The Obama Budget: Heritage Experts’ Analysis
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President Obama’s budget proposes raising the minimum wage to $9 an hour. This would hurt the very workers the President wants to help.
When the price of something rises, people—both consumers and employers—purchase less of it. Americans responded to the higher cost of gas by driving less. Businesses similarly respond to higher minimum wages by hiring fewer low-skill workers. The vast majority (85 percent) of the most reliable economic studies find that raising the minimum wage reduces employment.
Read more: Raising the Minimum Wage to $9 Would Harm Most Vulnerable Job Seekers
The President’s Budget on Health Care
Despite the current health care spending crisis, President Obama’s budget does little to significantly reform the existing entitlements (Medicare and Medicaid) and maintains the implementation of Obamacare—which creates two new entitlements and adds more than $1.8 trillion in new spending by 2023.
Obamacare. A few notable changes were made regarding Obamacare. It contains a one-year postponement of Medicaid Disproportionate Share Hospital (DSH) payment reductions. DSH payments are for hospitals that provide care to disproportionate numbers of low-income and uninsured individuals. Obamacare reduced DSH payments on the assumption that coverage gains from the law would reduce the need for these funds. However, now that the Medicaid expansion is optional for states, this delay is a sign that the Obama Administration recognizes the law will not cover as many people as it had previously anticipated.
In addition, the budget includes increased funding for the Centers for Medicare and Medicaid Services Program Management to implement Obamacare’s exchanges. The federal government is now charged with implementing them in more than 30 states. Of $5.2 billion in total funding, the exchange implementation will account for $1.5 billion. Yet again, the true cost of Obamacare continues to climb.
Lastly, despite the pronounced failure of the Obamacare small business tax credit, the budget includes an expansion of it, stating, “Expand and simplify the tax credit provided to qualified small employers for non-elective contributions to employee health insurance.” Expanding this failed tax credit is still unlikely to help entice small employers into offering expensive health coverage.
Medicaid. The budget makes no substantive changes to halt the unsustainable spending in the Medicaid program. This is unlike last year’s budget, which changed federal Medicaid funding by combining Medicaid and the Children’s Health Insurance Program into a single, blended match rate to states. While the blended rate may not be the best approach to resolving Medicaid’s fiscal challenges, the current financing structure is not reliable nor does it address the current deficiencies in the program.
Medicare. While Medicare is generating trillions in long-term debt and is in desperate need of structural reform, the President’s budget offers merely small tweaks to the troubled program. These small tweaks are not going to guarantee Medicare’s future for the next generations of retirees. They will only ensure that future budget decisions will be increasingly difficult.
Drug Rebates in Part D: A New Tax on Seniors. The President’s budget proposes a mandatory drug rebate for low-income seniors enrolled in Medicare Part D, for a total savings of $123 billion over 10 years. On paper, drug manufacturers would be forced to pay the rebate—a kind of tax with the consequence of a price control. But like most corporate taxes (and price controls, too) this additional cost will simply be passed on to seniors in the form of higher Part D premiums.
Currently, Part D is a unique defined-contribution program that operates differently from the rest of Medicare. The President’s budget proposal would distort the Part D market and undercut the very market efficiencies that have been so successful at controlling Medicare drug costs. As Heritage has explained before, “Today, pricing is determined entirely by a negotiation between private insurers and drug manufacturers focused on the value of prescription drug products for the patients. With rebates, …[d]rug manufacturers would seek to use the rebate requirement to extract higher pricing from the insurers, even as they lobbied the government to base the rebates on the most inflated measure of ‘average’ price they could find.”
Part B “Surcharge”—Another New Tax on Seniors. In addition to applying a $25 increase in the Part B deductible in 2017, 2019, and 2021 for new beneficiaries, beginning in 2017, the budget also proposes to add a Part B surcharge equivalent to 15 percent of the average Medigap premium for new enrollees who purchase Medigap plans with low cost-sharing requirements.
While it is true that lower cost-sharing leads to greater utilization of medical services and thus higher Medicare costs, a new tax on seniors isn’t the way to fix it. A far superior policy would be to restructure Medicare’s cost-sharing arrangements by combining Parts A and B with a unified premium, uniform coinsurance, and a single deductible. Also, adding a catastrophic benefit to Medicare would to turn Medicare into true insurance and protect seniors from the endless out-of-pocket costs they face today. Restructuring traditional Medicare would sharply reduce or even eliminate the need to purchase Medigap or other types of supplemental coverage.
Increasing Part B and D premiums for upper-income beneficiaries. The budget also proposes increasing Parts B and D premiums for upper-income beneficiaries (starting in 2017 for new enrollees) and holds the income thresholds constant until 25 percent of all beneficiaries pay the higher premium rate.
This policy moves in the right direction but it does not go far enough, fast enough, and thus it falls short of meaningful savings. Premiums for all enrollees should be increased—gradually over five or 10 years—to cover 35 percent of total premium costs, while also further increasing premiums for upper-income seniors.
$100 Home Health Co-payment in Certain Cases. Adding a modest co-payment to home health visits is a policy endorsed by The Heritage Foundation; although, the preferred policy would be a 10 percent co-payment on each visit.
Strengthens IPAB. Despite bipartisan opposition to the Independent Payment Advisory Board (IPAB), the President’s budget once again would strengthen its power, lowering the targeted per-capita growth rate from gross domestic product (GDP) plus 1 percent to GDP plus .5 percent.
Closes the Part D “Donut Hole” Early. As it states, “The Budget proposes to increase manufacturer discounts for brand name drugs from 50 to 75 percent in 2015, effectively closing the coverage gap for brand name drugs in 2015, five years sooner than under current law.” Once again, closing the donut hole would certainly assist the small number of seniors who fall into it annually, but it also means that the drug benefit itself will be richer and more expensive and thus will result in increased Part D premiums.
Repeal of the Flawed Physician Payment Formula. The budget supports a permanent repeal of the illogical sustainable growth rate formula that governs Medicare physician payment updates. The formula, tying physician updates to economic growth, has called for cuts to Medicare physician payments since 2002. Congress, however, has overridden the application of the formula since 2003. While finding a sustainable solution to this annual debacle is important, the right policy is to replace it with a market-based payment for physicians’ services combined with transparency on physicians’ fees. In no case should Congress substitute one method of bureaucratic pricing for another. Instead, Medicare physician payment should indeed be stabilized, as the President recommends, but then Medicare should be transitioned (over five years) into a premium support program, a structural reform that would allow the market to determine physicians’ payment.
— Alyene Senger, Research Assistant, Center for Health Policy Studies
Postal Subsidies to Be Delivered?
The U.S. Postal Service largely gets its revenues from its customers, not taxpayers. That is as it should be. But, if proposals in the President’s new budget are adopted, USPS would be tapping into the Treasury in a big way.
The current budget appropriation for USPS is relatively small—$78 million, intended to compensate USPS for mail that Congress requires it to deliver for free or at reduced rates. But the budget released today would provide USPS a one-time infusion of $11.5 billion, as a “refund” for supposed pension fund overpayments (putting taxpayers at risk if the projected surplus becomes a deficit). The budget also calls for Congress to restructure some $10 billion in health care payment owed to the federal government. USPS defaulted on these debts last year. The President now proposes that payment be spread out over a number of years.
Together, these steps represent a disguised bailout of the Postal Service, as Heritage’s David John wrote last year. The result will be to allow USPS to put off vital reforms necessary for it to survive in today’s shrinking postal marketplace.
The Administration does make the right call, however, on another hotly contested postal issue: USPS’s plan to cut back Saturday service. Such a step would save USPS some $2 billion in costs. The Obama budget calls for eliminating longstanding appropriations riders barring such a service change. Congress, unfortunately, seems to disagree and in fact recently included an appropriations rider requiring full Saturday service in the recently approved 2013 continuing resolution. Unless these and other restrictions are lifted, prospects for USPS’s survival without massive taxpayer assistance will be grim.
— James Gattuso, Senior Research Fellow in Regulatory Policy
Damaging Policies Add Up to $1 Trillion Tax Increase
There was little doubt that President Obama would propose a huge tax hike in his budget. It is a bit surprising, however, that the total tax increase he proposes is almost double what he claims it to be.
The total revenue from all the tax increases he proposes, minus the minor tax cuts he proposes, totals about $1 trillion over 10 years. This is much higher than the $580 billion cited frequently in the media and claimed explicitly by the President.
The bulk of that revenue comes from capping deductions and certain exemptions for high-income taxpayers and applying the President’s infamous and never-dying “Buffett Rule.”
Read more on this tax increase
— Curtis Dubay, Senior Policy Analyst, Tax Policy
Chained CPI Would Delay Drastic Social Security Benefit Cuts (But Just a Little)
President Obama’s budget would replace today’s outdated inflation index for non-means tested federal benefits programs with the chained CPI— a more accurate measure of the impact of inflation on beneficiaries. This change will have the greatest impact on Social Security. Contrary to liberal critics calling this a “cut,” it only slows the growth in benefits by reducing overpayments.
First and foremost, adopting chained CPI is a technical improvement in how we account for the impact of inflation on people’s pocketbooks. The change would ensure seniors’ benefits continue growing with inflation. But it would reduce overpayments, which are draining the trust fund sooner. At trust fund exhaustion, a drastic 25 percent reduction in benefits would take effect, so extending solvency is crucial, especially for those seniors who rely exclusively on Social Security benefits in retirement. Adopting this index does not do nearly enough to fix Social Security’s massive deficits, but it is a good start.
President Obama’s proposal would reduce deficits by $230 billion over nine years starting in 2015, but only $130 billion would come from reductions in spending. The remaining $100 billion result from raising tax revenues. Adopting chained CPI is a sound technical correction as part of tax reform, but should be done so as to improve accuracy without raising taxes by lowering marginal rates, for example.
The President applies chained CPI only to non-means tested benefits and includes “protections for the very elderly and others who rely on Social Security for long periods of time.” Using an incorrect inflation measure is a poor strategy to assist these populations. Instead, a minimum flat benefit level that ensures that no senior falls into poverty in retirement, as proposed in the Heritage plan Saving the American Dream, would be much more effective at assisting seniors in need.
— Romina Boccia, Assistant Director, Roe Institute
Obama’s Irresponsible Infrastructure Plan: Spend, Spend. Repeat.
President Obama’s budget plan to funnel tens of billions of dollars into federally run infrastructure programs doubles down on failed stimulus policies of the past. A truly responsible strategy to help states meet their transportation needs—so that their economies can flourish and their workers can commute more easily—would scale back federal involvement and empower states with more flexibility and control.
First, Obama’s idea of spending $40 billion on a “Fix it First” program amounts to massive levels of wasteful stimulus spending. It also embodies a one-size-fits-all approach, ignoring the fact that the states—not Washington—are best equipped to weigh whether new, capacity-expanding projects or maintenance and repair projects would be most cost-effective for them.
It is déjà vu with regard to Obama’s “peculiar obsession” with a National Infrastructure Bank. He proposes spending $8.8 billion over the next 10 years to set up this allegedly independent and non-partisan entity, which would be run by unelected transportation experts, presumably appointed by the Administration. The federal loans it would award would be nothing more than Administration earmarks. Under this approach, taxpayers could reasonably expect to see Solyndra-style failures in infrastructure projects—and their tax dollars go down the tubes.
A National Infrastructure Bank would institutionalize a Washington-centric transportation program. That this bank would finance projects that the private sector otherwise wouldn’t back raises a red flag that taxpayers cannot afford to ignore. While public-private partnerships (PPPs) are part of the transportation funding solution, these contracts should take place at the state level. Congress should reject the national infrastructure bank idea and instead remove the barriers to PPP expansion.
Then there’s high-speed rail (HSR). Obama proposes spending $40 billion over five years on this costly form of transportation. Governors from several states have rejected federal HSR funds, because they were rightly concerned that their taxpayers would have to subsidize these projects ad infinitum. Conversely, California’s leaders stubbornly insist on building HSR, including the ultra-risky XpressWest line to Vegas, which Representative Paul D. Ryan (R-WI) and Senator Jeff B. Sessions (R-AL) have spotlighted as the taxpayer-funded boondoggle it is. States and the private sector can fund high-speed rail if they value it, but the federal government should get out of that game.
Finally, the burning question: How in the world does the President propose to pay for all this new spending? Why, with phony savings from overseas troop drawdowns. In effect, then, Obama would borrow the money and send the bill to our kids and grandkids.
Mr. President, Americans have seen what federal “stimulus” does for them and their families: diddly-squat on the jobs front, and higher levels of federal debt. This budget’s flawed transportation policies would do the same.
— Emily Goff, Research Associate, Roe Institute
The Obama Philosophy in Numbers
When President Obama’s progressive ideology is translated into budget numbers, the results include the following.
- Spending in the President’s budget totals $3.778 trillion in FY 2014, a $151 billion increase from the Administration’s own projection of spending under current policies. Spending rises to $5.66 trillion in FY 2023, or 21.7 percent of GDP, which is 1.5 percentage points above the historical average as a share of the economy—and that is before the explosion of entitlement spending in the next decade.
- The budget does include health and other entitlement savings that the Administration claims will save about $600 billion over 10 years. The policies, however, fall far short of the structural reform needed to truly tame entitlements. Further, comparing the budget’s total spending against the Administration’s own “baseline”—the yardstick against which policies are measured—shows a reduction over 10 years of just $265 billion. Where are the other savings?
- Tax revenue rises from 17.8 percent of GDP in 2014 to a near-record 20 percent in 2023. Once again, these figures are significantly higher than the historical average of 18.5 percent, further demonstrating Obama’s commitment to bigger government.
- Yet despite a net tax increase of more than $1 trillion, the budget never balances, and in fact adds $5.3 trillion in new deficit spending 10 years. Deficits remain in the neighborhood of one-half trillion dollars until the very end of the budget window. In 2023, the deficit reaches its “smallest” level: $439 billion. Gross federal debt soars from $17 trillion in 2013 to $25 trillion in 2023.
- Consequently, debt held by the public remains at economically risky levels of nearly three-fourths the size of the economy. Its lowest point is an alarming 73 percent of GDP in 2023. The historical average is 37 percent of the economy.
— Patrick Louis Knudsen, Grover M. Hermann Senior Fellow in Federal Budgetary Affairs
Obama’s No-Policy Nuclear Waste Policy
The President’s budget perpetuates his kick-the-can-down-the-road nuclear waste energy policy.
First, it continues to ignore the 1982 Nuclear Waste Policy Act, as amended, by clinging onto his determination that “Yucca Mountain was not a workable solution for disposing of the nation’s spent nuclear fuel.”
The fact is that no one outside of the Nuclear Regulatory Commission (NRC) staff knows what the technical merits of the repository are, because the NRC has kept its findings from public viewing.
Perhaps such a no policy would be acceptable if there were a real effort to find a replacement repository, but there is not.
The President’s budget should provide money and direction for the NRC to complete its review of the Yucca repository application.
Second, the budget promotes the flawed idea of permitting a consolidated interim nuclear waste storage site prior to permitting a permanent repository. The problem is that building the interim storage site now eliminates any incentive to build the permanent site that the nation needs. That’s because moving the fuel to an interim storage site achieves the primary objectives of both the government and nuclear utilities, which is to move the waste away from nuclear power plants.
This makes sense given the deal that the utilities struck with the government in 1982, which essentially handed responsibility for waste management and disposal over to the government. The utilities have since been paying the U.S. Treasury about $750 million per year to take the waste. The problem is that the government completely defaulted on its obligation and is now accumulating somewhere around $500 million per year in liability costs that it owes back to the utilities.
Interim storage fixes both problems. It gets the waste off the utilities’ sites and eliminates the DOE’s growing liability. It does not fix the larger problem of nuclear waste management, however, because it does nothing to fix the misalignment of incentives, responsibilities, and authorities that emanate from a system that separates waste producer from waste manager.
And this is where the third problem with the President’s budget lies: It perpetuates the flawed notion that the federal government is the correct entity to manage spent nuclear fuel. The one common thread to nearly every system in the world where nuclear waste is being successfully managed is that waste producers are responsible for waste management. This is true in Japan, Switzerland, Finland, and France.
By neither questioning the fundamental assumptions that underlie the current failed system nor clearly setting forth a path to build a permanent geologic repository, the President’s policy on nuclear waste is no policy at all.
— Jack Spencer, Senior Research Fellow, Nuclear Energy Policy
Permanent “Clean Energy” Credits Concede Obama Energy Policy Failure
President Obama’s budget concedes that his policies will never lead to a competitive renewable energy industry. Supposedly, by making renewable tax credits permanent, Obama’s budget measure eliminates the “uncertainty” that was such an issue in last year’s wind production tax credit (PTC) expiration debate. But this measure only increases the certainty that all Americans will be subsidizing renewable companies, while increasing the uncertainty that renewables will ever thrive on their own merits.
Targeted subsidies and policy favors only subtract from the market and misallocate taxpayer dollars. Subsidies channel investments to politically correct or well-connected technologies and companies. As with the wind PTC, uncertainty came only because the federal government got involved in wind power production in the first place by giving it a special favor. Making federal subsidies permanent institutionalizes government dependence.
What renewables need is market fairness, where the first and final arbiter of success is the consumer, not the federal government. Market fairness is not giving subsidies to renewables as “reparations” for years of subsidies to conventional energy. It is pursuing broader, market-based energy reform. This means cutting any tax measure or policy that supports the production or consumption of one good over another. This means letting the wind PTC expire, just as much as it means cutting the marginal well production tax credit that subsidizes oil production when the price of oil falls. This does not mean a crusade against tax breaks for oil and gas that are also broadly available to other energy, mineral, and manufacturing companies.
The Obama Administration greatly desires success in dispatching renewable technology and hastening renewable innovation, but the government has at best settled for a short-term scrap of success where freedom could offer so much more.
— Katie Tubb, Research Assistant, Roe Institute
The Obama Budget: A Philosophy of Decline
Despite White House claims of a “centrist” drift, President Obama’s fiscal year (FY) 2014 budget clings to the same progressive ideology that has swollen the federal government over the past four years. Obama continues to seek more government, higher spending, and higher taxes. Because the budget never balances—it doesn’t even try—debt remains at dangerously elevated levels. He emulates a European-inspired welfare state in which the federal government increasingly imposes on and smothers Americans’ lives and America’s economy.
The budget claims long-term savings, but first boosts spending up front with the typical government “investments” in infrastructure, high-speed rail, non-defense research and development, and “manufacturing innovation institutes.” The general attitude is that the economy cannot grow without the guidance of a domineering central government.
The signature of this governing philosophy is Obamacare, whose malignant new entitlements—its health insurance subsidies and Medicaid expansions—start in this 2014 budget. With their implementation, the misnamed Affordable Care Act will add a distinctly unaffordable $1.8 trillion in federal spending through 2023. Equally important, Obamacare commandeers the health care sector with a massive program that further distorts the market, intrudes on the doctor-patient relationship, and dismisses personal and religious liberty.
While boosting domestic spending, the President remains indifferent to national security needs. His proposed defense spending, though somewhat higher than sequestration levels, remains inadequate.
Even with his timid entitlement savings proposals—which mostly just trim around the edges of programs that require fundamental, structural reform—Obama promotes a government that is permanently larger, as a share of the economy, than the historical average of 20.2 percent of gross domestic product (GDP). Financing this sprawling bureaucracy naturally requires higher taxes, mostly by punishing the saving and investment that feed long-term prosperity. It is a deliberate practice aimed at stifling private-sector growth to increase dependency on government. Yet with all his proposed new taxes—following the $618 billion tax hike he demanded and won in January’s fiscal cliff agreement—his budget never gets close to balance.
However irrelevant the budget is—arriving more than two months late, and after both the House and Senate have passed their respective budget resolutions—it reflects the governing philosophy Obama intends to keep pursuing in his second term. If he succeeds, his policies inevitably will smother America’s vitality and lead to decades of decline.
— Patrick Louis Knudsen, Grover M. Hermann Senior Fellow in Federal Budgetary Affairs
Continuing to Fund the Failed Welfare System
The President’s budget proposal claims that it “builds on the progress made over the last four years to expand opportunity for every American and every community willing to do the work to lift themselves up.”
Promoting self-reliance through work, as the President suggests with this language, is precisely what is needed to help individuals thrive. However, over the “last four years” the Administration’s policies have done anything but. Unfortunately, the President’s budget continues to build on the failed strategies of the past by pouring massive amounts of taxpayer dollars into a burgeoning number of means-tested welfare programs for the poor. Total government welfare spending now edges near $1 trillion annually and funds more than 80 different means-tested welfare programs that provide cash, food, housing, medical care, and social services to low-income Americans. The President’s budget homes in on “Promise Zones” and (yet additional) jobs programs, despite decades of funding similar types of programs.
The President should be given credit, however, for noting the importance of promoting marriage by “addressing financial deterrents to marriage.” Far too many means-tested programs include marriage penalties, and marriage is eroding in many American communities, leaving children in poverty and inhibiting their ability to thrive. It is crucial to strengthen marriage in order to help families and communities prosper.
Overall, the President’s budget continues to pour more dollars into the failed welfare system of the last five decades. The President should focus on getting ever-burgeoning welfare spending under control. Additionally, the President should support welfare policies that truly promote work and self-sufficiency. Finally, leaders at every level of society should seek to strengthen marriage—the bedrock of society—to promote greater prosperity for today’s and future generations.
— Rachel Sheffield, Policy Analyst, DeVos Center for Religion and Civil Society
Lipstick on a Failed Government-Centric Energy Policy
President Obama’s budget calls for more taxpayer investment for green energy, the “safe production” of natural gas, energy efficiency investments, permanent tax credits for green investment, permanent tax hikes for oil companies, and an Energy Security Trust Fund that directs government revenue from oil and gas production on federal land toward spending on alternative fuel technology. The President’s “all-of-the-above” strategy is nothing more than subsidizing the Administration’s politically preferred sources of energy.
- More Subsidies for Green Energy: It is not the government’s role to reduce the costs of technologies, nor is it helpful to improve the long-term viability of the industry. Government investments reduce the role of the entrepreneur and create a dependence on government.
- Natural Gas Production Is Already Safe: The technological advancements in natural gas production have led to tremendous energy production and job creation. The processes of hydraulic fracturing and horizontal drilling are already safe and have been successfully regulated at the state level for decades. Private-sector investments will continue to improve the safety and efficiency of the technologies.
- Tax Credits for Some, Tax Hikes for Others: Rather than continue to pick winners and losers with the tax code, Congress should eliminate economically unjustified tax credits for both conventional and renewable energy sources and technologies while lowering the corporate tax rate to encourage investment and spur economic growth. This does not include removing broadly available tax credits the oil and gas industry receives that are often targets of drilling opponents.
- Trust Fund or Slush Fund? President Obama’s Energy Security Trust Fund does not expand oil and gas production on federal lands, would duplicate already-tried-and-failed attempts to subsidize energy technologies, and ignores the fact that competition in the marketplace is most effective in driving technological innovation. Congress should reject the creation of a new pot of money for subsidies—whether tied to new exploration or not.
- Markets Reward Efficiency: Americans already place a high value on saving money through energy efficiency improvements, and when they do not, it’s because they have overriding preferences or budget constraints. Having the government slowly take those choices away by subsidizing a portion of the cost with taxpayer money is dictating what should be a market choice by investors, entrepreneurs, and families.
These policies move America’s energy policy in the wrong direction by taking decisions away from producers and families and concentrating them in Washington.
— Nicolas Loris, Herbert and Joyce Morgan Fellow
Obama’s Fiscal Year 2014 Defense Budget Proposal: An Exercise in Obfuscation
President Obama’s budget proposes spending $100 billion less in the discretionary defense accounts over the budget period. In terms of total defense expenditures, the President’s budget proposal requests almost exactly $3 trillion for the five-year period covering fiscal years 2014 through 2018. This is about $300 billion more for the period than what is permitted under the five-year portion of the automatic spending restraint mechanism, called sequestration, under the Budget Control Act of 2011, because the outline states that budget proposal will seek to set aside sequestration.
In actuality, this level of increase over the sequestration level of funding is likely to be less, because this proposal is incomplete insofar as it requires an amendment that replaces the current “placeholder” amount to fund overseas contingency operations in fiscal year 2014. The placeholder in the budget is set at $88.5 billion, but will likely be reduced by a significant amount by the amendment.
Overall, this is an insufficient funding level for maintaining longstanding U.S. commitments. Even a more efficient Department of Defense will require about 4 percent of gross domestic product (GDP) to honor the commitments that keep Americans safe. The Obama proposal will put defense spending at 3.8 percent of GDP in fiscal year 2014, when the placeholder is included, while bringing it down to about 2.9 percent of GDP in fiscal year 2018.
Further, the proposal is largely irrelevant. This is because the overall budget proposal is all but certain to perpetuate the current impasse with Congress, which is why the sequestration process is being applied to defense now. Since sequestration is embedded in law, it will continue to apply unless and until the President no longer blocks efforts to replace it. While the President’s defense budget proposal says that he is willing to spend more on defense than permitted by sequestration, the reality is that he is working to continue sequestration’s application to the defense budget in fiscal year 2014 and beyond.
The result is going to be a defense posture that is too small in terms of both personnel and force structure, does not include modern weapons and equipment, and does not provide adequate levels of training and maintenance. Given the relatively low priority President Obama has for defense in his budget proposal, as well as the likely continued application of sequestration beyond fiscal year 2013, it is clear that Congress will have to focus on channeling what funds will remain for defense toward those programs that will provide a foundation for rebuilding the defense posture that President Obama will have broken sometime after he leaves office.
— Baker Spring, F.M. Kirby Research Fellow in National Security Policy
Massive New Government Preschool Initiative
The President has proposed a massive new Preschool for All initiative (allegedly offset by new taxes on tobacco products) to enroll all 4-year-old children from low- and middle-income families in government preschool programs. The budget proposes new federal spending to encourage states to enroll more 4-year-olds in state preschool programs, and it creates new Early Head Start-Child Care Partnerships to enroll infants and toddlers.
The White House’s new preschool proposal would add to the long list of existing federal early education and child care programs (there are currently 45 such federal programs, according to the Government Accountability Office)—despite little evidence of demand for such programs.
Across the country today, approximately three-quarters of the nation’s 4-year-olds are enrolled in some form of public or private preschool. That includes state-run preschool programs, the federal Head Start program, church-based care, child care centers, and home providers. With some three-quarters of 4-year-olds already enrolled in preschool programs across the country—and with publicly funded options available for low-income families—demand for new, large-scale government spending on early childhood education and care is not evident.
Moreover, the federal government’s longest-running experiment with preschool, Head Start, has been an objective failure. According to the Department of Health and Human Services, Head Start had no statistically measurable effects on all measures of cognitive ability, including numerous measures of reading, language, and math ability of participating children.
With the track record of Head Start, the last thing the federal government should be doing is further intervening in the education and care of the youngest Americans. Instead, Congress should eliminate or reform existing preschool programs, and reject the favoritism toward government preschool.
— Lindsey Burke, Will Skillman Fellow in Education Policy
Grows Spending and Federal Intervention in Education
The President’s budget increases spending at the Department of Education by 4.6 percent over 2012 levels.
Federal education spending has increased significantly since President Jimmy Carter established the Department of Education in 1979. Since then, agency funding has more than doubled, with spending growing dramatically under the Obama Administration. Today, the Education Department has the third-largest discretionary budget of any federal agency, trailing only the Department of Defense and the Department of Health and Human Services. In 1980, the Department of Education’s budget was $11.6 billion (which equates to approximately $31.7 billion in constant 2012 dollars). By the time President Obama took office in 2009, the budget had increased to $67 billion ($41 billion for elementary and secondary education). Today, the White House proposed further growing “Carter’s Bureaucratic Boondoggle” with a budget of $71.2 billion.
Nearly a half century of ever-increasing federal education spending and control has failed to improve academic outcomes. The bloated bureaucracy has added layer upon layer of red tape on states and school districts, requiring school leaders to demonstrate compliance with more than 150 federal education programs.
At a time when American taxpayers are calling for fiscal restraint in Washington, including restraint at the Department of Education, the budget creates a path to continued federal profligacy. This proposal worsens the existing bureaucratic maze of federal programs and further removes educational decision-making authority from state and local policymakers.
— Lindsey Burke, Will Skillman Fellow in Education Policy
The Obama Budget: Late and DOA
As budget wonks comb through the details of the President’s 2014 budget, let’s start the assessment with a few high-level observations:
First, this budget is more than 60 days late (a whopping new record). The President had a statutory responsibility to deliver a budget proposal to the Congress on February 4. He did not do that, launching instead his “charm offensive.” The President’s budget is supposed to open the budget policy debates, giving the House and Senate his vision and agenda for them to consider as they develop their own budget plans. Not this year.
The House already passed its latest version of the Ryan budget—one that balances within 10 years and features a fundamental overhaul of Medicare. For the first time in four years, the Senate not only delivered a budget, it actually passed it. Next up, the two budgets should go to conference, meaning the House and the Senate get together and work out their differences.
So, why is the President’s budget even needed at this point? Perhaps the “charm offensive” failed and his wining and dining various Members of Congress has only swelled his entertainment budget—at the same time that he shut down White House tours.
On top of this whole timing problem, the policies themselves are already dead on arrival. The far left crowd promptly dismissed it, vowing to fight the President’s new entitlement proposal to change the indexing for Social Security. Called “chained CPI,” opponents have framed this as a benefit cut, when of course all it does is slow the growth of cost of living increases to something that more accurately reflects inflation for beneficiaries.
On the right, Speaker John Boehner (R-OH) and others have rightly rejected its reliance on punitive class warfare tax increases like the Buffett rule to reduce the deficit.
Of course the devil is always in the details, but at first blush, here’s what the White House is claiming the budget does:
- $1.8 trillion in deficit reduction that includes:
- $580 billion in new tax increases (likely higher after chained CPI is factored in)
- New spending cuts of about $1 trillion (but of course this may not be new deficit reduction, merely reprogramming the existing sequester cuts). That leaves about $200 billion in net interest savings (and of course these would have happened under the sequester too).
- More spending on education, manufacturing, clean energy, infrastructure, and small business. (Like the stimulus and Solyndra showed us.)
- Reduces the deficit to 2.8 percent of GDP by 2016 and 1.7 percent by 2023 with debt declining as a share of the economy. (Only the details will reveal what usual and customary budget tricks accompany the substantive proposals and them to these levels.)
In the end, this budget does not balance and never will, relies on another set of punitive tax hikes, and yet again features more new spending. Was this budget worth the wait?
— Alison Fraser, Director, Roe Institute for Economic Policy Studies