The Biden budget is primarily focused on addressing the widening income gap in the US economy over the past few decades. (File image)

By Dr Bappaditya Mukherjee

Biden’s first annual budget request for the fiscal year starting October 1 this year, was released by the White House recently. This document gives a window into the emerging policy consensus in Washington across a whole host of issue areas. The Biden budget for the upcoming fiscal year is $ 6 trillion and is dominated by spending increases to ameliorate the economic conditions of the poor and the middle-class Americans, many of whom have been devastated by the COVID pandemic. It also includes a whole host of proposals to invest in US infrastructure, which harks back in scale to what the country witnessed after World War II. Since this document and the subsequent processes in the US Congress includes defence and international spending by the US government, it holds considerable significance for international politics as well. Given that the US is a superpower with a worldwide presence, its budgetary priorities are a matter of global concern.

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However, it must be remembered that the US system is characterized by a system of checks and balances between the executive and the legislature. One of the ways this is manifested is in the role of the President in the budget-making process. As of now, the Biden budget is merely a wish-list or a set of proposals that will undergo significant revisions in the US Congress before being enacted as legislation about taxes, entitlements and spending. The purposes of the President’s annual budget request are three-fold: First, it communicates the overall US federal fiscal policy of the President to Congress. Second, the relative priorities for various federal programs – defence, agriculture, education, health etc. – of the President are laid out. Finally, it outlines the tax and spending policy changes that are desired by the President. These objectives are constrained by Congress, which has the power of the purse. The US government will go into a partial government shutdown in October this year unless Congress passes a deal that determines US spending levels. It also faces a deadline this fall for raising the debt limit. However, since Joe Biden’s party, the Democrats control both chambers of Congress, the enactment of major parts of his budget proposal seems likely.

The Biden budget is primarily focused on addressing the widening income gap in the US economy over the past few decades. This has several distortionary effects on the US political and economic system. Given the absence of significant regulations on private and institutional contributions to candidates in elections and the two major political parties, the influence of wealthy contributors on policymaking and legislation has become embarrassingly obvious. This has resulted in the US government adopting a succession of tax cuts on wealthy Americans and corporations, which have been ruinous in more ways than one. For instance, it has made it very difficult to finance the existing US commitments to social safety net programmes. The drop in the US government’s revenues also makes it difficult to bring the ballooning US debt under control.

On the economic side of the ledger, inequality can be said to be one of the drivers of social unrest – particularly along racial lines. A report by the Pew Research Center, a US polling firm, published just before the outbreak of the Covid pandemic concluded that upper-income households have made disproportionate income gains in recent years. The size of the U.S. middle class has been shrinking simultaneously. Additionally, the condition of the poor has worsened. These domestic trends have contributed to the growing hostility in the American mass public against globalization in general and free trade in particular. From the standpoint of emerging markets like India, the rise of protectionism in American domestic politics is bad news. Hence the Biden administration’s budget proposals designed to address the problem of income inequality should be welcomed in countries like India that are interested in greater access into the US market.

The massive expenditures outlined in the Biden budget are proposed to be financed by increasing taxes on corporations and the wealthy. In making this proposal, Biden is making a sharp break from more than four decades of US policy on taxation and revenue generation for the Federal government. This has been a long-standing demand of the progressive wing of the Democratic party that has been stymied by a coalition of moderate Democrats and Republicans. The wealthiest Americans, those with incomes more than $ 1 million will see a significant increase in their tax liability. Their maximum tax obligation will go up from 23.8% to a top rate of 43.4%.

The budget prioritizes the current administration’s grand strategy of countering China’s threat to US global interests through the $715 billion that has been allocated for defence. In doing so, Biden is building on the policy orientation set by his predecessor, Donald Trump. Hence, it is highly likely that Biden will receive huge bipartisan support for his budgetary proposals about defence expenditures. One of the notable aspects of defence-related spending is a 2.7% rise in the salary of the US armed forces. Secondly, massive reorientation of resources would be made into modernizing the US nuclear arsenal to further enhance its deterrent capabilities vis-a-vis China. The Biden administration is particularly concerned with China’s ambitions of establishing its regional hegemony in Asia. The US military planners have convinced Biden of the need to expand the US presence that directly confronts China’s regional interests. For instance, a US warship sailed through a waterway near the Taiwan Straits, prompting howls of protests from China. Those in the US elite and mass public that were hoping for a smaller global footprint for the US would be hugely disappointed by Biden’s national security strategy as encapsulated in this budget.

Given the widespread devastation in lives and livelihoods that the COVID outbreak has wrought in the US, it should come as no surprise that the Center for Disease Control (CDC) has come in for special attention in the Biden budget. Coming in at $8.7 billion it may seem a small fraction of the overall US budget. However, given that CDC funding was starting from a low base, this is a significant increase. This budgetary item signifies the biggest increase in CDC funding in almost twenty years. Most of this funding will go into the training of epidemiologists and building international capacity to emerging threats such as COVID. This internationalist orientation of the Biden administration should be welcomed by countries like India that require US technical assistance for boosting their research and technical capacity.

Finally, Biden has signalled that he would abandon the cavalier approach of his predecessor to the climate change problem. Trump was infamously a climate change denier, and his administration reflected this. Unlike Trump, the Biden administration believes that climate change is man-made and is an impending global crisis. It has allocated a significant amount of $36 billion to counter the climate change problem. This is a $14 billion increase compared with 2021. If passed, the domestic spending on programmes about clean energy initiatives would be the largest ever undertaken by any US government. Significantly, the budget also allocates $1.2 billion to a Green Climate Fund that will go to support the efforts of developing countries to cut their carbon emissions and cope with climate change. These budgetary allocations also signal to the world that the Biden administration is serious about rejoining the Paris Climate Accord that the US had abandoned during Trump’s tenure. Biden has set an ambitious target of reducing US emissions by half by 2030, far more than what is required by the Paris Accord.

(The author is a former faculty at the State University of New York, Geneseo. Views expressed are personal and do not reflect the official position or policy of the Financial Express Online.)

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