Congress, White House line up for another bruising budget battle

By: Rob Garver

U.S. President Joe Biden on Thursday will release his formal budget request for the coming fiscal year, launching a perennial struggle between the White House and Congress over how much money the federal government should spend and where that spending should be focused.

The budget process is complex and politically fraught, forcing policymakers to come to grips with essential questions about how much Americans want their government to be doing, and how much they are willing to pay for it.

In broad terms, budget battles typically break down along partisan lines, with Republicans advocating for a comparatively smaller government that spends less money and therefore collects less tax revenue from its citizens. Democrats tend to line up on the side of a more expansive federal government funded by higher levels of taxes, particularly on the wealthy and corporations.

There is an element of theater to the process as well. When the president’s budget request is released, members of the opposite party — especially when they control one or both houses of Congress — will immediately declare it “dead on arrival” and assert congressional authority to control the government’s purse strings. House Republicans, who currently control that chamber, will play that role this year.

Different visions

“At moments like this, what the Congress does, and what the administration proposes are very different, because they have very different views on what the United States should be,” said Douglas Holtz-Eakin, who ran the Congressional Budget Office from 2003 to 2005.

“The president is going to propose big increases in spending,” Holtz-Eakin, now president of the American Action Forum, a conservative-leaning think tank, told VOA. “He's going to propose child care. He's going to propose paid leave, free college, bigger child credits — all sorts of new entitlement programs that [Democrats] believe are appropriate. They're going to propose even more taxes.”

He compared the president’s expected proposal to a very different expected approach from House Republicans.

“Their vision of the size of government is considerably more circumscribed,” he said. “They want a smaller government and lower taxes. They don't want the new programs. They're worried about the size of the existing programs.”

Below the surface

While on the surface the discussion of the federal budget may appear to be about spending, it is also about taxation because that is where the federal government gets the bulk of its revenue. And for Americans, taxes are a perennial hot-button issue.

The United States is something of an anomaly among developed nations because of the way it levies its taxes. The vast majority of federal revenue in a given year comes from direct assessments on individual Americans, making tax rates feel very personal.

However, the U.S. income tax system is also highly progressive, meaning that the tax rates for wealthier Americans are much higher than those for lower-income Americans, many of whom owe no federal income tax at all in a given year.

“A lot of European countries use value added taxes, broad-based consumption taxes, broad-based taxes on employment, payroll taxes. They fund a lot of their social programs, to a greater extent, from workers and middle-class folks than the way our system is structured,” Daniel Bunn, president and CEO of the Tax Foundation, told VOA.

Income taxes

In fiscal year 2022, according to the White House Office of Management and Budget, 51% of federal revenue came from taxes on individual Americans’ income. Another 33% came from what are commonly known as “payroll taxes” — funds deducted from Americans’ paychecks to fund social programs like Social Security, Medicare and Medicaid.

When state taxes are accounted for, often assessed on property as well as income, Americans fund around 80% of all government revenues through individual assessments. That’s a stark departure from the typical member of the Organization for Economic Cooperation and Development, where a combination of consumption taxes and corporate taxes cover more than 40% of government revenue.

Bunn said both Republicans and Democrats have made occasional attempts to push the U.S. toward a more consumption-based taxation model, with little success.

“They never really had a lot of legs as far as U.S. legislation is concerned,” he said.

Relentless growth

While budget battles seem to be between one side wanting to cut spending and the other wanting to increase it, in reality the federal budget has grown relentlessly larger regardless of who is in power in Washington.

Twenty years ago, when President George W. Bush was in the White House, total federal outlays for fiscal year 2003 were $2.16 trillion. In 2023, federal spending is expected to exceed $6 trillion.

The largest segment of the budget is “mandatory” spending, meaning outlays that are required by law, such as Social Security payments and funding for Medicare, which covers senior citizens’ health care, and federal and military retirement programs.

Mandatory spending will make up approximately 63% of federal outlays in fiscal 2023, with interest on the federal debt accounting for about 8% more. The remainder, about 30% of the total, is considered “discretionary” spending, meaning that Congress must pass legislation authorizing it.

The largest element of annual discretionary spending in the U.S. is directed to national security and defense. The defense budget consumes nearly half of the discretionary portion of the federal budget, leaving the remainder of the federal government — everything from the Department of Agriculture to the Department of Veterans Affairs — funded by about 16% of the government’s total spending.

Fight over debt

With few exceptions in recent decades, the U.S. spends more money than it takes in on an annual basis, resulting in a budget deficit, which must be funded by borrowing, and which in turn contributes to the national debt.

Both parties have contributed significantly to the debt but fights over it tend to materialize most frequently when there is a Democratic president and Republicans have control over one or both houses of Congress. This year, in control of the House, Republicans have vowed to force spending cuts on the Biden administration.

The Republicans' leverage in the battle comes from the existence of a federal “debt ceiling,” which caps the amount of money the Treasury Department can borrow. The Treasury is currently at the debt limit and will face the prospect of a catastrophic debt default if it is not raised by this summer.

Republicans have said that without significant reductions in federal spending, they will refuse to authorize an increase in the debt ceiling.

Both parties have said that cuts to Medicare and Social Security are off the table, so any meaningful spending reductions will have to come from the discretionary portion of the budget.

Dueling proposals

Both the president and congressional Republicans are expected to propose ways of reducing the deficit, but they will chart very different routes toward that goal.

In his budget request on Thursday, Biden has signaled that he will propose measures to shrink the federal deficit by as much as $2 trillion over the next decade. But rather than doing so through spending cuts, he is proposing an increase on the taxes paid by wealthy Americans.

Republicans have not released a final plan of their own, but ongoing discussions among Republicans are focused on cutting spending rather than raising revenues. Things under consideration include a nearly 50% decrease in the foreign aid budget, reductions to programs that help poor Americans afford housing and the imposition of a work requirement for certain benefits programs.

While it is impossible to predict exactly how this budget battle will play out, history suggests that the Republican-controlled House and the Democrat-run Senate will be unable to come to an agreement on a common budget plan.

When that has happened in the past, the government has continued to operate by using a series of “continuing resolutions” under which Congress allows current spending levels to be maintained while lawmakers work — sometimes for many months — toward an agreement. (KB/VOA)