Budget Watchwords: Austerity and Contraction

Below is a brief overview of the budget proposal President Obama sent to Congress today. In the coming days, CRD Associates will be posting more details on specific sections of the fiscal year 2013 budget.

Given the nation’s mounting debt and political pressures to reduce spending, it’s no surprise that the $3.8 trillion budget President Obama unveiled today will probably get short-shrift from congressional lawmakers. Grand ideas are a hard sell when the projected deficit for next year tops $901 billion and the debt ceiling deal enacted last August already reduced discretionary spending by $1 trillion over the next 10 years.

Indeed, the president himself has upped the stakes by proposing an additional $3 trillion in deficit reduction, half of which would be derived from new revenue, $278 billion from mandatory spending and $360 billion in savings to Medicare, Medicaid and other health programs.

The $1.5 trillion in new revenue assumes that the Bush tax cuts of 2001 and 2003 would expire for high-income earners and that the “Buffett rule” will be adopted, i.e. those with an annual income in excess of $1 million will pay no less than 30 percent of their income in taxes, while deductions will be capped for those making more than $250,000.

An ambitious list of domestic initiatives contained in the president’s proposal is financed largely by reduced spending on the wars in Iraq and Afghanistan. While budget hawks will argue that those savings should be applied against the deficit, the president would plow some of the war savings funds into a $50 billion down-payment on a six-year highway and infrastructure modernization program, $30 billion to modernize 35,000 schools, and another $30 billion to help states and school districts retain and hire teachers and first responders.

Also on the education front, the president proposes to sustain the maximum Pell Grant award of $5,635 through academic year 2014-2015 and provides $8 billion to the Departments of Labor and Education for state and community college partnerships with businesses.

The budget also proposes a five percent increase in non-defense R&D programs, including the National Science Foundation, the Energy Department’s Office of Science and the National Institute of Standards and Technology Laboratories. Funding for the National Institutes of Health would be held at the fiscal year 2012 level of $30.7 billion.

The president’s budget submission will serve as the starting gun in what is likely to be a long and contentious battle. Presidents typically use an election-year budget not to effect policy change, but to lay out a blueprint of priorities for their second term.

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