Biden’s Budget Calls for Increase in Defense Spending, Including Funds for Ukraine
Spending proposal also emphasizes efforts to reduce deficit and fund law enforcement
WASHINGTON—President Biden on Monday released a $5.8 trillion budget that envisions a substantial increase in U.S. defense spending, a sign of the administration’s willingness to devote additional resources to military programs, including aiding Ukraine in its fight against Russian aggression.
The Biden administration is seeking $813 billion for military spending in fiscal year 2023, which begins Oct. 1, a roughly 4% increase from the $782 billion enacted for this fiscal year.
The requested increase is more than double than the 1.6% boost the administration sought for military spending in last year’s budget. The proposal calls for $682 million in funding to go to Ukraine for efforts to counter Russia and shore up its security and economic interests.
Mr. Biden’s budget also emphasizes efforts to reduce the deficit and increase law-enforcement spending at the Justice Department. The budget overall is a departure from last year’s request outlining a massive boost in spending on domestic programs and detailed financial blueprint for Mr. Biden’s sweeping education, social and climate-change agenda. In Monday’s proposal, the White House largely glosses over that agenda, which has stalled in Congress.
The shift comes after Russia invaded Ukraine, Mr. Biden’s standing in opinion polls has fallen and Democratic hopes of passing a sweeping economic package have dimmed.
“I’m calling for one of the largest investments in our national security in history, with the funds needed to ensure that our military remains the best-prepared, best-trained, best-equipped military in the world,” Mr. Biden said in a statement. “In addition, I’m calling for continued investment to forcefully respond to Putin’s aggression against Ukraine with U.S. support for Ukraine’s economic, humanitarian, and security needs.”
The budget also includes $17.4 billion for law enforcement at the Justice Department, including $1.7 billion for efforts to combat gun trafficking, and provides funding for the U.S. Marshals and the Federal Bureau of Investigation to address violent crime.
The budget outlines the administration’s policy priorities, but Congress will have final approval over many of its funding requests, while a large chunk of federal spending on entitlement programs such as Social Security happen automatically every year.
The request will face the same political headwinds on Capitol Hill that have helped define Mr. Biden’s first year in office. Democrats have very narrow control of the House and 50-50 Senate, and Republicans have lined up against many of the Biden administration’s proposals. Democrats are bracing to lose control of either or both chambers of Congress in the fall’s midterm elections.
The proposed military spending level would be the largest ever, if enacted, but it wouldn’t be the biggest one-year increase when compared with some previous years during the wars in Iraq and Afghanistan. The larger budget comes after the U.S. ended its 20-year war in Afghanistan in August, but now scrambles to address the crisis in Europe.
U.S. military spending also will likely require additional long-term investments, particularly in the Navy, to stay focused on China as the larger, more strategic threat facing the U.S. U.S. officials say investments in hypersonic missiles, machine learning, artificial intelligence and other military capabilities appropriate for confronting China will require billions of dollars in new investments over time.
Biden administration officials said the 2023 budget emphasizes deficit reduction, aligning with a recent push on the issue.
The administration forecasts a yearly drop of roughly 50% in the U.S. deficit during fiscal 2022, to $1.4 trillion. Under that scenario, the deficit as a percentage of U.S. gross domestic product would fall to 5.8% in fiscal 2022 from 12.4% in fiscal 2021, the budget estimates.
The government so far in fiscal 2022 is running a $476 billion deficit, a 55% reduction from the same point in the prior fiscal year, as spending on Covid-19 relief programs wanes and a stronger economy generates more tax revenue.
Debt held by the public would fall to 101.8% of U.S. GDP in fiscal 2023, compared with the White House’s forecast of 102.4% in the current year. Debt is expected to rise in subsequent years to 106.7% of GDP by 2032. Broadly, the 2023 budget sees debt rising more gradually over time than last year’s proposal.
The budget includes a proposal for a 20% minimum tax rate on income, including unrealized gains in assets, for American households worth more than $100 million. This would apply to the top 0.01% of households, the White House said. That is likely under 20,000 households.
Under the proposal, households worth more than $100 million that don’t pay at least 20% in tax on a combination of their standard reported income and their gains on unsold assets such as stocks would owe additional tax until they have paid the new minimum 20%, according to the White House.
Under current law, capital gains are taxed only when they are realized—when assets are sold—and long-term gains are taxed at lower rates than ordinary income. The White House said that over the next decade the new tax would lower the U.S. deficit by about $360 billion and that the budget plan overall would reduce it by more than $1 trillion.
The tax, which is unlikely to advance in Congress, could have its biggest impact on billionaires such as Jeff Bezos and Mark Zuckerberg, whose fortunes are largely composed of unrealized capital gains in the companies that they founded. Using the broader definition of income proposed by the administration, it is possible that they would pay less than 20% and owe the new tax.
Other people might have enough wealth to potentially be subject to the tax but not pay it. That could happen for athletes, entertainers and executives who pay high income-tax rates on their annual earnings. That might also be the case for wealthy people who have recently inherited money and don’t have significant unrealized capital gains.
The administration’s budget proposal sidesteps questions about Mr. Biden’s efforts on a broad climate, education and healthcare package that Democrats have tried—and so far failed—to advance through Congress. Democrats are still in the early stages of figuring out how to resurrect the package in a way that can win the support of centrists such as Sen. Joe Manchin (D., W.Va.), who scuttled the House version of the legislation in the 50-50 Senate.
Rather than lay out possible ways to overhaul the legislation, the White House budget broadly reiterates the Biden administration’s goals for the bill, listing a series of policy ideas—including free community college—that died during talks among Democrats last year.
Administration officials said they had segmented ideas related to the economic bill away from the broader budget to give space for Democrats on Capitol Hill to continue talking. While the White House has sought to craft the economic bill such that it reduces the deficit, the budget assumes it will have no impact on the deficit.
“We’ve been clear that the president wants to sign legislation that cuts costs for families and reduces the deficit, but to be conservative the budget” assumes it won’t impact the deficit, said Shalanda Young, director of the White House Office of Management and Budget.
The White House said Monday it expects inflation, which is trending at four-decade highs, to begin to ease.
The budget projects a sharp drop in the consumer-price index both in the current year and next. The index, which measures what Americans are paying for everyday items, rose at an annual rate of 7.9% in February. The budget projects the index will rise 4.7% in calendar year 2022 and 2.3% in 2023. Cecilia Rouse, chair of the White House Council of Economic Advisers, noted that the projections were completed in November, before the start of Russia’s war in Ukraine.
The situation in Ukraine “will have ramifications that are not reflected in our forecast,” Ms. Rouse said. “The invasion will likely put upward pressure on energy and food prices. That in turn could reinforce inflation that was already an issue prior to the invasion,” she added.
The budget forecasts annual U.S. GDP growth of 3.8% in 2022 and 2.5% in 2023, measured on a fourth-quarter and inflation-adjusted basis. That is a rosier outlook than that of the Federal Reserve, which most recently projected annual GDP growth of 2.8% and 2.2% in 2022 and 2023, respectively.