The good news is that President Joe Biden seems to be retreating somewhat from his expensive “Build Back Better” proposal in the $5.8 trillion budget proposal he unveiled this week.

The better news is that he seems to have reversed course on military spending, proposing a 4% increase.

The bad news is that the overall effect of what he proposed would not keep Washington from spending more than it collects, nor would it come to terms with inflation and the devastating ramifications of interest rate hikes on the amount the federal government has to pay on the interest of the national debt alone. 

The president’s budget purports to reduce the nation’s annual deficit by $1 trillion, but the details are fuzzy, at best.

And the worse news is that he is proposing a levy on wealth that would tax unrealized earnings from the investments wealthy people have not yet sold. 

If enacted (which is unlikely), this wealth tax would create perverse market-distorting incentives.The Wall Street Journal has noted it would likely push investors toward “illiquid assets such as real estate to avoid regularly liquidating stock to pay taxes.” As Utahns know too well, the real estate market already is distorted by supply chain disruptions and an imbalance in the supply-and-demand equilibrium. Creating an investment demand on top of these problems, even if it were focused mainly on commercial real estate, would create further hardships for struggling individuals and businesses.

It also may be unconstitutional. The 16th Amendment allows Congress to tax income “from whatever source derived,” but interest earnings or appreciation that exist only on paper are not income.

Overall, Biden’s budget is a nod to the fiscal and political realities that have taken hold in recent months. The war in Ukraine has suddenly brought new emphasis to the need for military readiness and the need to shore up important alliances. Inflation hit a 7.9% annual rate in February, and a new Deseret News/Hinckley Institute of Politics poll shows people in Utah tend to blame Democrats for this more than any other factor. 

Other opinion polls continue to show voters favoring Republicans in congressional races ahead of this November’s elections, and that more people disapprove than approve of the president’s performance. 

Key Democrats have kept the president from enacting his package of expensive social spending, and inflation has soured many people on the idea of Washington wanting to spend more. All these things seem to have moderated the president’s agenda.

But the truth is that this budget, along with many previous ones proposed and enacted by Republican and Democratic majorities, would not come close to solving the growing problem of deficit spending.

The Federal Reserve recently raised interest rates and has announced its intention to raise them more in coming months. While this may be the Fed’s only tool to curb inflation, the effect of higher rates on the nation’s economy should not be minimized.

The nonprofit watchdog Committee for a Responsible Federal Budget has said every half-percent rise in interest rates translates into $1 trillion more in budget deficits between now and 2031. With rates that are one or two percentage points higher, deficits would be $2.1 trillion or $4.2 trillion larger, respectively, through fiscal year 2031.

More specifically, the committee said Biden’s proposed budget would take the national debt from 102.4% of Gross Domestic Product in fiscal year 2022 to 106.7% by 2032. “Prior to the pandemic,” its analysis said, “debt was less than 80% of GDP.”

If the pandemic and the war in Ukraine have demonstrated anything, it is that the United States needs the economic reserves to confront unforeseen problems both domestically and on a global scale. America’s place as a beacon of liberty to the world demands the fiscal strength necessary to exude influence and power.

We appreciate President Biden’s nod to the need for deficit reduction. However, the numbers demonstrate convincingly that both parties in Washington need to get serious about the nation’s fiscal health before inflation, interest and overspending weaken the nation in significant ways.