2012 Budget Proposal - Research Paper Example

Budget Proposal: Presidents FY vs. The House of Representatives FY May 28, Outline: Introduction……………………………………………………………………………….. 3 The House of Representatives FY 2012 Budget Proposal………………………………... 3 Presidents FY 2012 Budget Proposal……………………………………………………... 5 Comparison between the Budget Proposals………………………………………………... 9 Introduction The economy of the United States continues to be a central concern for voters at a time when the national unemployment rate is 9 percent. Overspending and mismanagement have left the country on the edge of bankruptcy. The relentless taxing, spending and borrowing of the government are now leading United States toward a debt-fueled economic crisis. The national debt of the United States continues to grow in 2011, which pushed the budget proposals from the President and the House of Representative to be announced earlier than usual. In February, President Obama began the longer-term discussion of the budget proposal offering a $3.7 trillion 2012 budget. Such cut-and-invest agenda would create winners and big losers because the President’s budget proposal presumes using the money from some domestic programs to reduce the deficits and increase spending for education, clean energy, infrastructure, innovation and research in order to promote long-term economic growth and global competitiveness of the United States. Definitely, there are certain differences between the Presidents FY 2012 budget proposal and The House of Representatives FY 2012 budget proposal, which will be discussed further in the current paper. President Obama emphasized that the administration needs to construct a new foundation for long-term economic growth with pillars necessary to win in the world economy. Such pillars include an educated and skilled workforce, cutting-edge research into the innovations to power the industries of tomorrow, a modern infrastructure to support a growing, high-tech economy, and the jobs to support a growing middle class. As a result, Americans now face a monumental choice about the future of their country. The House of Representatives FY 2012 Budget Proposal The Republican response toward the President’s call for economic changes came in April, when Representative Paul D. Ryan of Wisconsin announced 2012 budget of his party. The main three purposes of The House of Representatives FY 2012 budget proposal is to (a) lift the crushing burden of debt; (b) guarantee health and retirement security for all Americans, especially seniors; and (c) strengthen the base of economic growth and creation of the jobs (Becker, 2011). Paul Ryan informed that the plan would reduce the deficit by $5.8 trillion over the next decade. It can be accomplished due to deep cuts in discretionary spending programs and turning Medicare into a "defined benefit, under which seniors would get vouchers to purchase private insurance. Medicaid would get smaller as the federal contribution to state programs would be limited. Ryan also proposed to reduce the top corporate and individual tax rates to 25 percent, which Republicans consider as a move to the improvement of the American economic competitiveness. According to MSNBC.com (2011a), Republicans consider spending cuts for 2012 proposed by the president as not significantly enough. At the same time, some Democrats think that the $3.73 trillion plan cuts too deeply into programs for the poor. The budget plan by Mr. Ryan was passed by the House on April 15 with a vote of 235 to 193. Four Republicans voted against it while not a single Democrat voted for the plan (Becker, 2011). Despite the possible political dangers of offering changes inside such popular programs as Medicare, the Republicans were convinced that their big victories in the midterm elections would allow them to push for sweeping cuts. However, in early May the Republican leaders decided to back away from the Medicare plan since it might not pass the democratically held Senate. In their turn, a group of lawmakers in the Senate from both Republican and Democratic parties is trying to develop a long-term plan for reducing the deficit. Since there is little or no trust in the government at all from the Americans, the House of Republicans is confident that a responsible and sustainable budget can focus the government on its critical responsibilities. There are several major proposals that are worthy of special attention in the current paper. One of them is to provide $692.50 billion for national defense spending in FY 2012 as the mount, which is consistent with America’s military goals and strategies. At the same time, it was offered to reduce the inefficient spending by $178 billion, $100 billion of which will be reinvested into key combat capabilities and the rest $78 billion will be used for deficit reduction (Becker, 2011). Other important proposals are related to the concern of rapidly rising costs of health care in the United States. The choice is between putting the government in charge of increasing costs of health care (but in this case, bureaucrats will get a chance to determine the prices and dictate treatment options for doctors and patients) or giving patients more control in the health care spending (in this case, competition in the marketplace will control the costs, expand access and improve quality). Moreover, the government will be able to save around $26 billion over the next ten years if it starts dealing with improper payments under such programs as Medicare, Medicaid, Disability Insurance, Unemployment Insurance and others. The FoxNews journalist Peter Wallison (2011) wrote that one of the main myths that has grown up around the budget debate in Washington is that spending cuts and tax increases are just two sides of the same coin. However, neither Republicans nor Democrats would like to agree for Presidents budget. That is why, the following consensus has been suggested: the Republicans agree to tax increases while the Democrats agree to spending cuts. Presidents FY 2012 Budget Proposal On April 12 President Obama announced a plan called for cutting the nation’s budget deficits by $4 trillion over the next twelve years, which is believed to be a more balanced approach partially toward spending cuts and tax increases for the wealthy (The New York Times, 2011). Mr. Obama conceded a need to cut spending, rein in the growth of entitlement programs and close tax loopholes. He also insisted that the government must maintain what he called investment in programs that are necessary to compete globally. Despite his compromise with Congressional leaders in December 2010, Mr. Obama would fight Republicans to end lowered tax rates for wealthy Americans that have been in place since President George W. Bush championed them in the last decade. President Obama also proposed a “debt failsafe” trigger that would force lawmakers into much more severe action if the deficit has not contracted significantly by 2014. According to MSNBC.com (2011b), President Obama defended his new budget proposal emphasizing that the most difficult decisions about the nations biggest expenses, including Medicaid, Medicare and Social Security, should be addressed by both Republicans and Democrats, but not be dictated by White House. The president pointed out that the $3.73 trillion budget he proposed is a balance between spending certain amounts on necessary programs and significant reductions in other fields that would eventually reduce the deficit by $1.1 trillion over the next ten years. The following are the key budget facts: The budget includes more than $1 trillion in deficit reduction (two-thirds of it from cuts) and puts the nation on a path toward fiscal sustainability so that by the middle of the decade, the government will be paying for what it spends and debt will no longer be increasing as a share of the economy; The President meets his pledge to cut the deficit he inherited in half by the end of his first term; Five-year non-security discretionary spending freeze will reduce the deficit by over $400 billion over the next decade and bring this spending to the lowest level since President Eisenhower sat in the Oval Office; 10-year deficit reduction: $1.1 trillion, excluding war savings and not extending 2001 and 2003 tax cuts for high-income earners. Two-thirds are from spending cuts; 2011 projected deficit: $1.645 trillion, 10.9 percent of GDP; 2012 projected deficit: $1.101 trillion, 7.0 percent of GDP; 2015 projected deficit: $607 billion, 3.2 percent of GDP; 2017 Projected Deficit: $627 billion, 3.0 percent of GDP. The budget presumes $148 billion for R&D overall, including robust investment in biomedical research at NIH ($32 billion, a $740 million increase over 2010 enacted level, post-transfers), more than doubles energy efficiency research, development, and deployment funds, and continues efforts to double investments in key basic research (The New York Times, 2011). By 2015 it is expected to put one million electric vehicles on the road; by 2035 to double share of electricity from clean energy sources, and by 2020 to reduce buildings’ energy use by 20 percent. President Obama suggested that elimination of twelve tax breaks to oil, gas, and coal companies would raise $46 billion over the next ten years. It was also offered to establish twenty new Economic Growth Zones as the hard-hit areas that will receive expanded tax incentives to spur investment and employment. In case of education, President Obama offered the following changes and incentive actions: To maintain maximum Pell Grant award, helping 9 million students afford college; To pay for with more than $100 billion in savings, including eliminating year-round Pell and graduate student in-school loan subsidy; To reform K-12 school funding by supporting high standards, encouraging innovation, and rewarding success; To consolidate 38 K-12 programs into 11 that emphasize competition and evidence of what works, while also eliminating 13 education programs outright; To prepare 100,000 new science, technology, engineering, and math teachers. As part of a six-year, comprehensive surface transportation bill at $35 billion per year, the Budget creates hundreds of thousands of jobs in the short term with a $50 billon up-front investment; establishes a National Infrastructure Bank to support projects of national importance; and brings access to high-speed rail to 80 percent of Americans within 25 years. It also consolidates 60 duplicative, often earmarked programs into five. Investment will only be made if bipartisan financing is found to ensure that it does not increase the deficit. The Budget builds a next-generation, wireless broadband network to bring high-speed Internet access to 98 percent of Americans, and establish an interoperable network for public safety (The New York Times, 2011). Plan is fully paid for, and the sale of spectrum provides nearly $10 billion for deficit reduction. A five-year non-security discretionary spending freeze that will reduce the deficit by over $400 billion over the next decade and bring this spending to the lowest level since President Eisenhower sat in the Oval Office. More than 200 terminations, reductions, and savings totaling more than $33 billion in savings are presumed by the plan for 2011 alone. Half of all agencies see their top line reduced from 2010 enacted levels. The Budget offers to cut $78 billion from the Pentagon’s spending plan over the next five years, bringing defense spending down to zero real growth. Including spending related to Iraq and Afghanistan, overall defense spending for 2012 is more than 5 percent below the 2011 request. The budget proposal pays for the first two-years of “doc fix” -- which will prevent a nearly 30 percent cut in reimbursements to doctors in Medicare and keep them seeing patients -- with $62 billion in new, specific health care savings, including recommendations from the Fiscal Commission and recent bipartisan proposals, that will strengthen program integrity and increase efficiency and accountability (The New York Times, 2011). The Budget also offers to pay for a three-year patch to prevent an increase in taxes on middle-class families through the Alternative Minimum Tax (AMT) by limiting the rate at which high-income earners can itemize tax deductions. This would bring the rate back to where it was during the Reagan Administration. The President has called on Congress to work with the Administration on corporate tax reform that will simplify the system, eliminate special interest loopholes, level the playing field, and lower the corporate tax rate for the first time in 25 years – without adding a dime to the deficit. The President lays out his principles to strengthen Social Security and has called on Congress to work on a bipartisan fashion to keep this compact with future generations. Finally, the Budget includes important Fiscal Commission recommendations such as: federal civilian worker pay freeze, medical malpractice reform, PBGC reform, and a government reorganization initiative. The President’s 2012 budget proposal cuts more than $2 billion in administrative overhead like travel, printing, supplies, and advisory contract services. In addition, it embraces competitive grant programs based on the “Race to the Top” model applying it to programs from early childhood education through college; to allocate grants for transportation; to bring innovation to workforce training; and to encourage both commercial building efficiency and electric vehicle deployment. The President offered to start a process of government reorganization so it is better able to serve the goal of a competitive America. Finally, he encourages new “pay for success” bonds in areas where government programs have too often failed. Taxpayers will only pay the programs if they produce results. Comparison between the Budget Proposals The table below shows the comparison between FY 2012 budget proposals by the President and the House of Representative covering such issues as spending cuts, deficit, taxes, health care, jobs and others. House of Representative’s FY2012 Budget President’s FY2012 Budget Spending Cuts $6.2 trillion in spending cuts relative to President’s budget; $5.8 trillion in spending cuts relative to CBO’s current-policy baseline $400 billion in new spending above CBO’s current-policy baseline Spending Levels Brings non-security discretionary spending to below pre-stimulus, pre-bailout levels Locks in reckless spending spree Taxes Stops all of President’s taxes; Reforms the broken tax code Imposes a $1.5 trillion tax increase Corporate Tax Lowers the corporate tax rate to 25 percent to promote job creation and global competitiveness Leaves in place the highest corporate tax rate in the developed world, driving jobs overseas Size of Government Brings government down to below 20 percent of GDP by 2015; 15 percent of GDP in 2050 Spending as a percent of GDP never drops below 23 percent; Commits to the explosive growth of government Deficit Brings deficits under $1 trillion in FY2012; Reduces deficits $4.4 trillion relative to President’s budget; Puts the budget on a path to balance $1.2 trillion deficit in FY2012 marks the fourth straight deficit exceeding the $1 trillion mark Primary Balance Primary balance (spending – interest payments = revenue) is reached in 2015 Never reaches primary balance – failing to clear even the low bar the administration set for itself Debt Held by Public Reduces the debt by $4.7 trillion relative to the President’s budget; Pays off the debt over time Adds $9.1 trillion to the debt over the next decade; Accelerates a debt-fueled economic crisis Health Care Repeals the job-destroying health care law Accelerates the job-destroying health care law Jobs Spurs economic growth and job creation through real reform; According to the Heritage Center for Data Analysis, help creates nearly 1 million new private sector jobs next year Accelerates tax hikes, health care law, debt and government spending – policies that result in slower economic growth and fewer American jobs One of the most dangerous fallacies and failures of U.S. government budgeting is the belief that if the administration does not spend every penny of their allocation and ask for more, they will see their budget, personnel and area of responsibility significantly reduced. Progressive fallacies exist about spending, taxation and class warfare. As Blogs.Forbes.com (2011) wrote, another fallacy is that the president is suggesting cutting some medical care costs while still keeping government spending on military and social programs, which are not of primary importance. Conclusion If the U.S. political system cannot not gain control of its spending and its debt, the financial markets will eventually conclude that the U.S. can only meet its obligations by degrading the value of its currency; when that idea takes hold, the U.S. will have difficulty borrowing, interest costs will spiral out of control, and the country will have lost the financial and security advantages it currently derives from the power to print the currency with which it pays its bills (Wallison, 2011). Both budget plans proposed by the President Obama and the House of Representatives should be carefully analyzed by the experts in addition to taking into account the public opinion of the American people before making the final decision. According to Washington Post, the House rejected the proposal to raise the legal limit on government borrowing and the limit on the national debt from $14.3 trillion to $16.7 trillion voting 318 to 97 on May 31, 2011 (Montgomery and Kane, 2011). What is required now is implementation of the real spending cuts and binding budget process reforms. The Americans are now requesting and expecting that Washington will live according to their means and not increase the national debt even more. According to press secretary Jay Carney from White House, President Obama believes that Congress ultimately will act both to raise the debt ceiling and to rein in future borrowing (Montgomery and Kane, 2011). Due to so many debates about both budget proposals the House Republicans urged President Obama to force Democrats to offer their own budget plan on June 1 (Chaddock, 2011). Such decision occurred after numerous and repeated attacks of Democrats against the GOP budget plan. The main demagogy and disagreement related to the budget is about Medicare. Not only the federal budget for fiscal year 2012 is at stake, but also a vote to raise the national debt limit before the expected default date of August 2. Senate Democrats replied that they are not going to propose a 2012 budget, as it is required by law, because ongoing bipartisan negotiations could produce a deal. On Tuesday, June 2, only 97 Democrats voted to implement President Obamas request to increase the national debt limit without spending cuts. All Republicans and 82 Democrats voted to defeat the measure, which failed 97 to 318. The final decision about the budget plan is expected to be finalized in August this year, but till the moment the situation is unclear as there are opposite opinions about the two proposed budget plans and each of them has its own positive and negative points. House Republicans informed that they would not agree to support an extension of the national debt limit unless the White House and the Senate agree to support spending cuts equal to the increase in the debt limit that the President requests. References: Becker, B. (2011). New DNC chief: Republicans support Ryan budget at their own peril. The Hill, May 29. http://thehill.com/blogs/blog-briefing-room/news/163821-new-dnc-chief-republicans-support-ryan-budget-at-own-peril Federal Budget 2011 and 2012 — Obama and Ryan Budget Plans. (2011). The New York Times, May 5. http://topics.nytimes.com/top/reference/timestopics/subjects/f/federal_budget_us/index.html?scp=1&sq=Presidents%20FY%202012%20Budget%20Proposal&st=cse Fiscal Year 2012 Budget of the U.S. Government. Office of Management and Budget. http://www.budget.gov Montgomery, L. and Kane, P. (2011). House rejects proposal to raise debt ceiling. The Washington Post, June 1. http://www.washingtonpost.com/business/economy/house-rejects-proposal-to-raise-debt-ceiling/2011/05/31/AGVISkFH_story.html?hpid=z1 Obama’s Budget: Progressive, Wrong and Proud. (2011). Blogs.Forbes.com, April 24. http://blogs.forbes.com/deanzarras/2011/04/24/obamas-budget-progressive-wrong-and-proud/ Obama unveils $3.73 trillion budget for 2012. (2011a). MSNBC.com, February 15. http://www.msnbc.msn.com/id/41575850 Obama: U.S. budget challenges demand compromise. (2011b). MSNBC.com, February 15. http://www.msnbc.msn.com/id/41597246/ns/politics-white_house/ Wallison, P. (2011). Cut Spending + Raise Taxes = Budget Problem Solved? Its Not That Easy. FoxNews.com, May 31. http://www.foxnews.com/opinion/2011/05/31/cut-spending-raise-taxes-budget-problem-solved-easy Read More