Center on Budget & Policy Priorities: 'Analysis of President Biden's 2023 Budget'
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To evaluate the Administration's policy priorities, this budget should be viewed in conjunction with the President's 2022 budget. While
Outside of the reserve fund, the budget proposes spending and revenue policies, including details for programs funded through the annual appropriations process. Like all budgets, it includes both new policies and policies the President proposed previously that have not been enacted but that the Administration continues to champion.
The Administration used the release of the 2023 budget as an opportunity to reiterate its commitment to an economic package that reduces costs for families, addresses climate change, and raises revenues to pay for these investments and shrink the deficit. The budget points to priorities proposed in the President's previous budget and under discussion in the context of the economic package, including getting health coverage to people in states that have refused to expand Medicaid; helping families afford costs such as health care and prescription drugs, child care, elder care, and housing; expanding the Earned Income Tax Credit for very low-paid workers without children; expanding the Child Tax Credit to help families with low incomes make ends meet at a time of rising costs; addressing climate change; and responsibly raising revenues on high-income households and profitable corporations.
Failure to enact a package with these provisions would have significant consequences. For example:
* More than 2 million uninsured people would remain without a pathway to coverage because they live in one of 12 states that haven't adopted the ACA's Medicaid expansion.
* Millions of people getting coverage through the ACA marketplace would see their premiums go up substantially when the current premium tax credit enhancements expire in December. Some might struggle but decide to pay the higher cost; others might forgo coverage and become uninsured.
* Some 27 million children in families with low or no income would receive less than the full Child Tax Credit, and an estimated 2 million children would remain in poverty due to their exclusion from the full
* Millions of families would fail to gain access to preschool or child care, undermining children's future educational and employment prospects and parents' employment opportunities and earnings.
* Hundreds of thousands of people experiencing or at risk of homelessness, overcrowding, and eviction would not benefit from a proposed expansion of housing vouchers, which have proven highly effective at addressing those problems.
* Prescription drug prices wouldn't be reduced for seniors, as Medicare would not be given the authority to negotiate prices with drug companies and no limits would be placed on annual increases in drug prices.
* A tax code distorted by two decades of regressive tax cuts, which have suppressed revenues and widened inequality while failing to deliver the faster economic growth their supporters promised, would remain in place.
Non-Defense Priorities
The President's 2023 budget includes detailed policies in a number of areas to broaden opportunity and enable the federal government to deliver services more effectively.[2] Some of these proposals provide multi-year funding, while others would require annual appropriations.
Historical underfunding in non-defense appropriations, made worse by deep cuts starting in 2011, has left many national needs unmet. The recently enacted omnibus appropriations bill for 2022 boosted non-defense funding by about 6 percent relative to the 2021 level, not accounting for inflation. Significant funding gaps remain in many areas, however. Even with the increase in the omnibus, overall non-defense funding is still about 3 percent below its 2010 level after adjusting for inflation and population growth. And the large increases needed to maintain and improve veterans' medical care -- which now accounts for roughly one-seventh of all regular non-defense funding -- mean that funding in other program areas is roughly 9 percent below the 2010 level, adjusted for inflation and population. (See Figure 1.)
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Figure 1: Non-Defense Funding Outside Veterans' Health Care Still Below 2010 Level
[Link to figure at bottom of document.]
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The President's 2023 budget would increase non-defense appropriations by about
Notably, the budget proposes that some increases in appropriated programs, such as for Title I and the
Expanding Access to
The President's budget would increase funding for Housing Choice Vouchers, which help people with low incomes rent modest housing of their choice in the private market, by
Providing more vouchers is the most effective housing policy available to help people struggling to afford homes during the current surge in housing costs, since vouchers can deliver assistance promptly and are tightly targeted on those with the greatest need. At least 75 percent of vouchers must go to extremely low-income households, defined as those with incomes below the federal poverty line or 30 percent of the local median income, whichever is higher. The President's proposal also would allow the
The budget also proposes increases in funding for homelessness programs and public housing. Its increase of
In addition to these increases in discretionary funding, the budget would provide
However, further targeting of the funds and rental assistance is needed to ensure that the proposal meets the needs of households who most need help to afford housing. A large majority of renters who pay more than half of their income for rent and utilities have incomes below 30 percent of the local median. Housing developed with the
Improving Child Care and Education
Child care and pre-kindergarten. The President's budget would increase discretionary funding for the Child Care and Development
Strengthening early childhood programs is critical to improving educational and employment outcomes for children in low-income families, to enabling parents, particularly mothers, to participate more fully in the economy, and to closing longstanding racial gaps in economic well-being resulting from racism and discrimination. Due to lack of funding, in 2019-2020 state-funded pre-K programs enrolled only 34 percent of 4-year-olds and 6 percent of 3-year-olds,[5] and only 1 in 7 eligible children receive child care assistance through CCDBG.[6] Because of the magnitude of the funding gaps and the long-term need, the early learning and care challenge should also be addressed in long-term economic legislation as the Administration has proposed. But the proposed increases in annual appropriations would achieve important advances.
Other budget provisions to improve outcomes for young children who are at risk for poor social, emotional, and educational outcomes include a proposed expansion of the Maternal, Infant, and Early Childhood Home Visiting Program to reach an additional 165,000 families, and increased funding for child welfare initiatives to keep families intact, reduce the use of foster care, and reduce the overrepresentation of children and families of color in the child welfare system.
K-12 education. The budget would more than double funding for Title I grants for education of disadvantaged students, from
In addition, the budget requests a
Higher education. The budget proposes a significant increase in Pell Grants, the main form of federal financial aid for undergraduate students from low- and middle-income families, which assist more than 6 million students. Pell Grants are funded from a combination of discretionary and mandatory funding. Low-income students were particularly likely to drop out of college or not enroll at all during the pandemic;[7] this substantial increase in the Pell Grant could help reverse that trend.
The budget also calls for an increase of about
Strengthening, Expanding Health Coverage
Mental health and substance use. The President's budget includes a suite of proposals to address the urgent need for behavioral health care (mental health and substance use treatment and recovery services), which has grown due to the pandemic.[8] While the ACA expanded access to behavioral health care, many people lack meaningful access to care despite having coverage, and those who are uninsured, including over 2 million people in states that haven't expanded Medicaid, often have no access at all.[9]
The budget would strengthen Medicaid, the main federal funding source for community-based behavioral health care for people with low incomes,[10] including by helping states strengthen Medicaid mental health provider capacity and expanding and making permanent the
The budget would also invest in behavioral health services in Medicare and the
Public health and pandemic preparedness. The budget proposes
The budget also calls for increases in regular annual appropriations for key HHS agencies, such as a
Tribal programs. To strengthen the nation-to-nation relationship between the federal government and Tribal Nations, the budget would increase the
In addition, the budget proposes a
Improving Governance
Several proposals in the President's budget aim to improve the delivery of federal services.
SSA. The budget includes a
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Figure 2: Social Security Administration Faces Increased Workload With Fewer Resources
[Link to figure at bottom of document.]
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Nearly half of calls to SSA go unanswered because callers hang up when the wait is too long or they get busy signals.[11] Only about one-third of the estimated 180,000 children who had a parent die of COVID-19 have begun receiving
Revenue-Raising Proposals
Over the past two decades, regressive tax cuts have suppressed revenues and widened inequality while failing to deliver on the promise of economic growth their supporters promised. They have also hampered the nation's ability to put in place policies that help families and children thrive and promote economic security and broadly shared growth. The President's budget would bolster the revenue system and move toward ending this damaging policy of underinvestment.
The budget builds on the provisions in the House-passed Build Back Better package but does not include those House provisions because they are part of the ongoing discussions around an economic package (and so are considered part of the deficit-neutral reserve fund, noted above). The budget does include a number of specific revenue policies, proposing new policies as well as some that were in the previous Biden budget but are not part of the ongoing discussions. Together, these provisions raise enough revenue to more than offset the cost of the budget's proposed funding increases and investments, reducing the deficit over the next decade by more than
Revenue Proposals in House Package
High-income individuals. Much of the annual income of very high-income households doesn't appear on their annual tax returns because it is in the form of unrealized capital gains. And the part of their income that is taxed on an annual basis often benefits from special tax breaks or discounted rates. Changes in tax policy since the late 1990s have expanded these advantages, particularly tax cuts in the George W. Bush and
* Surtax on multi-millionaires. The package imposed a new 5 percent surtax on households with adjusted gross income (AGI) above
* Closing net investment income loophole. High-income people pay a 3.8 percent Medicare tax on their wages and self-employment income. In 2010,
Large corporations. More than 130 countries representing more than 90 percent of the world's economy agreed in
The package would also ensure that large, profitable corporations pay at least some tax on their domestic profits by imposing a 15 percent minimum tax on the financial statement (or "book") income they report to shareholders, which may better represent a company's true economic position than taxable income. This would largely prevent large corporations from reporting profits to shareholders while paying no corporate taxes.
Tax enforcement. Funding cuts since 2010 have severely weakened the
Revenue Proposals in 2023 Budget
The President's 2023 budget includes several policies that were in the President's 2022 budget but are not part of current legislative discussions, including increases in the corporate tax rate and in individual tax rates for high-income households. It also includes new proposals, including one to ensure that the wealthiest households who have gained the most from the nation's economy pay at least a minimum level of tax. Together, these proposals would raise roughly
High-income households: top rates. A major reason why many wealthy households pay a relatively small share of their income in taxes is that capital and certain business income -- which make up most of wealthy households' incomes -- are taxed at a far lower rate than wage income. Moreover, the top ordinary income tax rate of 37 percent, which applies to interest and stock options as well as wages and salaries, is well below the post-World War II average of 59 percent.[16]
The President's budget would return the top marginal income tax rate to the rate before the 2017 tax law, 39.6 percent, and set the rate on capital gains and dividends at the same 39.6 percent for households with annual incomes over
High-income households: minimum tax on the wealthiest. A new proposal in the budget would ensure that households with more than
The individual income tax -- the largest federal tax, raising roughly half of federal revenue -- is based on ability to pay, meaning that a person's effective tax rate (the share of their annual income they owe in tax) should rise as their income rises. For most of the income spectrum it generally works that way; for example, someone whose annual salary is
The President's budget would address this fundamental unfairness by requiring taxpayers with more than
The proposal includes mechanisms to address various implementation issues that some commentators have raised about earlier similar proposals. For example, it would allow filers to spread their minimum tax payments over several years, enabling them to smooth the yearly changes in the amount of their investment income.[17]
Large corporations. The budget proposes to raise the corporate income tax rate from 21 percent to 28 percent, still significantly below the 35 percent rate in effect before the 2017 tax law. The increase would fall mostly on corporate shareholders, who reaped most of the benefit of the 2017 corporate tax cut. The ownership of corporate shares -- as with other kinds of wealth -- is highly concentrated at the top. Foreign investors own about 40 percent of
Closing loopholes. The President's budget would limit the use of certain longstanding loopholes that allow wealthy people to defer or avoid tax. For example, it would limit estate and gift tax avoidance using certain types of trusts such as "grantor retained annuity trusts" (GRATs), which wealthy people can use to shelter massive sums from the estate tax.[20]
The budget would also sharply limit the "like-kind exchange" loophole, which allows people to sell certain types of assets and still avoid paying tax on the realized capital gain in the year of the sale. The 2017 tax law eliminated like-kind exchanges for certain assets but retained them for real estate, so wealthy real estate investors can continue to sell buildings without claiming the gains from those sales on their income tax returns. The budget would repeal like-kind exchanges if the gain exceeds
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Footnotes:
[1] All years discussed in this paper are federal fiscal years unless noted otherwise.
[2] The President's budget also includes defense proposals and proposals for non-defense programs beyond those discussed in this analysis.
[3] These estimates use the standard CBPP methodology for analyzing discretionary appropriations. They reflect overall funding for non-defense appropriations, including program integrity and other programs typically funded outside of the Appropriations committees' topline, and excluding the savings from changes in mandatory programs (CHIMPs) and mortgage insurance premiums as well as emergency and disaster relief appropriations. The resulting non-defense totals are
[4] Federal child care funding also has a mandatory component, which the budget would hold flat at
[5]
[6] Administration for Children & Families, "ACF Releases Guidance on Supplemental Child Care Funds in the American Rescue Plan,"
[7]
[8]
[9] The Affordable Care Act requires states to include mental health and substance use treatment as a covered benefit for people eligible under Medicaid expansion. Health coverage plans offered through the Affordable Care Act's marketplace must cover behavioral health services that are comparable to the plan's physical health coverage, thereby providing access to coverage for substance use disorder treatment.
[10]
[11]
[12] More specifically, the surtax applies to "modified AGI," which differs from AGI in minor respects.
[13]
[14]
[15] The budget does not make any specific assumptions about the 2017 tax law provisions that are scheduled to expire after 2025, except for its proposal to raise the top income tax rate. As a result, the budget effectively assumes that the other expiring policies will end as scheduled or the cost of their extension will be offset.
[16] Tax Policy Center, "Historical Highest Marginal Income Tax Rates,"
[17]
[18]
[19] Ibid.
[20] Bloomberg, "How to Preserve a Family Fortune Through Tax Tricks,"
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View figures at https://www.cbpp.org/research/federal-budget/analysis-of-president-bidens-2023-budget
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