President Barack Obama released his draft budget for the 2013 fiscal year yesterday. Details on the president’s proposed spending and tax rates are after the jump, along with reaction from the Iowans in Congress and some of their challengers.
President Obama proposed to spend about $3.8 trillion during the next fiscal year. The full budget request can be found at the bottom of this page. Lori Montgomery covered the basic facts for the Washington Post:
Obama called for $350 billion in new stimulus to maintain lower payroll taxes, bolster domestic manufacturing, lure jobs back from overseas, hire teachers, retrain workers and fix the nation’s crumbling infrastructure. There would be only modest trims to federal health-care programs and no changes to Social Security, the biggest drivers of future borrowing, despite last year’s raucous political debate over the federal debt.
Instead, Obama would reduce deficits by raising taxes by nearly $2 trillion over the next decade on corporations and the wealthy, in part by letting expire George W. Bush-era tax cuts on household income over $250,000 a year.
And the president is encouraging lawmakers to rewrite the tax code to eliminate the alternative minimum tax, which strikes many middle-class families, while requiring millionaires to pay at least 30 percent of their annual income to the Internal Revenue Service.
The Washington Post reported here on how the spending plan would affect each federal government agency. The following departments would receive more funding than they have during the current fiscal year: Commerce, Education, Energy, Food and Drug Administration, Housing and Urban Development, Justice, Labor, National Science Foundation, State, Transportation, Treasury, Veterans Affairs.
These departments and agencies would see funding cut in absolute terms under Obama’s budget: Agriculture, Defense, Environmental Protection Agency, Homeland Security, Interior, NASA, . The cuts to Defense and Homeland Security are smaller in percentage of total budget compared to the size of the cuts affecting non-defense agencies. The Health and Human Services budget would barely change, but Obama is seeking “notable shifts in how the money would be allocated” to that department.
Since several Iowa Republicans slammed Obama’s allegedly excessive spending and high tax rates, a little perspective is useful. From Center on Budget and Policy Priorities President Robert Greenstein’s statement on the budget document (emphasis added in bold):
Total deficit reduction over the coming ten years (fiscal years 2013-2022) – through a combination of the proposals in the budget and measures enacted in 2011 – would equal about $4.3 trillion, not counting savings from reductions in costs for the wars in Iraq and Afghanistan, according to Table S-3 in the President’s budget. About three-fifths of these savings (not counting the savings from lower interest costs) would come from spending cuts, with about two-fifths coming from revenue increases, as compared to roughly a one-to-one ratio under the Bowles-Simpson plan. (The Bowles-Simpson plan is sometimes described as having a two-to-one ratio, but that ratio counts interest savings as a spending reduction and measures revenue increases from a baseline that already assumes the savings from the expiration of the high-end Bush tax cuts.)
Indeed, the composition of the deficit reduction under the Obama budget is actually to the conservative side of the Bowles-Simpson plan – it raises significantly less in revenues and reduces security spending much less than Bowles-Simpson would.[2]
One striking feature of the Obama budget is the degree to which federal spending outside Social Security, Medicare, and Medicaid would fall as a share of GDP.
*Non-security discretionary spending would fall from 3.1% of GDP in 2011 to 1.7% in 2021 and 2022, the lowest level on record with data back to 1962.
*Spending for mandatory programs other than Social Security and Medicare – a budget category that includes the Medicaid program and the costs of the health reform law – would decline from 6% of GDP in 2011 to 5.5% in 2022.
*Entitlement and mandatory programs other than Social Security, Medicare, and Medicaid would fall from 4.2% of GDP in 2011 to 3.2% in 2022.[3]
These figures underscore the significant restraint in the budget overall, outside of programs whose rising costs are driven by the aging of the population and the rise in health care costs throughout the U.S. health care system. Per-beneficiary costs have actually been rising faster under private-sector health insurance than under Medicare and Medicaid, reflecting the system-wide cost pressures throughout the health system.
Ezra Klein commented on the tax rates assumed under the president’s budget and Republican Mitt Romney’s proposal:
In 2011, federal spending was 24.1 percent of GDP. Tax revenue was 15.4 percent of GDP. That’s a slight rise from 2009 and 2010, when revenue was 14.9 percent of GDP, but all three are near-record lows: Before this financial crisis, the last time federal revenues were below 16 percent was 1950 – which is to say, before Medicare and Medicaid were law, and before Hawaii was even a state. For comparison’s sake, federal revenues averaged 18.2 percent of GDP in the Reagan years, and 19 percent of GDP in the Clinton years. […]
First, it’s important to establish our baseline: If we just extend our current policies – which would mean extending the Bush tax cuts – revenues will be 17.9 percent of GDP over the next decade.
Obama’s plan would raise revenues to 19.2 percent of GDP. Most of that would come from people making more than $250,000 a year. Back in September, the nonpartisan Tax Policy Center ran the numbers on his proposal – which is unchanged in the budget – and they estimated that taxpayers in the bottom 20 percent would pay an average federal tax rate of 1.8 percent, those in the middle 20 percent would pay 15.2 percent, and the top 1 percent would pay 36.3 percent.
Romney’s plan cuts taxes to about 17 percent of GDP. Most of those cuts would accrue to upper-income Americans. According to the Tax Policy Center, under Romney’s plan, taxpayers in the bottom 20 percent would pay a rate of 3.4 percent, those in the middle 20 percent would pay a rate of 15.6 percent, and the top 1 percent would pay 25.9 percent.
So low- and middle-income families would pay a bit more under Romney’s tax plan, but high-income families would pay a lot less. Taxes would also fall far short of spending. A realistic estimate of federal spending over the next decade is in the 22-23 percent of GDP range. Romney’s revenues are five to six points below that, and because Romney has promised to balance the budget without cutting defense spending, he would have to cut every domestic spending program, including Social Security and Medicare, by more than 35 percent to make his numbers work.
The deficit hawks at the Concord Coalition gave Obama’s budget “mixed reviews”:
Last year’s Budget Control Act (BCA) called for $2.1 trillion in deficit reduction over the next decade, far short of what had been recommended by the President’s National Commission on Fiscal Responsibility and Reform, the Bipartisan Policy Center’s Debt Reduction Task Force and other bipartisan groups.
The President’s 2013 budget calls for another $2 trillion in deficit reduction over 10 years. In addition, the administration is proposing deficit-reduction alternatives for the $1.2 trillion in “automatic cuts” that are scheduled under the provisions of last year’s legislation — cuts that many lawmakers in both parties say they would like to avoid. Opening up the process to a broader range of options in this way would be a positive step away from the BCA’s overly narrow focus on discretionary cuts, so long as it results in the same amount of deficit reduction.
“The deficit-reduction figures now being debated can get confusing because they depend so much on which starting point is used and what assumptions are made,” [Concord Coalition Executive Director Robert L.] Bixby said. “The administration, for example, is assuming nearly $850 billion in ‘war savings’ that were never going to be spent anyway. Worse yet, a portion of this phantom savings is designated for new spending. And while the President plans to save some money by letting certain tax cuts expire for the wealthy this December, those ‘savings’ would be more than wiped out by his proposal to extend the tax cuts for everyone else. […]
On the positive side, Obama’s budget recognizes that Washington cannot address the country’s enormous fiscal challenges by simply focusing on further restraint in the “discretionary” spending that Congress approves each year for domestic programs and defense. Elected officials must also focus on entitlement spending, health care costs and the tax system, as Obama seems willing to do.
The President continues to call for substantial changes in the tax code, doing away with many special provisions that favor some taxpayers over others while depriving the Treasury of hundreds of billions of dollars in revenue every year. These “tax expenditures” function much like spending programs and require additional government borrowing. And there is a bonus to doing away with many of them: This would simplify the tax code and reduce the frustration and costs of preparing tax returns.
Diane Lim Rogers, chief economist for The Concord Coalition, says one of Obama’s tax proposals is particularly noteworthy: limiting the tax benefit of itemized deductions and other tax expenditures to 28 percent. “It’s a great idea,” she says, “because it would reduce a large tax subsidy for those who need it least, improve the economic efficiency of the tax code, and raise revenue that could be used to reduce deficits.”
Senator Chuck Grassley released this statement yesterday:
“After he was elected, President Obama said he knew the economy couldn’t handle a tax increase. Today, unemployment is still 8.3 percent, but the President wants to increase taxes $1.5 trillion. An Obama tax increase would set the economy back and fuel more government spending. It keeps America on the path of big deficits and record debt, all at the expense of the next generation. When I asked the Federal Reserve Chairman during a budget committee hearing last week, he reiterated that the economy couldn’t handle a tax increase. So, again, the White House is choosing its reelection campaign over any attempt to start reducing the size of government and chart a course for private-sector job creation.
“Leadership by the Senate Majority Leader is just as lacking. Earlier this month, Senator Harry Reid said he had no intention of allowing the Senate to consider a budget this year. The Senate hasn’t produced a budget for the last three years because Senator Reid doesn’t want senators in his caucus to have to take difficult votes, also putting politics above the responsibility that’s held by elected officials.”
I strongly disagree with Grassley’s analysis of the federal budget. Bringing down the unemployment rate is the best deficit reduction policy. If we want to reduce unemployment, slashing domestic spending would be counter-productive. On the contrary, while interest rates are low, it makes more sense to borrow more for domestic investments that would create jobs.
I do agree with Grassley that Senate Majority Leader Reid is doing everything he can to spare Senate Democrats from making tough votes.
Senator Tom Harkin praised Obama’s budget proposal in the statement he released yesterday:
“The President’s budget correctly recognizes that our most pressing challenges are creating jobs now and setting the stage for future economic growth. I am heartened by its proposed investments in areas like education, infrastructure, and research to make our country more competitive in a global economy, create jobs, and rebuild the middle class in America. And it does so by calling for a more fair tax policy including provisions that reduce the incentives in the tax code to shift jobs overseas.
“It was a telling sign of the President’s priorities that he chose to unveil this budget proposal at a community college. It is community colleges in Iowa and around the country that are playing a key role in educating and retraining workers who have been displaced due to the economic downturn. His budget goes a long way to preserve access to these institutions.
“In addition, the budget takes steps to make college more affordable. It includes a new fund that will allow community colleges to partner with local businesses, so that workers have the training they need for the jobs that are available in their regions. Taken together, these investments will help us build a workforce capable of competing in the global economy while ensuring that millions of Americans have the good-paying jobs needed to maintain a middle class lifestyle.
“This budget also reflects the fact that investments made in infrastructure not only improve our roads, bridges, and transportation system; but go a long way toward creating jobs. I also commend the Administration’s funding for innovation and manufacturing, the backbone of America’s economy.
“All in all, this is a balanced proposal that puts our country on a path of creating jobs and ensuring students are prepared to succeed in the global economy. These are the investments that will rebuild the middle class in this country.”
Representative Bruce Braley (IA-01) didn’t comment specifically on the president’s proposed budget, but called for Congress to pass a budget on time (emphasis in original):
As President Announces Budget, Braley Signs onto “No Budget, No Pay” Bill
Legislation withholds pay if Congress doesn’t pass spending/budget bills on time each yearWashington, DC – As President Obama unveiled his 2013 federal budget proposal today, Rep. Bruce Braley (IA-01) signed on as a cosponsor to “No Budget, No Pay” legislation that would block pay for members of Congress if they’re unable to make spending and budget decisions on time each year.
The most basic responsibility Congress has is deciding how much money the government takes in and how much it spends. However, Congress has only passed its spending bills on time only four times since 1952. In the last 14 years, annual spending bills have been submitted an average of 14 months late.
“In the real world, there are real consequences if deadlines aren’t met,” Braley said. “There should also be real consequences if Congress can’t meet its deadlines. I can think of few stronger incentives to get politicians to do their job than tying their pay to their job performance. This idea is a powerful way to restore a little common sense to a Congress that has none.”
Every government fiscal year begins on October 1st. Under the “No Budget, No Pay” proposal, if the congressional spending process is not completed by that date each year, congressional pay ceases and isn’t restored until it is completed.
For the current fiscal year, Congress was nearly three months overdue in completing the annual budget and spending process.
The “No Budget, No Pay” legislation is a key component of the “Make Congress Work” reform plan of the No Labels organization, a group of Republicans, Democrats, and independents dedicated to bringing people together and making government function again. In December, Braley joined No Labels to unveil the plan.
For more information on the proposal visit the following link: http://action.nolabels.org/bil…
The bill Braley supports is going nowhere. The last time Congress approved all the budget bills on schedule was during the early 1990s. Continuing spending resolutions are the standard way of funding the federal government now.
One of Braley’s challengers, Rod Blum, posted this comment on Facebook:
President Obama today presented the Democrat’s budget for 2013 – it results in a $901 billion deficit and assumes higher taxes with the expiration of the Bush tax cuts. Bruce Braley has a serious decision to make – pile even more government debt on every family in Eastern Iowa with higher taxes, higher borrowing and higher spending or reduce the size and reach of government and let the free enterprise system go to work.
Entrepreneurs chasing their dreams are what drive our economy – NOT government. If government spending were the solution, Greece and Italy would be economic powerhouses. Who do you stand with Mr. Braley – the taxPAYERS or the tax-TAKERS?
Braley’s other Republican challenger, Ben Lange, officially launched his campaign yesterday. He didn’t release a statement on the president’s budget but made a broader case against Braley, which I will analyze in detail in a forthcoming post.
Representative Dave Loebsack (IA-02) expressed regret about some of Obama’s proposed cuts in his statement on the budget plan:
“I am happy to see the President is moving forward with ideas for expanding workforce development and getting Iowans back to work. Like my SECTORS Act, the Community College to Career Fund would help form industry sectors, as well as help community colleges and states partner with businesses and other collaborators to identify job training needs. This would prepare workers for high-growth and in-demand fields, such as health care and advanced manufacturing. It will go a long way to helping promote economic growth in Iowa.
“However, I was disappointed to see included a proposal to close and consolidate USDA offices, including four in our state, which we know will not help economic or rural development in Iowa. I have previously urged the USDA to reconsider closing the offices in Iowa, and I will continue pressing the case for why these offices are important to farmers and the community. I also remain strongly opposed to the Air Force’s proposals regarding the Air National Guard and retirement of the 132nd Fighter Wing’s F-16s. I will continue to fight for the men and women of the Iowa National Guard.
“Like any budget, there are things I support and proposals that I oppose. I’m hopeful that Congress will put partisan politics aside and pass a commonsense budget that gets Iowans back to work and sets our country on a fiscally responsible path.”
One of Loebsack’s Republican challengers, John Archer, posted this statement on Facebook:
“Take your pick….tone-deaf, completely out-of-touch, or just blindly loyal to big government. Those descriptions reflect President Obama on the budget outlined today. His budget blueprint outlines annual deficits exceeding $600 billion every year with the exception of 2018. In addition the portion of U.S. debt held by outside investors would grow to $18.7 trillion by 2021, while still increasing taxes on job creators by $1.5 trillion.
The Administration’s inability to recognize the danger the national debt places on America’s future is remarkable.
Greece is burning due to their lack of discipline. The President’s job-killing, debt-exploding budget is taking us down the same path of the Greek failure.
While I’m not optimistic, my sincere hope is that Congressman Loebsack will do the right thing and publicly reject this budget for its lack of fiscal discipline and tax increases.”
A budget deficit is not “job-killing.” On the contrary, austerity policies such as deep cuts in domestic spending are “job-killing.” Several European countries have learned that lesson the hard way, including Ireland and the United Kingdom.
I didn’t see any comment on the president’s budget from Loebsack’s other Republican challengers, Dan Dolan and Richard Gates. However, on February 10 Gates critiqued the federal government’s current tax and spending policies on his campaign website. Excerpt from that post:
What’s the Plan?
1.Federal Tax Reform. Legislation already exists with HR25 the FairTax. This single bill is 137 pages long total. It eliminates all forms of taxes on work and production, investments and savings. It also requires the repeal of the 16th amendment (the income tax). This bill eliminates 72,000 pages of federal tax code. In place of all of this we will have a 23% sales tax. Keep in mind that by removing the other taxes, we remove 22% of the cost of all products and services, resulting in a very minimal change. The FairTax also eliminates all federal with holding, social security, and medicare with holding while it insures allowances for both social security and medicare.
2.Abolish the Department of Education. The Federal government has demonstrated that it is incapable of developing a superior system to educate our children. We must return control to our local school districts and the parents. It is very obvious that charter schools, private schools and home schooling have proven results that demonstrate the need to make this change.
3.Regulatory reform. The EPA and other agencies have crippled our ability to grow our economy and return to prosperity. We have not had a new refinery built in over 35 years, and we have recently seen oil rigs pull anchor and leave our shores because of the federal environmental hoax. Farmers in California stood in food lines as their crops withered because the were denied access to a reservoir to save a small fish. Small businesses now spend an average of $10,000 just for regulatory compliance.I support these plans, as I believe they will invigorate our economy and bring a boom to our economy like no other. We can restore that shining city on the hill that President Reagan spoke of and we can again be a rising star, setting the example that will lead the world back from economic hardships, setting the example for the world to see the power of a free and industrious people.
The reforms that I have outlined will increase federal revenue by increasing the base. It will eliminate 90% of the lobbyists, tax loopholes will be a thing of the past. Removing the payroll tax will mean an average 15% pay increase for every employee. That means spending money that is available. Foreign goods will not get the advantage of the 22% embedded tax removal making American made goods and services more competitive and motivate business to manufacture in the United States.
Reforming regulations will make it cheaper to hire new employees, allow for a serious energy program that makes use of our own energy resources such as the largest continuous oil reserve in the world located in North Dakota and Montana.
It’s time to restore liberty, It’s time to restore creativity, innovation, and American Exceptionalism. We need your support, your contribution, and your vote to make this happen. With your help, we will restore America!
I haven’t seen any public comment on the president’s budget from the third Iowa Democrat in the U.S. House, Representative Leonard Boswell (IA-03). Republican Tom Latham, who now represents IA-04 but is running against Boswell in the new IA-03, released this comment:
“I am deeply concerned that this proposed budget does not steer this nation away from the debt, doubt and decline that is frustrating hardworking Americans. The trillions of dollars in new taxes and spending will add to the mountain of debt that’s already crushing job growth and smothering the promise of the American Dream for our children and grandchildren. It lacks any bold action to force Washington to finally live within its means and fails to address the main drivers of our skyrocketing deficits.
“With this budget the White House would close the Iowa National Guard’s 132nd F-16 Fighter Wing, eliminating hundreds of jobs in central Iowa and with it a huge economic hit. It is clear that the decision to close the fighter wing was not based on a proper cost-benefit analysis or true defense readiness review. There are reasonable ways to cut waste in the defense budget, but this “lead from behind” defense strategy would hollow out critical capabilities in the force and weaken our national security in exchange for more failed domestic programs and irresponsible spending. I cannot support a plan that recklessly cuts jobs out of the heart of Iowa during one of the most painful economic downturns in memory.”
Representative Steve King (IA-05) released this comment yesterday:
“The President’s plan increases taxes by $1.9 trillion (including a $143 billion “death tax” hike which will hurt family farms across Iowa), hides $1.5 trillion worth of spending in accounting gimmicks, and still adds $11 trillion to the debt. By the end of the President’s budget window, $1 trillion of American taxpayer dollars will go simply to servicing our debt.” said King. “In 2009, the President promised to do his fair share by cutting the annual federal deficit in half ($650 billion) by the end of his first term. Under this budget, the President breaks this promise and will end his second term in office with a $1.3 trillion annual deficit – despite his plans to increases taxes by $1.9 trillion and his efforts to hide $1.5 trillion worth of spending in accounting gimmicks.”
“The President continues to campaign on ‘fairness,’ but hiking up the debt with no end in sight is an injustice to the American people. This budget is simply more proof that President Obama is unwilling to do, by his own definition, his “fair share” to make the tough choices to get our budget to balance.”
King is running for re-election this year in the new IA-04. I haven’t seen any comment on the president’s budget from his Democratic challenger Christie Vilsack, but if any statement appears, I will add it to this post.