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Biden Unveils $6 Trillion Spending Plan -- 4th Update

05/28/2021 | 03:31pm EDT

By Kate Davidson

WASHINGTON -- President Biden's $6 trillion budget proposal unveiled Friday charts his vision of an expansive federal government role in the economy and the lives of Americans, with big increases in spending on infrastructure, public health and education along with tax hikes on corporations and the wealthy.

The Biden administration is seeking $1.52 trillion for the military and domestic programs in fiscal year 2022, which begins Oct. 1, an 8.6% increase from the $1.4 trillion enacted last year, excluding emergency measures to combat the Covid-19 pandemic.

The proposal would shift more federal resources from the military, which would see a 1.6% rise in spending next year, to domestic programs such as scientific research and renewable energy, which would get 16.5% more funding under the president's plan in 2022.

The White House detailed costs for its proposals to spend $4.5 trillion over the next decade on infrastructure and social programs, which the administration is hoping to advance through Congress this summer. The plan includes $17 billion next year for improvements such as repairs to roads, bridges and airports, $4.5 billion to replace lead water pipes across the country, and $13 billion to expand high-speed broadband.

Plans to provide universal preschool and ensure teachers at those schools earn $15 an hour would cost $3.5 billion in 2022. The budget would also provide $8.8 billion next year on direct spending on families, including $6.7 billion for affordable child care and $750 million for paid leave. Those costs would rise substantially in 2023 and beyond.

Mr. Biden's budget blueprint serves to advance some of his administration's most ambitious goals: Reducing disparities in incomes and wealth through the tax code, curbing greenhouse gas emissions and putting the U.S. on a stronger footing to compete with China in the global battle for economic and technological supremacy.

"It's a bold, aspirational, progressive budget, but it's also problematic," said G. William Hoagland, a senior vice president at the Bipartisan Policy Center and former Senate GOP budget aide, who said he was concerned about the shift away from containing federal deficits. "This really is something that's equivalent to the Roosevelt years coming out of the Depression."

The president's ability to enact his agenda will depend on Congress, where Democrats have slim majorities. Lawmakers routinely ignore the White House's budget requests in favor of their own plans, and some Democratic lawmakers have expressed reservations about Mr. Biden's proposals to raise taxes on businesses and high-income households.

Passing a budget in Congress unlocks reconciliation, a process that allows lawmakers to pass legislation directly related to the budget with a simple Senate majority, instead of the usual 60 votes.

Democrats used reconciliation to approve Mr. Biden's $1.9 trillion Covid-19 relief bill earlier this year and are weighing whether to use it again to advance the rest of his economic agenda without Republican support.

Democratic lawmakers said the plan would provide money for long overdue investments after years of spending constraints. Republicans assailed it as an unwarranted intrusion of the federal government in the economy that risks stoking inflation and adding to the federal debt.

Sen. Jerry Moran (R., Kan.) called it "a budget that will raise taxes, cause prices to skyrocket and saddle future generations with burdensome levels of debt."

The administration projects a deficit of $1.84 trillion in fiscal 2022, which comes to 7.8% of gross domestic product, down from a deficit of $3.67 trillion in fiscal 2021, when emergency government spending to battle the Covid-19 pandemic and its economic fallout added to the red ink.

Debt held by the public would rise to 111.8% in 2022, surpassing the level seen in the wake of World War II. Debt would continue to rise in the following years, reaching 117% of GDP in 2031.

Administration officials have said its proposals would add to deficits over the next decade but that higher spending would eventually be offset by revenue from tax increases on wealthy individuals and corporations.

Officials emphasized that net interest payments on the debt as a share of economic output will remain below the historical average over the next decade, thanks in part to historically low interest rates that have declined in recent decades. The yield on the 10-year Treasury note has averaged 2.085% over the past decade and is currently around 1.59%.

"This shows that the cost of these upfront investments is not burdening the economy," Shalanda Young, the acting director of the Office of Management and Budget, said on a call with reporters Friday. "Failing to make these investments at a time with such low interest costs would be a historic missed opportunity that would leave future generations worse off."

Some economists and Republican critics dispute the administration's projections that interest rates and inflation will remain low for the foreseeable future.

"Their proposals are taking an enormous amount of our fiscal space on the tax side and devoting it to expansion of the federal safety net, when the existing federal safety net is in tatters, and they're using up the money we need to fix it," said Douglas Holtz-Eakin, a former director of the Congressional Budget Office.

Mr. Biden's plan relies on corporate tax increases to pay for infrastructure and taxes on high-income households for the family-spending and education initiatives. The corporate tax rate would climb to 28% from 21%, the top capital-gains tax rate would go to 43.4% from 23.8% and unrealized gains would be taxed at death, with a $1 million per-person exemption.

The administration forecasts economic growth of 5.2% this year and 3.2% in 2022, as the recovery continues. In following years, the annual pace of growth would settle at between 1.8% and 2%.

Cecilia Rouse, chairwoman of the White House Council of Economic Advisers, said the forecasts were submitted in early February, when the economic outlook wasn't as bright. Since then, millions more Americans have been vaccinated and Covid-19 infections have declined, leading to a faster reopening of the economy and stronger growth than many expected, she said.

"Many of the proposals -- infrastructure, investments in young children, higher education -- would take years to show up as greater economic output," said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution, a Washington think-tank, and a former CBO chief economist. "They would immediately improve our quality of life. But they would also pay economic dividends for many years beyond this decade."

--Richard Rubin and Andrew Duehren contributed to this article.

Write to Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

05-28-21 1731ET

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