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Markets Recover amid Federal Budget Expectations

Although the final text has not yet been released, it can be anticipated that the federal budget will fund Biden’s two mega-plans: the “American Jobs Plan” (to renew America’s public infrastructure) and the “American Families Plan” (which seeks to expand early childhood education, community colleges and tax credits for families with children).

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Financial markets soared again after President Joe Biden announced his proposed federal budget for the next few years, which would spend more than $6 trillion by 2022, and potentially increase annual spending to $8.2 trillion by 2031.

If passed,the federal budget announced by Biden would involve the largest federal spending plan since World War II. With stocks, U.S. Treasury bonds also experienced a jump, on the expectation of more borrowing by the federal government to finance the White House spending plan.

Although the final text has not yet been released, it can be anticipated that the federal budget will go to fund Biden’s two mega-plans: the “American Jobs Plan” (to renew America’s public infrastructure) and the “American Families Plan” (which seeks to expand early childhood education, community colleges and tax credits for families with children).

Under President Biden’s proposal, the deficit would reach $1.8 trillion by 2022, and even if the economy emerges from the pandemic recession and grows at the rates expected by the White House, the total debt will continue to grow and could exceed 117% of U.S. Gross Domestic Product (GDP) by 2031.

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The federal budget for the next few years announced by President Biden could represent the largest expansion of government seen in decades. (EFE)

Federal spending under the Biden-Harris administration will reach levels not seen before in a time of peace, while the White House will look to allocate money from the spending plan to modernize roads, water, Internet services and expand coverage of charging stations for electric vehicles. As well as expanding funding for preschool education, more money for public universities and more attention to early childhood.

How will the Biden administration’s proposed federal budget be funded?

Biden’s plan is costly for the nation and as a result, the White House will have to increase tax revenues in order to fund the coming public spending in the United States. The President has proposed increasing corporate taxes from 21% to 28%, as well as raising the marginal income tax for individuals earning more than $400,000 a year.

Other new future taxes include an increase in capital gains taxes for investments with returns over $1 million, which could increase from the existing 20% to 43.5%.

If the taxes contemplated by Biden are implemented, the U.S. Government could have the highest tax revenue in its modern history, comparable only to the revenue seen during the Clinton administration, a period in which the U.S. economy boomed after the end of the Cold War and tax revenue benefited greatly from this growth.

Historically, financial markets in the United States have been bullish following the announcement of new government expansion plans. However, this increase in stock prices may not be long-lasting, as the specter of inflation returns to haunt the U.S. economy and many investors are withdrawing their money from the stock market into safer assets such as gold and silver.

The contents of the federal budget announced by President Biden will be unveiled this Friday, where the scope and size of the investments planned by the White House for the coming years can be confirmed.

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