Biden Budget Seeks More Aid for Families, Higher Taxes on Wealthy Households, Corporations

The fiscal 2025 budget would cut the deficit by $3 trillion over the next decade, and it would raise taxes by a net total of $4.9 trillion, or more than 7% above what the U.S. would collect without any policy changes.

Biden proposes spending $895 billion on defense programs in the coming fiscal year, up from an expected $886 billion this year, amid a series of conflagrations around the world, including Russia’s assault on Ukraine and Israel’s war in Gaza. That increase is one of several that lifts overall outlays by $300 billion from the roughly $6.9 trillion the federal government is set to spend this year.

The largely symbolic document, which sets out spending and revenue plans for a decade, typically kicks off debate with Congress over plans for the next fiscal year. But the divided Congress is still straining to approve funding plans for the current fiscal year, which began on Oct. 1, giving the latest set of proposals even lower odds of becoming law in an election year.

Much of what the federal government spends every year is mandated by previous pieces of legislation and the U.S. government’s obligations to its creditors, which have grown as the federal debt has ballooned. The Biden administration is asking Congress to approve roughly $1.6 trillion as part of annual funding bills next year, a slight decrease from the discretionary spending the White House expects this year.

Biden and House Republicans agreed to spending limits last year as part of an agreement for raising the debt limit. Those caps are helping to reduce the deficit, with the Congressional Budget Office expecting the gap between spending and revenue to dip to $1.6 trillion this fiscal year after widening under Biden and former President Donald Trump.

The budget leaves some blank spaces. It lists principles for shoring up Social Security, without specifying a plan. It calls for paying for extensions of tax cuts for most households after 2025 but doesn’t detail how that would be paid for. And it calls for restoring the expanded child tax credit, but only temporarily, lumping that into the broader 2025 tax debate.

The budget proposal comes less than eight months before Election Day and amid polls that show Trump with a narrow lead over Biden. As he shifts his focus to the general election, the president is expected to increasingly seek to draw a contrast with his presumed opponent, casting Trump as out of touch with voters’ priorities and a danger to democracy. Trump, in turn, has railed against the president, targeting his spending on issues like clean energy.

A central topic in the election will be the economy. As part of its budget, the White House forecast that inflation will fall toward the Federal Reserve’s 2% target by 2025 while growth slows from its current pace. Interest rates will stay elevated for years, the White House said, while the unemployment rate remains low.

The budget blueprint revives many of the policy priorities Biden laid out during his 2020 campaign, and which faced opposition from Republicans and some Democrats in Congress. But the White House is hoping those proposals could get a second look if Democrats win back the House and keep control of the Senate, a prospect that is far from guaranteed. Biden advisers also note that two moderate lawmakers who objected to key portions of Biden’s agenda in his first years in office—Democratic Sen. Joe Manchin of West Virginia and independent Sen. Kyrsten Sinema of Arizona—have decided not to seek re-election.

Biden’s advisers are betting that a focus on lowering costs for families will help push the president to re-election. His budget would lower taxes for middle and low-income Americans by $765 billion over a decade, according to the White House, building on the president’s longstanding pledge not to raise taxes on anyone making less than $400,000 a year.

Under his plan, families making less than $200,000 a year would be guaranteed subsidized child care, with the lowest income families paying nothing. The president proposed building or preserving more than 2 million housing units, and a series of tax credits to ease the high cost of purchasing a home. He calls for spending $12 billion to come up with strategies to reduce the cost of college, while expanding Pell Grants and offering tuition-free community college. And he again outlined a federal paid family and medical leave program.

New Medicare taxes

Biden’s budget would ensure the solvency of a Medicare hospital-insurance trust fund by increasing taxes on the wages, investment gains and self-employment income of people earning more than $400,000 a year. The president has vowed to preserve Medicare. Trump has also said he wouldn’t cut Medicare, although his previous budget proposals called for spending reductions in the program.

The president’s proposal would significantly expand the number of drugs subject to price negotiation in Medicare, a federal health program for seniors and the disabled, to 50 a year from a maximum of 20. It would extend a $2,000 cap on out-of-pocket prescription drugs in Medicare, and a $35 cost-sharing cap for a month of the diabetes drug insulin, to the commercial market.

The budget doesn’t include a detailed plan for stabilizing Social Security, which like Medicare, faces a shortfall in the coming decade. Instead, the president proposes working with Congress to strengthen the program, prevent cuts and ensure its solvency by increasing unspecified taxes on wealthy Americans. Shalanda Young, director of the Office of Management and Budget, said Monday that it was unfair that Social Security taxes are capped for high earners, but the budget wouldn’t change that policy.

The budget would make enhanced premium tax credits for people who purchase Affordable Care Act plans on the exchanges permanent instead of allowing them to sunset at the end of the 2025 tax year, although this is unlikely in a divided Congress.

Many of the tax cuts enacted in 2017 by Republicans expire after 2025. Like last year, Biden’s budget says that the president supports extending those tax cuts for households making under $400,000 and paying for those extensions to avoid increasing budget deficits. But he doesn’t lay out a specific plan for doing so, and instead devotes his proposed tax increases to pay for expanded programs and claimed deficit reduction.

Restoring expanded child tax credit

Biden also calls for restoring the expanded child tax credit that was in effect during 2021—but only temporarily through 2025. That means the full permanent cost of the proposal he supports isn’t included in the budget, and deficits or tax increases would likely be larger if it were extended.

“We also know in this country we’re going to have a robust tax debate at the end of 2025," said Young, when asked about the budget’s call for a temporary child-credit expansion.

By 2031, Biden’s tax increases would push federal revenue as a share of the economy to 20%, a level reached only once since World War II.

On immigration, the budget includes an ask, first made last fall in a supplemental funding request, to send an additional $8.7 billion to the Department of Homeland Security. Much of that funding would plug a budget hole created by a larger-than-expected surge of migrants last year, but $2.9 billion would fund longer-term investments, including hiring more Border Patrol agents and asylum officers to decide cases.

The budget proposal also reiterates Biden’s supplemental request for emergency aid for Ukraine, which has stalled in Congress amid a reluctance by House Speaker Mike Johnson (R., La.) to bring the package to the floor.

Stephanie Armour and Michelle Hackman contributed to this article.

Write to Andrew Restuccia at andrew.restuccia@wsj.com, Andrew Duehren at andrew.duehren@wsj.com and Richard Rubin at richard.rubin@wsj.com