The Federal Budget 2021 was the biggest in the history of the country. The Federal Budget 2021 has a couple of cornerstone legislative priorities of President Biden. This includes a nearly two-trillion-dollar American Rescue Plan and a similarly priced American Jobs Plan. The Federal Budget 2021 also has plans for outlying funds for discretionary spending to fund the federal agencies. The proposed tax hikes in the Federal Budget 2021 are going to raise over $3.5 trillion over the following decade, paired with more than one trillion dollars in tax incentives. Of note, both the American Families Plan and the American Jobs Plan together are paid for with the tax growth over more than fourteen years, as opposed to the usual budget window of ten years. 

The administration sees the proposal as a down payment to increase the middle class. It estimates that unemployment will go below the present rate of six percent to four percent next year and remain at that level after that. Once enacted completely, The White House expects the budgetary plan to increase the annual economic growth by just under a couple percent annually. This is after accounting for the inflation. The growth projects are a little low compared to the post-financial crisis projections of the Obama administration.

Government Reforms

In addition to the big-spending proposals, the Federal Budget 2021 outlines many changes in the approach of the Federal Government to implement the federal services and programs. These changes are going to guide the administration moving forward in the future. The administration said it would look to advance equity across the federal government, particularly for citizens of color and the underserved communities that have been disadvantaged historically. The Federal Budget 2021 proposes to do this by improving the delivery of government programs for all citizens, especially those who have faced inequity. The Federal Budget 2021 also hopes to deliver government services more efficiently. The Federal Budget 2021 identified some areas in which the government can improve service delivery.

The Federal Budget 2021 specifically talks about the Internal Revenue Service. To fulfill customer service's mindset, the Federal Budget 2021 states that the Internal Revenue Service should establish a protocol to ensure that the taxpayers’ calls are returned in a timely manner to improve the customer's experience. The Federal Budget 2021 reinforced the goal of the administration to promote US firms by direct government assistance. To achieve this goal, the budget said the administration would utilize the procurement strategies to ensure that federal resources support American manufacturing.

Next Steps

The request of the Federal Budget 2021 is only a request. Rather than having any legal weight, it only informs the members of Congress on the administration's priorities as they proceed with the annual appropriations. This process will start shortly after both the chambers reconvene. In the meantime, the lawmakers will keep working over the Memorial Day work period to make up for the lost time. The Federal Budget 2021 is usually released in the second month. But, the current administration was delayed because of several reasons. These are the inability to confirm the office of the management and budget personnel, the coronavirus pandemic, and the presidential transition. The House Budget Committee Chairman John Yarmuth said that he is going to start work immediately. He said they would start working independently as soon as they saw the Federal Budget 2021. 

The Senate Budget Committee Chairman Bernie Sanders said that he would start work after the Memorial Day Work Period. With a shortened timeline, the other committees involved in the whole process, such as Appropriations, will make good progress by then. A few lawmakers anticipate that Congress will miss the deadline, which is the end of the fiscal year. After that, if the President did not sign any new spending bills or a continuing resolution, the Federal Government was going to shut down. The Senate Appropriations Committee Vice Chairman Richard Shelby said that a stopgap would be required. 

Key Takeaways

The Federal Budget 2021 assumes the enactment of both the American Jobs plan and the American Families Plan. As of this time, the congressional lawmakers continue to look for common ground on the infrastructure package. The Federal Budget 2021 assumes that the enactment of both the American Families Plan and the American Jobs Plan in their entirety is the way to go. The bipartisan infrastructure proposal is a watered-down version of the usual infrastructure priorities in the overall American Jobs Plan. Many revenue raisers and spending proposals have not been included in any bipartisan package. After the bipartisan negotiations were successful, the Democrats pivoted to include many of the proposals regarding individual and corporate tax increases and care economy in a different reconciliation bill. This will allow the congressional passage with only the Democratic votes.

If the bipartisan negotiations had failed, the Democrats might have tried to advance both the American Jobs and the American Families Plan through the budget reconciliation process. But, the Federal Budget 2021 assumes that there will be a permanent extension of many provisions. This would not be possible under the current rules of the budget reconciliation process unless the proposals are completely paid for. The top losses in the Federal Budget 2021 are the high-income earners and the fossil fuel industry. The Federal Budget 2021 eliminates many tax incentives for coal, gas, and oil firms. Also, the industry will face a greater corporate tax rate, a book profits tax of more than ten percent at a minimum, and several modifications to the international tax regime, which could also see increases in the tax.

On the personal end, those on the higher side of incomes will see bigger increases in taxes. Also, the taxpayers' long-term capital gains and qualified dividends with adjusted gross income greater than a million dollars would be taxed at the usual income tax rates. The rate charged would be about forty percent after including the net investment income tax. To prevent people from selling off assets in anticipation of the bill's passing, the proposal would only be effective for a gain realized after May of the previous year. The proposal also needs to treat transfers of appreciated property through death or property as a realization event. There will be a per-person exclusion of a million dollars. This basically results in the loss of a step-up.

But to mitigate the adverse consequences for a few taxpayers, the payment of tax on the appreciation of several family-operated and owned firms will not be due until the interest in the firm is sold or the firm ceases to be family-operated and owned. The top victors are individuals with moderate incomes and green energy firms. The Federal Budget 2021 includes over two hundred billion in alternative and renewable energy incentives, with more money on the spending side for many projects to modernize the energy grid and transition to greener energy sources. People with moderate levels of income also win under the Federal Budget 2021. There is an extension of many credits and deductions, especially for the middle- and low-income individuals with children. They can get additional credits of more than ten thousand dollars per household. Although Republicans have said that if the TCJA tax cuts for middle- and lower-income earners are not renewed, these earnings will become subject to tax growth.

Conclusion

The Federal Budget 2021 gives an insight into the most crucial information and how these will impact the growth of the economy and the federal deficits. This guide has given an overview of the Federal Budget 2021.