On Tuesday, the White House released its official fiscal year 2015 budget for the federal government.
“The budget I sent Congress this morning lays out how we’ll implement this agenda in a balanced and responsible way,” President Obama said in remarks announcing the budget. “It’s a roadmap for creating jobs with good wages and expanding opportunity for all Americans. And at a time when our deficits have been cut in half, it allows us to meet our obligations to future generations without leaving them a mountain of debt.”
With forecasts that the gross domestic product will expand this year at its fastest rate since 2005, the White House has moved to introduce a spending plan that will promote job growth while keeping inflation under control. The budget proposes nearly $1 trillion in new taxes over the next decade — mostly from hikes in the estate tax and a rollback on exemptions for upper-income earners. It would raise the federal minimum wage to $10.10 per hour, increase the number of childless workers eligible for the Earned Income Tax Credit, continue full funding of the Patient Protection & Affordable Care Act, lower corporate tax rates, eliminate certain corporate deductions and reduce military staffing levels and funding.
The White House also proposed a $56 billion “Opportunity, Growth and Security Initiative,” which will grant the Defense Department additional funding to help soothe the proposed military cuts for 2015 and provide additional research funding for the National Institutes of Health. The president has proposed an additional $44 billion in Social Security payments, $40 billion for Medicaid/Medicare, an expansion of the “Pay As You Earn” student debt forgiveness program and a major job-creation investment in restoring the nation’s transportation infrastructure and national parks.
Finally, the 2015 budget will provide a 30-percent increase in funding levels for the Commodity Futures Trading Commission and a 26-percent funding increase for the Securities and Exchange Commission. The increases — less than what was sought by agency officials due to sequestration limits — would help to expand the policing of the financial markets and help to fully implement the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which has not been fully funded since its passage and was made worse last year after rounds of employee furloughs and the shelving of key enforcement matters.
In total, the budget totaled $3.901 trillion. It was dead-on-arrival when it reached the House.
Republicans, taxes and the midterms
Rep. Paul Ryan (R – Wis.), chairman of the House Budget Committee, said in a statement that the budget proposal “would hollow out our defense capabilities. And it would do nothing to preserve or strengthen our entitlements.”
“The president has just three years left in his administration, and yet he seems determined to do nothing about our fiscal challenges,” Ryan continued. “This budget isn’t a serious document; it’s a campaign brochure. It would demand that families pay more so Washington can spend more.”
The Republicans have been exceptionally narrow-minded concerning changes to the tax code during the run-up to the 2014 midterm elections. With picking up the Senate being more than a remote possibility due to the high number of retirements in the Democratic Party, the Republican leadership is attempting to “play safe” and prevent the party from splitting over disagreements concerning potentially controversial issues, such as reforming the tax code and expanding the Earned Income Tax Credit.
Last month, Rep. Dave Camp (R – Mich.) introduced a proposal that would radically change the federal tax code, reduce the personal and corporate tax rates, and end most deductions.
“After this streamlining of the tax code, the size of the economy will increase by $3.4 trillion over the next decade, or roughly 20% compared with today,” Camp wrote in an op-ed in the Washington Post. “This will lead to nearly two million new jobs—and producing up to $700 billion in additional federal revenues that can be used to lower taxes even further or reduce the debt.”
The Republican Party leadership disowned the plan — partially, due to its potentially divisive nature, and partially due to the fact that the elimination of certain deductions threatened to alienate the financial community from the Republicans at a time when Wall Street campaign fundraising is essential. The leadership has suggested postponing the reform talks until after the elections.
Compromises
The president has expressed hope that the Republicans will negotiate concerning his budget.
“In last year’s Budget, the President included a compromise proposal intended as a show of good faith to spark additional negotiations with Congressional Republicans about the nation’s long-term deficits and debt and to encourage all parties to come together to remove the economically-damaging sequestration cuts,” read the White House’s fact sheet on the 2015 budget.
“Although that compromise proposal remains on the table, given Congressional
Republicans’ unwillingness to negotiate a balanced long-term deficit reduction deal, the President’s 2015 Budget returns to a more traditional Budget presentation that is focused on achieving the President’s vision for the best path to create growth and opportunity for all Americans, and the investments needed to meet that vision,” it continued.
The exclusion of the use of the chained consumer price index — a time-series measure of price levels that, as an alternative to the traditional CPI, assumes that in an inflation system, consumers will choose less-expensive alternatives — for Social Security benefits in the 2015 budget was heavily criticized by Republicans.
“This reaffirms what has become all too apparent: the president has no interest in doing anything, even modest, to address our looming debt crisis,” said Brendan Buck, a spokesman for House Speaker John Boehner (R-OH). “The one and only idea the president has to offer is even more job-destroying tax hikes, and that non-starter won’t do anything to save the entitlement programs that are critical to so many Americans.”
The addition of chained CPI would set a slower scale for Social Security growth, significantly cutting cost-of-living increases. However, as Republicans were unwilling to meet the president’s requirement for the 2014 budget that chained CPI would be met with new tax revenue, the proposal failed. With the proposal “technically on the table” now, Republicans can negotiate the implementation of a permanent reduction in Social Security benefits.
A stressed party
This comes at a high cost. With seniors voting in larger numbers in midterm elections than in presidential elections, and with Social Security being the leading voting issue among the elderly, any perceived reduction in Social Security could result in an electoral loss. In 2010, the senior vote was essential for the Democrats’ retaining control of the Senate. With Democrats trailing the Republicans in the senior vote by seven points, chained CPI could be just enough to cause the Democrats to lose the Senate.
However, from the president’s point-of-view, chained CPI may be the ticket toward expanding the social safety net. As an increasing number of Democratic candidates in battleground states opt not to campaign with the president, the potential split between possibly expanding the social safety net and retaining the Senate — which would require an expansion, instead of a contraction, of Social Security — highlight the stress points forming between the president and the rest of the Democratic Party.
President Obama Speaks on the FY 2015 Budget and Answers Questions from the Press