Biden has always pretended to pay attention to rebuilding the lop-sided economy of the United States. He has always stuck to the idea of redesigning economic practices to make them worthy for ordinary Americans. Instead of developing a top-down economy pyramid, Biden claims to turn it bottom-up and middle-out, which reflects in the new budget. According to the President, if the middle class does well, the poor will have a ladder up, and the rich will be able to uplift their financial flourishment.
Biden also says that the economy of the United States could be grown healthily by creating well-paying jobs and lowering costs by promoting workers and investing in people. The President also claims that he wants to reform the tax code to reward work instead of wealth.
However, from the point of reality, Is Biden’s new budget and wage-class welfare truly working? Will they cater to the middle class, or is it another hit on the pocket? How should you prepare for the newly proposed policies? This post answers everything involved!
Biden’s first trial to achieve a noteworthy economic victory was the American Rescue Plan Act (2021). This $1.9 trillion coronavirus rescue package aimed to drive the United States to recover from the post-pandemic economic and health turbulence. It’s said to be a part of his Build Back Better Plan, including the American Families Plan and American Jobs Plan. However, the plans couldn’t pass Congress, and some were covered by the Inflation Reduction Act (2022).
Presently, the United States is combating the pandemic and Ukraine war-induced inflation. Though the reported record high in inflation (2022) has declined significantly, high-priced goods and services are still squeezing the wellness of the country’s economy.
Joe Biden’s Updated Policy Goals
The Biden government has proposed to:
- Increase the minimum hourly wage to $15
- Release Covid-19 relief
- Forgive student loan debt and offer free college education for people earning less than $1,25,000/year.
- Design Affordable Care Act and offer 97% of US citizens health insurance coverage.
- Increase the tax revenue (up to an additional amount of $4 trillion) by raising the top tax rate to 39.6%. The capital gains will be taxed at regular rates while the corporate tax rate will rise to 28%.
Understanding the American Rescue Plan and Its Effect on Middle Class
This Covid-19 stimulus plan was introduced on 14th January 2021 and came into effect on 11th March 2021. The plan promised a $1400 stimulus check, a vaccine rollout, extended unemployment benefits, etc. The plan features several primary elements. They include the following.
The American Rescue Plan proposed to raise approximately $4 trillion in additional revenue over ten years. Households making over $1,70,000 will bear most of the proposed tax increment burden. In contrast, the top 1% will bear a significant tax load in the next quarters.
The changes that kicked in include but are not limited to the following:
- An increased top income rate of 39.6% (2.6% high than the previous rate)
- A closure in the step-up-in-basis loophole
- An elevated corporate tax income of 28%
- Implementation of Social Security Payroll tax for people earning more than $400k a year
- A 15% tax implementation on the record income of giant organizations
2. Direct Aid
This part of ARP is worth $1 trillion. It proposes to include $1400 checks sent to individuals earning less than $75,000 (separate filers – single or married) and $1,50,000 (joint filers). These checks were designed to supplement the previously mailed-out $600 checks.
Furthermore, the direct aid part included additional funding for eviction, emergency rent, emergency assistance for homeless people, mortgage assistance, etc. However, presently the evictions and foreclosures have expired. The rental and mortgage payments are still available. In addition, under direct aid, there is a childcare and food program.
3. Cyber Security Updation
When modifying the economy, Biden realized the importance of safeguarding digital assets and data. Thus, he proposed allocating $9 billion to modernize and secure Federal Information Technology. However, Congress approved around $2 billion.
4. Health Insurance
Biden’s healthcare initiatives proposed the expansion of Obama Care to insure 97% of Americans. The total cost will be $750 billion in the next ten years. Biden wanted to launch a public health insurance alternative like Medicare which doesn’t require any premium, and people who don’t have Medicaid can also access it.
5. Student Loan
Biden wanted to make education free for everyone earning less than $1,25,000. He wanted to fund this plan by repealing the high-income tax cut in the Coronavirus Aid Relief and Economic Security Act (Cares). In addition, Biden also proposed to forgive all student loans from 1st January 2021 to 31st December 2025.
6. Improve America’s Manufacturing and Technological Strength
Though this is not a technical element of ARP, Biden proposed a $700 billion plan in 2020 to elevate America’s manufacturing and technological strength. This included spending $400 billion on US goods and services and $300 billion on research and development.
7. Rural America
To help rural communities that account for 20% of the US population, Biden proposed an investment of $20 billion. The areas include agricultural research, rural broadband infrastructure, farming, health services, medical training programs, etc.
8. Local Community Support
Biden’s plan aims to help governments with revenue shortfalls by keeping frontline public workers on the job. In addition, it will have small business grants and loans. Besides, $20 billion will be allocated to public transit agencies.
9. Infrastructure and Climate
Biden has planned to spend $1.3 trillion for infrastructural development over the next ten years. This will include road repairs, highway and bridge modifications, clean energy research and innovation, electric car battery technology advancement, and transit projects to serve high-poverty areas.
The 2023 Biden Budget
After ARP, the Biden government came up with the 2023 budget. The Biden administration released the budget request on 28th March, which called for $5.8 trillion in federal spending and a $1.2 trillion deficit. In addition, it includes $1.6 trillion in discretionary spending. The key takeaways of the new budget include the following.
1. Deficit Reduction
The Biden administration has appealed to moderate democrats in response to their negotiation on broader social spending. It has proposed to reduce deficit spending by $1 trillion in the next 10 years.
2. Climate Initiatives
The climate initiative proposal of the 2023 federal budget proposed to back $6.5 billion in loans to rural electricity providers. This initiative aims to promote clean energy, support energy storage, and increase the department’s funding for renewable energy development by 150%. In addition, there is a proposal to allocate $5 million for climate adaptation.
3. Health Proposals
The budget has requested a grant of $5 billion. The amount will include investment in cancer and other breakthrough treatment research. Besides, it has proposed an investment of $3.5 billion in mental health treatment.
The Biden administration has proposed to expand enforcement of existing laws requiring insurers to grant equal coverage for mental care as they do for physical care. The government has also asked the US Department of Education to employ more mental health professionals in academic institutions.
4. Domestic Manufacturing
The budget request features an allocation of $372 million for the National Institute of Standards and Technology’s (NIST) manufacturing programs. This initiative is expected to expand domestic manufacturing and remove supply chain issues. However, the budget proposal does not include new funding for the Ukraine war or Covid 19. It features a deficit-neutral reserve fund that will pay for upcoming fiscal plans, though.
How Biden’s Budget Is Expected to Affect the American Middle Class?
Biden’s campaign’s cornerstone was making the middle class racially inclusive. He says that America hasn’t been built by CEOs, Wall Street bankers, or hedge fund managers. The American middle class developed the country’s economy and society. Research suggests that in 2018, 52% of American adults fell in the middle-income group. Their annual household income was 2/3rds to double the national median ($48,500 – $1,45,500).
Compared with other advanced economies, America houses a proportionally smaller middle class. However, despite the Biden administration’s efforts, the country’s middle-class population has failed to find relief. The income disparity in the different middle-class groups is gradually increasing. Only 20% of the middle-income group in the country has managed to recover from the recession, while the remaining 80% is still struggling to achieve financial freedom.
1. Questionable Credits
While the wage class of the United States was expecting the new budget to help cut down poverty and increase disposable income, the true picture conveys an opposite message. Biden claimed credit for the COVID-19 vaccine and the post-pandemic employment surge, but both were largely attributable to former President Trump’s policies. Biden’s plans couldn’t bring any significant positive changes for the middle-class people. They still need to struggle to secure their financial future.
2. Unfulfilled Commitments
The proposed budget claims that more jobs will be created with the expansion in the manufacturing sector. This will further boost worker employment. In addition, they will be entitled to justified pay and conditions. While Biden expects the initiative to cover the job losses after the pandemic, there are wrenching disconnects in his promises and actions. Using clever wordplay, the Biden administration has expanded the definition of “infrastructure” to encompass many areas.
However, in Washington, “infrastructure” has long been synonymous with “pork,” referring to funds dispersed without a clear definition for political gain. These funds often create temporary, low-skilled jobs, as the Biden administration has emphasized in their push for overall employment numbers.
Typically, local construction firms benefit from this type of spending. What sets the Biden initiative apart is its inclusion of “electric and electronic pork,” which essentially benefits his allies in the tech and alternative energy industries by building networks and energy systems to support their businesses. As a result, even social media giants may reap the benefits and become part of the “middle-class family.”
3. Adverse Effects of Elevated Taxes
Raising taxes to the levels proposed by Biden has previously reduced federal revenues and destroyed private-sector jobs. With many small businesses struggling after the pandemic, these tax increases could severely blow the American job market.
Moreover, the considerable expenditure he envisages will likely propel America’s debt beyond 100% of total GDP, a historical high that may create room for defaulting on American debt. The exponential rise in inflation due to this mounting debt will not permit a stimulus package with zero interest rates similar to that of the Obama era.
Consequently, it would necessitate a substantial hike in interest rates, potentially leading to a market collapse and surging unemployment.
How Middle Class Should Prepare to Adapt to the Biden Budget
Overall, Biden’s spending plans are highly perilous. They appear to be an unrestrained shopping spree throughout the progressive marketplace, which is expected to have a disastrous outcome. The much-touted “Biden Boom” could transform into the “Biden Bust.” There are no chunks of relief on taxes or cost of living, which can elevate the financial burden of the middle class.
Given this scenario, the wage class of the United States should start planning their finances wisely. To manage a shift in the proportion of expenses, it’s important to have a more adaptable investment portfolio. The investments should have the potential to be liquidated to pay off a loan, fund a part of the education cost, or be used as collateral for a low-interest loan.
Furthermore, middle-class households should start optimizing the use of physical assets, which include cars and jewelry, and everything acquired through income. This way, they can equip themselves with an anti-inflation shield, which, in turn, may help the wage class adapt to the proposed Biden Budget.
Frequently Asked Questions
Here are answers to some frequently asked questions about Biden’s approach to combat recession and inflation.
1. What is in the US government budget for 2023?
The United States Federal Budget for 2023 includes several key elements. They include $5.8 trillion in federal spending, a $1.2 trillion deficit, and discretionary spending of $1.6 trillion. In addition, the budget focuses on job creation and infrastructure progress.
2. What does America spend the most money on?
The US federal budget usually spends on social security, healthcare, income security, education, and training. Besides, the economy invests in employment, veteran benefits, social services, and defense. On the other hand, the primary revenue sources include payroll and income taxes.
3. How much is the federal government’s support for health programs and services?
The federal government’s provision of support for health programs and services comes in the form of direct spending on programs and services and tax expenditures. In fiscal year (FY) 2023, the federal government allocated $1.9 trillion out of $6.4 trillion in net federal outlays for domestic and global health programs and services, which represents approximately 29% of the total amount,
4. How is the congressional budget set?
Usually, Congress leverages a ‘budget allocation’ to decide how much money the government should spend and collect in taxes. This plan may also have special instructions called “reconciliation instructions.” The instructions can make budget alteration easier.