobs and grow. the wealthy to put their wealth to work abroad.
Republican lawmakers have said the Biden administration’s spending over the past year has led to greater economic pain in the form of higher prices. The inflation that accompanied the reopening of the US economy as pandemic shutdowns began to end was amplified by supply chain issues, low interest rates and, now, disruptions in oil and natural gas markets due to Russia’s invasion of Ukraine.
Senate Republican Leader Mitch McConnell of Kentucky blamed only Biden’s coronavirus relief as well as his willingness to move away from fossil fuels.
“The Washington Democrats’ response to these difficulties has been as misguided as the war on American energy and the spending sprees that helped create them,” McConnell said last week. “The Biden administration appears ready to try anything but reverse its own disastrous economic policies.”
Biden inherited from the Trump administration a budget deficit equal to 14.9% of the entire US economy. But the deficit from the coming budget year will be less than 5% of the economy, putting the country on a more sustainable path, according to people familiar with the budget proposal who insisted on anonymity to discuss the details to come.
Lower deficit totals will also be easier to manage even if interest rates rise.
The expected decline in the deficit for fiscal year 2022 reflects the strong pick-up in hiring that has occurred largely thanks to Biden’s $1.9 trillion coronavirus relief package. Job creation means additional tax revenue, with the government likely collecting $300 billion in additional revenue from fiscal year 2021, a 10% increase.
Still, the country will face several uncertainties that could reshape Biden’s proposed budget, which will feature numbers that don’t include the recently enacted spending omnibus. Biden and his U.S. allies are also providing aid to Ukrainians fighting against Russian forces, a war that could eventually reshape spending priorities and broader economic prospects.
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