Biden’s $5.79 Trillion 2023 Budget Proposal
Biden’s $5.79 trillion 2023 fiscal budget proposal has finally made its appearance, with an anticipated $4.64 trillion in revenues, and a deficit of $1.15 trillion. That’s down from a $1.4 trillion deficit estimated for 2022 and $2.8 trillion 2021 deficit.—forbes.com
What is the $5.79 trillion number in the news clip, what are its main components, and how is it going to be paid for?
To answer these questions, look at Table 1.
The $5.79 trillion number is the projected federal government outlays in fiscal year 2023.
The outlays divide into three broad groups: Transfer payments are $3.69 trillion; expenditure on goods and services are $1.71 trillion; and debt interest is $0.39 trillion.
The $5.79 trillion will be paid for with tax revenues: $2.35 trillion in personal income taxes; $1.51 trillion in Social Security taxes; $0.50 trillion in corporate income taxes; and only $0.28 trillion in indirect taxes and other receipts.
The gap between the $5.79 trillion outlays and the $4.64 trillion receipts is a budget deficit of $1.15 trillion.
How have recent budget deficits changed the federal government’s debt?
Recent budget deficits have increased the federal government’s debt. Figure 1 shows the history of government debt held by the public measured as a percentage of GDP.
What was the projected state of the U.S. economy in 2022 and 2023?
The table shows the state of the U.S. economy in 2022 and 2023 projected by the Congressional Budget Office (CBO).
The basic story is that the economy is projected to be strong with real GDP exceeding potential GDP and unemployment below the natural unemployment rate, but with modest inflation.
The following interactive explains the CBO projection using the aggregate supply–aggregate demand model.
Will the federal budget for 2023 stimulate or restrain real GDP and inflation?
The federal budget for 2023 will restrain real GDP and inflation. The following table provides data that explain why.
The increase in expenditure on goods and services stimulates aggregate demand, but its scale is small. The increase in net taxes restrains aggregate demand, and its scale is very large. Net taxes in 2022 (and in 2020 and 2021) were negative—transfer payments exceeded tax receipts—because payments in response to Covid-19 were large. The increase in net taxes and the deficit reduction restrict AD23 in the video from shifting further rightward, and prevent the inflationary gap from expanding.
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