Wonkbook: 5 things to watch in Obama's 2013 budget

at 08:16 AM ET, 02/13/2012

It's easy to be cynical about President Obama's 2013 budget, which will be released later today. Like the 2012 budget, it has no chance of being adopted by Congress. The big ideas in it are DOA in the House. In fact, most of its big ideas -- $1.5 trillion in tax increases, taking some of the money we'll save from winding down the wars and investing it in infrastructure -- have already been announced, either in the American Jobs Act, the White House's subsequent deficit-reduction recommendations to the supercommittee, or the State of the Union. Which isn't to say that the budget isn't important. It's just that what's important in it may not be what will grab headlines. But here's what to watch for:


Copies of of President Obama's fiscal 2013 federal budget are displayed at the Government Printing Office in Washington, Feb. 9. (Manuel Balce Ceneta - AP)
- Discretionary spending: This is the first budget to try and follow August's Budget Control Act. That's the legislation that ended the debt-ceiling standoff, and which imposed caps cutting discretionary spending by $900 billion over the next decade. This is administration's opening bid in how to apportion the now-scarce funds for discretionary spending. Look for almost everything but R&D to get the axe, and discretionary spending in general -- which includes both defense and non-defense spending -- to fall to its lowest levels since Eisenhower.

- The broken deficit promise: This is one of those cases in which what's important will make headlines. The Obama administration is officially breaking its promise to halve the deficit by the end of their first term. The 2013 budget envisions a deficit of more than $1 trillion -- not halved by any stretch of the imagination. Republicans are right about that. But fulfilling that promise -- which would have meant moving to massively contractionary fiscal policy over the last year -- would have been a dumb thing to do. The Obama administration is right about that.

-Taxes: One little-noticed shift in the last year is that the Obama administration has stopped hiding the full extent of their preferred tax increases. When they released their April deficit plan, it included a bit more than $700 billion in taxes over 10 years. But it assumed another $800 billion or so from the expiration of the Bush tax cuts in its baseline. That allowed them to make the role of taxes in their budget plan look smaller. At the time, they argued their plan included $3 in spending cuts for every $1 taxes. Now the White House is adding both sets of tax recommendations together and touting $1.5 trillion in new taxes, and a 2.5:1 ratio. It's clear evidence that they think they're winning on the tax issue.

- One big deficit-reduction plan: An important argument in this budget is that all deficit reduction needs to be seen as part of the same pot. So in their $4 trillion or so in projected savings, the $2.1 trillion in spending cuts from the debt-ceiling deal are included. Same for the aforementioned 2.5:1 spending cuts-to-tax increases ratio. That's crucial, the White House believes, because if each deficit-reduction deal is considered separately, then the fact that the first $2.1 trillion was all spending cuts means that the deal overall will be too heavily tilted towards spending cuts. It also explains why they're so heavy on tax increases in this budget: Many of the needed spending cuts, they believe, have already been passed into law. But none of the necessary tax increases have been passed into law. So the administration will propose hundreds of billions more in cuts to mandatory spending, as that category of spending was largely left out of the debt-ceiling deal, but taxes are the part of deficit reduction that they feel really hasn't been touched, and so that's the part they're focusing on.

- Tax reform: Are we going to get comprehensive tax reform this year? I wouldn't bet on it. But the looming expiration of the Bush tax cuts makes it more likely than it would otherwise be. And while the Obama administration won't present a detailed vision for tax reform, they will present a more detailed set of negotiating principles for it. Ten months from now, if Congress decides to try and resolves the Bush tax cuts by reforming the tax code, that section of the budget could come to matter quite a bit.

Top stories

1) THE BIG STORY -- The White House will unveil its budget plan today, reports Lori Montgomery: "The budget request, due on Capitol Hill on Monday, calls for spending $3.8 trillion in 2013, according to sources with knowledge of the document, including fresh increases for roads, infrastructure, manufacturing and education, as well as a year-long extension of emergency unemployment benefits and a temporary payroll tax holiday...Of the new savings, $1.5 trillion would come from higher taxes on corporations and the wealthy, including the expiration of the George W. Bush tax cuts on income over $250,000 a year. An additional $278 billion would come from a hodgepodge of cost-saving maneuvers, such as charging higher premiums for federal pension insurance, asking federal workers to contribute more to their own retirement and cutting federal farm subsidies. About $850 billion would come from capping spending on the wars in Iraq and Afghanistan, though about $200 billion of those savings would be redirected to new road and rail projects.

@mattyglesias: EXCLUSIVE: Obama's basic ideas about long-term budgeting are the same as they were a year ago.

2) Greek lawmakers passed a harsh austerity package, report Kerin Hope and James Wilson: "Greek lawmakers on Sunday approved a tough austerity package aimed at averting a default, but the vote was overshadowed by violent street protests in central Athens and dozens of arson attacks against shops and banks. The legislation passed by 199 votes in favour to 74 against, a convincing majority for Lucas Papademos, the caretaker prime minister who has been given the job of pushing through painful reforms demanded by the European Union and the International Monetary Fund in return for a second €130bn bail-out. Yet almost 40 legislators from the socialist and conservative parties, the two remaining partners in his national unity government, were absent or voted against the measures, indicating strong opposition to structural reforms and cuts in wages and pensions."

@amaeryllis: It's almost like some people think if you squeeze a society enough, it will turn into a diamond instead of explode in your face.

3) Mitt Romney won the Maine Republican presidential caucus, report Rosalind Helderman and Felicia Sonmez: "Former Massachusetts governor Mitt Romney won the Maine Republican presidential caucuses and a straw poll of conservative activists Saturday, victories he hopes will put his campaign back on track and help him regain momentum after losing three nominating contests last week...In Maine, Romney won 39 percent of the poll votes; Texas Rep. Ron Paul took 36 percent of the vote, while former Pennsylvania senator Rick Santorum captured 18 percent. Former House speaker Newt Gingrich won 6 percent...Republicans will not vote again until the critically important primaries in Arizona and Michigan on Feb. 28, followed by Super Tuesday on March 6, when 10 states will hold elections."

@AlecMacGillis: The Portland Sea Dogs, a minor league baseball team in Maine, drew 5,510 per game last year. The GOP caucuses yesterday drew less than that.

4) The safety net is increasingly serving the middle class, report Binyamin Appelbaum and Robert Gebeloff: "The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year."

@BCAppelbaum: Key stat: In 1979, the poorest households -- the bottom fifth -- got 54 percent of gov't benefits. By 2007, they got just 36 percent.

5) Health reform's greatest threat is a shortfall of primary-care providers, reports Sarah Kliff: "The greatest threat to the health-care overhaul might not be the Supreme Court, which is scheduled to hear challenges to the law next month. Or the shifting alliances of an election year. In the end, it’s more likely to be a lack of medical providers. If the law succeeds in extending health insurance to 32 million more Americans, there won’t be enough doctors to see them. In fact, the anticipated shortfall of primary-care providers, by 2015, is staggering: 29,800. The Obama administration’s options for addressing that threat are limited. It does have Medicare, which covers the lion’s share of the cost of training medical residents: In 2009, it spent $9.5 billion on residents’ stipends, teaching physicians’ salaries and related expenses. But when Congress passed the balanced budget amendment in 1996, it capped the number of residencies that Medicare can fund."

Top op-eds

1) The U.S. is facing a bleak recovery, writes Edward Luce: "In a nutshell, there is a negative feedback loop between US politics and the US economy - the polarisation of both have grown in lockstep. Unlike in earlier periods of change, there is no popular groundswell today in favour of improving education and skills. Indeed, it is striking how little grassroots populism there is. Much of the political void is being filled by the wealthy. Of the $181m so far spent by super-Pacs - vehicles that can spend unlimited sums as long as they are legally independent from their candidates - more than half came from fewer than 200 individuals."

2) Greece needs to escape the weaknesses that led it to this point, writes Nikos Konstandaras: "Perhaps it was a fitting sacrifice - a symbol of our rush to destroy because we cannot create, an expression of our need to abandon memories and pass into the future, blackened with ashes and rage. What is lost in the flames may be greater than the incomes that will be reduced, greater than percentages of wages and pensions, greater than deposits lost and hopes abandoned. What is at greatest risk is our identity, our civilization. If we cannot stay in the eurozone, if we find ourselves on Europe's edge, we will be defeated, humiliated and alone."

3) Conservatism has become detached from economic reality, writes Paul Krugman: "How did American conservatism end up so detached from, indeed at odds with, facts and rationality? For it was not always thus. After all, that health reform Mr. Romney wants us to forget followed a blueprint originally laid out at the Heritage Foundation! My short answer is that the long-running con game of economic conservatives and the wealthy supporters they serve finally went bad. For decades the G.O.P. has won elections by appealing to social and racial divisions, only to turn after each victory to deregulation and tax cuts for the wealthy -- a process that reached its epitome when George W. Bush won re-election by posing as America’s defender against gay married terrorists, then announced that he had a mandate to privatize Social Security. Over time, however, this strategy created a base that really believed in all the hokum -- and now the party elite has lost control."

4) Making shareholders liable for failure is the best way to shrink finance, writes Tyler Cowen: "In light of the financial chaos after Lehman Brothers’ collapse in 2008, companies of its size are now often considered too big to fail. Yet before its collapse, Lehman had a capitalization of about $60 billion, compared with the $143 billion capitalization of JPMorgan Chase last week. So the logic of cutting down huge institutions could mean splitting the largest ones into several pieces. Yet banks do not always come in easily divisible parts. Such a move could amount to eradicating the largest banks rather than splitting them up -- and eradication is both politically unlikely and potentially disastrous for the economy. In short, if the resulting parts of a divided bank cannot turn a profit, the split-up may prompt the very bailout it was trying to avoid."

5) Small steps could help the working class, writes Ross Douthat: "It was globalization, not Republicans, that killed the private-sector union and reduced the returns to blue-collar work. It’s arithmetic, not plutocracy, that’s standing between the left and its dream of a much more activist government. Even if liberals get the higher tax rates on the rich they so ardently desire, the money won’t be adequate to finance our existing entitlements, let alone a New Deal 2.0. So let’s step back. The crisis in working-class life Murray describes is arguably our most pressing domestic problem. But we are not going to address it by gut-renovating our welfare state to fit a libertarian ideal, or by dramatically expanding the same state in pursuit of an unattainable social democratic dream. What we can do instead is take modest steps, in areas where culture and economics intersect, to make it easier for working-class Americans to cultivate the virtues that foster resilience and self-sufficiency."

Psychedelic rock interlude: Dr. Dog plays "Stranger" live on KEXP.

Got tips, additions, or comments? E-mail me.

Still to come: The trade deficit widened last year; controversy remains on contraceptives; new rules for guest workers were rolled out; the Obama administration is slowing environmental actions as political concerns loom; and dingo pups yearn for sleep.

Economy

DEPRESSING, BUT ACCURATE, ANALYSIS OF THE DAY -- The recovery has looked promising before, report Ben Casselman and Phil Izzo: "As optimism mounts that the U.S. economic recovery is at last gaining steam, it is worth remembering that things looked pretty good a year ago, too. In the early months of 2011, the unemployment rate fell to its lowest level in close to two years. Growth was picking up, propelled by consumers who were finally opening their wallets. Incomes were rising while inflation remained modest. Most economists expected the momentum to continue through the year. Events, of course, turned out differently. Turmoil in the Middle East sent oil prices soaring, eating into consumers' paychecks. An earthquake and tsunami in Japan disrupted supply chains around the world. A sovereign-debt crisis in Europe roiled global markets, while debt-ceiling brinksmanship in Washington shook confidence in the U.S. government. Job creation and economic growth nearly ground to a halt, before finally picking up near the end of the year."

The U.S. trade deficit widened in 2011, report Conor Dougherty: "The U.S. trade deficit widened in December as rising consumer spending and restocking by U.S. businesses led imports to grow faster than exports. The nation's monthly trade gap hit $48.8 billion in December, the government said Friday, pushing the trade deficit in 2011 to its highest annual level since before the recession torpedoed global trade in 2008. Year over year, the trade gap was up 11.6% to $558 billion. The report pointed to a domestic economy that is pulling in more foreign goods to feed reviving demand. At the same time, export growth is continuing but has eased from the high levels seen early last year. Exports have been a driver of the U.S. recovery. But many economists expect export growth to slow in coming months as Europe's economy struggles and growth in other regions slows."

Changes to the tax code are coming, reports Jonathan Weisman: "Taxpayers struggling with their 2011 returns can take a little solace in the knowledge that change is coming -- though it may be accompanied by increasing tax bills. For two decades, politicians have promised -- and failed -- to overhaul the tax code to make it simpler and fairer. This time they have a deadline of sorts. On Jan. 1, 2013, a major part of the current code turns into a pumpkin. That is when income tax rate cuts -- a host of expanded tax deductions and credits, and generous changes in the taxation of dividends, capital gains and inheritances -- are set to disappear. That day of reckoning was supposed to have come in 2011, but President Obama signed a two-year extension of President George W. Bush’s tax cuts of 2001 and 2003, along with temporary tax cuts of his own, most notably the two-percentage-point cut to the payroll tax."

Efforts to extend the payroll tax remain stalled, report Jake Sherman and Manu Raju: "A weekend of talks between the two top tax writers in Congress failed to bridge gaping partisan differences over the payroll tax cut package, increasing the odds of another Washington showdown ahead of an end-of-the-month deadline. Senate Finance Committee Chairman Max Baucus (D-Mont.) and House Ways and Means Chairman Dave Camp (R-Mich.) traded offers throughout the weekend in an attempt to cut a deal on extending the payroll tax holiday and jobless benefits for millions of Americans -- along with avoiding a rate cut for physicians who treat Medicare patients...Sources familiar with the talks said the two sides made progress on a plan to extend the unemployment benefits but were still far apart on paying for the so-called doc fix and the payroll tax cut, a package that could cost $160 billion."

Technology history interlude: Almost every Apple design ever in 30 seconds.

Health Care

The compromise on contraceptive coverage hasn't ended the controversy, reports Janet Adamy: "At masses across the country Sunday, Roman Catholic priests blasted the Obama administration's compromise on contraceptive insurance coverage, a sign the White House's backtrack late last week did little to defuse the controversy. The new policy requires religious employers such as universities and charities to cover contraception in employee health plans but shifts the responsibility for paying for it away from the employer and on to its health-insurance provider. Previously, the administration had required all employers apart from churches to cover contraception in their employee-insurance plans...Administration officials said Sunday they don't plan to give religious groups any further exemption to the requirement. One administration official said the White House didn't anticipate the deal would win over the Catholic bishops, who also refused to support the 2010 health-overhaul law that included the contraception requirement."

@jbarro: Maybe some religious employers will respond to the contraception mandate by dropping health coverage, sending employees to PPACA exchanges

Domestic Policy

Many cities are turning to medical marijuana for revenue, reports Michael Cooper: "Sometimes lost in the discussion of medical marijuana is the extent to which it has become a small but growing source of new tax collections for cities and states that have been struggling to balance their budgets for more than four years now. Colorado Springs collected more than $700,000 in taxes from the medical marijuana industry in 2011. It is not a lot of money for a big city. But given the harsh steps the city has taken in recent years -- in 2010 it shut off a third of its streetlights to save $1.2 million -- every bit helps. Denver collected more than $3.4 million last year from sales tax and application and license fees, according to preliminary figures. The State of Colorado collected $5 million in sales tax from medical marijuana businesses last year, more than twice what it collected the year before."

The Obama administration issued new rules for guest workers, reports Julia Preston: "The Labor Department on Friday unveiled rules that reshape a program for foreign migrants in work other than agriculture, which officials said would strengthen protections for those workers and also spur recruitment of Americans for such jobs. It was the latest move in a protracted battle between employers and the Obama administration over the nation’s temporary guest workers. The extensive rules -- 575 pages long -- make important changes across the program, which is known as H-2B. The changes were hailed by advocates for guest workers, who said they would make it more difficult for businesses to exploit vulnerable foreign migrants and hire them to undercut Americans. But reflecting the divisions over the program, employers who use it regularly said the new rules, which will take effect April 23, would make the process too slow and cumbersome for their seasonal businesses and would ultimately lead to the loss of American jobs."

NASA is increasingly focused on its science missions, reports Joel Achenbach: "Life is tough these days at NASA, the space agency that can’t launch anyone into space. It wrestles with basic questions: Where to go? How to get there? When? And for what purpose? But even as NASA goes through this awkward transition in human space flight, the agency has one bright spot: science. NASA’s scientific missions -- robotic probes, telescopes, satellites -- are bringing Earth, the sun, the solar system and the universe into sharper focus. Science at NASA is not without serious problems, a fact expected to be reflected in the Obama administration’s budget request Monday."

Adorable animals being adorable interlude: Newborn dingo pups are sleepy and small.

Energy

Political concerns are slowing environmental action from the White House, reports Juliet Eilperin: "After pushing through some of the most sweeping and contentious environmental measures in years, the Obama administration has slowed action on several policies as it calculates what it should undertake before the end of the term. Rules aimed at curbing emissions from cars and light trucks are on hold because the White House has yet to give the Office of Management and Budget the go-ahead to review them. And a proposal to regulate soot, ready last fall, will not be issued before June. Several of the regulations hanging in the balance have broad support among not just environmentalists but key industries as well as hunters and anglers. But they could impose new costs on consumers and certain sectors of the economy, which has sparked opposition and complicated the administration’s political calculus."

A government consultant urged changes to energy loan programs, reports Steven Mufson: "A White House consultant’s report said Friday that the Energy Department should bolster its ability to assess loan guarantee risks in the wake of the Solyndra bankruptcy, and urged the department to 'aggressively strengthen its position' before more borrowers turn to the government for relief. The report said that losses from the $23.4 billion in loan guarantees made since 2009 are expected to be $2.7 billion, less than anticipated when Congress authorized money for the loan program. It said that the risk of failure was particularly high among the loan guarantees handed out to cellulosic ethanol projects, solar manufacturing firms and start-up auto manufacturing companies. The $2.7 billion would be in addition to losses from a half-billion dollars of loans to Solyndra."

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

 
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