What Obama's 2012 Budget Does—and Doesn't Do

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The president's $3.7 trillion budget for 2012 raises taxes enough to enrage conservatives, cuts spending enough to vex liberals, and still doesn't go far enough to satisfy deficit hawks. In other words, it's a perfect Valentine's Day gift for Washington: good intentions all around, but everybody goes to sleep angry and disappointed.

Here's what the budget plan does: The 2012 budget proposes $1.1 trillion in savings over the next 10 years. One third of those savings are tax increases, and two thirds are spending cuts, most of which come from the White House's five-year freeze of non-defense discretionary spending. It also uses some of these savings to increase spending in infrastructure and education.

Here's what the budget plan doesn't do: It doesn't touch entitlements like Social Security and health-care spending, which are the main drivers of our long-term budget crisis. It doesn't propose tax reform. It assumes the Bush tax cuts will expire for the rich in 2013. If extended, those tax cuts could wipe out most of the trillion dollars of savings over 10 years.

But don't think of the budget as a blueprint. Think of it as an opening argument. Even when there was a Democratic House and Senate, the president's budget was more like a rough outline than a firm plan. But today, with a bitterly divided Congress, the president's budget isn't even an outline. It's an opening argument in a debate over how to shrink outlays -- and a test of who will howl the loudest as the budgetary scalpel draws near.

The budget echoes President Clinton's "cut and invest" philosophy by sacrificing expendable or low-impact items to expand wireless broadband, infrastructure, and clean energy R&D. The budget would cut oil and gas tax breaks by $46 billion and plow the money back into research and development support. It would adopt Defense Secretary Robert Gates' $78 billion in defense cuts and use the savings to make a $50 billion infrastructure "bank" to galvanize private investment in roads, bridges and rail.

In other words, some of these cuts aren't about shrinking government everywhere, but rather about making room to increase government support for White House priorities like infrastructure and innovation.

Here's a look at a couple of the cuts.

Pell Grants. Perhaps no other line item drew more advance outrage than the news that the Obama budget proposed to touch the Pell grant program for low-income college students. But the actual budget proposes no changes to traditional Pell grants, which are currently at their highest level ever. What it does is halt, after just two years, a program launched in the 2009-2010 school year that allowed students to apply for a whole second Pell grant for summer school or if they took extra credits.

That program turned out to cost 10 times more than expected, and there was no evidence it was helping anyone graduate from college faster. Instead, it appeared to be the case that for-profit colleges were gaming the system to encourage students to apply for the additional grants to take academically questionable courses.

As well, Obama is proposing to eliminate the interest subsidy on student loans for those who attend graduate or professional school -- a not totally unsupportable position, morally or politically. Attorneys and physicians coming out of these programs will have higher than average salaries, and the end of this program might even encourage some people to finish their PhDs faster, instead of dragging them out unnecessarily. People with graduate degrees are also the most consistent group of Democratic presidential voters in the country, and these changes aren't likely to halt that.

Together, the changes are predicted to help save $100 billion over 10 years and help maintain the traditional Pell grant program for 9 million truly needy students.

Low Income Home Energy Assistance Program. Also drawing early fire was the leaked news of a proposed cut to the Low Income Home Energy Assistance Program (LIHEAP). As explained in the budget, the the program will continue to be funded to the tune of $2.57 billion -- with $1.98 billion in base grants and $590 million in contingency funds to respond to energy-related emergencies -- a decline from the authorized 2009 total of $5.1 billion.

What causes the change is the elimination of a mandatory funding trigger included in very recent budgets in response to the historic energy price spikes of 2008. The changes are based on the assumption that energy prices, which have declined since then, will remain below their peak levels and so additional funding won't be needed. In 2008, LIHEAP cost the government $2.6 billion, and the 2012 budget returns the funding to the level it had just a few years ago. In short, as with the Pell grants, an area of very recent growth is being rolled back.

Oil and Gas Tax Credits. One cut that's received little attention, but which should please progressives, is the proposal to reduce oil and gas subsidies by $46 billion over 10 years. The elimination of 12 tax credits benefiting the "dirty" energy community would be used to offset new spending on clean tech. The president has said he'd like to put a million electric cars on the road by 2015, double the share of electricity from clean sources by 2035, and reduce buildings' energy use by a fifth by 2020. Cutting oil and gas tax breaks by $4 billion a year won't be enough to put clean energy on equal footing, but the administration rightly notes that support for legacy energy "impede[s] investment" in clean energy by artificially reducing the price of oil and gas energy.

Photo credit: AP Photo/J. Scott Applewhite

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Presented by

Derek Thompson and Garance Franke-Ruta

Garance Franke-Ruta is an Atlantic senior editor and Derek Thompson is an Atlantic associate editor.

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