At cruising altitude, the battle lines of Washington’s fiscal debate are pretty clear. Democrats and Republicans have been engaged in political trench warfare for so long that the battlements have become landmarks and squatters have moved into no-man’s land.
If you’re imagining a battle map, the GOP position would be staked out in red in the eastern quadrant. This is the territory of fiscal conservatives like House Budget Committee Chairman Paul Ryan (R-WI) who champion a budget-first solution to America’s debt problem. The United States has operated on a deficit of more than $1 trillion ever since the financial crisis, spending is clearly out of control, and the longer we operate in the red the worse things are going to get.
With this as a guiding philosophy, the correct strategy is to perform major corrective surgery, balance the budget as fast as possible — Ryan submitted a proposal that would do it in 10 years — and suffer through the short-term consequences in order to reap the long-term benefits.
But it wouldn’t be Washington if the other side of the aisle — the blue camp, occupying the western quadrant of the battle map — didn’t have a competing philosophy. “My goal is not to chase a balanced budget just for the sake of balance,” President Barack Obama told ABC News in an interview in March. “My goal is how do we grow the economy, put people back to work, and if we do that we are going to be bringing in more revenue.” That is, the President believes the budget can withstand a little more abuse if it means economic growth.
At a glance, this could have been the death knell of his fiscal 2014 budget. There is a long-standing divisiveness over revenues and spending cuts that even the most level-headed negotiators have been unable to overcome. Before the President’s budget even saw the light of day, observers suggested that it was dead on arrival because it called for more revenues and did not supply enough spending cuts.
With all this on the table, let’s take a look at the key parts of Obama’s fiscal 2014 budget…
As it stands, the fiscal 2013 budget that was passed at the end of March would have the nation run a deficit of $901 billion. This is based on total projected revenue of $2.9 trillion and total projected expenditures of $3.8 trillion.
Obama’s fiscal 2014 budget projects a deficit of $744 billion, or 4.4 percent of GDP. With $1.8 trillion in additional deficit reduction planned over 10 years, the President’s proposal would reduce the deficit to 2.8 percent of GDP by 2016, and to 1.7 percent of GDP by 2023. This would obviously not balance the budget, but would begin reducing debt as a share of the economy.
The President’s fiscal 2014 budget includes more than $2 in spending cuts for every $1 in new revenue. Here are the key elements of the offer, as laid out by the White House:
- $580 billion in additional revenue relative to the end-of-year tax deal, from tax reform that closes tax loopholes and reduces tax benefits for those who need them least;
- $400 billion in health savings that build on the health reform law and strengthen Medicare;
- $200 billion in savings from other mandatory programs, such as reductions to farm subsidies and reforms to federal retirement benefits;
- $200 billion in additional discretionary savings, with equal amounts from defense and nondefense programs;
- $230 billion in savings from using a chained measure of inflation for cost-of-living adjustments throughout the Budget, with protections for the most vulnerable;
- $210 billion in savings from reduced interest payments on the debt; and
- $50 billion for immediate infrastructure investments, as noted earlier, to repair our roads and transit systems, create jobs, and build a foundation for economic growth.
One of the key considerations in the President’s proposal is a switch to the chained Consumer Price Index in order to calculate cost-of-living adjustments to Social Security and veteran pensions. This would curb the growth of benefits, and bring down costs.
What Republicans are likely to scoff at is the President’s proposal to implement the Buffet Rule, which would require households with incomes over $1 million to pay at least 30 percent of their income (after charitable giving) in taxes. On top of that, it would limit the value of tax deductions for the to 2 percent of earners to 28 percent, in line with middle-class caps on deductions.
The President also wants to close close a loophole that allows wealthy individuals to circumvent charitable contribution limits, as well as a loophole that allows financial managers to pay the capital gains tax rate on carrier interest income.
That said, Obama is also proposing a 10 percent tax credit for small businesses that hire new employees or increase wages.
Obama’s budget proposal “supports the President’s call to reward hard work by raising the minimum wage to $9.00 an hour,” according to the White House.
(We will update this overview as the public digests the proposal and the conversation evolves.)
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