Executive Summary

• The Congressional Budget Office (CBO) has released its estimate of President Biden’s fiscal year (FY) 2025 budget, using its own assumptions to evaluate the budget’s policy proposals.
• CBO’s estimate of the president’s budget does not score all of the policy proposals in the budget; as a result, CBO does not provide projections of total spending, revenue, deficits, and debt under the president’s budget relative to its most recent 10-year baseline.
• The proposals CBO was able to analyze would reduce budget deficits by $1.4 trillion over the FY 2025–2034 budget window relative to its baseline; this is the net effect of $2.6 trillion of gross costs and $4.0 trillion of gross savings.
• CBO’s estimated $1.4 trillion of 10-year net deficit reduction is $1.0 trillion less than the $2.4 trillion of deficit reduction the Office of Management and Budget (OMB) estimates for the same set of policy proposals.

Introduction

The Congressional Budget Office (CBO) has released its estimate of President Biden’s fiscal year (FY) 2025 budget, using its own assumptions to evaluate the budget’s policy proposals. CBO’s estimate of the president’s budget does not include scores of all of the budget’s policy proposals, and as a result CBO does not provide projections of total spending, revenues, deficits, and debt under its estimate of the budget relative to its most recent 10-year baseline. CBO finds that the proposals it was able to analyze would reduce budget deficits by $1.4 trillion over the FY 2025–2034 budget window – the net effect of $2.6 trillion of gross costs and $4.0 trillion of gross savings. This is $1.0 trillion less than the $2.4 trillion of 10-year net deficit reduction the Office of Management and Budget (OMB) projected for the same set of policies.

A Closer Look at CBO’s Analysis of President Biden’s FY 2025 Budget

CBO estimates that the proposals in the president’s budget it was able to score would reduce budget deficits by $1.4 trillion over the FY 2025-2034 budget window relative to its baseline, which is $1.0 trillion less than the $2.4 trillion of net deficit reduction OMB estimates for the same set of policies. CBO’s $1.4 trillion of projected 10-year net deficit reduction is the result of $2.6 trillion of gross costs and $4.0 trillion of gross savings.

Notably, CBO’s analysis includes estimates of the budget’s proposals that CBO and the Joint Committee on Taxation were able to complete as of September 17. Some of the budget’s spending proposals were not specific enough for CBO to estimate, thus they were excluded. For certain other proposals, CBO used OMB’s scores as placeholders.

Comparing CBO’s and OMB’s Estimates of the President’s Budget

Policy	CBO Estimate (FY 2025-2034)	OMB Estimate (FY 2025-2034)	Difference
Provide Family and Education Support	$1.2 trillion	$1.2 trillion	-$0.5 billion
Expand access to childcare for low- and middle-income families	$400 billion	$400 billion	$0
Establish national paid family and medical leave	$325 billion	$325 billion	$0
Expand access to free, universal preschool	$200 billion	$200 billion	$0
Double maximum Pell Grant award	$123 billion	$123 billion	$0
Fund free community college	$90 billion	$90 billion	$0
Increase funding for HCBUs, TCCUs, and MSIs	$30 billion	$30 billion	$0
Provide other education funding	$39 billion	$39 billion	-$0.5 billion
Expand Health Care Programs	$544 billion	$941 billion	-$396 billion
Extend higher ACA premium tax credits and extend to Medicaid coverage gap	$336 billion	$473 billion	-$137 billion
Increase Indian Health Service funding	$157 billion	$202 billion	-$45 billion
Improve Medicaid home- and community-based services	$0.3 billion	$151 billion	-$150 billion
Provide behavioral health, mental health, and other public health funding	$51 billion	$116 billion	-$65 billion
Enact Other Initiatives	$303 billion	$342 billion	-$39 billion
Support affordable housing	$133 billion	$183 billion	-$50 billion
Provide funding to reduce crime and prevent violence	$27 billion	$37 billion	-$10 billion
Other spending increases	$140 billion	$120 billion	+$20 billion
Reform Tax Cuts, Tax Credits, and Tax Breaks	$506 billion	$497 billion	+$9 billion
Expand CTC through 2025 and make permanently fully refundable	$305 billion	$310 billion	-$5 billion
Expand EITC	$178 billion	$163 billion	+$16 billion
Expand Adoption Tax Credit	$7 billion	$12 billion	-$5 billion
Make New Markets Tax Credit permanent	$7 billion	$9 billion	-$2 billion
Other tax cuts, tax credits, and tax breaks	$9 billion	$3 billion	+$6 billion
Subtotal, Gross Costs	$2.6 trillion	$3.0 trillion	-$0.4 trillion
Spending Reductions	-$1.0 trillion	-$1.3 trillion	-$304 billion
Slow growth of defense and nondefense discretionary spending	-$878 billion	-$945 billion	-$67 billion
Reduce prescription drug costs	$0	-$200 billion	-$200 billion
Extend spectrum auctions	-$67 billion	-$54 billion	+$13 billion
Extend the mandatory sequester for Medicare and other federal programs	-$47 billion	-$90 billion	-$43 billion
Extend expiring CBP user fees	-$17 billion	-$16 billion	+$0.5 billion
Other spending reductions	-$6 billion	-$13 billion	+$7 billion
Reform Corporate and International Taxes	-$2.1 trillion	-$2.8 trillion	-$721 billion
Increase corporate income tax rate from 21 percent to 28 percent	-$881 billion	-$1.3 trillion	-$469 billion
Reform international tax rules	-$708 billion	-$790 billion	-$82 billion
Expand limit on deductibility of executive compensation	-$216 billion	-$272 billion	-$56 billion
Increase CAMT rate from 15 percent to 21 percent	-$137 billion	-$137 billion	-$0.7 billion
Increase stock buybacks tax rate from 1 percent to 4 percent	-$79 billion	-$166 billion	-$87 billion
Enact other business tax increases	-$63 billion	-$91 billion	-$28 billion
Reform Individual Income Taxes	-$254 billion	-$343 billion	-$89 billion
Increase top individual income tax rate from 37 percent to 39.6 percent	-$191 billion	-$246 billion	-$55 billion
Increase estate taxes	-$63 billion	-$97 billion	-$34 billion
Reform Other Taxes	-$691 billion	-$835 billion	-$144 billion
Increase NIIT rate and Medicare surtax rate for taxpayers earning over $400,000	-$435 billion	-$404 billion	+$31 billion
Reduce the tax gap by extending increased IRS funding and make other policy changes	-$105 billion	-$258 billion	-$153 billion
Close fossil fuel tax loopholes	-$25 billion	-$37 billion	-$12 billion
Close digital asset tax loopholes	-$21 billion	-$42 billion	-$21 billion
Close other tax loopholes	-$65 billion	-$63 billion	+$2 billion
Other tax changes	-$40 billion	-$30 billion	+$10 billion
Subtotal, Gross Savings	-$4.0 trillion	-$5.4 trillion	-$1.4 trillion
Total Net Deficit Reduction	-$1.4 trillion	-$2.4 trillion	-$1.0 trillion

Sources: CBO, OMB, and author’s calculations. Negative numbers indicate a 10-year savings, while positive numbers indicate a 10-year cost. Numbers may not sum due to rounding.

Provide Family and Education Support ($1.2 trillion/CBO; $1.2 trillion/OMB)

The president’s budget proposes to create new programs for states to expand access to child care and preschool. On child care, the budget sets the goal of limiting costs to $10 per day per child for families earning up to $200,000. On preschool, the budget would allow states to first implement universal preschool for all four-year-olds and then expand access to all three-year-olds. Both CBO and OMB estimate the child care proposal would cost $400 billion over the FY 2025–2034 budget window and the universal preschool proposal would cost $200 billion. The budget also proposes a national paid family and medical leave program that would provide up to 12 weeks of paid leave and would be administered by the Social Security Administration. Both CBO and OMB estimate this proposal would cost $325 billion over 10 years. Last, the president’s budget proposes to double the maximum Pell Grant award by 2029, fund universal free community college, and increase funding for Historically Black Colleges and Universities, Tribally Controlled Colleges and Universities, and Minority Serving Institutions, and provide other education funding. Taken together, both CBO and OMB estimate these proposals would cost $282 billion over 10 years.

Expand Health Care Programs ($544 billion/CBO; $941 billion/OMB)

The president’s budget proposes to make permanent the Inflation Reduction Act (IRA)-enacted enhanced Affordable Care Act (ACA) premium tax credits and to create a new program to offer Medicaid-like benefits to those who live in states that have chosen to not expand Medicaid. CBO estimates this proposal would cost $336 billion over the FY 2025–2034 budget window, $137 billion below OMB’s $473 billion projection. The budget would also close gaps in the Indian Health Service (IHS) by increasing IHS funding and shifting its funding stream from the discretionary to the mandatory side of the budget. CBO estimates this would cost $157 billion over 10 years, $45 billion below OMB’s $202 billion projection. The proposal would essentially make the IHS a health care entitlement like Medicare and Medicaid. In addition, the budget proposes to improve Medicaid home- and community-based services. OMB estimated this proposal would cost $150 billion, but CBO did not score the proposal due to a lack of specificity. CBO did, however, score a smaller proposal to require Medicaid adult home- and community-based services quality reporting, which, like OMB, it estimates the proposal would cost $0.3 billion over 10 years. Last, the budget includes a litany of proposals to increase funding for behavioral health, mental health, and public health, at a cost of $51 billion – less than half of OMB’s $116 billion projection.

Enact Other Initiatives ($303 billion/CBO; $342 billion/OMB)

The president’s budget proposes to support affordable housing by expanding the Low-Income Housing Tax Credit, creating a Neighborhood Homes Tax Credit to cover the costs of repairing homes that would otherwise be too expensive to renovate, establishing a new tax credit for first-time homebuyers and homeowners selling their “starter homes,” and would take other steps to increase the housing supply and boost homeownership. CBO estimates the budget’s housing proposals would cost $133 billion over the FY 2025–2034 budget window, $50 billion below OMB’s $183 billion projection. In addition, the budget includes funding for programs to combat crime, at a cost of $27 billion – $10 billion below OMB’s $37 billion projection. Last, the budget includes a litany of other spending proposals, including strategic investments in the Indo-Pacific region to combat Chinese aggression and expanding access to school meals. Taken together, CBO estimates these proposals would cost $140 billion over 10 years, $20 billion above OMB’s $120 billion projection.

Reform Tax Cuts, Tax Credits, and Tax Breaks ($506 billion/CBO; $497 billion/OMB)

The president’s budget proposes to reinstate the American Rescue Plan (ARP)-enacted expansion of the Child Tax Credit (CTC) through 2025. 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. Full refundability of the CTC would also be permanently extended. CBO estimates the proposal would cost $305 billion over the FY 2025–2034 budget window, $5 billion less than OMB’s $310 billion projection. In addition, the budget would make permanent the ARP-enacted expansion of the Earned Income Tax Credit (EITC) that increased the maximum EITC for workers without children from $540 to $1,500, raised the income cap to be eligible for the EITC from $16,000 to $21,000, and allowed workers aged 19-24 without children to qualify for the credit. CBO estimates the proposal would cost $178 over 10 years, $16 billion above OMB’s $163 billion projection. Last, the president’s budget proposes to expand the Adoption Tax Credit, make the New Markets Tax Credit permanent, and make reforms to other tax cuts, tax cuts, and tax breaks. Taken together, CBO estimates these proposals would cost $23 billion over 10 years, $2 billion below OMB’s $25 billion projection.

Spending Reductions (-$1.0 trillion/CBO; -$1.3 trillion/OMB)

Under CBO’s estimate of the president’s budget, the largest amount of spending reductions comes from a decrease in total discretionary budget outlays relative to CBO’s baseline. The president’s budget requests $1.79 trillion of total discretionary budget authority (BA) for FY 2025, which is $43 billion less than the $1.83 trillion of total BA CBO projected in its baseline. Over the FY 2025–2034 budget window, total BA under the president’s budget would total $18.36 trillion, $1.92 trillion less than CBO’s baseline projection of $20.28 trillion. After converting the proposed BA to budget outlays, CBO estimates that discretionary spending would total $1.87 trillion in FY 2025 and $19.64 trillion over the FY 2025–2034 budget window – $34 billion and $878 billion lower, respectively, than projected in CBO’s baseline. CBO’s projection is also $67 billion lower than OMB’s projection of discretionary budget outlays, largely due to CBO assuming a slower spend-out rate of the BA than OMB.

The president’s budget proposed to expand the IRA’s prescription drug policies. Specifically, it would expand the number of drugs subject to negotiation, apply an effective cap on above-inflation price growth to the private sector, and expand inflation rebates. OMB estimated $200 billion of savings from these proposals. CBO did not score them due to a lack of specificity. CBO estimates $67 billion of savings from extending radio frequency spectrum auction authority through 2034, which is $13 billion greater than OMB’s $54 billion estimate. The president’s budget proposes to expand the mandatory sequester – which was originally enacted in the Budget Control Act of 2011 – for 2033 and 2034. This includes an extension of the 2 percent Medicare sequester and the 5.7–8.3 percent sequester for other mandatory spending programs. CBO estimates $47 billion of savings from this proposal, which is just over half of OMB’s $90 billion of projected savings. CBO estimates $17 billion of savings from extending a series of expiring Customs and Border Patrol user fees through 2033, which is slightly above OMB’s $16 billion estimate.

CBO estimates $6 billion of savings from other spending reductions in the president’s budget, which is $7 billion less than OMB’s $13 billion projection for the same sect of proposals. Specifically, the budget would improve unemployment insurance (UI) program integrity by helping states develop and test fraud prevention strategies and tools and increasing investigations of fraud rings targeting the UI program. In addition, the president’s budget proposes to fund Vocational Rehabilitation State Grants without an inflationary increase, raise civil monetary penalties for labor law violations, and improve Internal Revenue Service (IRS) data disclosures to child support services and child support service contractors.

Reform Corporate and International Taxes (-$2.1 trillion/CBO; -$2.8 trillion/OMB)

The president’s budget proposes to increase the corporate income tax rate from 21 percent to 28 percent. CBO estimates this proposal would raise $881 billion in new revenue over the FY 2025–2034 budget window, $469 billion lower than OMB’s $1.3 trillion estimate. The budget also proposes adopting reforms to international tax rules, the largest of which would be adopting the global framework for undertaxed profits. CBO estimates these reforms would raise $708 billion over a decade, $82 billion less than OMB’s $790 billion estimate. In addition, the president’s budget would increase the IRA-enacted Corporate Alternative Minimum Tax rate from 15 percent to 21 percent, which CBO and OMB estimate would raise about $137 billion of new revenue over 10 years. It would also increase the IRA-enacted excise tax rate on corporate stock buybacks from 1 percent to 4 percent, which CBO estimates would generate $79 billion of new revenue over a decade – less than half of OMB’s $166 billion projection. It would also further limit the deductibility of executive employee renumeration by adding more individuals who are limited to $1 million of their compensation being tax deductible; CBO estimates $216 billion of new revenue from this proposal, $46 billion lower than OMB’s $272 billion projection. Last, the president’s budget proposes tightening tax rules for partnerships and noncorporate taxpayers, among other tax changes. CBO estimates these changes would generate $63 billion of new revenue over 10 years, $28 billion less than OMB’s $91 billion projection.

Reform Individual Income Taxes (-$254 billion CBO; -$343 billion/OMB)

The president’s budget proposes to increase the top individual income tax rate from 37 percent to 39.6 percent, thus reverting the top rate to its pre-Tax Cuts and Jobs Act level. CBO estimates this proposal would generate $191 billion of new revenue over the FY 2025–2034 budget window, $55 billion less than OMB’s $246 billion projection. The budget would also tighten rules and close loopholes around estate and gift taxes, which CBO estimates would raise $67 billion over 10 years – $34 billion less than OMB’s $91 billion projection. In addition, the president’s budget proposes to institute a new 25-percent minimum tax on income for individuals with more than $100 million of wealth and to tax capital gains as ordinary income and make death a realization event, but CBO did not include these proposals in its analysis.

Reform Other Taxes (-$691 billion/CBO; -$835 billion/OMB)

The president’s budget would increase the 3.8 percent Net Investment Income Tax (NIIT) rate for those earning over $200,000 ($250,000 for couples) to 5 percent and raise the 3.8 percent Medicare tax rate to 5 percent for taxpayers earning over $400,000. CBO estimates this policy would generate $435 billion over the FY 2025–2034 budget window, $31 billion above OMB’s $404 billion projection. The budget also proposes applying the NIIT to the pass-through business income of taxpayers earning over $400,000 and depositing the resulting revenue into the Medicare Hospital Insurance trust fund, but CBO did not include this proposal in its analysis. The president’s budget would also provide the IRS with more funding to further narrow the tax gap (which the IRS estimates totaled $696 billion in 2022) and take other steps to boost compliance, which CBO estimates would raise $105 billion over a decade – $153 billion below OMB’s $258 billion projection. In addition, the budget would eliminate tax preferences for fossil fuel investments, which CBO estimates would raise $25 billion over 10 years – $12 billion less than OMB’s $37 billion projection. The budget would close tax loopholes related to digital assets, including applying wash sale rules to crypto transactions, eliminate the tax benefit for like-kind exchanges, further close other tax loopholes such as carried interest and others, and make other revenue changes. Taken together, CBO estimates these proposals would generate $126 billion of new revenue over 10 years, $10 billion below OMB’s $136 billion projection.