February 3, 2015

Same Old Story from New Obama Budget

  • President Obama’s budget would add $8.5 trillion in new debt, with the national debt eventually reaching $26.3 trillion. Interest on the debt triples from $229 billion in fiscal year 2015 to $785 billion in 2025.

  • The president’s budget would raise taxes by $2.1 trillion over 10 years. The president has already raised taxes on Americans by $1.7 trillion.

  • The fiscal year 2016 budget would spend $4 trillion for the first time in U.S. history.

Debt Continues to Skyrocket

This budget marks the seventh time that President Obama has passed up the opportunity to propose reforms that would put entitlements on sound financial footing. With this latest budget, the president allows Washington’s debt to continue to skyrocket as entitlements continue their slide into insolvency.

President Obama’s budget would add $8.5 trillion in new debt, reaching $26.3 trillion by the end of the budget window. Interest on the debt triples from $229 billion in fiscal year 2015 to $785 billion in 2025.


Debt Rise Continues Under Obama Budget

Taxes Continue to Rise

The president’s budget would raise taxes by $2.1 trillion over 10 years. Among these tax increases are capping the value of certain tax expenditures at 28 percent ($603 billion tax increase over 10 years); capital income tax hikes ($208 billion); a Buffett Rule “fair share” tax ($35 billion); a tax increase on financial institutions ($112 billion); carried interest taxes ($18 billion); capping the size of 401(k) and IRA plans ($26 billion); inheritance tax hike proposals unveiled at the State of the Union ($189 billion); reinstating Superfund taxes ($21 billion); and increasing tobacco taxes ($95 billion).

The budget also proposes to raise taxes on multinational businesses by $238 billion. Of this amount, $205 billion is raised from a mandatory tax of 19 percent on business profits earned abroad. As a transition to this system, Obama proposes a 14 percent mandatory tax on all U.S. corporate profits currently sitting overseas. Ironically, if it had any chance of being enacted, this proposal could speed up corporate inversions instead of stopping them, by encouraging corporations to invert before the proposal went into effect.

The president has already raised taxes on Americans by $1.7 trillion. Americans do not need more tax increases. Instead, the U.S. economy needs responsible and revenue-neutral tax reform that will encourage economic growth and job creation.

Nondefense Spending Caps and Sequestration

The president’s budget proposes increasing spending above the caps that are in the Budget Control Act (as modified by the “super committee” and subsequent legislation). Under current law, a sequester of some mandatory spending is in place through fiscal year 2024. All discretionary spending restraint from 2013 to 2021 takes the form of spending caps, with the threat of a sequester to enforce the caps if they are breached.

The budget proposal would eliminate for the next two years all nondefense spending restraint imposed after the super committee failed to reach an agreement. The mandatory sequester would be eliminated entirely and, for the next two years, the caps for nondefense discretionary spending would be raised to the same level they were at before 2011. The cost of eliminating the mandatory sequester is $185 billion, and the cost of eliminating the lower nondefense caps for two years is $74 billion ($37 billion in both years). 

Defense Spending Caps

Defense spending is another story. Due to the super committee failing to reach an agreement, spending caps for national security spending were to be cut by approximately $54 billion annually starting in fiscal year 2013. The military service chiefs have described the damaging effects of this lower defense spending on military readiness.

Limited relief from these drastic spending cuts has been given to the Defense Department in past fiscal years, but it has never amounted to full relief from the spending cuts mandated by the BCA. There is no relief in current law for defense spending cuts for fiscal year 2016. As a result, defense spending in fiscal year 2016 is projected to have little growth for the third year in a row. It will begin to grow by 2.4 percent each year starting in fiscal year 2017.

The American Taxpayer Relief Act of 2012 (the fiscal cliff deal) lessened the amount of the defense spending cut for fiscal year 2013 by $12 billion ($24 billion split evenly between defense and non-defense). This increased spending was offset by lowering the spending caps in fiscal years 2013 and 2014, along with revenue changes affecting retirement accounts.

Then, the Bipartisan Budget Act of 2013 (Ryan-Murray) raised the defense spending cap by $22 billion for fiscal year 2014, and $9 billion in fiscal year 2015. This relief was paid for by a mixture of fee increases and cuts to mandatory spending, namely a reduction in the growth of cost-of-living adjustments for certain military retirees, along with an extension of the sequester on certain mandatory spending. A military pension law in the 113th Congress extended mandatory sequestration through 2024.

These defense spending cap increases do not amount to full relief for the BCA spending cuts. The president proposes to fund function 050 (defense and other national security activities) at $561 billion, an increase of $38 billion over the current law spending caps.

As a point of comparison, when President Obama submitted his fiscal year 2012 budget request, the last budget request before the sequester revised caps structure, the Department of Defense was projecting a budget of more than $600 billion in fiscal year 2016. Now, Pentagon spending for fiscal year 2016 is estimated to be just less than $500 billion under the requirements of the BCA. The president’s budget requests $534 billion for DoD.

Other Notable Parts of the Budget

Department of Transportation

  • The budget requests a six-year, $478 billion surface transportation reauthorization – an increase of $176 billion over the president’s proposed four-year infrastructure spending bill in 2014.
  • The plan would be partially funded by “a one-time transition toll charge of 14 percent on the up to $2 trillion of untaxed foreign earnings that U.S. companies have accumulated overseas.”

Department of Health and Human Services

  • The HHS budget totals $1.09 trillion in outlays – with $79.9 billion in discretionary budget authority.
  • After pushing through an unprecedented increase in spending on the Medicaid program, the budget proposes to spend $41.4 billion more in this area over the next decade. This includes $14.4 billion to extend the Children’s Health Insurance Program through 2019 and $6.3 billion to extend Obamacare’s Medicaid primary care payment increase through calendar year 2016.
  • The proposed HHS budget is presented as netting about $425 billion in Medicare savings over the next decade. Most these savings are from aligning Medicare and Medicaid drug policies ($116.1 billion); reducing payments for certain post-acute care providers ($102.1 billion); and increasing premiums under Medicare Parts B and D ($66.4 billion). The proposal also includes $20.8 billion of savings from strengthening the Independent Payment Advisory Board.
  • The budget makes several assumptions that are not in the budget baseline and that increase mandatory health care spending. For example, the budget assumes a Medicare “doc fix,” with payments permanently frozen at current levels. The proposal does not include the estimated $113 billion cost. The budget also proposes turning off the BCA Medicare sequester. Turning off the sequester would increase Medicare spending by $148 billion over the 10-year budget window.
  • The president’s proposals amount to less than $130 billion in mandatory health care savings over 10 years. This is less than one percent of the estimated $14.5 trillion we will spend on mandatory health care programs over the next decade.

Childcare

  • The budget provides an increase of $82 billion in mandatory funding over 10 years to increase child care for low- and moderate-income working families with children ages three or younger. It also provides a $266 million increase in discretionary funding to help states implement policies required by the Child Care and Development Block Grant Act of 2014.
  • The budget provides $750 million for Preschool Development Grants, an increase of $500 million from the 2015 enacted level; and $907 million for early intervention and preschool services for children with disabilities, an increase of $115 million from the 2015 enacted level. For Head Start, the budget provides more than $1.5 billion in additional funding over the 2015 enacted level, including $650 million (an increase of $150 million) to expand access through the Early Head Start and the Early Head Start-Child Care Partnerships. The Preschool for All increase is paid for through an increase in tobacco taxes.

Immigration

  • The budget provides $1 billion to support Central America countries. In recent years, there has been a significant increase in the number of illegal immigrants from Central America. Many of these immigrants have been unaccompanied minors, which led to a humanitarian crisis in the summer of 2014. The president’s budget provides funding to these countries as a way of building up Central American economies and is intended to improve the economic conditions the administration cites as the impetus for illegal immigrants coming to the U.S. The president’s budget does not correct the executive actions of recent years that also incentivized illegal immigration from Central America.
  • It claims a savings of $160 billion from the passage of immigration reform legislation this year.
  • It also includes funding for border security at an increase of $90 million over the current CR levels for the Department of Homeland Security.

Department of Education

  • The budget provides $70.7 billion in discretionary funding for Department of Education programs, an increase of $3.6 billion from the 2015 enacted level.
  • It proposes an increase of $1 billion from the 2015 enacted level for Title I, the federal government’s largest K-12 grant program.
  • The budget proposes a new $125 million competitive program to promote the redesign of America’s high schools related to science, technology, engineering, and mathematics-themed high schools. 
  • It includes a new proposal to make community college free for all. The new grant program seeks to provide funding to states that agree to waive tuition and fees at community colleges for eligible students, increase their own investment by matching the Federal funds, and undertake a set of reforms to improve the quality of community colleges. The Budget includes $1.37 billion for this proposal. The cost is anticipated to be $60 billion over 10 years. 

Department of Labor

  • The Department of Labor fiscal year 2016 request is $13.2 billion in discretionary authority, an 11 percent increase from last year’s $11.8 billion.
  • The budget includes $2 billion in mandatory spending for the Paid Leave Partnership Initiative to assist up to five states to launch paid leave programs. It also includes $35 million in discretionary spending for a State Paid Leave Fund to provide technical assistance and support to states that are building infrastructure to launch paid leave programs in the future. The budget proposes legislation to offer federal employees six weeks of paid administrative leave for the birth, adoption, or foster placement of a child.
  • It directs agencies to offer advanced sick leave in connection with the birth or adoption of a child, foster care placement, or for other sick leave eligible uses, and requires agencies to consider providing access to affordable emergency backup dependent care service.
  • The budget sets aside $6.5 million to pilot a State Retirement Savings Initiative that will assist two to four states to pilot and evaluate state-based 401(k)-type programs.

Department of Energy

  • The budget provides $29.9 billion in discretionary funding for the Department of Energy, $2.6 billion above the 2015 enacted level. This includes support of more than $34 billion in existing loans, loan guarantees, and conditional commitments and more than $40 billion in remaining loan and loan guarantee authority to finance renewable energy, energy efficiency, advanced vehicle technology, and other alternative energy projects.
  • It has nearly $5 billion for research and development of energy efficiency, renewable energy, and other alternative energy technologies.
  • The budget provides $560 million for research and development of carbon capture and storage and technologies to reduce greenhouse gas emissions from natural gas operations.

Department of Agriculture

  • The budget provides $25 billion in discretionary funding for Department of Agriculture programs, $800 million above the 2015 enacted level.
  • It includes $6 billion in loans to rural electric cooperatives and utilities to support the transition to renewable energy generation and increased energy efficiency.
  • There is $200 million to communities to build “resilient” infrastructure and natural systems to adapt to climate change; $81 million to agricultural producers and rural small businesses to adopt renewable energy systems and energy efficiency improvements; and $50 million in loan guarantees for infrastructure to support the retail sale of biofuels.  

Department of the Interior

  • The budget provides $13.2 billion discretionary funding for the Department of the Interior, $959.2 million above the 2015 enacted level.
  • $100 million of this would be to review and permit renewable energy projects on public lands and in offshore waters.
  • It imposes $48 million in new inspection fees in 2016 alone on onshore oil and gas producers.
  • The budget includes $170.9 million for the Bureau of Ocean Energy Management, and $204.7 million for the Bureau of Safety and Environmental Enforcement to oversee offshore oil and gas development.
  • It raises $5.6 billion over 10 years from revenue and savings proposals related to the Office of Natural Resources Revenue collections of royalties and other payments from oil and gas development on public lands and waters.

Environmental Protection Agency

  • The budget provides $8.6 billion in discretionary funding for the EPA, $500 million above the 2015 enacted level.
  • Of this, $239 million goes to support rules designed to shut down coal-fired power plants.
  • It provides $4 billion to incentivize states to expedite and increase coal-fired power plant closings and other carbon emissions reduction measures required by those rules.
  • The budget cuts $50 million from clean water and drinking water state revolving funds.

Climate Change

  • The budget provides $1.29 billion in discretionary funds for the Global Climate Change Initiative to support international climate negotiations under the U.N. Framework Convention on Climate Change and other UN-led climate talks and to help finance greenhouse gas emissions reduction programs in developing countries.
  • It provides $500 million in discretionary funding to the UN’s Green Climate Fund in fiscal year 2016, redistributing money from the U.S. to developing countries to finance their construction of climate “adaptation” and “mitigation” infrastructure.
  • The budget subjects the oil and gas industry to $95 billion in taxes over 10 years by repealing tax incentives. This threatens to depress the shale oil and gas revolution the president misleadingly takes credit for and jeopardizes today’s falling energy prices.

Issue Tag: Economy