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Weekly Commentary

Biden vs. Trump: A Fiscal Policy Preview

March 28, 2024
Francis Généreux
Principal Economist

Budget season is drawing to a close here in Canada, with the federal government set to present its plan on April 16. Stateside, on March 11 the Biden administration unveiled its proposed budget for fiscal year (FY) 2025, which begins in October. As we saw last year, however, the president’s budget proposal is rarely enacted as written. That’s because the US Constitution gives Congress the power of the purse. 

But the president’s proposed budget does shed light on the state of public finances by outlining the administration’s priorities. It gives us a better idea of how the president’s proposed budget measures would affect federal public finances. This is especially instructive in a presidential election year like the current one. The budget president Biden just released lays out what his agenda would be if he wins re-election. That means we can compare his priorities with the proposals put forward by his opponents. Let’s take a closer look at the potential fiscal implications of the Biden–Trump rematch.

The Current State of US Public Finances 

Before we can make any comparisons, we need a sense of where the US federal government’s finances stand and the outlook for the next few years. The federal government ended fiscal year 2023 on September 30 with a deficit of US$1.695 trillion (6.3% of GDP) and debt held by the public of US$26.240 trillion (97.3% of GDP). February data from the U.S. Treasury show that over the previous 12 months, the government ran a deficit of US$1.801 trillion and the debt rose to US$27.380 trillion.

According to the latest Budget and Economic Outlook released by the Congressional Budget Office (CBO) in February, which takes into account only legislation that has been enacted, the deficit will shrink in FY2024, then grow in most years thereafter. The total budget shortfall for the 10-year period from 2025 to 2034 is expected to be US$20.016 trillion. Debt held by the public is projected to hit US$48.300 trillion (116.0% of GDP) by the end of fiscal 2034.

Biden’s Budget 

The Biden administration’s budget proposal contains a somewhat rosier outlook for US public finances over the 2025–2034 period than the CBO does. According to Biden’s budget, the deficit would clock in at US$1.781 trillion in 2025, a smidge higher than the US$1.772 trillion projected by the CBO. But the two forecasts diverge appreciably from that point on. Biden’s budget predicts that the deficit over 10 years will total US$16.297 trillion, US$3.719 trillion less than the CBO projection based on laws currently on the books. And public debt would be 105.6% of GDP in 2024 instead of 116.0%.

How does Biden do it? He isn’t proposing an austerity budget, that’s for sure. Government spending would increase from US$6.941 trillion (24.6% of GDP) in 2024 to US$10.316 trillion (24.2% of GDP) in 2034. Over that period, spending would climb an average of 4.0%—in line with projections for nominal GDP growth (+4.2%). But revenue would grow much faster (+5.4%), improving the fiscal picture somewhat.

Overall, the Biden administration’s 2025 budget is heavy on social program spending. The biggest new expenses are in health care, education and support for families and workers. Most of the increase in overall spending would go to fund social programs and to service the debt, while discretionary spending would be relatively stable (and lower as a share of GDP). New spending would be partially offset by higher taxes on corporations and the wealthy (defined as those making US$400,000 or more). 

Proposals by Trump and Congressional Republicans 

So far this election cycle, Donald Trump has proposed very few new measures when it comes to taxes and the economy. Instead, he’s been playing up his administration’s economic record and claiming Biden’s economic policies have destroyed “the greatest economy in the history of the world.”

Right now, Trump seems to be running on three economic policies: boosting energy production, eliminating regulation and repealing the Biden tax hikes. If Trump wins a second term, he will undoubtedly try to make permanent the Republican tax cuts passed in late 2017 that are set to expire at the end of 2025. This would come with a hefty price tag of around US$3.8 trillion over 10 years and could send public debt soaring to over 125% of GDP in 2033.

To get a better sense of what fiscal policy would look like under a second Trump administration, we can look at what congressional Republicans have proposed. After all, the 2017 tax cuts were largely the brainchild of the Republican majorities in the House and Senate, not the White House.

The Republican Study Committee, a group of congressional conservatives that includes House Republican leaders, recently published its own budget proposal. And while the plan is chock-full of proposed measures, it lacks the detailed figures the White House and CBO documents contain. This makes comparisons difficult, especially since it appears to include drastic spending cuts in fiscal 2025 that would slash the deficit over 10 years but seem unlikely to make it into law. The plan would balance the budget by 2031, however. Debt held by the public would plummet from 97.3% of GDP in 2025 to 69.3% in 2034. Federal finances would improve even though the budget would “cut taxes by nearly $4.2 trillion over the next 10 years.” To offset the drop in revenue, overall spending would be cut to 26% below CBO projections in 2034 and 41% below for non-defense discretionary spending. In short, the draconian cuts proposed by congressional Republicans would require major changes to the way the federal government operates.

Fiscal Agendas: A Work in Progress 

It may seem like the campaign has already been going on forever, but it’s really just started. November 5 is still over 7 months away, leaving the candidates lots of time to lay out their vision for a second term. In the meantime, Biden’s budget and the measures proposed by Trump and congressional Republicans give us a hint of what each side would do. The contrast between the two parties is already quite stark. Both are looking to build on their first-term accomplishments. Biden and the Democrats would support a strong federal government funded by higher taxes on corporations and the wealthy. The other side would dole out tax breaks and reduce the role of the federal government by slashing regulation (Trump) or drastically but unrealistically cutting federal spending (congressional Republicans). Either way, it’s clear that public finances will continue to be a huge challenge for the US.

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NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.