Joe Biden’s 2025 budget came out today. It doesn’t have any chance of becoming law, as no president’s budget ever does. But it’s nonetheless worth noting that his ideal for government spending next year is to further increase it, and still run a massive deficit.
Headlines are saying the budget would cut $3 trillion from deficits over ten years. What that means is that, compared with the baseline projections for deficits right now, the national debt would be $3 trillion lower ten years from now if Biden’s budget was adopted than if it was not. It does not mean the federal government would ever run a budget surplus in any of those ten years. Additionally, most of those “savings” — i.e., racking up debt a little slower — would occur in the second half of that ten-year window, when we have no idea what the economy might look like.
Let’s look just at next year, when any projections will have a relatively higher chance of being accurate. For fiscal year 2025, which starts October 1, 2024, Biden wants spending to increase by over $300 billion from fiscal year 2024, to $7.3 trillion in spending. He expects revenue to increase by $400 billion to $5.5 trillion. So you could, if you want, celebrate that as revenues increasing by $100 billion more than spending.
But that’s still a $1.8 trillion budget deficit. It comes after last year’s $2 trillion budget deficit, and this year’s will likely be almost $2 trillion again.
Why is the federal government not even close to a balanced budget? Since the start of fiscal year 2023, the unemployment rate has never been above 4 percent, GDP growth has been higher than most other major economies, U.S. forces have not been involved in any major wars, and no major new domestic programs have been created. In other words, basically all the conventional explanations for why a government might be running a huge deficit do not apply.
Why is federal spending continuing to increase after the pandemic is over? There was a reasonable economic argument to run a deficit during the pandemic to make up for government-imposed measures that kept people from working. But the U.S. spent far more on pandemic relief than most other countries. And now, years after those excuses might have made sense, spending has not receded.
In the past, when some kind of emergency has led to a fiscal response, the spending has come down when the emergency was over. Yet, according to the president’s budget, spending increased from $6.1 trillion in fiscal year 2023 to $6.9 trillion this year. That’s not just because the economy is larger; spending increased as a share of GDP as well, from 22.7 percent to 24.6 percent. For fiscal year 2025, Biden wants that percentage to go up again, to 24.8 percent.
There’s one relatively straightforward answer here: It’s an election year. Biden wants to pull out all the stops in promising goodies to various parts of his coalition to get reelected. This is relatively consequence-free for him since, as previously noted, the budget won’t become law anyway.
Another explanation, though, could be that the Biden administration might believe that part of the reason for U.S. overperformance during the Covid recovery was the massive government spending that the U.S. did, which was more than in other countries. Combine directly pandemic-related spending with other laws such as the bipartisan infrastructure law, the American Rescue Plan Act, the CHIPS Act, and the so-called Inflation Reduction Act, and the U.S. has sent a gusher of government spending into its economy on a scale other countries have not. That can produce good-looking numbers in the short term, but if the growth is largely due to government spending, then government spending needs to continue for the growth to continue.
Economies that are actually thriving don’t need a federal government spending $1.8 trillion more than it is taking in.