US stock futures soared Thursday morning as President Biden unveiled his first federal budget, which calls for the government to spend $6 trillion in the 2022 fiscal year, with total annual spending set to increase to $8.2 trillion by 2031.
Stocks initially knee-jerked higher, then retreated on the headlines reporting the proposed budget, which Biden can pass through the Senate using budget rules that allow Dems to circumvent the filibuster. According to the NYT, it calls for the highest sustained levels of federal spending since World War II.
Treasury yields also climbed on the news, which raised expectations for more Treasury supply.
According to the NYT, the increase in federal spending, which follows both the COVID stimulus and Biden’s “Build Back Better” infrastructure plans, will be driven by “Biden’s two-part agenda to upgrade the nation’s infrastructure and substantially expand the social safety net, contained in his American Jobs Plan and American Families Plan, along with other planned increases in discretionary spending.”
With Biden expected to raise taxes and increase spending on tax enforcement, the annual deficits in Biden’s budget projections wouldn’t start to wane until the 2030s. Meanwhile, Biden’s “ambitions to wield government power to help more Americans attain the comforts of a middle-class life and to lift U.S. industry to better compete globally in an economy the administration believes will be dominated by a race to reduce energy emissions and combat climate change.”
Under Mr. Biden’s proposal, the federal budget deficit would hit $1.8 trillion in 2022, even as the economy rebounds from the pandemic recession to grow at what the administration predicts would be its fastest annual pace since the early 1980s. It would recede slightly in the following years before growing again to nearly $1.6 trillion by 2031.
Total debt held by the public would more than exceed the annual value of economic output, rising to 117 percent of the size of the economy in 2031. By 2024, debt as a share of the economy would rise to its highest level in American history, eclipsing its World War II-era record.
Federal spending will swell to levels never seen before during peacetime, as Biden coughs up money for roads, water pipes, broadband internet, electric vehicle charging stations and advanced manufacturing research. The budget also envisions funding for affordable child care, universal prekindergarten, a national paid leave program and a host of other initiatives. Spending on national defense would also grow, though it would decline as a share of overall GDP.
Here are some other important details from the NYT report, which marks the first time the public is getting a whiff of the main details of Biden’s budget.
In each year of Mr. Biden’s budget, the government would spend more as a share of the economy than all but two years since World War II: 2020 and 2021, which were marked by trillions of dollars in federal spending to help people and businesses endure the pandemic-induced recession. By 2028, when Mr. Biden could be finishing a second term in office, the government would be collecting more tax revenue as a share of the economy than almost any point in modern statistical history; the only other comparable period was the end of President Bill Clinton’s second term, when the economy was roaring and the budget was in surplus.
The documents also show the conservative approach Mr. Biden’s economic team is taking with regard to projecting the economy’s growth, as compared to his predecessor’s. Mr. Biden’s aides predict that even if his full agenda were enacted, the economy would grow at just under 2 percent per year for most of the decade, after accounting for inflation. That rate is similar to the historically sluggish pace of growth that the nation has averaged over the past 20 years. Unemployment would fall to 4.1 percent by next year — from 6.1 percent today — and remain below 4 percent in the years thereafter.
With Dems in control of both Chambers of Congress, Biden faces some of the best odds of any recent president in terms of getting his budget through Congress. Odds will be particularly high if Biden can reach a deal on his infrastructure plan, which the GOP has so far resisted.
If passed in its current form, the federal government would spend what amounts to nearly a quarter of the country’s total economic output every year over the course of the next decade.
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