Breaking Down the Proposals in the President's FY 2025 Budget

The Biden Administration recently released the President's Fiscal Year (FY) 2025 budget, outlining President Biden's tax and spending priorities for the next decade. The budget proposes $3.3 trillion of net deficit reduction through 2034, including $3.2 trillion of new spending and tax breaks that is more than offset by $5.2 trillion of revenue increases, over $900 billion of spending reductions, and nearly $400 billion of net interest savings. 

Below is our breakdown of the President's FY 2025 budget proposals, which largely track with the President's 2024 budget proposals. The below analysis adds on to the 2024 budget analysis with the new policies offered in the 2025 budget.

Policy Proposals in the President's FY 2025 Budget 

Sources: Office of Management and Budget and Committee for a Responsible Federal Budget.
Numbers may not sum due to rounding. *Reflects annual net increases and annual net reductions in discretionary outlays relative to the baseline. 

Costs in the President's FY 2025 Budget 

Education and Family Support ($1.2 trillion). The President's budget proposes creating new funding programs for states to expand access to child care and preschool, with the goal of limiting costs to $10 per day per child for families earning up to $200,000 while allowing all states to first implement universal preschool for four-year-olds and then expand to three-year-olds, at a combined cost of $600 billion over a decade. It also proposes a new paid family and medical leave program to provide up to 12 weeks of paid leave administered by the Social Security Administration at a cost of $325 billion over a decade. Lastly, the President's budget proposes doubling the maximum Pell Grant award by 2029, funding universal free community college, and increasing funding for Historically Black Colleges and Universities, Minority Serving Institutions, and Tribally Controlled Colleges and Universities. 

Expansion of Health Programs ($968 billion). The President's budget proposes expansions to several federal health care programs. Most significantly, it proposes permanently extending the enhanced Affordable Care Act subsidies authorized in the Inflation Reduction Act and providing a federal "Medicaid-like" program to those who live in states that haven't expanded Medicaid. It also proposes shifting the Indian Health Service to mandatory and increasing its funding, investing over $150 billion in expanding Medicaid home- and community-based services, and a host of efforts to increase access to behavioral health care, improve public health through vaccines and other initiatives, and improve funding for mental health care. Read more about the health care proposals in the President's budget here.

Other Initiatives ($541 billion). The President's budget proposes several housing initiatives, including an expansion of the low-income housing tax credit, establishment of a new credit to reduce the effective cost of higher interest rates for first-time homebuyers and those selling their "starter homes," creation of a Neighborhood Homes Tax Credit to cover the costs of repairing blighted homes that would otherwise be too expensive to renovate, and other measures to increase the housing supply and homeownership. It would also increase near-term discretionary spending growth relative to OMB's baseline, increasing outlays by about $170 billion. Finally, the budget includes funding for several other new initiatives, including programs for combatting crime through Community Oriented Policing Services and justice system reform, strategic investments in the Indo-Pacific region to combat Chinese influence, and expanding access to school meals, among others.

Tax Cuts, Tax Credits, and Tax Breaks ($504 billion). Of its tax policy costs, the Administration most significantly proposes reinstating the 2021 expansion of the Child Tax Credit (CTC) through 2025, in line with the scheduled expiration of the individual tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA). Under the proposal, the CTC would total $3,000 for children over the age of six and $3,600 for children under the age of six, and full refundability of the credit would be permanently extended. In addition, the President's budget would also permanently extend the 2021 expansion of the Earned Income Tax Credit, make the Adoption Tax Credit refundable, make permanent the New Markets Tax Credit, and several other changes. 

Savings in the President's FY 2025 Budget

Corporate and Business Taxes (-$2.8 trillion). The President's budget would increase the corporate income tax rate from 21 percent to 28 percent, increase the IRA's Corporate Alternative Minimum Tax ("book minimum tax") rate from 15 percent to 21 percent, and raise the tax rate on corporate stock buybacks from 1 percent to 4 percent. The budget also proposes adopting reforms to international tax rules, the largest of which would be adopting the global framework for undertaxed profits. It would also further limit the deductibility of executive employee remuneration by adding more individuals who are limited to $1 million of their compensation being deductible. Finally, the budget proposes tightening tax rules for partnerships and noncorporate taxpayers, among other tax changes. 

High-Income Taxes (-$1.1 trillion). The President's budget would institute a new 25 percent minimum tax on income, whether realized or not, for individuals with greater than $100 million of wealth. In addition, it would restore the top individual income tax rate to the pre-TCJA rate of 39.6 percent from the current 37 percent starting in 2024 before its scheduled restoration in 2026, tax capital gains as ordinary income and make death a realization event, and tighten rules and close loopholes around estate and gift taxes.

Additional Medicare Taxes and Net Investment Income Tax (-$814 billion). The President's budget would increase the Net Investment Income Tax (NIIT) rate, which is a surtax on capital gains for those earning over $200,000 ($250,000 if married), and the Medicare tax rate from 3.8 percent to 5 percent for taxpayers making over $400,000. It would also apply the NIIT to passthrough business income of taxpayers earning over $400,000, which would be deposited into the Medicare Hospital Insurance (HI) trust fund (which is just seven years from insolvency according to the Medicare Trustees). Taken together, both proposals would make the HI trust fund indefinitely solvent according to an analysis from Medicare's Chief Actuary. 

Other Taxes (-$437 billion). The President's budget would also raise revenue by providing the Internal Revenue Service with more funding to further narrow the tax gap, eliminating tax preferences for fossil fuel investments, applying wash sale rules to crypto transactions, eliminating the tax benefit for like-kind exchanges, further closing loopholes like carried interest and others, and various other revenue proposals.

Spending Reductions (-$921 billion). The largest amount of spending reductions in the President's budget comes from reduced discretionary outlays, which would total $511 billion through the end of the decade. It is unclear how much of this is from a reduction in discretionary spending levels – largely for defense programs – or how much is the result of veterans health funding shifting from discretionary to mandatory as a result of the Fiscal Responsibility Act. Other spending reductions come from reducing prescription drug and other health care costs, the bulk of which would stem from building on the prescription drug pricing reforms enacted in the IRA, including adding more drugs to the list that have their prices directly negotiated by Medicare, applying an effective cap on above-inflation price growth to the private sector, and expanding inflation rebates. The budget would also extend the mandatory sequester (currently 2 percent for Medicare and 5.7-8.3 percent for other mandatory programs) for 2033 and 2034, which would save another $90 billion. In addition, the budget would extend radio frequency spectrum auction authority through 2034, extend expiring Customs and Border Patrol user fees, strengthen unemployment insurance program integrity, and other changes. 

Net Interest (-$389 billion). The President's budget would reduce deficits by $3.3 trillion through FY 2034 and the national debt would grow to 106 percent of Gross Domestic Product (GDP) by the end of 2034. By comparison, debt would total 113 percent of GDP under OMB's baseline. As a result of the lower projected debt levels under the President's budget, net interest payments would be $389 billion lower through 2034 than under OMB's baseline. 

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The President's FY 2025 budget proposes various spending increases and tax cuts that would be more than offset by revenue increases and spending reductions, resulting in $3.3 trillion of net deficit reduction through 2034. Policymakers should look at the proposals in the President's budget as they consider how to put the national debt on a sustainable downward path.