Breaking Down the Proposals in the President's FY 2023 Budget
Last week, the Biden Administration released its Fiscal Year (FY) 2023 budget proposal, outlining some of President Biden's tax and spending priorities over the next decade. The President's budget proposes $1.66 trillion of new spending and tax breaks offset by $2.61 trillion of tax increases and spending reductions and $95 billion of net interest savings. Overall, these policies would reduce deficits by $1.05 trillion over ten years.
Below, we break down and describe the major proposals in the President's budget.
Policies in the President's FY 2023 Budget Proposal
|Policy||2022-2032 Cost/Savings (-)|
|Placeholder for Deficit-Neutral Build Back Better Legislation||$0|
|Increase Discretionary Spending||$750 billion|
|Increase veterans and nondefense discretionary spending||$635 billion|
|Increase defense spending||$115 billion|
|Increase Education Funding||$385 billion|
|Double Pell Grants by 2029||$230 billion|
|Increase Title I K-12 education funding||$155 billion|
|Increase Public Health and Health Care Funding||$375 billion|
|Increase Indian Health Service funding||$140 billion|
|Increase mental health funding and access||$100 billion|
|Invest in public health capacity and medical countermeasures||$80 billion|
|Expand Medicaid vaccine coverage for adults||$25 billion|
|Other health care spending||$25 billion|
|Increase Other Spending and Reduce Taxes||$150 billion|
|Increase affordable housing supply||$50 billion|
|Increase crime prevention funding||$30 billion|
|Increase child welfare funding||$20 billion|
|Other spending increases and tax breaks||$55 billion|
|Subtotal, Gross Costs||$1,655 billion|
|Reduce Spending||-$65 billion|
|Increase program integrity funding to reduce Social Security and unemployment improper payments||-$40 billion|
|Reduce health care spending, including by extending the Medicare sequester||-$20 billion|
|Extend customs fees||-$5 billion|
|Increase Taxes on High Earners and Corporations||-$2,545 billion|
|Increase corporate tax rate from 21 percent to 28 percent (with 20 percent global minimum tax)||-$1,315 billion|
|Reform taxation of foreign business income||-$240 billion|
|Establish a 20 percent minimum accrual tax for high-wealth households||-$360 billion|
|Increase top income tax rate from 37 percent to 39.6 percent||-$195 billion|
|Tax capital gains as ordinary income for high-income households and tax gains at death||-$175 billion|
|Close estate tax loopholes||-$50 billion|
|Eliminate fossil fuel tax preferences||-$45 billion|
|Other revenue||-$170 billion|
|Subtotal, Gross Savings||-$2,610 billion|
|Net Interest||-$95 billion|
|Total, Policy Changes in the FY 2023 Budget||-$1,050 billion|
Sources: Office of Management and Budget and Committee for a Responsible Federal Budget.
Numbers may not sum due to rounding.
Placeholder for Deficit-Neutral Build Back Better Legislation ($0). The President's budget relies on an unspecified deficit-neutral placeholder reflecting the President's "Build Back Better" agenda to spend on climate and social programs while lowering prescription drug costs and raising revenue. Negotiations over the Build Back Better agenda in legislative form are still ongoing in Congress.
Increase Discretionary Spending ($750 billion). Under the President's budget, defense discretionary spending would increase by 4 percent ($31 billion) between FY 2022 and 2023, and veterans and nondefense discretionary spending would increase by over 11 percent ($78 billion). Veterans and nondefense spending increases include large boosts in funding for the Departments of Commerce, Health and Human Services, and Veterans Affairs as well as the Environmental Protection Agency and the National Science Foundation. Under the budget, Veterans Affairs medical funding would be given its own discrete stream of funding ($119 billion in FY 2023). After accounting for reclassifications of nondefense spending to mandatory spending and increased funding for program integrity, the President's budget would increase overall veterans and nondefense discretionary spending by $635 billion and would increase overall defense spending by $115 billion over ten years.
Increase Education Funding ($385 billion). The President's budget would increase K-12 Title I education funding through both mandatory and discretionary spending increases. Included in this amount is an increase of $16 billion in mandatory budget authority for Title I, which would grow through the decade for a total increase in outlays of $155 billion. The budget also proposes to increase the Pell Grant for higher education aid until it doubles its current value by 2029 at a cost of $230 billion.
Increase Public Health and Health Care Funding ($375 billion). Over time, the President's budget would increase funding for the Indian Health Service (IHS) and shift its funding steam from discretionary spending to mandatory spending. This would result in a $140 billion increase in IHS spending over a decade while essentially making the program a health care entitlement like Medicare and Medicaid.
The President's budget would also invest $100 billion in mental health care capacity as well as combatting substance abuse. This is largely through making an optional, program-enhanced Medicaid funding match to states for behavioral health permanent, increasing government and private insurance coverage requirements for behavioral health and primary care (which would flow into increased health care premiums tax credits and Medicare/Medicaid spending), and behavioral health workforce investments.
The budget includes other significant public health and pandemic preparedness investments, totaling over $100 billion over a decade. This includes $80 billion of spending on research and development of vaccines, testing, and therapeutics to combat pandemics. It would also create a Vaccines for Adults program in Medicaid ($25 billion) to facilitate vaccine deployment to low-income adults while expanding Vaccines for Children to cover Children's Health Insurance Program participants. Finally, the budget would invest in measures to end the HIV epidemic through more widespread use of Pre-Exposure Prophylaxis and make permanent the Maternal Infant Early Childhood Home Visiting program, among other changes.
Increase Other Spending and Reduce Taxes ($150 billion). The President's budget would increase various other spending and reduce taxes. For example, the budget includes a $50 billion affordable housing investment, $30 billion for crime prevention through Department of Justice programs, $20 billion for various child welfare programs and making refundable the adoption tax credit while expanding those who qualify, and about $55 billion for various other initiatives.
Reduce Spending (-$65 billion). The President's budget proposes strengthening program integrity measures for Social Security, health care programs, and unemployment insurance, which is estimated to cost $29 billion but will ultimately generate $40 billion of net savings. It would also enhance Medicaid managed care enforcement, extend the mandatory spending sequester, and extend expiring Customs and Border Protection user fees.
Increase Taxes on Corporations (-$1,555 billion). The President's budget would raise the corporate income tax rate from 21 percent to 28 percent. This proposal is inclusive of a 20 percent minimum tax (up from 10.5 percent today) on foreign-earned Global Intangible Low-Based Tax Income. The budget would also reform the taxation of foreign business income by incorporating global efforts to combat corporate tax avoidance.
Increase Taxes on High-Income Households (-$780 billion). The President's budget would increase the top individual income tax rate from 37 percent to 39.6 percent - the top income tax rate prior to the enactment of the Tax Cuts and Jobs Act. It would also establish a 20 percent minimum tax on households with assets worth $100 million or more, tax capital gains as ordinary income for high-income earners, and tax gains at death. Moreover, the budget would close several Estate Tax loopholes by changing rules for certain trusts, improving estate tax administration, improving the valuation of assets, and tightening other exemptions.
Other Revenue Increases (-$215 billion). The President's budget would close several tax loopholes, including taxing carried interest as ordinary income and repealing "like-kind exchange" rules that allow real estate investors to avoid paying capital gains taxes, among other tax changes. It also proposes reforms to improve tax administration and compliance and would eliminate several fossil fuel tax preferences, such as the expensing of intangible drilling costs.
Net Interest (-$95 billion). The President's budget would reduce deficits by $1.05 trillion over the next decade, and the national debt would grow to a record-high 106.7 percent of Gross Domestic Product (GDP) by the end of FY 2032. By comparison, debt would total 109.6 percent of GDP under the Office of Management and Budget's baseline. As a result, under the President's budget, net interest payments would be $95 billion lower over the next decade.
While we are pleased that President Biden has put forward a budget that calls for offsetting new spending and reducing budget deficits, the budget is short on details and does too little - and in some cases nothing - to tackle inflation, lower health care costs, secure our trust funds, or put our debt on a sustainable downward path over the long-term. The President should push for incremental or comprehensive legislation that not only fully pays for his agenda but also addresses critical national priorities.