President Obama submitted his first budget to Congress on February 26, and it marked a seismic shift in priorities from those of the Bush White House.  The budget would invest in solutions to some of the nation’s most pressing problems:  the failing health insurance system, climate change and the need for renewable energy sources, economic insecurity and inadequate education and job preparation.   To provide the funds needed to pay for these initiatives, the budget would raise revenues from households with high incomes, from closing corporate tax loopholes, and from auctioning off permits intended to limit greenhouse gas emissions; it also proposes savings from gradual reductions in military, health systems, and farm support expenditures.  Over a ten-year period, annual deficits will continue, but will shrink from the current level of over 12 percent of the nation’s economy to a little over 3 percent in 2019.
As is typical for an incoming Administration, this budget outlines proposals for major priorities, provides totals for annual appropriations by federal government department, and projects revenues, including proposals for new sources and for tax cuts.  Detailed program-by-program recommendations will wait until April.

Expanded Health Coverage  The Administration sets aside $634 billion over 10 years to pay for its expansion of health coverage.  Of that, $318 billion would come from reducing the value of income tax deductions for the highest income households, and $316 billion would come from health care savings not intended to come at the expense of low- or moderate-income people.  While detailing funding sources for much of the cost of a move towards universal health care, the health care plan itself is not specified.  Instead, the budget lists 8 principles that should guide Congress’ work to insure most Americans, including protections for families’ financial health, affordability, a path towards universality, portability of health plans despite job change, choice of health plans, investment in prevention and quality care, and fiscal sustainability of the new system.

Funding Sources Likely to be Embattled  Each source of health care funding is a potential source of opposition.  Significant players have objected to the income tax deduction change, raising fears that reducing the value of deductions from about 35 cents on the dollar to 28 cents would curtail charitable contributions or discourage real estate purchases.  An analysis by the Center on Budget and Policy Priorities estimates that the impact on contributions to charity would be small (about 1.3 percent), and would be substantially offset by the value of increasing health insurance coverage, since those extra dollars in the health care system not only add to the public good, but specifically benefit hospitals, who might gain more from that new income than they would lose from contributions.  (See Proposal to Cap Deductions For High-Income Households Would Reduce Charitable Contributions By Only About 1 Percent, http://www.cbpp.org/3-3-09bud.htm.)

Those who will oppose the income tax changes in the budget will be joined by others seeking to protect their own interests.  The budget saves $177 billion over 10 years by reducing the payments provided to private Medicare Advantage health plans, which are higher per patient than the regular Medicare program.  Advocates have long opposed the preferential treatment for Medicare Advantage plans, which is seen as undermining the strength of publicly provided Medicare.  The private plans now benefiting are expected to mobilize their opposition.

The other revenue and savings sources that pay for priorities beyond health care will generate their own opposition.  Businesses will want to minimize what they pay for polluting; large farms will not want to give up direct payments from government; the wealthy will not want to pay more in taxes.   If they are successful in persuading Congress to drop the provisions that affect them, it is unlikely that funding will be adequate to carry out the Obama budget’s historic new initiatives.

Help for People with Low Incomes  The budget builds upon the provisions of the recently enacted economic recovery legislation to provide help to low-income families.  In some cases, temporary assistance in the recovery plan is made permanent, such as refundable tax credits (those that are available as a refund to people with earnings too low to owe federal income taxes).  All of the refundable credits created or expanded in the recovery legislation are made permanent, including making the Child Tax Credit available to families with earnings as low as $3,000, a larger Earned Income Tax Credit for families with 3 or more children, and a new credit to assist college students.  These are paid for from $65 billion of the proceeds from auctioning off emission permits.  In addition, the expansion of Unemployment Insurance provided in the recovery plan is made permanent in the budget.  The President’s budget also supports full funding for the Women, Infants and Children nutrition program (WIC) and provides for an increase of $1 billion a year over 10 years for the upcoming Child Nutrition reauthorization.  The new National Housing Trust Fund would receive its first $1 billion of capitalization through this budget.  Although appropriations details are not spelled out, the budget commits to protecting low-income rental voucher units.  The Administration reduces total home energy assistance funding from its $5.1 billion peak in the current fiscal year, appropriating only $3.2 billion.  But it creates a new automatically triggered emergency fund when energy prices spike that will not require annual appropriations.

The budget also continues the Administration’s commitment to education from early childhood through college.  It creates a new Innovation Fund for new education initiatives and will fund Promise Neighborhoods in some cities, a comprehensive approach to schools and services for children similar to Harlem’s Children’s Zone.  A new Nurse Home Visitation Program for first-time mothers is created.  The budget proposes to double funding for charter schools.  Low-income college students are helped by an increase in Pell Grants, bringing the maximum award to $5,550 maximum in 2010-2011, and then indexed for annual increases at a rate of 1 percent higher than the Consumer Price Index.  To help low-income college students finish school, the budget creates a new Access and Completion Incentive Fund, funded at $2.5 billion over 5 years.

The trends for annual appropriations show a gradual reduction in military spending after an increase in FY 2010, and steady increases in domestic spending.  Domestic discretionary spending will be $483.9 billion in FY 2010 and will rise to $563.5 billion in FY 2014 (these figures are not adjusted for inflation).

Work Beginning on Congressional Budget Resolutions  The 140-page budget framework (available atwww.budget.gov), “A New Era of Responsibility:  Renewing America’s Promise” is now in the hands of House and Senate Budget Committees, which will generally try to achieve the President’s ends, but not necessarily by precisely the same means.  Both House and Senate Committees have already begun hearings to help them develop their Budget Resolutions.  These Resolutions are expected to set up reserve funds to pay for health reform and other initiatives, directing the relevant Congressional committees to come up with specific revenue sources or savings so that the new initiatives are paid for.   The Resolutions also establish appropriations totals, which will later be divided among the Appropriations subcommittees to provide funding for individual programs.  The House and Senate are each expected to vote on their Resolutions before Congress begins its Spring recess in early April.  After they return, the two bodies will resolve the differences between their two versions, and pass the final Budget Resolution for FY 2010.

While the hard work of enacting health care reform and of finalizing a dozen appropriations bills will go on at least through the Fall, the initial outline approved in the Congressional Budget Resolution will either allow for the President’s historic shift of priorities or will slide back into a defense of the status quo.  The values choices before Congress have rarely been so dramatic.

For more information about the budget, check out the Coalition on Human Needs website’s regularly updated budget page, at http://www.chn.org/issues/budget/.

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