President Obama will unveil a $3.7 trillion budget request this morning which the administration estimates would reduce the deficit by $1.1 trillion over the next decade.
2/3 of that reduction would come from spending cuts through a 5-year freeze in discretionary spending first announced in Obama’s State of the Union address.
Tax increases are responsible for the other 1/3 of the reduction, including a cap on itemized reductions for wealthier taxpayers and the elimination of tax breaks for oil and gas companies.
The budget also includes calls for new spending that Obama says will ” help the U.S. compete in a global economy”. The budget proposes $148 billion in research and development investments and would make permanent a tax credit for research and development as well as launch a $50 billion in spending for transportation.
The budget includes no proposals to curb entitlement spending, which accounts for much of a growing budget deficit estimated at $1.645 trillion this year by the administration. The Congressional Budget Office has estimated a $1.5 trillion deficit for this year.
The budget comes as House Republicans prepared for a vote this week on a measure funding the government through the end of September that would reduce current spending by $61 billion compared to 2010 enacted levels.
The White House has argued that cutting spending too much this year could harm an economy struggling to rebound from the recession while the rest of America argues that NOT cutting spending could harm our current and future generations.
The White House assumes the deficit will drop by $500 billion in 2012 to $1.1 trillion because of the end of an extension of federal unemployment benefits and the end of a payroll tax deduction included in December’s tax deal. (Please note, none of which was under the hand of President Obama- he is simply letting them expire).
The budget also assumes that Congress and the president will allow taxes on families with income above $250,000 to expire, which would bring the deficit down to $768 billion. (Please note, none of which was under the hand of President Obama- he is simply letting them expire).
However, despite the efforts at spending reduction, the total national debt would still continue to grow from $14.5 billion in 2010 to $24.6 billion in 2012, the budget projects.
This would bring debt held by the public up to 77% of gross domestic product.
The new budget would reduce deficits by only a quarter of the amount proposed by the presidential debt commission in December. The president’s debt commission’s mix of spending cuts and tax increases reduced deficits by $4 trillion over 10 years. President Obama has thumbed his nose at their recommendation and is relying on his version that has less savings over 10 years.
While the budget does not propose long-term reforms to Medicare and Social Security, it does propose paying for a two-year extension of the so-called Medicare “doc fix” by new cost-control measures that would generate supposedly $62 billion in savings.
Congress regularly blocks the reduction in payments to doctors under Medicare reform and the cost of doing so has not been offset, adding to the deficit.
The budget request is the first salvo in the fight over 2012 spending. The Republican House is expected to produce its own budget resolution by April 2011. That resolution has to be agreed to by the Senate in order to become the official guide to spending in 2012, but is not signed by the president.
The 2012 battle is beginning even as Democrats and Republicans are still trying to sort out appropriations spending for 2011, which is authorized under a continuing resolution that runs out March 4, less than 3 weeks away. I cannot stress the importance of, at the very least, passing a Defense Appropriation. You can read more about my plea by clicking here: https://theheartofamerica.wordpress.com/2011/02/01/pentagondefense-appropriations-bill-needs-to-be-passed-asap/
The House Republican spending proposal for fiscal year 2011, released on Friday, points at the fights Obama is likely to encounter with his budget request.
Besides the research and development spending, Obama would maintain Pell Grants for college students at their current levels and invest in high-speed rail so that 80 percent of the U.S. population would have access in 25 years. Two subjects, which surprisingly, I agree with him.
To me, it appears that Obama is simply freezing spending (aside of a few minor cuts) and then adding on top of it then raising taxes to compensate the majority of the cost. This is not what the American public wants. We want a spending cut, not a spending freeze.
While I applaud Obama’s new “initiatives”, I rate the 2011 budget a D+ because I feel like he has intentionally mislead the people by indiciating that he is “reducing” the budget by $400 billion over the next decade by not enacting “proposed” spending and for not taking serious strides in reducing wasteful programs (such as welfare and medicaid/medicaid).
Here are the outlines of his budget in a bullet list view:
- $148 billion for R&D overall; robust investment in biomedical research at NIH ($32 billion, a $740 million increase over 2010 enacted level, post-transfers); more than doubles energy efficiency research, development, and deployment funds; and continues our efforts to double investments in key basic research. (Details to follow once full budget is released).
- Elimination of 12 tax breaks to oil, gas, and coal companies will raise $46 billion over 10 years to help pay for programs to reach these goals. (Details to follow once full budget is released).
- Simplifies, expands, and makes permanent R&D tax credit.
- Establishes 20 new Economic Growth Zones, hard-hit areas that will receive expanded tax incentives to spur investment and employment. (Details to follow once full budget is released).
- Maintains maximum Pell Grant award, helping 9 million students afford college.
- Eliminating year-round Pell and graduate student in-school loan subsidy.
- Consolidates 38 K-12 programs into 11 that emphasize competition and evidence of what works, while also eliminating 13 education programs outright. (Details to follow once full budget is released).
- Expands the Race to the Top concept to early childhood education, school districts, university funding, and job training. (Details to follow once full budget is released).
- Prepares 100,000 new science, technology, engineering, and math teachers.
- Cuts $78 billion from the Pentagon’s spending plan over the next five years
- Overall defense spending for 2012 is more than 5 percent below the 2011 request.
- Pays for the first two-years of the “doc fix” (Details to follow once full budget is released).
- Limiting the rate for the Alternative Minimum Tax for 3 years at which high-income earners can itemize tax deductions. (Details to follow once full budget is released).
- Lowers the corporate tax rate (Details to follow once full budget is released).
- Civilian Worker Pay Freeze (Details to follow once full budget is released).
Pay for Success (Please note)
- Encourages new “pay for success” bonds in areas where government programs have too often failed. (Details to follow once full budget is released).
Perhaps my rating of the 2011 budget will increase once the budget is released in full this morning but with my understanding of the proposed budget and analysis of Obama’s habit of tax increases for “innovation” with complete ignorance on cutting spending, I doubt it.
Keep an eye to The Heart of America for commentary on Obama’s released 2011 budget, coming soon.
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