Within a few months, lawmakers will shift into midterm campaign mode, effectively closing the window on the passage of major substantive legislation in this Congress.
With the limited legislative window, a few key items are considered “must pass:”
- The budget and corresponding funding bills, particularly for defense amid geopolitical turmoil;
- Senate confirmation of Supreme Court nominee Judge Ketanji Brown Jackson; and
- Legislation to counter China and provide $52 billion to support domestic semiconductor manufacturing.
With the release of the Biden Administration’s 2023 budget, it’s important to keep in mind that a president’s budget is an aspirational blueprint and won’t become the law of the land as submitted—but we can use it to glean priorities and direction on multiple policy fronts. This year’s submission is notable given the increase in both domestic and defense spending that reflect the political and geopolitical realities, risks, and challenges Washington faces.
The Bull and the Bullseye
The ink isn’t even dry on the $1.5 trillion 2022 budget compromise that passed Congress (six months late) in February, and President Joe Biden’s $1.65 trillion 2023 budget submission to Congress is already being targeted by Republicans and Democrats alike. With increases in both domestic ($769B) and defense ($813B) discretionary spending, as well as deficit-reduction measures, Biden’s pivot to the center hasn’t mollified his critics on Capitol Hill with one exception: Sen. Joe Manchin (D-WV) who continues to hold the wildcard when it comes to major budget-related pieces of legislation and should be favorably disposed to large chunks of the effort given the projected deficit reduction impact of approximately $1 trillion.
With an eye squarely on the fall midterms, Republicans are in no rush to support Biden’s budget proposal, banking on an expected takeover of one (if not both) houses of Congress. And for good reason: In the event they do regain the majority, their leverage over spending bills would increase significantly after November. Democrats would lose the slim margin under which they are currently operating, which would make bipartisan support critical to any budget deal being negotiated in Q1 2023.
While most Democrats support the social-spending aspects of the budget as well as the billionaire minimum-income tax, many on the far left have balked at the increase in defense spending coming off a 7% increase in 2022. We’re not sure this opposition will hold given the worsening crisis in Ukraine as well as other emerging global challenges.
Build Back Better 2.0
Although the new fiscal year is six months away, Biden is using his budget plan to outline the agenda he wants Congress to pass before then, including tax provisions aimed at paying for elements of the original Build Back Better (BBB). We’re likely to see a return of a scaled-back version of that initiative in the ballpark of $700-900 billion at some point in late April or May. This is where Sen. Manchin’s support will be critical.
We’ve previously mentioned several potential components of BBB 2.0: healthcare, climate, and energy provisions, as well as changes to drug pricing and the corporate minimum tax to offset spending. Again, we currently don’t foresee changes to capital gains or personal income-tax rates unless you happen to be in the top 0.01% in the US qualifying for the aforementioned billionaire’s tax—and even that prospect is slim.
Bottom Budget Line
While Washington’s attention may divert to the shiny new Biden budget bauble, the focus will quickly return to the next phase of spending through BBB 2.0 and the burgeoning war in Ukraine and its aftermath. There’s a long way to go before Congress puts pen to paper on fiscal spending for 2023, and the looming November election will impact that timeline and willingness to engage.