Obama proposes job measures & tax reforms in 2013 federal budget
The Obama administration today presented a $3.8 trillion budget that seeks to create jobs by investing heavily in transportation infrastructure programs and to reduce the deficit by letting the 2001 and 2003 Bush tax cuts expire at the end of the year.
Under the proposed 2013 budget, the yearly federal deficit would be reduced by $400 billion, from $1.3 trillion in 2012 to $900 billion in 2013. The budget also projected modest economic growth with a slight drop in unemployment next year. The Gross Domestic Product (GDP) is forecasted to grow by 2.7% in 2012 and 3% in 2013, and the unemployment rate is expected to improve from 8.9% in 2012 to 8.6% in 2013.
Faced a fragile economic recovery, the President’s budget had to strike a difficult balance between spurring job and economic growth through key investments and targeted tax incentives while reigning in the federal deficit with a combination of spending cuts and tax revenue increases.
“By reducing our deficit in the long term, what that allows us to do is to invest in the things that will help grow our economy right now. We can’t cut back on those things that are important for us to grow. We can’t just cut our way into growth. We can cut back on the things that we don’t need, but we also have to make sure that everyone is paying their fair share for the things that we do need,” said President Barack Obama.
To encourage job creation and economic growth in the short-term, Obama proposed significant investments to improve the nation’s aging infrastructures, including roads, bridges, railways, wireless and broadband systems, and electrical grid. In addition, the budget would increase federal funding for research and development in medicine, cybersecurity, nanotechnology, and clean energy. Spending for advanced manufacturing R&D will grow by 19% in 2013.
To reduce the deficit in the long-term, the administration would oppose the extension of the 2001 and 2003 Bush tax cuts for families with incomes more than $250,000 per year or individuals with incomes more than $200,000 per year. “These policies were unfair and unaffordable when they were passed, and they remain so today,” Obama stated. Allowing the Bush tax cuts to expire for high-income earners only would reduce the deficit by $968 billion in the next 10 years.
Other tax reforms put forward by the President include the elimination of special tax breaks for big oil and gas companies; tax deductions that disproportionately benefit the top 2% income earners; and closing the ‘carried interests’ tax loophole that allows hedge fund managers, private equity partners, and other financial managers to pay only 15% in taxes despite reporting millions in their annual incomes. In all, the proposed changes would restore the progressivity of the tax code (so that higher income earners would pay a higher share in taxes than lower income earners) and reduce the nation’s deficit by about $1.5 trillion over the next decade.
“We built this [budget] around the idea that our country has always done best when everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules. It rejects the ‘you’re on your own’ economics that have led to a widening gap between the richest and poorest Americans that undermines both our belief in equal opportunity and the engine of our economic growth,” Obama wrote in his letter to Congress.
Overview of the President’s Proposed 2013 Federal Budget
Key Spending Cuts
$1 trillion cuts to discretionary spending over the next 10 years as required by the Budget Control Act of 2011
- To accommodate the $487 billion defense budget reduction, the Pentagon is revamping U.S. forces to confronting security challenges in the post-Iraq and Afghanistan era. The Defense Department will shift its focus to the Asia Pacific and the Middle East regions. Investments in intelligence, surveillance, and reconnaissance capabilities will be emphasized, and the force structure will be scaled back following the end of two large-scale, prolonged military operations in Iraq and Afghanistan.
- The remaining cuts were applied to non-defense discretionary spending, which funds education, transportation, welfare, public health, veterans’ benefits, justice, and environmental programs.
- If Congress fails to cut another $1.2 trillion from the federal budget by the end of the year, then automatic across-the-board cuts – known as “sequestration” – will take effect on Jan. 1, 2013.
$360 billion cuts to Medicare, Medicaid, and other healthcare programs over the next 10 years
- “The goal of these reforms is to make these critical programs more effective and efficient, and help make sure our health care system rewards high-quality medicine. What it does not do—and what I will not support—are efforts to turn Medicare into a voucher or Medicaid into a block grant. Doing so would weaken both programs and break the promise that we have made to American seniors, people with disabilities, and low-income families—a promise I am committed to keeping,” Obama stated.
$217 billion cuts to other federal spending
- Cuts will impact agricultural subsidies, federal employee retirement and health benefits, unemployment insurance, and other programs
Key Tax Reforms
- Let the 2001 and 2003 Bush tax cuts for high-income earners expire, saving $980 billion over 10 years
- Simplify the tax code while lowering the overall tax rate
- Eliminate generous tax breaks for millionaires
- Close the “carried interests” tax loophole that allow millionaire financial managers to pay only 15% in taxes
- Require households making more than $1 million a year to pay no less than 30% in income taxes (known as the “Buffett Rule”)
- End tax deductions for manufacturers that ship jobs overseas
- End tax breaks to oil, gas, and coal companies, saving $41 billion over 10 years
Key Tax Credits
- Extend the payroll tax credit and unemployment insurance benefits until the end of 2012
- Offer tax credit of 10% of wages (up to $500,000) for small businesses that hire new employees
- Offer tax incentives for manufacturers who create jobs in United States
- Make the Research and Development tax credit permanent
- Make the American Opportunity Tax Credit – of up to $10,000 per student for four years of college – permanent
Key Funding Requests
- $475 billion over six years to repair and improve roads, railways, and inter-city rails
- $10 billion to build public safety broadband network and expand wireless broadband access
Non-Defense Research & Development
- $30.7 billion to National Institute of Health to fund biomedical research, develop therapies and cures for diseases
- $2.2 billion for advanced manufacturing research and development
- Maintain the maximum Pell Grant award of $5,635 through 2014-2015
- $850 million Race to the Top to fund education reform
- $80 million to train and hire more 100,000 math and science teachers
- Continue funding programs to help the U.S. reach the following goals: putting 1 million electric vehicles on the road by 2015; doubling share of electricity from clean energy sources – wind and solar – by 2035; and improving energy efficiency of commercial, industrial, and residential buildings by 20% by 2020.
- WhiteHouse.gov: Proposed budget for fiscal year 2013 (PDF)
- WhatTheFolly.com: Transcript: President Obama’s remarks on the FY2013 federal budget
- WhatTheFolly.com: CBO report shows extending Bush tax cuts will raise deficit
- WhatTheFolly.com: CBO projects U.S. deficit to reach $1 trillion, unemployment to remain above 8% in 2012
- WhatTheFolly.com: State of the Union 2012: Obama emphasizes economic fairness & shared responsibility
- WhatTheFolly.com: How the 2001 and 2003 Bush tax cuts benefit the wealthy
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