How much trouble is President Biden in?
Don’t look at the polls, though they are telling. The latest NBC News survey shows Biden’s approval rating upside down by 15 points, a new low.
No, take a look at his budget instead.
Biden’s spending plan, which he claims is “fiscally responsible,” ups spending for cops and defense and other conservative priorities — even as he continues to pander to the Left with higher taxes on the wealthy and a jumble of other progressive priorities. It’s classic Biden, hoping to attract the middle while keeping Rep. Alexandria Ocasio-Cortez (D-N.Y.) happy.
With Biden taking fire from across the political spectrum, his budget should be titled: “Save Me Now!”
Question: when was the last time you heard this White House talk fiscal responsibility? This is the same crew that pushed through the unneeded $1.9 trillion American Rescue Plan with Democrat-only votes, even as Larry Summers and many others were sounding alarms about the inflationary impact of excess spending.
Answer: only now, as an election looms.
The budget is a mess of contradictory impulses. For instance: even as the United States is staring down the barrel of a threatening recession, Biden wants to push through the biggest tax hike in our nation’s history. Apparently, that’s what he means by making our economy more “equitable”: Everyone is going to suffer.
The budget is also dishonest. For instance, it includes a “placeholder” for Biden’s signature Build Back Better (BBB) initiative (or at least its skeleton), claiming that whatever programs make it through the Joe Manchin maze will be revenue neutral. All realistic analyses of BBB, including from the non-partisan Congressional Budget Office, have shown it to be extremely costly; nothing neutral about it.
Biden, introducing his budget, stressed that it would reduce our deficit and keep “the economic burden of debt low.”
In reality, it does nothing of the kind.
In the real world, the annual deficit – the gap between what the government takes in and what it spends – climbs from $1.4 trillion this year to $1.8 trillion 10 years later.
More important, the deficit relative to GDP actually increases over the period in question, rising from 4.5 percent in fiscal 2023 to 4.8 percent in fiscal 2032.
It is true that the numbers for 2023 represent a reprieve from the mad spending of the past two years. Biden has the gall to brag that he’s bringing down the deficit faster than ever before; yes, that’s the opportunity when you’ve blown it out at an unprecedented rate.
What really matters is this: The amount of debt held by the public will soar to $39.5 trillion, nearly 107 percent of GDP, from under 100 percent of GDP in fiscal 2021, before COVID-19-related spending went totally haywire. That’s a new record, and not the good kind.
As for keeping the burden of rising debt low, that depends on where interest rates are.
The Federal Reserve is now committed to raising rates to quell out-of-control inflation; no one can predict where that cycle will take us.
The economic forecasts included in the budget were unchanged from those presented last October; they project the interest rate on the 10-year Treasury note will average 2.1 percent this year and rise to 3.3 percent by FY 2032.
These figures are out of date, since the 10-year is currently almost 2.5 percent. Most economists are projecting that rate will rise to more than 3 percent next year.
What will higher interest rates mean for our country? Back in February, when aggressive rate hikes were but a twinkle in the eye of Fed Chair Jerome Powell, the Committee for a Responsible Federal Budget projected that interest payments would be the fastest-growing part of the federal budget.
They forecast that interest costs would average more than half a trillion dollars per year between fiscal 2022 and 2031. Included in that outlook was that inflation would steady out at 2.3 percent-2.4 percent after rising to 3.3 percent in 2021.
Since the Consumer Price Index totaled 7.9 percent in February, those projections were wildly optimistic.
The CRFB predicted that if interest rates rose faster – let’s say to 5.2 percent by fiscal 2032, up an additional 200 basis points – interest costs would jump to $9.2 trillion over the FY 2022 to 2031 period, or on average nearly $1 trillion per year, more than this year’s defense outlays. As a result, debt would end the period above 120 percent of GDP.
What would that mean to the average American?
Assuming we have some dedication to fiscal sanity, or that investors demand such, it would mean that other government spending categories would take a hit. Gone might be some of the priorities in this latest budget like, for instance, the $100 million to provide job training to offenders locked up in federal prison or the extra $88 million dedicated to the Antitrust Division of the Justice Department, dulling Biden’s quixotic attack on industry “concentration.”
It might even slice into the $2.6 billion provided to “Advance Equity and Equality Globally,” which I guess would hurt recipients overseas as opposed to U.S. citizens, but you get the point.
And, of course, there would likely be less money for windmills (speaking of quixotic).
Presidential budgets don’t mean much; they mainly serve as an indication of ambitions and priorities. Biden’s budget in particular is more campaign document than spending plan.
It certainly won’t pass Congress. One hurdle would be Sen. Krysten Sinema (D-Ariz.), who has already resisted tax hikes on corporations. Others will follow her lead, pointing to evidence that higher taxes on corporations are paid for either with lower wage growth or higher prices — a charge Democrats cannot ignore as workers find their pay checks eviscerated by inflation.
Bottom line: Biden’s budget won’t save Democrats come November. Not even close.
Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.