The 2023 budget item proposed by the White House considers an increase in defense spending, motivated by the Russian invasion of Ukraine, and also includes a new tax on the 20,000 highest-income households in the United States.
“That’s the direct result of my Administration’s strategy to get the pandemic under control and grow the economy from the bottom up and the middle out,” said President Joe Biden in the White House press release.
The budget initiative for the fiscal year 2023, which begins in October of this year, calls for $5.79 trillion. In fiscal year 2022, the budget line item was $5.85 trillion.
The budget item contemplates an increase in Defense spending due to the war in Ukraine
The 2023 budget line item contemplates an increase of $35 billion in additional defense spending, a 4% increase over 2022. This increase would leave the Department of Defense with a budget line item of up to $813 billion.
The Russian invasion of Ukraine served as an incentive for the Biden administration to increase the defense budget, which only grew by 1.6 % for fiscal year 2022. Within this section, almost $7 billion is earmarked for NATO and the reinforcement of its eastern flank, in view of the war in Ukraine.
The budget proposal also contains $9.9 billion to strengthen the capacity of the country’s health systems “to improve immunization programs” against COVID-19 and $81.7 billion over the next five years for health security against future pandemics.
What does the new tax on the wealthiest consist of?
According to the White House, the new tax would affect 20,000 households and would apply only to those who do not already pay a tax of at least 20% on their unrealized income and capital gains.
In the past, the Biden administration has proposed establishing an unrealized capital gains tax, which means charging a certain number of Americans money on the increase in the value of their assets without any gain on their sale.
Biden’s plan seeks to raise an additional $360 billion for the Treasury over the next 10 years. Households affected by this measure, on average, will have to pay an additional $18 million over the next decade on top of the taxes they already paid before.
The new measure, according to The Wall Street Journal, would raise twice as much money as raising the tax rate from 37% to 39.6% on the top 1% of earners in the U.S., and would affect far fewer households than a hike in the marginal income tax rate.
This new tax aims to capture additional income from individuals such as Mark Zuckerberg, Jeff Bezos, and Elon Musk, who head Meta, Amazon, and Tesla respectively. Technology companies had extraordinary valuations during 2020 and 2021, largely propitiated by the Federal Reserve’s monetary stimulus to the U.S. economy due to the pandemic emergency.
The White House hopes that the new tax will generate greater acceptance among moderate members of the Democratic Party, such as Senator Joe Manchin or Kyrsten Sinema, who last year refused to favor with their vote in the Senate the corporate tax hike proposals and the Biden administration’s spending plan.
The Biden Administration’s budget forecasts
The White House expects a deficit reduction of $1.4 trillion during fiscal year 2022, which would be a 50 % reduction from the deficit incurred during fiscal year 2021, which was as high as 12.4 % of GDP.
The U.S. public debt would fall to 101.8% by 2023, according to White House projections, should the 20% minimum tax on the wealthiest Americans be approved.