President Joe Biden recently released his budget proposal for fiscal year 2025, which, if approved, could add even more fuel to sky-high inflation, according to federal government budget experts who spoke to the Daily Caller News Foundation.
The president’s proposal lays out a slew of new targeted spending measures and tax increases that, in total, would add at least $14.8 trillion to the already massive national debt by the end of Biden’s presumptive second term. Many provisions in the budget would contribute to inflationary runaway deficit spending while not addressing the real problems causing unaffordability and rising prices, experts told the DCNF.
“Between the new anti-growth taxes and large deficits, you get a reduction in the real supply of goods and services and more financial assets floating around — more dollars chasing fewer goods and services — lots of inflation going forward, and the Fed will likely respond by waffling between printing money like crazy to cover some of the deficits — jacking up inflation even higher — and tightening the money supply, sending interest rates to the moon and only slightly bringing down inflation,” Richard Stern, director of the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation, told the DCNF.
Inflation currently sits at a rate of 3.2% year-over-year as of February and has risen 18.5% since Biden first came to office in January 2021. Biden has made huge stimulus packages part of his economic agenda, passing the American Rescue Plan in March 2021, which approved $1.9 trillion in new spending, and the Inflation Reduction Act in August 2022, which authorized another $750 billion.
“Biden’s budget is anticipating that the debt will go from $260k per household to $370k per household,” Stern told the DCNF. “That will continue to send interest rates way higher … which both pushes housing out of reach for most people but also will starve business growth.”
In response to high inflation, the Federal Reserve has set its federal funds rate to a range of 5.25% and 5.50%, putting pressure on interest rates across the economy as credit becomes more costly. Home prices are particularly exposed to credit cost increases as mortgage rates track closely with the price of Treasury bills, which are valued based on future inflation and interest rate expectations.
“The deficit will drive inflation higher because it means that the government will produce more financial assets (bonds) with no corresponding increase in real productive capacity,” Stern told the DCNF.
The budget calls for $258 billion to be approved for use in building or preserving two million housing units, specifically targeting lower- and middle-income households. The real limiting factor to housing availability in terms of units is local regulations, like those in California, that have stalled construction, meaning more federal funding would not solve the issue but instead add fuel to inflation.
“It’s very hard to build an apartment building because of all the government zoning and regulatory rules,” Chris Edwards, the Kilts Family Chair in Fiscal Studies at the Cato Institute, told the DCNF. “It’s not the federal government’s job to try to solve it with subsidies…it’s really a waste of federal taxpayer money because it’s something that state and local governments should be solving by themselves through deregulation.”
A Biden administration official told the DCNF that the budget would decrease the national deficit by $3 trillion over the next decade through increasing taxes and cutting wasteful spending, parroting language in the proposal. Edwards points out that the calculations used for the budget employ tricks that make it appear as if the deficit is declining over time, such as projecting nondefense discretionary spending to the same level each year despite GDP and inflation rising over time, instead of what typically occurs when spending tracks with these gains, resulting in $2.5 trillion more in deficit spending by 2034.
“He uses phony accounting and his budget in various ways to pretend that he reduces the deficit compared to baseline,” Edwards told the DCNF. “It’s extraordinary that the government has run up $3 trillion in debt, and a president proposes a budget to add another $17 trillion in debt over the next decade. It’s extraordinarily irresponsible.”
The U.S. national debt has already ballooned to nearly $34.5 trillion under Biden, up from around $27.8 trillion when he first took office in January 2021, according to the Treasury Department. In just February, the national debt increased by $296 billion, more than the total amount the government took in during the month at $271 billion.
“Additionally, his tax plans would make our tax system one of the least competitive for luring investment here and will pass right through the wealthy and big corps and end up being felt as lower wages, higher consumer prices, fewer startups — so a more concentrated market with less growth and opportunity,” Stern told the DCNF.
The plan also calls for increasing taxes on those with incomes over $400,000 a year and certain business owners to fund Medicare, while also raising taxes on “the highest-income Americans” to pay for Social Security. Biden also wants to raise tax rates for large corporations, partially removing tax cuts given during the Trump administration, and end “tax breaks” in a number of different areas, such as capital gains and executive compensation.
Gross domestic product (GDP) has come in above trend in the last two quarters, increasing 4.9% in the third quarter and 3.2% in the fourth quarter of 2023, according to the Bureau of Economic Analysis. Despite the economic gains, the federal government’s debt grew more than $800 billion in the fourth quarter of 2023, more than twice GDP growth.
“His budget is, in my opinion, a wholly unserious recipe for long-term economic disaster,” Stern told the DCNF.
Will Kessler on March 16, 2024
