What you need to know about President Biden’s new budget

President Biden unveiled a $6.8-trillion budget blueprint on Thursday. The plan includes new tax increases on wealthy Americans and corporations that are designed to offset new spending on social programs and trim the federal deficit by nearly $3 trillion over the next decade.

Here’s what you need to know.

Will this plan become law?

The plan has little chance of passing a divided Congress.

If this plan is unlikely to become law, why does it matter?

The president’s budget is a statement of his values and priorities. By presenting a plan that includes tax increases on the wealthy as well as some spending increases, he is setting the stage for months of negotiations with Republicans, who have demanded deep spending cuts in exchange for dropping their threat to refuse to raise the nation’s federal borrowing limit for previous spending.

Lawmakers need to reach a deal on raising the debt limit this summer in order to avoid the U.S. defaulting on its debt payments, which could trigger a global economic crisis.

Biden, who is widely expected to announce his 2024 reelection bid in the coming weeks, announced his plan for the next fiscal year in Pennsylvania, a critical battleground state. The budget also doubles as a political messaging document for Biden, who is looking to sharpen a contrast with Republicans over fiscal responsibility.

The president wants the country’s wealthiest to foot most of the bill, an unmistakable preview of a populist reelection pitch.

“My budget reflects what we can do to lift the burden on hardworking Americans,” he told a crowd of union workers at the Finishing Trades Institute in Philadelphia. He vowed his plan would also “generate economic growth.”

What are Republicans saying?

House Speaker Kevin McCarthy (R-Bakersfield), who is leading talks with Biden over raising the debt ceiling, called the budget “completely unserious” in a statement on Twitter.

Other congressional Republicans also dismissed Biden’s budget blueprint, signaling a tough fiscal showdown as the two parties hash out differences over spending cuts and raising the federal debt ceiling.

Sen. Charles E. Grassley (R-Iowa), the top Republican on the Budget Committee, accused Biden of “reckless taxes and out-of-control spending,” calling the plan a “road map to fiscal ruin.”

But Republicans have yet to release their own budget proposal, which Biden noted during his remarks in Philadelphia.

“I’m ready to meet with the [House] speaker any time,” he said. “Tomorrow — if he has his budget.”

What’s in Biden’s budget, anyway?

High earners would pay higher taxes under Biden’s proposed budget. The budget includes $5.5 trillion in proposed taxes on wealthy Americans and corporations over the next 10 years.

The president’s plan would repeal some of the 2017 tax cuts signed into law by former President Trump. It would restore the top marginal tax rate to 39.6% (the current rate is 37%) on single filers making more than $400,000 and married couples making more than $450,000. For households that earn more than $1 million, capital gains would be taxed at the same rate as their wage income. The plan would also raise the corporate tax rate from 21% to 28%.

Biden’s so-called billionaire tax would impose a 25% minimum income tax on the wealthiest 0.01% of Americans, a significant increase from the 20% minimum tax on multimillionaires and billionaires that he floated last year.

The president also wants to quadruple a new excise tax on corporate stock buybacks under the new plan. Biden’s Inflation Reduction Act requires companies to pay a 1% excise tax on purchases of their own stock to discourage them from using a maneuver that steers profits to their shareholders and boosts the stock price.

The budget would raise more federal revenue by ending lucrative tax breaks for oil and gas companies, which would total $31 billion in savings, according to the White House. It also claims to save $19 billion by halting a special tax subsidy for real estate investors.

Keeping Medicare solvent

Biden wants to extend the solvency of Medicare by 25 years by raising tax rates on people earning more than $400,000 a year. The Medicare tax rate would increase from 3.8% to 5% on earned and unearned income for the wealthy. The Medicare trust fund, which is paid for by payroll taxes, is projected to run out in 2028 under current tax and spending levels.

The plan also proposes capping the price of certain prescriptions at $2 per month for Medicare recipients, including generic drugs used to treat chronic conditions such as high cholesterol and hypertension. Biden also wants to expand Medicare’s ability to negotiate lowering the cost for prescription drugs, which the White House said will cut federal spending by $160 billion over a decade.

No changes to Social Security

The White House said it was committed to strengthening Social Security but did not detail a solvency plan similar to the Medicare proposal. It instead allocated $1.4 billion (a 10% increase) to improve on the agency’s staffing and technology. Changes to Social Security are “not on the table,” Shalanda Young, director of the White House Office of Management and Budget, told reporters in a call previewing the plan on Thursday.

Biden has excoriated Republicans over Medicare and Social Security in recent months, citing a Republican senator’s 2022 call to sunset all federal programs every five years. Republican leaders have said in recent weeks that the two popular entitlement programs are off the table when it comes to slashing spending, but have yet to offer a plan of where they expect the cuts. Social Security and Medicare compose a large portion of the federal budget due to the nation’s aging population and increasing healthcare costs.

A bigger child tax credit

The president revived his pitch for family-focused and “care economy” policies that were core tenets of his initial “Build Back Better” plan but failed to win enough support to clear a Democratic-controlled Congress during his first two years in office.

He called for restoring the enhanced child tax credit, which cut poverty nearly in half when lawmakers gave the payment a pandemic-related boost in 2021. Biden wants to expand the credit from $2,000 per child to $3,000 per child for children 6 and older and up to $3,600 for children under 6. He also called for making the earned income tax credit expansion for childless workers permanent.

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Biden proposed making permanent the expanded subsidies for people buying their own health coverage on the Affordable Care Act marketplaces, which were extended through 2025 in the Inflation Reduction Act.

He is also asking Congress to support up to 12 weeks for a national paid medical leave program, $400 billion in childcare subsidies, and $300 billion for universal prekindergarten and expanding free community college. The budget allocates $150 billion over 10 years to improve and expand Medicaid home and community-based services and $100 billion in funding and tax incentives aimed at increasing the affordable housing supply.

More border agents and more money for the military

The president is requesting a defense budget of $842 billion in the fiscal year of 2024, a 3.2% increase from fiscal year 2023 that includes $6 billion for continued support to Ukraine. The budget also allocates $25 billion for U.S. Customs and Border Protection and Immigration and Customs Enforcement and $535 million for border technology at and between ports of entry. It also includes funding to hire an additional 350 border agents.