April 16, 2021
President Biden’s Opening Budget Bid
On Friday, April 10, Office of Management and Budget (OMB) Acting Director Young submitted President Biden’s “skinny” budget to Congress. With discretionary budget caps expiring at the end of FY21, this document’s primary purpose is to set a top-line discretionary spending level needed for the FY22 appropriations process to start on Capitol Hill.
In reviewing this document it’s important to note three things.
First, the President’s Budget is not designed to predict what will happen. Instead, it’s a political advocacy and organizational tool for the administration to project what could happen if all the President’s budget recommendations were adopted. Since the Congressional Budget Act of 1974 created the current process, no Congress has ever adopted a President’s budget. In fact, the opposition party on Capitol Hill often stages votes on the President’s Budget to make that point. With that in mind, think of the President’s budget as the starting point for deliberations with Congress over spending priorities.
Second, President Biden promised quick action to contain the COVID-19 crisis with expanded testing and a national vaccination program. Enacted with support of congressional Democrats and zero support from Republicans, the $1.9 trillion American Rescue Plan Act (ARPA) is now on track to double the President’s inauguration day goal of 100 million delivered doses within his first 100 days in office. Prioritizing action on ARPA, the January Georgia elections, narrow Congressional margins, and impeachment have delayed the confirmation process for hundreds of key administration positions, including those at OMB. The combination has also made the FY22 budget preparation and release process the latest since 1974. Last month, House Budget Committee Chairman Yarmuth (D-KY) announced that House action on the FY22 budget resolution would be delayed to July (the latest on record). If Senate Majority Leader Schumer (D-NY) and Speaker Pelosi (D-CA) attempt to advance a second FY21 budget reconciliation bill to move elements of President Biden’s American Jobs Plan, Yarmuth’s schedule may be delayed.
Third, in his 1996 State of the Union address, President Clinton famously stated, “The era of big government is over.” After enactment of an unprecedented $6 trillion in federal COVID relief over the past 13 months, Congress will soon turn to President Biden’s $2.25 trillion infrastructure-focused American Jobs Plan, another trillion-topping human capital plan, and a skinny budget that increases non-defense discretionary spending by 16% with increases for every cabinet-level agency. Biden’s budget is topped by a 40.8% increase for the Department of Education to provide greater support state and local schools, a 27.7% increase for the Department of Commerce aimed at boosting U.S. manufacturing (featuring a $442 million increase for National Institute of Standards and Technology manufacturing programs and a $125 million increase of the public-private Manufacturing Extension Partnership), 23.1% for HHS to increase federal support for the Centers for Disease Control, biomedical research including a new Advanced Research Projects Agency for Health (ARPA-H), increased access to health care and mental health services, and other medical research, 21.3% for EPA to increase EPA staff and boost climate control enforcement, and 19.8% for NSF to boost climate science and sustainability research. Each of these proposed growth areas and Biden’s decision to prioritize non-defense program spending over defense are consistent with FBIQ’s forecast and the priorities he stressed throughout his 2020 presidential campaign. For Biden, the era of big government is back.
The central factor limiting implementation of President Biden’s budget agenda is an agreement on its financing. With details to follow in “the months to come,” all signals point to a Biden FY22 Budget that will be most progressive since FDR’s “New Deal.” That budget faces a legislative math problem. With a 50-50 Senate and narrow margins in the House, Biden, Pelosi, and Schumer lack the votes to adopt that agenda. Starting with the proposed corporate tax hike (from 21% to 28%) in the American Jobs Plan, the size of the tax increases Biden seeks to finance his agenda are in jeopardy. Expect 15-year tax financing for Biden’s eight-year American Jobs Plan to give heartburn to moderate Democrats in swing House districts and states like West Virginia that voted for Trump in 2020.
Over the past decade…, the Nation significantly underinvested in core public services, benefits and protections…. The President believes now is the time to begin reversing this trend—and the expiration of nearly a decade of budget caps presents a unique opportunity to do so.
OMB Acting Director Young, April 9 Letter to Congress
Precedent strongly suggests that the path forward on all of these issues for the remainder of the 117th Congress hinges on a bipartisan budget agreement. Three action-forcing events, increasing the federal debt limit (projected this fall), expiration of the current two-year budget cap deal, and the October 1 deadline for enactment of FY22 appropriations needed to avoid a government shutdown, suggest that those negotiations are likely to begin by July and extend into the fall.
At a minimum, Biden, Pelosi, Schumer, and Senate Republican Leader McConnell (R-KY) are likely to support a deal setting caps on discretionary spending to avoid government shutdowns before 2022 elections and extend the federal debt limit beyond the 2022 elections. After gaining seats in 2020, House Republican Leader McCarthy (R-CA) may be less interested in a deal. With post-2020 Census redistricting, McCarthy appears convinced that prospects for regaining Republican control of the House are strong and rising.
We have argued that with those mid-term election prospects in mind, President Biden should seek a five-year deal. Getting it would mean smaller tax increases, smaller infrastructure investments more narrowly focused on traditional infrastructure, and FY22 spending caps with smaller non-defense spending increases than outlined in the “skinny” budget and a higher floor on defense spending that congressional progressives seek.
< 5% | Prospects for an October 1 shutdown
90% | With the latest budget start on record, agencies operate under CRs through most of FY22 Q1