President Obama’s new budget attempts to balance the need to strengthen economic growth in the short term and reduce the deficit over the next decade.  His proposal lives within the annual caps for appropriations set by the deficit reducing Budget Control Act of 2011.  But it does not assume that even deeper automatic cuts will take effect starting January 2013, as the law now requires.  Instead, the budget proposes $640 billion in savings in programs such as Medicare, Medicaid, farm subsidies, and federal worker pensions and raises revenues by $1.5 trillion over the next decade (with the spending cuts mostly implemented starting in FY 2014 and beyond).  The President would replace the automatic cuts in appropriations with this combination of new revenues and savings from mandatory programs.  If his vision is to be followed, Congress will have to change the law.
Living within the annual caps for appropriations means that “non-security” appropriations drop from $373.6 billion in FY 2012 to $356.8 billion in the President’s FY 2013 request (a 4.5 percent cut, not counting inflation).  These include education, labor, health, many services for children and seniors, housing, transportation, the environment, and many other areas.  “Security” spending, including the Pentagon, international funding, and veterans’ services, bumps up from $684 billion in FY 2012 to $686 billion in FY 2013.

The federal budget includes programs that require annual appropriations by Congress (called “discretionary”) and mandatory programs, such as Social Security, Medicaid, Medicare, and SNAP/food stamps, that spend money based on the laws authorizing those programs without needing Congress’ yearly okay.  The budget also projects revenue levels, and recommends tax cuts and increases to meet its ten-year revenue estimates.  President Obama’s $3.8 trillion budget for FY 2013 projects only $2.9 trillion in revenues, for a deficit of $900 billion, or 5.5 percent of Gross Domestic Product (GDP, or all economic activity).  Below 3 percent is considered a more sustainable level.  The President predicts that the deficit will decline substantially between now and FY 2022, reaching 2.7 percent of GDP in 2018, and then remaining at 2.8 percent over the next few years.

A Focus on Job Creation. The Obama Administration budget calls for $350 billion in new up-front investments to create or save jobs, to be carried out mostly between now and FY 2015.  These include $50 billion in road and transit rebuilding, $30 billion to modernize at least 35,000 schools, $25 billion to hire and retain teachers and $5 billion for first responder jobs.  Another initiative is Pathways Back to Work, funded at $12.5 billion ($8.4 billion in FY 2013) to provide subsidized jobs and training for low-income, low-skilled workers and summer and year-round jobs and training for youth.  A new community college initiative would invest $2.1 billion in FY 2013 and nearly $7.5 billion over 5 years in education/training aimed at helping people get jobs.
In addition, Project Rebuild will hire workers in low-income communities to rehab or renew residential and commercial properties.  The budget also proposes an infrastructure bank (at $9.8 billion over 10 years), the National Affordable Housing Trust Fund ($1 billion, expected to result in production of more than 10,000 units of low-income housing), and various incentives for innovation in manufacturing, including tax credits.

Economic Security Protections. The Administration recognizes that the safety net must be protected, especially during hard times.  It reverses a cut in SNAP/food stamp benefits scheduled to take effect starting in 2013, and assumes the continuation of federal unemployment benefits (without the cutbacks in weeks just adopted for the rest of 2012 (see article in this issue).  The budget also would make permanent the improvements in the Child Tax Credit and Earned Income Tax Credit.  These make the Child Tax Credit available starting with earnings over $3,000 (previously the first $8,500 in earnings was excluded in calculating the CTC) and provide a higher Earned Income Tax Credit for working families with three or more children.  Both these credits are “refundable” – that is, available to families as a refund check even if their earnings are too low to owe federal income tax.

The Administration proposes $2.2 billion over 10 years to modernize child support collections, and provides incentives to states to reduce the loss of income to states when they turn over all child support collected to the families owed, instead of keeping some of it to defray the costs of public assistance.

More modest but important, the Administration also proposes $5 million in new grants to assist states wishing to implement their own paid leave programs.

Under the Appropriations Caps:  Some Gains. Even within the constraints imposed by the caps, the President’s budget manages to invest in certain human needs priorities.  Some of the winners include annual appropriations for Head Start (up $494 million since FY 2011) and child care (up $380 million since FY 2011 and $325 million since FY 2012).  Race to the Top, the Administration’s incentive program for improving K-12 education, is increased by $301 million, or 55 percent above its FY 2011 level.  The maximum Pell grant award rises from $5,550 in FY 2012 to $5,635 in FY 2013; college work-study funding rises 15 percent, from $977 million to $1.127 billion.  Nutrition funding for Women, Infants and Children (the WIC program) grows to $7.04 billion in FY 2013, a one-year increase of $423 million, to support a caseload of 9.1 million.  Programs to assist the homeless are increased from $1.9 billion to $2.23 billion from FY 2012 to FY 2013.  According to the Department of Housing and Urban Development, 1.6 million people were homeless at some point between October 1, 2009 and September 30, 2010.  The Administration requests $75 million to fund affordable units for 10,000 veterans, who are homeless at levels very disproportionate to their numbers.

But Some Losses. However, cabinet departments that include many of the discretionary programs of importance to low-income people are cut substantially.   The Department of Health and Human Services’ funding declines from $84.4 billion in FY 2010 to $76.7 billion in FY 2013, as requested by the President.  Taking inflation into account over that period, HHS funding would decline nearly 15 percent.  The Department of Labor drops from $13.5 billion in FY 2010 to $12.0 billion in the President’s FY 2013 request, although $448 million of that loss is from the movement of Community Service Employment for Older Americans to the Administration on Aging at HHS.  Adjusting for that change and for inflation, the DOL cut would be just under 14 percent from FY 2010 to FY 2013.  The Department of Housing and Urban Development drops from $42.8 billion in FY 2010 to $35.3 billion in the President’s FY 2013 budget, although some of the drop is offset by an anticipated $4.4 billion in increased receipts from increased fees from borrowers and others.  With reductions like these, services needed by low-income people do not escape painful cuts.  Within HHS, the Low Income Home Energy Assistance Program (LIHEAP) drops from $3.472 billion in FY 2012 to $3.02 billion in the President’s plan.

According to the National Energy Assistance Directors’ Association, this cut will deny heating or cooling assistance to 1 million low-income households.   The Administration continues its attack on the Community Services Block Grant, once again recommending that its funding be cut in half (from $677 million in FY 2012 to $350 million in FY 2013).  CSBG provides funding to about 1,100 community action agencies nationwide, which administer programs such as Head Start, emergency food, LIHEAP, and job training, and provide an entry point for low-income people to receive a broad range of anti-poverty services.   Congress did not go along with this request last year; with stringent deficit reduction targets to meet, it is not clear what will happen this time.

Also within HHS, there are reductions in mental health and substance abuse funding.  Mental health funds decline from $1.022 billion in FY 2011 to $952 million in the President’s FY 2013 request.  Substance abuse treatment and prevention decline by $117 million over the same two year period, a nearly 10 percent cut, not counting inflation.  The Administration hopes to maximize effectiveness despite reduced funding both through competitive grants and because the gradual implementation of the Affordable Care Act will provide additional funding for these services.  Still, on top of substantial recent cuts made in state funding, it is hard to be confident that no loss in services will occur, at least in the short run.

Within HUD, although finding adequate funding to cover existing households in subsidized rental housing was a top priority, the Administration does so in part by increasing the minimum rents paid by very low-income tenants to a mandatory $75 a month.  Now, Public Housing Authorities may charge a minimum rent of $50, but many do not choose to do so.  For families or disabled or elderly individuals with extremely low incomes, paying the $75 will prove very difficult.  The Community Development Block Grant is level-funded at $2.95 billion, a disappointment to many community agencies who make use of its funds for diverse services including child care and help for victims of family violence.  Housing for low-income elderly (Section 202) is up from a low $375 million in FY2012 to $475 million in FY 2013, but well below its $825 million in FY 2010 funding.  Housing for persons with disabilities (Section 811) is down from $165 million in FY 2012 to $150 million in the President’s proposal; it was funded at $300 million in FY 2010.  Still, these combined funding levels are estimated by HUD to allow 5,300 new supportive housing units as compared to the current year.

With the Department of Labor, the Job Corps program is reduced from $1.7 billion in FY 2012 to $1.65 billion in the President’s request.  In FY 2012, the total appeared larger (nearly $2.4 billion total) because all of the program costs were paid for within the fiscal year; more typically, a substantial portion is “advance-funded” into the next fiscal year.  The Administration has apparently returned to the use of advance funding, but even taking that into account, Job Corps loses about $50 million. DOL plans to close sites it does not believe are effective, but will open new sites in New Hampshire and Wyoming.  Unemployment Insurance Administration is also cut by $245 million (down to $2.93 billion in the President’s FY 2013 request).  The Administration judges that the amount will serve 13.7 million beneficiaries.  There is a contingency reserve requested in case the workload grows beyond these expectations.

Most training programs are funded at about the same level as FY 2012, but the proposed addition of $8.4 billion in FY 2013 Pathways Back to Work funding, as well as investments in community colleges, would provide more job training and employment opportunities for low-income workers than have been available since the economic recovery act legislation funding ran out.

Options for Savings. The 1,600+ groups that signed the original Strengthening America’s Values and Economy for All Statement of Principles called for deficit reduction that protects low-income people and that invests in job creation, while reducing the deficit substantially through fair revenue increases and cuts in military spending. The President’s budget is in agreement with these basic principles, although some tax and military experts argue that more savings in both these areas are possible, and would leave more room for meeting needs as well as reducing the deficit.  The President proposes $525 billion in base Pentagon spending, plus another $88 billion for war costs in FY 2013.  The non-war funding Defense Department funding declines by a little over 1 percent; counting related expenditures, such as defense nuclear capacity under the Department of Energy, the reduction is about 2.6 percent.  Either way, this is a much smaller reduction than the overall cuts to domestic spending.   The Obama Administration has committed to making 10 years of cuts to discretionary programs called for in the deficit reduction plan that passed Congress, including defense, international, and domestic programs.  The Administration shows $487 billion in defense savings over ten years as a result of the reductions imposed in the FY 2013 budget (these savings do not count reductions in the Iraq and Afghanistan war efforts).  However, respected analysts have pointed to about a trillion dollars in Pentagon savings that can be made without jeopardizing national security.  Lawrence Korb, a former Reagan Administration defense official, has estimated over $100 billion in defense cuts that could take effect in FY 2015 alone.

In addition, many revenue increases have been proposed beyond the $1.5 trillion the President recommends over the next 10 years.  If capital gains were taxed at the same rate as other income, it would bring in hundreds of billions over the next decade.  The Obama budget modestly raises the tax on capital gains for upper-income taxpayers, but only raises $36 billion for the same time period.  The Obama budget captures $147 billion from reforming U.S. treatment of companies with overseas profits.  Ending the rule allowing U.S. corporations to “defer” U.S. taxes on foreign profits would save well over $500 billion.  There are many other examples of revenue options greater than those proposed in the Obama budget – for example, the President previously had proposed $90 billion in higher taxes on the financial industry.  His FY 2013 budget proposes $19 billion in new finance industry taxes.  The provisions that are included in the President’s budget are welcome, and are a marked contrast to the intransigence of Republicans and a few Democrats in Congress in opposing any tax increases.  So far, no tax increases have been enacted either to reduce the deficit or to contribute to economic recovery.  Continuing on this course will result in harsh cuts that will stall economic growth – and hurt vulnerable people.

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