President Biden unveiled his new budget for Fiscal Year 2025 this afternoon. The budget proposes $5.485 trillion in revenue (+7.9% over 2024) and $7.266 trillion in expenses (+4.7% over 2024), with a deficit of $1.781 trillion. In the 10-year period from 2025 to 2034, the Biden Administration projects $70.3 trillion in revenue, $86.6 trillion in expenses, and $16.3 trillion in deficits. The national debt would be well above $40 trillion by the end of the projection period.
Included in the budget proposal is an onslaught of over $4 trillion in new taxes framed as having business and wealthy individuals pay their "fair share."
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In addition to these direct taxes, the budget also includes regulatory proposals that taxpayers should be wary of. The Biden budget would expand prescription drug negotiation by increasing the number of drugs included in what is really a price-setting scheme, and also increasing the drug price rebates mandated in the Inflation Reduction Act. The Congressional Budget Office has warned that these policies will reduce the number of new pharmaceuticals brought to market, and those that are released will have a higher price than otherwise.
The President's budget also waters down statutory protections for taxpayers from overzealous Internal Revenue Service agents. The proposal would weaken the law known as 6751(b) requiring that an immediate supervisor's signature is required before a taxpayer can be assessed a penalty. The reason for 6751(b) is so that taxpayers know why a penalty is being imposed and to prevent the IRS from using the penalty as a “bargaining chip.” The administration estimates that modifying the statutory definition of an "immediate supervisor" and changes to when the approval must be obtained will increase the amount of tax penalties assessed by $1.6 billion.
The budget would also extend the higher level of funding that was provided to the IRS in the Inflation Reduction Act (IRA) for additional years. IRA gave the IRS an $80 billion funding stream over ten years, with more than half of that earmarked for tax enforcement. Biden's budget would provide the IRS with an additional $104 billion, maintaining the emphasis on enforcement. This is doubly concerning given the attempts to weaken taxpayer rights through the supervisor's signature proposal above.
Despite Biden's rhetoric that the rich are not paying their "fair share" the tax code is very progressive. In Tax Year 2021, recently released by the IRS, the top 1 percent of earners paid nearly 46 percent of all income taxes, the highest level reported in the data that NTUF has gathered since 1980. In that year, the top earners paid 19 percent of all taxes. Even as tax reforms since then lowered the top marginal tax rates, the wealthy have borne a larger share of the income tax burden.
Even with all of these major new taxes (and there may be other tax hikes included in the fine print of the sprawling budget documents), Biden's budget still projects annual deficits averaging $1.6 trillion, adding another $16 trillion to the national debt. However, if implemented, Biden's new tax hikes will ultimately collect less revenue than expected using the administration's rosy projections. Moreover, these tax increases are likely to inflict significant economic damage, diminishing business investment, and constraining job growth and wages.