Shortly after getting Congress to pass his economic stimulus bill, worth $787 billion, Barack Obama has again presented Congress with his plan for the federal budget for next year. Under our constitutional system, the President has the responsibility to make the budget, but Congress must debate its proposals, amend it if they choose, and then vote on the final package. While the current version of Obama’s 2010 budget, worth $3.6 trillion, $1.2 trillion being borrowed, is not likely to stay in its current form, it nevertheless gives us insight into his presidential priorities and where he would like to take the country.
Not surprisingly, Obama’s budget, which combines new federal spending into education and healthcare programs along with tax increases on America’s wealthy and oil and gas industries, has provoked conservative opposition. It is for this reason that this brief is being written as the controversy over this budget is bound to follow extempers throughout the coming month, a month when state tournaments are on the horizon.
This brief will break down what Obama’s budget contains, criticisms of the budget (along with some arguments about why these criticisms are wrong), and the impacts this budget could have for America.
The Budget Itself
Obama’s $3.6 trillion budget offers a very different view for America than many previous presidential administrations. Obama looks into funding domestic priorities such as healthcare, education, alternative energy, and disaster relief programs at the expense of subsidies and tax breaks for agriculture, oil and gas companies, and for wealthy Americans, who saw a boon from the Bush tax cuts of 2001.
One primary focus area of the Obama administration in the budget is for clean technology. In the proposed budget, investments in cleaner forms of energy would receive tax breaks while natural gas, oil, and other sources of energy would see their past subsidies and tax credits expire. The decline in these subsidies for energy and agriculture will likely see the federal government acquire an additional $12.7 billion in revenue over the next decade. In fact, as The Wall Street Journal indicated yesterday, up to $31.5 billion in oil and gas company preferences are set to expire over the next decade under the Obama plan. And it does not end there for these companies. The New York Times on March 2nd noted that the budget calls for a $4 per acre fee to be levied against companies for energy leases in the Gulf that are designated to be non-producing. Thus, a clear strategy in the Obama budget is to have these taxes fund alternative energy development, a pledge that Obama made on the campaign trail.
In terms of healthcare, Obama’s budget sets aside a $634 billion reserve fund to begin the path towards a universal system of healthcare coverage for Americans. Healthcare experts say that to fully fund a universal healthcare system the United States would need to spend $1 trillion over the next ten years, and clearly this “down payment” in reserve funds by the Obama administration in the budget signals an intention to pursue universal healthcare reform. This message has already been echoed by the administration in anticipation for a healthcare summit with Congressional leaders and healthcare interests on Thursday. As The Christian Science Monitor of March 2nd indicates, of this $634 billion, half of it is funded by future tax increases, and the other parts come from promised efficiencies in Medicaid and Medicare as well as getting drug companies to sell drugs at a lower cost to Medicare recipients. Spearheading this future reform will be Obama’s second pick for Health and Human Services Secretary, Kansas Governor Kathleen Sebelius (barring any tax trouble of course on her part).
For education, an area that received over $100 billion of funding in the recent economic stimulus package, the Obama administration continues its commitment by increasing education funding by $5.3 billion. Under the Obama plan, the Department of Education would receive $46.7 billion more, a continuing increase from a Bush years (and an amazing 12.8% increase) and the government would save $4 billion by no longer subsidizing college loans from banks. Instead, as USA Today pointed out on February 28th, Obama would have the federal government increase its direct college loans to students, beefing up a program Bill Clinton began during his first term, increase Pell Grant for low-income students, and invest more money into ensuring that more students graduate from college. Finally, Obama would increase education programs in low-income communities such as providing funding for preschool, nutrition education, and parenting classes.
Criticisms
It is not surprising that conservatives, believing that their path back to power is to resist many of Obama’s “big government” initiatives, are criticizing the budget as not being of sound economic policy. Conservatives allege that the plan is economic suicide by choosing to have the Bush tax cuts expire during a period of prolonged economic recession. Some allege that these tax cuts will inflict the same damage on the economy that Herbert Hoover’s tax hikes did in 1932, passed during the height of the Great Depression. However, as White House Budget Director Peter Orszag states, the Bush tax cuts are not set to expire until 2011, at a time when the economy should be in good shape and the recovery already solidified. Nevertheless, conservatives argue that since the wealthiest Americans are the ones who will be providing the jobs any economic recovery will need, it is not a wise idea to tax them, even if an economic recovery starts prior to 2011.
Critics also allege that Obama’s taxes on oil and gas companies will prove counterproductive for two reasons. First, industry supporters argue that once taxes are raised on these companies they may choose to invest less, especially since prices for these resources are low on the current market. Faced with low market prices and high taxes, these companies will have very little incentive to increase production and the world could face a supply crunch of these resources sooner rather than later. Second, there is the argument that these companies might eventually pass the higher costs onto consumers, which might hurt the same working class Americans Obama is pledging to help. After all, higher natural gas costs could hurt Americans next summer when their winter heating bills arrive, especially if the economy is still in a prolonged recession.
Budget analysts also question the funding of the Obama budget. As was said earlier in the brief, $1.2 trillion of the Obama budget is coming from borrowed money. This is criticized for increasing America’s reliance on foreign borrowers, especially China, who has not shown a firm willingness to continue to buy American debt, despite the pleas of Hillary Clinton that they should continue to do so last week. Also, analysts question how Obama believes he can draw down the Iraq and Afghan wars enough to save $1.5 trillion over the next ten years. This would necessitate savings of over $100 billion for the next ten years. Obama’s budget pegs $50 billion next year for the wars, but this year’s budget has $142 billion pegged, meaning that Obama will need to find those massive savings fast. Supporters of Obama argue, though, that while this measurement may not be perfect, at least Obama is factoring the two wars into his long-term budget plans, unlike President Bush, who chose to fund the wars “off the books.”
Impacts
Obama’s budget clearly sends a signal that his administration will focus heavily on domestic priorities and Obama is fulfilling many of his campaign pledges. During the presidential campaign, Obama pledged to look into a model of universal healthcare coverage and he has clearly moved in that direction with the reserve fund he has set up to prepare for that model. Obama’s spending on other domestic priorities reinforces his view that the government can be an agent of good in American life, prompting some political commentators to call him the “anti-Reagan”, someone who thinks that big government can solve just as many problems as anti-government supporters believe it creates. Obama’s belief in government as the answer is where he will hinge his re-election hopes for the presidency, because if the government fails to solve the current economic trouble as well as social concerns about healthcare and the environment, the Democratic Party, and Obama in particular, will be blamed. Like the New Deal and the Great Society, Obama’s budget calls for significant increases in domestic spending and only time will tell if his spending proposals will go down with the same good or bad press as those two major government initiatives.
The second major impact of the Obama budget is that it will test the willingness of wealthier Americans to fund a larger share of the federal budget. Obama promised to raise taxes on Americans making over $250,000 a year during the campaign, and he is going to fulfill that pledge by allowing President Bush’s tax cuts to expire. Already Obama is painting this battle as being one of the people versus special interests, setting the stage for a conflict that will last until the end of his first term. If wealthy Americans, or Republicans for that matter, fight against Obama’s budget plan, they risk being painted as “uncompassionate” to the plight of working class American problems. This is because they would be opposing the funding of popular initiatives such as health insurance and education programs for poor children.
The final impact of this budget, and the most pressing issue for those sick extempers who love domestic social issues, is that Obama will send America down the road towards universal healthcare. By setting aside the funding, Obama has signaled that this program is closer to reality than at any time in American history and its chances of passing are much greater than during the Clinton administration. This is because unlike back then, Obama is having a bipartisan meeting to discuss proposals, something that Hillary Clinton failed to do, thereby alienating powerful Congressional allies. The summit that Obama has called to discuss healthcare reform also allows Obama to “steal” ideas from across the aisle and paint them as his own, while appearing to be bipartisan and looking for new ideas to improve his program. Therefore, with these budget proposals in mind, extempers need to start increasing their domestic healthcare file because it is bound to grow over the coming months.