The budget released today isn't about to become the law. It's a multi-trillion-dollar conversation piece that's designed to get people talking about the president's priorities. So let's talk...
The reason President Obama's 2013 budget matters is not that it's a preview of the year's laws. The vast majority of its provisions are dead-on-arrival. It includes $1.5 trillion in tax hikes that won't happen and $350 billion in immediate stimulus that can't pass.
The White House's budget matters for two other reasons. First, it forces the president to put numbers next to his priorities. Second, it gives everybody in Washington something to look at and talk about. It's an expensive, ornate conversation piece, like a Fabergé egg for policy wonks.
The budget document itself is a 220-page mammoth of political rhetoric, data tables, and policy prescriptions. Some are really good. Some are less good. Read the whole thing if you're a masochist with lots of time on your hands. Or just read this summary of the most important points, ranked roughly in order of their fantastical unfeasibility:
1. Tax reform. The president is calling to raise about $1.5 trillion in revenue from the top 1%-2%, which is in line with past proposals. The budget calls for the expiration of Bush tax cuts for families making more than $250,000 -- a campaign promise dating back to 2007. He would also tax dividend gains as ordinary income for the richest Americans, and eliminate the tax break for "carried interest," which lets private equity managers pay a lower rate. Under the Buffett Rule, which is explicitly designed to replace the Alternative Minimum Tax, no household making more than $1 million would easily pay less than 30 percent of its income in taxes. For the vast majority of Americans, taxes wouldn't change.
The measure won't get a single a GOP vote, much less pass a GOP-led Congress. But again, that's hardly the point. It provides a clear contrast to the likely Republican nominee Mitt Romney, who has proposed to roll back tax breaks in the Recovery Act and maintain the Bush tax cuts for all households, along with lower rates for investment income. Ezra Klein graphed effective federal tax rates under Obama and Romney, and this is what you get:
2. Stimulus today. The budget incorporates much of the American Jobs Act with $350 billion in short-term measures for job growth this year. The budget assumes many of the proposals will pass Congress by March, which explains why the growth forecasts are so optimistic. The plan includes (via the White House overview):
An upfront investment of $50 billion from the surface transportation
reauthorization bill for roads, rails, and runways to create thousands
of quality jobs in the short term.
Continuing to allow businesses to write-off the full amount of new investments.
$30 billion to modernize at least 35,000 schools and $30 billion to
help states and localities retain and hire teachers and first
- A new tax credit for this year focused on small businesses and that gives businesses that add jobs and wages a tax cut equal to 10 percent of wages added up to $500,000.
Is any of this worth talking about? Sure, inasmuch as it's important to have policy debates to understand what our values are worth and how to achieve them. (Here's what I said about it.) But the only measure with a shot at passing Congress this year is a tax credit for small businesses. Congress can barely extend unemployment insurance benefits; it's not going to sign off on tens of billions for infrastructure spending in an election year. This is a wish list written with the expectation that it will be denied.
3. Deficit reduction tomorrow. For every $1 in new revenue, the budget includes $2.50 of spending cuts. Those cuts include $1 trillion in cuts under the Budget Control Act.
Debt would still rise as a share of GDP compared to the CBO baseline, another largely mythical document that assumes the Bush tax cuts will expire at the end of this year. Debt/GDP it would stabilize around 68% toward the end of the decade, but that figure relies on quite robust growth, and projecting growth has been a nightmare for forecasters, recently. Discretionary spending would fall to 5% of GDP by 2022, the lowest in more than 60 years. Social Security, Medicare and Medicaid would avoid deep cuts. The details are least specific or aggressive about the categories that are our biggest long-term debt drivers.
Regular readers know that I vastly prefer a comprehensive deal to bring down the deficit that combines broad-based tax reform (which this plan isn't) combined with entitlement reform (which this budget doesn't have). Compared to Bowles-Simpson, this plan isn't very good. Compared to most of the GOP candidates, who have proposed eviscerating revenue, it's excellent.
4. Ending subsidies for oil, creating subsidies for manufacturing. The budget would eliminate oil and gas subsidies, freeing up $40 billion over the next decade to fortify our R&D budget and expand manufacturing subsidies by about a fifth. Good idea? Leveraging government's weight for R&D is useful, but I'm not sold on putting a disproportionate part of our R&D into manufacturing. The future of American innovation is probably the present in overall R&D spending. That's information technology and bioscience, which might include some manufacturing jobs, but aren't inside the manufacturing sector.
6. Education and infrastructure. Education has become an even more central theme for the president since the rise of the Occupy movement. The rising cost of college was, again, one of the first items the president mentioned in his speech introducing the budget this morning. To that end, he proposed controlling student loan interest rates, maintaining Pell Grant spending, and instructing schools to address rising costs. He also proposed a $5 billion program to reward for states who come up with innovative ways to reward their elementary school teachers.
The president also proposes a significant $476 billion transportation bill that would be paid for "using savings from ending the war in Iraq and winding down operations in Afghanistan," which seems practically designed to make fiscal hawks upset. The budget also a national infrastructure bank, a darling among urban policy wonks, which would theoretically improve the coordination and financing of large infrastructure projects. At a time when borrowing rates are at historic lows, this would seem to be a good time to put money on the federal credit credit card and make infrastructure investments that we'll have to make eventually.
7. Extending the status quo. The only item in the budget that has a greater than 50% chance of passing Congress in my mind is the president's call to extend the payroll tax cut and unemployment insurance. Congress isn't very good at making new things, but it's perfectly capable of voting to maintain the status quo. Expect payroll taxes to stay low and the vast majority of unemployment assistance to remain in place through the end of the year.
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