The U.S. Senate Budget Committee debated Democratic President Joe Biden's $6.8 trillion budget proposal on Wednesday, as new financial strains at Credit Suisse threatened to raise the stakes in a partisan standoff over spending and debt.
Biden's proposal is an early step in a negotiation over fiscal 2024 spending with Republicans who control the U.S. House of Representatives, who say they will refuse to raise the nation's $31.4 trillion debt ceiling unless Democrats agree to sharp spending cuts.
Failure to do so could lead to an unprecedented default by the federal government which would rattle the global economy and markets, which have been volatile following the collapse of Silicon Valley Bank and Signature Bank.
White House budget director Shalanda Young testified before the budget committee about the Biden plan, which calls for nearly $5 trillion in tax increases on the wealthy and large corporations to help offset the deficit and shore up Medicare.
"The budget more than fully pays for its investments, cutting deficits by nearly $3 trillion over the next decade," Young told the panel.
"The president's economic plan is rebuilding America's infrastructure, promoting workers, and fueling a manufacturing boom that is strengthening parts of the country that have long been left behind," she said.
Senator Sheldon Whitehouse, the committee's Democratic chairman, described the Biden budget as "a bright contrast" to House Republican proposals that he said would "attack popular programs that promote economic growth" and protect the wealthy.
Republicans rejected the Biden proposal, with the hardline House Freedom Caucus last week issuing a counterproposal that includes a near freeze on discretionary spending and an end to multiple Biden programs.
"The president's budget proposal continues to take our nation down a path of fiscal and economic ruin," said Senator Chuck Grassley, the panel's top Republican.
"President Biden is proposing levels of debt, deficits and spending previously reserved for times of world war or depression. President Biden's vision for the future is job-killing tax hikes, cradle-to-grave entitlement proposals."
The hearing took place during a sell-off in world stocks, after Credit Suisse's largest investor said it could not provide the Swiss bank with more financial assistance. Market turmoil exacerbated fears about the banking system days after the collapse of Silicon Valley Bank and New York's Signature Bank.
SOCIAL SECURITY SACROSANCT
Even as they disagree on spending, leaders of both parties say they will not cut Social Security and Medicare, which currently account for about a third of the federal budget. Not touching those, or failing to cut defense spending, leaves little chance of addressing the government's budget deficit.
A presentation by the nonpartisan Congressional Budget Office last week laid out options for addressing the deficit and projected that spending cuts would have substantially less effect on the deficit than increased tax collections.
Republicans who control the House of Representatives are working to release their own budget in coming weeks, which lawmakers have said could contain up to $150 billion in cuts for domestic non-defense spending. Republicans are determined to avoid tax hikes and to preserve tax cuts for the wealthy implemented under former President Donald Trump.
Forecasters warned on Tuesday that the bank collapses could push closer the deadline to raise the debt ceiling or risk default.
Experts had recently said the Treasury could stave off a default until sometime between early June and September, depending on the federal government's cash balances.
But Democrats and Republicans could have a much shorter time frame due to the bank collapses, which required the Federal Deposit Insurance Corp to make a record withdrawal of funds from the Treasury General Account.
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