President Obama’s 2011 budget, submitted to Congress this week, totals $3.8 trillion and projects a deficit of $1.6 trillion. And while analysts have had only two days to dissect the massive document, the president’s priorities are clear: jobs and the military. The biggest problem he faces is the rapidly growing deficit.
With the economy still in recession and unemployment still at 10 percent, the domestic priority is clearly job creation. The budget includes a $100 billion jobs program, with substantial amounts targeted to tax breaks for small businesses in order to stimulate job creation. Also included are tax credits that assist lower-income workers with expenses such as child care, which make it more possible for them to find employment.
And despite the administration’s plan to enact an overall freeze on discretionary domestic spending, it appears programs that focus on low-income and poor people were increased. Bob Greenstein of the Center for Budget and Policy Priorities said in a statement on the budget that “Contrary to fears expressed last week that the President’s proposed freeze on total non-security discretionary funding would provide inadequate support for education, for vulnerable Americans, and the like, the budget actually does well in these areas.” It appears that major programs in nutrition, housing, education, TANF, etc. all are higher than last year.
But as usual, the sacred cow that cannot be touched is the military. First, a thanks to the administration for having the honesty to include the funding for the wars in Iraq and Afghanistan in the budget, rather than waiting several months and then coming back with requests for supplemental funding as has been the practice in past years. Let’s at least know up front what we’re dealing with. In round numbers, the military budget includes an operating budget of $549 billion, plus funding for the two wars at $192 billion (including an already planned request for $33 billion this spring), for a total of $741 billion.
I, too, am concerned about the rapidly growing deficit. While some degree of deficit spending is necessary in a time of severe recession, it is growing so fast that it threatens our future and our children’s futures. Last night, I ran into David Walker on the Amtrak train coming home from Philadelphia. We are both on book tours, and his new book is Comeback America: Turning the Country Around and Restoring Fiscal Responsibility. David and I had talked over the holidays, but now we had the chance to sit down and have a long train conversation about this topic. He is also concerned that the deficit not be cut on the backs of our poorest people and that the most vulnerable be protected. And he also thinks cutting excessive and wasteful military spending must be part of the solution. So here’s a suggestion: Let’s start with the military.
In a preliminary analysis of this budget, Lawrence Korb, former assistant secretary of defense under Ronald Reagan, and other defense experts said that:
A close analysis of the FY 2011 defense budget reveals that it does not go far enough to impose real fiscal discipline on our defense spending ... There are a number of reasonable cuts that could be made to this portion of the budget without sacrificing national security or undermining our troops.
Congressman Barney Frank was also at Davos and told me that he is proposing a 25 percent cut in the military budget. He said he will need help from the faith community. I support his effort, and we will be saying more about it as details emerge.
The wars we have been fighting are a huge part of the massive deficit we now face, wars that I have also challenged on many other grounds. It’s time to stop subsidizing the shameful profits of the “military industrial complex” that former President Eisenhower warned us about long ago. I personally would favor spending more on the returning veterans who are too often abandoned when their service is over. But cut the defense contractors who serve their own profits much more than any true idea of national security. Protect the veterans, cut the contractors. Now there is one way to attack the deficit.
We in the faith community say we subscribe to the biblical injunction to “beat our swords into plowshares.” So let’s be in the middle of the budget deficit debate and push hard for the right priorities. As David Walker and I agreed last night on the tracks between Philadelphia and DC, this is a moral question.
CENTER ON BUDGET AND POLICY PRIORITIES
http://www.cbpp.org/cms/index.cfm?fa=view&id=3073
CBPP Statement: February 1, 2010
For Immediate Release
Statement: Robert Greenstein, Executive Director, on the President's 2011 Budget Proposal
The President’s budget reflects both the short-term priority of boosting the economy and creating jobs and the longer-term priority of bringing deficits under control while meeting important national needs.
There is a strong case for more medium- and long-term deficit reduction than the budget contains. But the budget likely goes as far in this area as today’s toxic political environment will allow, even if the President pushes forcefully for his policies. Indeed, many of his proposals that provide fiscal restraint, from closing unproductive tax loopholes to scaling back agricultural subsidies for wealthy farm operators, may prove to be beyond what a polarized Congress, facing continuous roadblocks and with one eye on the fall election, will produce this year.
Of particular note, the budget proposes to save $750 billion over 10 years through three significant steps on the tax side. First, it would narrow tax subsidies — which budget analysts call “tax expenditures” or “tax entitlements” because they essentially represent government spending that’s delivered through the tax code, and that are now approaching $1 trillion a year in cost — such as for oil and gas companies, multi-national corporations that shift profits abroad to avoid paying their fair share of taxes here, and high-income households that receive much bigger subsidies than other Americans for the same tax-deductible expenditures. Second, it would reform financial institutions, such as by instituting a fee on large banks to cover the costs of bail-outs and discourage excessively risky behavior. Third, it would take other steps to reduce tax avoidance. Of this $750 billion in tax savings, the budget would allocate $284 billion for new tax cuts, primarily for middle- and lower-income families and for businesses, and save the rest for deficit reduction.
Enacting these and other proposals in the budget will be very difficult, given the penchant among some lawmakers to rail against deficits but vote against most measures to reduce them. Had the President proposed major additional budget cuts and revenue increases, not only would Congress almost certainly have rejected them, but the inevitable harsh attacks on them could have “poisoned the well” and made them even harder to achieve in the future if and when a more bipartisan atmosphere makes greater budgetary progress possible.
Budget’s Effect on Deficits and on Spending Growth
The budget would reduce deficits by $1.25 trillion over 10 years, compared to what they would be by continuing current policies. This does not count “savings” from eventual reductions in spending for operations in Iraq and Afghanistan, which are extremely difficult to measure.
This is a positive accomplishment. Yet deficits would still total $8.5 trillion over the next 10 years. Of this $8.5 trillion, $5.8 trillion would consist not of expenditures for any program, but of interest payments on the debt.
These high interest costs largely reflect the impact on the debt of policies that the President inherited — particularly the compounding budgetary effects over time of two very large tax cuts, a costly new drug benefit under Medicare, and the wars in Afghanistan and Iraq, none of which was paid for — as well as the mounting budgetary effects of ever-rising health care costs and the aging of the population. The costs of recent and proposed measures to rescue the economy have an impact as well, but a smaller one because these measures will end and, so, the costs will fade after a few years.
The Budget’s Fiscal Policy Principles
In terms of fiscal policy, the budget gets three basic things right.
First, it sets an appropriate target — stabilizing the debt as a share of the economy after the economy has recovered, and achieving this goal by reducing the deficit to 3 percent of Gross Domestic Product and balancing the “primary budget” by 2015 — although the President and Congress will need to take substantial steps beyond those detailed in this budget to actually reach that goal. A growing number of fiscal policy experts from across the political spectrum agree that the essential fiscal policy goal is to keep the debt from rising faster than the economy (after the economy has recovered) and thereby prevent the cost of interest payments on the debt from exploding.
Second, it reaffirms the President’s commitment to enacting comprehensive health care reform. This is the single most important step that policymakers can take this year to start addressing long-term deficits. Rising health care costs are, by far, the main driver of the long-term fiscal imbalance. The House and Senate health bills contain most of the reforms that health policy experts have identified as promising ways to slow health care cost growth over time. They also establish an array of research and demonstration projects to identify a new generation of cost-containment strategies and create mechanisms so promising strategies can be implemented without running the gauntlet of special-interest lobbying pressures on Capitol Hill.
Third, it would allow the Bush-era tax cuts for high-income Americans to expire on schedule at the end of the year. Extending these tax cuts, as some Members of Congress propose, would add $678 billion to the deficit over the next 10 years even before counting the associated interest costs, according to the budget, while doing little for the economy. When the Congressional Budget Office (CBO) recently examined a number of spending and tax options for boosting the weak economy and creating jobs in the years immediately ahead, it rated continuation of the Bush-era tax cuts for people with incomes over $250,000 dead last. See http://www.cbpp.org/cms/index.cfm?fa=view&id=3068.
CBO’s analysis and the work of other economists such as Mark Zandi of Moody’s Economy.com suggest that putting resources now into well-designed tax and spending measures to boost the economy and create jobs, while keeping those measures temporary and letting the high-income tax cuts expire on schedule, would help the economy both in the short term (by boosting growth) and the long term (by keeping long-term deficits lower than they would otherwise be). This is essentially the course that the President's budget charts; it proposes $266 billion in temporary tax cuts and expenditure increases now to help ensure that the economy averts a double-dip recession and sustains a reasonable rate of economic and job growth, while saving 2½ times that much over the decade as a whole by letting the tax cuts for the wealthiest 2 percent of Americans lapse.
Some news outlets have reported that the budget proposes $100 billion in such temporary, economy-boosting measures. It does, in fact, propose $100 billion for a new “jobs initiative.” But, it also proposes $166 billion in other efforts to boost the economy, largely by temporarily extending certain expiring provisions of last year’s American Recovery and Reinvestment Act. They include $76 billion in temporary tax cuts — much of which would go for a one-year extension of the Making Work Pay tax credit — and $90 billion in temporary increases in mandatory programs, most of which would go to extend unemployment benefits and fiscal relief to state governments. The $266 billion total is much closer to what the weak economy requires. Zandi and other experts have called for additional measures of about $250 billion.
Domestic Spending Freeze Does Not Preclude High-Priority Investments
Contrary to fears expressed last week that the President’s proposed freeze on total non-security discretionary funding would provide inadequate support for education, for vulnerable Americans, and the like, the budget actually does well in these areas. While capping overall domestic discretionary spending at a little below the 2010 level, it would increase funding in 2011 in high-priority discretionary areas such as education, clean energy, infrastructure, and basic research and development. At the same time, it would reduce or terminate funding for lower-priority programs, such as certain projects of the Army Corp of Engineers and NASA’s current program to return astronauts to the moon.
For policymakers to achieve the savings from freezing this category of spending without impairing the government’s ability to meet crucial national needs, however, Congress will need to follow the President’s lead and reduce funds for low-priority discretionary programs to pay for increases in high-priority ones.
Policy Reforms to Promote Work, Productivity, and Savings
Finally, the budget includes several significant reforms and new investments to promote work, increase worker productivity, and boost national savings — all of which would benefit the economy over the long term — while also increasing opportunities for struggling families and individuals. Specifically, the budget would strengthen tax credits and programs that help low- and middle-income families with child care costs, which should enable more parents to work or to work more. It would substantially strengthen financial assistance so more students can afford college; a better educated workforce is a more productive one. And it would help low- and middle-income families save for retirement. These measures would have multiple benefits: they would reduce the squeeze on family budgets, strengthen work effort, boost educational attainment, or increase national saving. Due to those and other proposals, Americans of modest means, many of whom are now facing major strains, would fare well under this budget.
Of particular note is the budget’s large initiative to increase retirement saving among low- and middle-income families. The budget includes five related proposals here. It would: 1) provide for employers who do not sponsor a retirement plan to automatically enroll their employees in a direct-deposit IRA plan (while enabling employees to opt out); 2) make it easier for firms that do offer retirement plans to enroll their workers automatically (while, again, giving workers an opt-out option), an approach that, experience shows, sharply increases the use of retirement saving vehicles; 3) double the tax credit for start-up costs that small employers incur in setting up a retirement plan for their workers; 4) enlarge a tax credit, known as the saver’s credit, under which the Treasury essentially matches retirement contribution (up to a limit) by low- and many middle-income households and thereby encourages them to save more for retirement; and 5) institute measures to improve the transparency and adequacy of 401(k) plans.
Taken together, these proposals should induce significant increases in retirement saving. Such an increase in saving would both help families in old age and strengthen U.S. long-term economic growth by increasing the pool of national savings that can be tapped for private investment in new plant and equipment.
These retirement savings initiatives will likely attract bipartisan support. But that does not mean they will be easy to enact. They will have to be paid for, presumably by closing some of the tax loopholes that the President’s budget targets. If powerful lobbying pressures and campaign contributions convince lawmakers neither to close these loopholes nor find comparable savings elsewhere — as may well occur — the retirement saving initiative will fall by the wayside, and both ordinary families and the economy will fare less well.
Indeed, this trade-off reflects the larger dilemma that this budget — and fiscal policy in general — now face: whether policymakers can, in the months and years ahead, set priorities and make the needed hard choices. This budget represents a promising first step in that direction and will face tough challenges as a result. And it is only a first step; policymakers will need to take many more such steps in the not-too-distant future.
The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.
CENTER FOR AMERICAN PROGRESS
http://www.americanprogress.org/issues/2010/02/defense_budget.html
Slimming Down the Defense Budget
By Lawrence J. Korb, Laura Conley, Sean Duggan | February 2, 2010
The Obama administration’s newly released fiscal year 2011 defense budget request continues to provide real increases to the historically high level of defense spending that the Bush administration initiated after September 11. The $708 billion budget, which includes the cost of the wars in Iraq and Afghanistan, represents an increase of nearly 3.4 percent from the FY 2010 baseline budget, or a 1.8 percent real increase over inflation.
The budget does not rebalance the defense budget to meet the national security challenges of the 21st century as the Pentagon should have done as a result of the Quadrennial Defense Review—a planning and strategy document also released on Monday that defines our military’s force structure and thus shapes its upcoming budget plans. The FY 2011 defense budget instead tinkers at the margins of reallocating resources to urgent priorities and fails to scale back or eliminate poorly performing or unnecessary weapons programs that are based on threats from a bygone era.
Our troops in Iraq and Afghanistan and their families here at home must receive every dollar needed to keep them well equipped and safe. But the federal government can and should do more to rein in spending on the investment portion of the defense budget, which still includes a number of outdated, over budget weapons systems.
The Center for American Progress applauds President Barack Obama’s stated emphasis on fiscal responsibility. In order to reign in the large and growing federal deficit, the president has announced that he will initiate a spending freeze on a number of domestic spending programs. But if President Obama is serious about controlling spending, he can’t exempt more than $200 billion in the investment accounts in the defense budget, or the ballooning costs of the military health care system.
Pentagon spending is responsible for a large and increasing share of the federal budget’s discretionary portion, and giving defense spending a pass will mean that the spending freeze will have only a marginal effect. A close analysis of the FY 2011 defense budget reveals that it does not go far enough to impose real fiscal discipline on our defense spending.
Spending on future weapons systems has outpaced spending on our troops over the last 10 years. As the Center for Strategic and Budgetary Assessments has pointed out, the operations and support portion of the base defense budget—which includes costs for recruitment, training, military and civilian personnel pay, and operating and maintaining equipment—has increased by an annual rate of 3.5 percent above the rate of inflation. Yet it has risen less in real terms than the investment portion of the budget, which includes procurement, research and development, and construction that grew at a real annual rate of 4.6 percent. There are a number of reasonable cuts that could be made to this portion of the budget without sacrificing national security or undermining our troops.
The administration’s latest defense budget request includes some of these steps. The budget closes the production line for the C-17 and ends the Navy’s EP(X) intelligence aircraft program. And Secretary Robert Gates is right to hold the line against production of the second engine for the F-35 Joint Strike Fighter. These cuts and reprioritizations are fiscally and strategically smart.
Other moves are cause for concern. Secretary Gates’s newly announced initiative to restructure the Joint Strike Fighter program is a welcome development, but the secretary’s decision to increase the buy of Joint Strike Fighters from 30 planes in FY 2010 to 42 units in FY 2011 is risky given the program’s history of being over budget and behind schedule. The Pentagon should stop production of the plane and keep it in R&D mode this year until it can determine whether the restructuring efforts are adequate to reform the program. It should also remove the one plane slated to be funded through the Overseas Contingency Operations budget. This could save up to $200 million per plane.
Other budget changes that Congress should consider are:
■Canceling the Marine Corps’ expeditionary fighting vehicle
■Halting further production of the MV-22 Osprey
■Slowing down spending for missile defense while maintaining funding for its continued research and development
■Keeping the Virginia-class attack submarine production steady at one per year
■Cutting FY 2011 funding for the Army’s Future Combat Systems by one-third
■Slashing the U.S. strategic nuclear arsenal to 600 deployed warheads and 400 in reserve
■Implementing an across-the-board reduction in research, development, test, and evaluation funding
It is also critical that Congress work with the Pentagon this year to control the steadily increasing cost of military health care. As Secretary Gates noted in yesterday’s budget briefing, premiums for TRICARE, the military’s health care system, have not been raised in 15 years, despite the Department of Defense’s repeated efforts to institute a modest increase.
But the Pentagon needs a more responsible partner in Congress in order to make these necessary cuts and adjustments. Congress has in the past often sought to continue expensive, strategically unmerited programs such as the F-22 Raptor for political, rather than national security, reasons. Members of Congress should not seek to resurrect what few programs have been eliminated in the president’s defense budget request to curry favor in their districts.
A productive partnership between Congress and DOD this year can help to bring both the investment portion of the defense budget as well as the costly health care portion of the operations and support budget under control.
Lawrence J. Korb is a Senior Fellow at the Center for American Progress, Laura Conley is a Special Assistant for National Security and International Policy, and Sean Duggan is a Research Associate for National Security at American Progress.
