Tuesday President Barack Obama unveiled a $3.9 trillion budget for fiscal year 2015 that includes new programs for education and rebuilding infrastructure while it also seeks to balance income inequality. “Our budget is about choices. It’s about our values,” Obama said Tuesday during a visit to the Powell Elementary School in Washington, D.C. “As a country, we’ve got to make a decision if we’re going to protect tax breaks for the wealthiest Americans, or if we’re going to make smart investments necessary to create jobs and grow our economy and expand opportunity for every American.”
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Obama Budget Winners
Obama backed off his former proposal to use a chained consumer price index to calculate social security payments. The chained CPI takes into account consumer choices made when purchases get too expensive such as substituting steak with hamburger. According to the Committee for a Responsible Federal Budget, a chained CPI would grow 0.25 percent to 0.3 percent more slowly than the current measure.
The budget would expand the Earned Income Tax Credit (EITC) to offer more to low-income workers without children. Under the new plan workers would get 15.3 cents credit for each dollar earned up to $6,570, for a maximum credit of $1,005. That amount would be set until the worker earned $11,500. From that point on the credit would be phased out until the worker earned $18,070. Under current law the credit tops out at $503 and phases out at $14,790. The EITC was first proposed by President Richard Nixon and was signed into law by his successor, Gerald Ford, in 1975. It has traditionally received bipartisan support because it provides incentives to work. The administration estimates that its changes in the EITC would lift half a million people over the poverty line, which is $11,670 for a household of 1 in 2014.
Obama also proposed expanding the child tax credit, which will affect 1.7 million Americans. Over the next six years, the spending plan would eliminate the sequester spending cuts imposed by the 2011 Budget Control Act. The budget also invests in advanced manufacturing, research and development as well as surface transportation infrastructure. The educational initiatives include $66 billion over 10 years for preschool for 4-year-olds and job-driven workforce training.
Obama’s budget spends $55 billion more than limits set by Congress’ bipartisan December 2013 budget deal, which averted another government shutdown.
Obama Budget Losers
Obama plans to pay for this “Opportunity, Growth and Security Initiative” by what the White House calls, “pro-growth tax reform,” higher taxes on the wealthy. The president wants to pass a proposal first advanced by billionaire Warren Buffett that the wealthiest Americans pay taxes at the same rate as the middle class. This so-called Buffett Rule would require that people earning more than $1 million a year pay at least 30 percent of their income in federal taxes after charitable contributions.
Obama wants to limit the value of itemized deductions, and some tax exclusions, to 28 percent. He wants to cap contributions to retirement accounts like 401(k)s and IRAs that get a tax break. The limit would depend on the person’s age and would vary due to inflation and other interest rates. The 2015 budget also includes a rise in the inheritance tax from 40 to 45 percent and a cut in the inheritance deduction from $10.6 million to $3.5 million.
Hedge fund and private equity firm managers are currently able to treat income from managed investment as capital gains instead of income so that they pay taxes at a lower rate. The Obama budget eliminates this loophole. Also worth noting, the budget raises tobacco taxes by $78 billion over 10 years.
Under the Obama budget the deficit is projected to be $564 billion, just over 3 percent of gross domestic product which is about where it was before the president took office. In 2009 during the depths of the global recession, the deficit was almost 10 percent.
The Obama budget has no chance of being passed as it stands by the Republican led House. House Budget Committee Chairman Paul Ryan of Wisconsin called it “yet another disappointment… This budget isn’t a serious document; it’s a campaign brochure.”
In fact the former Republican vice presidential nominee, proposed to cut welfare, child care, Pell Grants and other assistance programs the day before the president’s proposed budget, claiming that these programs weren’t helping the poor.
In this election year the upcoming budget battle will define for voters where their representatives stand.
Low-Income Americans Hit By Budget Cuts