Obama’s Budget Proposal: What’s Old Is New Again

You don’t grow up as a middle child without learning a few tricks of the trade. One of the most notable: if you have something to say that you know won’t go over very well, you wait until there’s a distraction. And with two brothers, there was always a distraction.

This week, President Obama (who is an only child) employed the middle child “act while they’re distracted” strategy, by announcing his plan for the 2013 budget in the midst of Congressional infighting over the payroll tax cuts and Republican squabbling over the nominee. It’s genius. Practically nobody noticed the budget.

Okay, maybe there’s a little more to it than that.

To be fair, the budget plan is fairly predictable and a little yawn inducing. Despite some of the ranting from the extremes, nothing in the budget (or the budget message) is a surprise. We’ve seen most of it before.

Here are some of the highlights – with my comments in green:

Deficit. Yes, there is a deficit for 2012. Under the President’s plan, the deficit will hit $1.3 trillion in 2012 and then drop to about $600 billion in 2015.

Within a few percentage points, the deficit has stayed near the $1 trillion in each year of Obama’s presidency so nothing really new there. But how different is it from past presidencies? Again, not much new. Since 1970, the government has run deficits for all but four years (in case you’re wondering, those were the years 1998–2001). Republicans will squawk about the size of the deficit – and well they should – but not one member of Congress has a real plan to fix it.

Boosted funding for the Treasury. After years of existing on a shoestring budget (relatively speaking), the IRS would get a boost of 4.2%.

You can bet that will be used to pay to keep printing new forms and rewriting computer programs to keep up with Congressional whims ramp up enforcement for collections. Expect increases in audits and heavy-handed collections techniques.

Cuts to the Environmental Protection Agency. In contrast to the Treasury, the Environment Protection Agency will see about 4% in cuts.

These cuts are totally expected. The EPA is as popular in Congress as LeBron James in Cleveland. Besides, who cares about silly things like trees and clean water anyway?

Huge reductions in military spending. Obama proposes cuts, cuts and more cuts in military spending. Specifically on the chopping block are Naval ships and F-35 fighter plans. Also on tap? The armed forces will be shedding 100,000 troops over the next few years and cutting weapons systems.

It’s been more than ten years since 2001. In an immediate post 9/11 atmosphere, military spending increased. But now, we’re bored. Or lulled into a false sense of security. Or something. Whatever the reason, military spending isn’t popular anymore so, of course, we’re packing it up. We’re walking away from a war that went on too long in Iraq and some day, we’re planning to leave Afghanistan. We’re closing bases and eliminating personnel (the chatter I’m hearing says we’re buying out contracts and failing to recruit new troops). I think we need to make some cuts… but with no other jobs “out there”, I question what kind of world we’re sending these kids back into. This one needs a bit more thought.

Increased spending on infrastructure. Spending will increase for infrastructure projects on roads, bridges and rails. Obama is proposing a $50 billion increase in transportation projects, as well as improvements to about 35,000 schools.

There’s no doubt that we need improvements to our infrastructure. In my own state of Pennsylvania, we have the largest number of structurally deficient bridges in the nation — nearly 6,000. That’s kind of scary. And they should be replaced, as should many bridges and roads all over the country. But we don’t like fixing things. We like buying shiny new things, like new roads in Virginia (is it just me or does it feel like there’s always construction on I-95 in Virginia?). Combine that with the whole New Deal vibe and it’s not going to happen: Congress has traditionally blocked these proposals.

Cuts to space programs. NASA will continue to take a hit under Obama’s plan. Space exploration is basically dead and two missions to Mars would be grounded.

Again, no surprises here. And really, who cares about space anymore anyway? Ever since I learned that Pluto wasn’t a planet, I’ve had zero interest. You?

More money for education. Obama previously introduced his “Race to the Top” initiative to support public education; the program needs funding. Obama also wants to put the brakes on skyrocketing interest for student loans, make education tax credits permanent and kick in an additional $8 billion to train community college students for high-growth industries.

As cities and states search their sofas for extra change, there’s going to be a lot of pressure on the feds to pony up on public education projects. It almost always happens that the feds get these great ideas for making schools better (remember No Child Left Behind?), pass a lot of laws making states responsible and then fail to fund them. I think that’s what’s going to happen this time. There’s no extra money for new initiatives; I expect states and cities to have to make up the difference. I also don’t expect education tax credits to be made permanent; Congress loves a Band-Aid approach so I wouldn’t be surprised to see credits extended on a – you guessed it – temporary basis.

Bump in pay for federal employees. President Obama doesn’t believe that a permanent pay freeze for federal employees makes sense. However, continuing to boost salaries for federal employees isn’t economically feasible. Obama is proposing a .5% increase in pay for federal employees.

A small bump is a win. The Republicans want a permanent freeze but that would include Congressional salaries (DOH!) and it’s not terribly popular. A small bump is a decent compromise; the Obama administration claims it would free up $2 billion in 2013 and$28 billion over 10 years. Those numbers should make the Republicans happy and the Democrats don’t have to fight a permanent freeze. This might happen.

Expanded energy programs. Obama’s budget calls for a new HomeStar program, which would encourage Americans to invest in energy and cost-saving home improvements.

I’m not sure why this program (or a similar one) was ever phased out. It was a great program for homeowners because it offered a tax credit – but equally great for retailers and manufacturers because it encouraged the purchase of new appliances. My guess is that it just wasn’t on Congress’ radar. I’d like to see that change for 2013. I think it could happen – but I’m not making any promises.

Cuts to the Mail. Obama also suggests mandatory reforms to a number of programs and agencies, including the US Postal Service. This likely means an end to Saturday mail delivery.

Horrors. I love to send (and get) letters but how will I ever live without my junk mail and catalogs on a Saturday? Consider this one done.

TSA and Airline Fees. Even as there is chatter to replace TSA workers with private sector employees (this is not an Obama initiative), there’s talk about increasing funding available to the TSA. Costs for TSA have gone up while fees have remained flat. Obama is proposing an increase in the one-way security fee on airline tickets to $7.50 – an increase of up to $5.00 per ticket for some flights.

Nobody likes to pay more taxes. But Congress has learned that if you hide them or call them fees, people still pay them (maybe they learned something from the banking industry?). Expect this to pass.

Individual Income Taxes. You already know about Obama’s support for extending those payroll tax cuts. Under Obama’s plan, the so-called Bush tax cuts would expire for married couples making more than $250,000. The result is a tax increase for those at the top. In keeping with that theme, the so-called Buffett Rule would seek too make sure that every family with an income of at least $1 million would pay at least 30% in tax. And finally, Obama seeks to revive his plan to reduce the amount that taxpayers at the top can deduce as itemized deductions a la Reagan.

Easy one first: payroll tax cuts extensions, done. Now the not so easy: Obama preaches this notion of fairness with respect to paying your share of federal income tax every year. And whether you believe it makes fiscal sense or not is irrelevant: any efforts to actually shake up the system and produce significantly higher taxes at the top are not going to pass. The Republicans won’t allow it. Not one piece of it. Not higher rates, not reduced deductions and no Buffett Rule.

Corporate Income Taxes. The plan proposes a number of measures aimed at encouraging small business growth while nipping at corporations who are not paying their fair share (however you interpret that). This means swipes at banks as well as eliminating tax breaks for oil and gas companies. It also proposes continued expensing for small businesses.

You’d think with record-setting profits for oil companies and pain at the pump for consumers, this proposal would get a lot of support. Nonetheless, this suggestion routinely gets doused. This year won’t be any different. On the other hand, I expect the expensing provisions to stick.

Federal Estate & Gift Tax. Obama would like to see the federal estate & gift taxes permanently return to 2009 levels. That means the gift tax exclusion would remain at $1 million while the federal estate tax exclusion would revert to $3.5 million. The applicable top federal estate tax would rise to 45 percent from 35 percent.

The Republicans don’t want to see the federal estate tax budge. And realistically, the practical aspects of reducing the exemption are pretty hefty. I expect the exemptions to remain where they are now and perhaps the rates increase. But take that for what it’s worth: I’ve been wrong about the federal estate tax almost every year since 2006 (2012 excluded). I’ve also yet to meet any other tax pro who’s been right about it…

Medicare and Medicaid. Without any changes, both Medicare and Medicaid are on tap to more than double by 2022. Despite those numbers, Obama isn’t making any significant suggestions to switch course.

Why wouldn’t he? Congress isn’t likely to press for changes and cutting budgets for the poor, elderly and disable won’t play well at election time.

Social Security. Obama doesn’t want to tinker with Social Security this year.

Social Security is one of those plans that needs fixing. It’s paying out too much too early. And it’s going to be depleted soon at the rate it’s being drained – especially with payroll tax cuts which are being extended but not being covered. But it’s political dynamite. So it will remained untouched.

Simplify the Tax Code. Obama’s plan calls for tax reform, noting, “The tax system should be simplified and work for all Americans with lower individual and corporate tax rates and fewer tax brackets.”

Bwahaha. That is all.

That’s about it. The plan is not small – and there are many more details than what I’ve outlined here – but now you know the high points, at least from my perspective.

Obama has said about the plan:

We built this budget around the idea that our country has always done best when everyone gets a fair shot, everyone does their fair share and everyone plays by the same rules.

You can read the entire budget message here. As for the actual budget itself, it’s 257 pages long but if you’re keen to read it, you can find it here.

What you’ll find is that much of the plan is the same old tired proposals from before – the Republicans didn’t love the proposals then and that won’t change now. And the Democrats don’t have enough fight in them to put up a convincing fuss. The bottom line is that things won’t change much for 2013.

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