Public budgets are moral documents that reflect our values and priorities through decisions on how to tax residents and businesses and spend these collective resources. These decisions impact what families have to spend on basic needs and invest in their future, define the size of the government and its role in the national economy, and affect the lives of all Americans. EOF hosts an Annual Budget and Tax Briefing to explore why federal and state budget and tax work matters to national, state, and local philanthropy.
See a summary of the second plenary session from our 2023 Budget and Tax Briefing below.
Federal Budget and Tax Outlook
Noted tax and budget policy expert Sharon Parrott provided an overview of key elements of this year’s budget-related debates and offered insights on the potential impact on struggling families, workers, and communities.
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This year policymakers must raise the debt ceiling or the country will default, with the risk of causing serious economic harm. But leaders of each party have vastly different ideas about whether raising the debt limit should be contingent on spending cuts and other policy changes. President Biden and congressional Democrats want a clean debt limit increase and then to negotiate on other budget issues separately. House Republicans are pressing for deep cuts in non-defense discretionary program funding and a set of proposals that would take food assistance, Medicaid, and cash assistance away from people not meeting a work requirement in exchange for a short-term (only lasting through March of next year) increase in the debt limit.
At the same time that this near-term debate is taking place, there is a broader, longer-term debate that undergirds this and many other policy discussions about the role, shape, and size of the government. President Biden has laid out a vision that calls for more investment in people and communities and higher revenues to support those investments, while Republicans want to continue low taxes (and lower them further) and squeeze investments as a result.
As a debt ceiling crisis mounts, the government’s approach to the debt limit currently sits at the center of this year’s federal budget and tax debates. House Republicans are seeking to use the need to raise the debt ceiling as leverage for major budget cuts to Medicaid, SNAP, and TANF as well as funding for non-defense discretionary programs. The House Republican debt-ceiling-and-cuts bill proposes to take food assistance, health coverage through Medicaid, and cash aid away from people who don’t meet a work-reporting requirement and can’t secure an exemption. Millions could lose the help they need. To date, the Biden Administration is holding firm that the debt ceiling cannot be used as a bargaining chip and that we can negotiate budget issues separately, but the default must be off the table without preconditions. The debt ceiling could get resolved this spring or early summer – or Congress could pass a short-term debt limit measure and have to come back to resolve the issue in the fall.
One key issue that must also be resolved this year is the overall funding level for discretionary programs – that is the non-entitlement part of the budget that includes defense spending, veterans’ programs, and a host of domestic investments, including child care and Head Start, K-12 and higher education, public health, environmental protection, some transportation programs, medical research, and more. The House Republican debt-ceiling-and-cuts bill calls for deep cuts in discretionary program funding, and if as expected, policymakers protect defense and veterans’ health care from cuts, this would mean very deep cuts in non-defense discretionary programs. Resolution of the overall discretionary funding levels may happen in conjunction with a resolution on the debt ceiling.
Republicans typically talk about budget cuts as a way to save money by cutting waste and are vague about what would be affected by these budget cuts. In the debate this year, it is critical to help the public understand specifically what cutting funding means — while people may like the idea of saving money, they are more hesitant to support budget cuts if they understand it means taking money from programs that support education, childcare, or medical research.
Congress may take up tax legislation this year. There is a set of business-related tax cuts that the corporate community is pressing for. Democrats have said they are open to considering these tax provisions but only in conjunction with an expansion of the Child Tax Credit (CTC). And while Republicans opposed the CTC expansion in the Rescue Plan, many have expressed interest in less far-reaching expansions. It is possible that a tax bill could come together this year.
Congress has also started work on the Farm Bill, which will reauthorize SNAP as well as farm programs. A bill could get done this year or it could slip until next year. SNAP is at risk of cuts both in the debt limit context and in the Farm Bill.
While much attention is on Congress, the Biden Administration has taken executive actions that have been enormously impactful in supporting people and communities across the country. This includes the reevaluation of the Thrifty Food Plan, new public charge regulations, and making ACA marketplace coverage more accessible. More is on the way – the Administration recently issued proposed rules that would make health coverage available to people with DACA immigration status, important regulations to strengthen the quality of Medicaid coverage, and important fair housing rules to name a few. All these positive outcomes have taken place because of effective advocacy and funder commitment to that work, including critical efforts that took place in 2020.
Finally, regardless of the outcome of this year’s budget-related debates, the central argument around whether the U.S. should be a higher-investment country has significant implications for policy conversations around the 2024 election and beyond. President Biden has laid out in his most recent budget a vision of what a higher-investment country can mean, showing that if we raise revenues, we can support investment in areas like child care and PreK, paid leave, and the Child Tax Credit while also reducing long-term deficits. The public generally supports these kinds of investments and raising revenues on high-income people and profitable corporations, but we’ve not yet translated that support into the kinds of policy changes we seek. These fundamental questions of the size and scope of government and the revenue system to support it may well be front and center in the 2024 election and then in 2025, when policymakers will have to consider significant tax legislation as many provisions of the 2017 tax cuts expire in 2025.
There is a debate undergirding many of our policy conversations about whether the United States should be a higher investment country and raise the revenues necessary to support those investments. The outcome of this debate will have effects on the country and racial equity for years to come.”
— Sharon Parrott, Center on Budget and Policy Priorities
- McCarthy Bill Uses Debt Ceiling to Force Harmful Policies, Deep Cuts, By Sharon Parrott, Samantha Jacoby, Allison Orris, LaDonna Pavetti, David Reich, and Dottie Rosenbaum, April 24, 2023.
- President Biden’s Budget Charts a Needed Course Correction as 2025 Tax Debate Begins, By Chuck Marr and Samantha Jacoby, Center on Budget and Policy Priorities, March 29, 2023.
- President Biden’s 2024 Budget Moves Us Toward Nation Where Everyone Can Thrive, By Sharon Parrott, Center on Budget and Policy Priorities, March 9, 2023.
Many thanks to our 2023 Watch Party Hosts!