The President’s FY 2016 budget is built from a recognition that America’s middle class has suffered serious losses, and that the routes to a middle class living standard are increasingly blocked. The budget’s “Middle Class Economics” provides a set of multi-generational investments: helping today’s workers and improving children’s life chances. The budget takes modest but useful steps to create jobs and economic growth through infrastructure repair and invests in apprenticeships, other proven forms of job training, and subsidized jobs to prepare workers for better jobs. It recognizes that economic security requires reduced costs for child care, health insurance, and paid leave. It makes education a priority, taking steps to realize a vision of universal pre-school and universal community college and undoing some of the past cuts to K-12 education. It also makes it easier to save for retirement, addressing another economic security gap.
The budget would also modestly shift the tax code towards better benefiting the middle class and the poor who aspire to be in it. It makes permanent the improvements to low-income tax credits and expands one credit for workers without dependent children. It adds middle class tax cuts for child care and for married couples. It pays for its investments in part through increased taxes on corporations and wealthy individuals. (See section on revenues in this edition of the Human Needs Report.)

The investments in jobs and education in the budget would not be possible if the deep cuts required by sequestration were allowed to continue. The Center on Budget and Policy Priorities estimates that another year of sequestration would leave domestic and international appropriations 17 percent below their FY 2010 levels, taking inflation into account. “Sequestration” is the imposition of deep cuts, primarily to appropriations, required by the Budget Control Act if Congress does not agree to other means of reducing the deficit. The President complies with the Budget Control Act by proposing other means: a combination of increased revenues and reduced spending.

As the table on the right shows, the new investments ($900 billion over a decade) are well exceeded by the more than $3 trillion combination of revenues, cost savings, and the expected boost to the economy provided by immigration reform. In addition to the revenue increases described below, there are over $400 billion in health care savings, primarily affecting Medicare, as well as reduced spending on crop insurance subsidies and a 10-year $557 billion reduction in Overseas Contingency Operations (OCO), the pot of money augmenting Defense Department funding intended to carry out the wars in Iraq and Afghanistan, but also used to beef up regular Pentagon spending.

By ending sequestration, the FY 2016 budget adds $37 billion domestic and international appropriations (aka “non-defense discretionary” spending), $37 billion to defense, and $18 billion to prevent a 2 percent cut to Medicare and cuts to other mandatory programs not exempted by the Budget Control Act. The extra $37 billion leaves room to begin to reverse some of the cuts of the past five years, notably in housing, education and training, and public health. (See details below.) Nevertheless, it is worth pointing out that the budget’s turn for the better still leaves domestic/international discretionary spending 11 percent below FY 2010 levels, adjusted for inflation.

The President’s budget would also allow the shifting of funds from the main Social Security trust fund – the Old-Age and Survivors Insurance (OASI) fund – to the Social Security Disability Insurance (SSDI) trust fund. Without action, SSDI will run out of money by late 2016, and after that, beneficiaries will only receive roughly 80 percent of their benefits. House Republicans passed a rule in January effectively barring this shift, even though this moving of funds has been used several times in the past to prevent benefit cuts.

A note on budget terminology: throughout, you will see references to the two main categories of federal spending: “discretionary” and “mandatory.” Discretionary spending refers to those programs that require annual appropriations by Congress. Most defense, education, and housing fall into this category, plus many social service, environmental and community development programs. Mandatory spending includes programs like Social Security, Medicare, Medicaid, SNAP/food stamps, and other basic safety net programs that do not need annual appropriations. Instead, Congress authorizes the ways they spend money by legislation. Congress can cut or expand these programs by amending the legislation that authorizes them.

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