The White House has unveiled a $US6 trillion ($A7.8 trillion) budget proposal that would ramp up spending on infrastructure, education and combating climate change, arguing it makes good fiscal sense to invest when the cost of borrowing is cheap and then reduce deficits later.
The first comprehensive budget offered by Democratic President Joe Biden faces strong opposition from Republican lawmakers, who want to tamp down US government spending and reject his plans to hike taxes on the wealthy and big corporations.
Biden’s plan for fiscal year 2022 calls for $US6.01 trillion in spending and $US4.17 trillion in revenues, a 36.6 per cent increase from 2019 outlays, before the coronavirus pandemic bumped up spending.
It projects a $US1.84 trillion deficit, a sharp decrease from the past two years because of the COVID-19 pandemic, but up from 2019’s $US984 billion.
White House officials said the Biden’s $US4 trillion plans to address historical US inequality, climate change and provide four more years of free public education would be completely paid for in 15 years, with tax increases starting to chip away at deficits after 2030.
Cecilia Rouse, the chair of Biden’s Council of Economic Advisers, said Biden’s plan is front loaded and that the administration was willing to live with budget deficits amid low-interest rates to make significant investments in the country’s economy.
She projected a drop in deficits by more than $US2 trillion in the following years.
“That is a sharp departure from unpaid tax cuts under the prior administration that seriously worsened our long-term fiscal problem,” she said.
“The most important test of our fiscal health is real interest payments on the debt. That’s what tells us whether debt is burdening our economy and crowding out other investments.”
Rouse said the economy could face short-term inflation spikes, fuelled by the sharp growth in the economy, but added she expected it to settle down to an annual rate of about 2 per cent over time.
Increased investment would boost US economic growth, with the current conservative White House forecast calling for 2 per cent gross domestic product growth in 2031, compared with the Federal Reserve’s estimate of 1.8 per cent.
Biden’s first full spending outline since taking office in January serves as the fiscal blueprint for his political priorities and is likely to kick off months of difficult negotiations with Congress, which needs to approve most of the spending.
Republicans’ opposition is growing to much of Biden’s push to spend more to revamp the US economy, as they argue it could fuel inflation and tamp down corporate competitiveness.
US Treasury Secretary Janet Yellen said on Thursday that the budget would push US debt above the size of the US economy but would not contribute to inflationary pressures.