President Obama’s Budget Resets the Fiscal Debate
SOURCE: AP/J. Scott Applewhite
President Barack Obama’s proposed budget for fiscal year 2015 shifts the political conversation toward our most urgent national problem: creating jobs and growing the economy. This should have been our political system’s primary focus for the past several years, but Congress instead allowed itself to get sidetracked by a misguided focus on austerity and debt. Presidents cannot control the economy, and President Obama does not have a magic wand to make Congress enact his budget. But presidents do have the power to set the agenda and focus attention on issues of their choosing. Setting the agenda on the question of how to grow the economy is among the most important aspects of President Obama’s new budget.
In 2013, the Center for American Progress called for resetting the fiscal debate, arguing that our economic challenges were more pressing than our fiscal issues. Federal debt projections had greatly improved over the past few years, while the economic outlook had grown worse. Countries around the world that embraced austerity policies saw disappointing economic results—including the United States—and the academic arguments for austerity fell apart upon closer inspection.
Meanwhile, the political gridlock created by debates over long-term debt shifted focus away from the economy and led directly to economically destructive policies. The United States does not face an imminent fiscal crisis, but acting as if we do has prevented action on our very real and immediate economic crisis.
Congress was not alone in this misguided approach; the White House also allowed unsuccessful negotiations on long-term debt to overtake their economic agenda during the debt limit standoff in 2011. Approaching the brink of default damaged the economy, and the legislation to resolve that standoff further harmed the economy by creating automatic spending cuts called sequestration. Treasury Secretary Jack Lew now calls the 2011 debt limit negotiations a mistake and says that, “There is, I think, a consensus in the world community that we need to focus on growth, that you cannot just cut your way to growth.”
In a speech at the end of 2013, President Obama declared “A relentlessly growing deficit of opportunity is a bigger threat to our future than our rapidly shrinking fiscal deficit.” His latest budget is written with that point in mind. By focusing his budget on growing the economy—and putting efforts to achieve an elusive “grand bargain” on long-term budgets to the side—President Obama has helped reset the fiscal debate, moving away from austerity and toward economic growth and opportunity.
One of the centerpieces of the president’s budget is an expansion of the Earned Income Tax Credit, or EITC, which lifted 6.5 million people out of poverty when they received it as part of their tax refund in 2012. Conservatives also support the EITC, with Rep. Paul Ryan (R-WI) recently describing it as, “an effective tool for encouraging and rewarding work among lower-income individuals.” Taxpayers have to work to claim the EITC. Very low-income workers get a larger benefit as they earn more, until they reach the maximum benefit, after which the benefit phases down as the taxpayer’s income increases.
President Obama’s budget would expand the EITC for 13.5 million low-income childless adults. While the EITC works for families with children, the benefit for childless low-income workers is limited. President Obama proposes doubling the maximum EITC for childless adults to about $1,000; broadening the eligible age range from 25 to 65 years old to 21 to 67 years old; and increasing the income threshold at which the credit fully phases out to about $18,000. The president’s budget would also permanently extend the expansions of the EITC that were included in the American Recovery and Reinvestment Act of 2009, commonly known as the stimulus package. Those expansions delivered larger EITC benefits for families with more than two children and made the EITC available to more married couples.
In addition to targeted tax relief via the EITC, President Obama proposes an Opportunity, Growth, and Security Initiative, to increase the nation’s commitment to critical economic sectors, such as research, job training, and education. This includes building 45 new manufacturing innovation centers, doubling apprenticeships within five years, and increasing access to high-quality early childhood education. Those investments will not only create jobs now—when we need them most—but also pay dividends for years to come. Education and training make our workforce more productive, and innovation enables our businesses to compete globally.
President Obama’s budget also proposes putting Americans back to work rebuilding and upgrading the country’s sorely neglected infrastructure, including roads, rails, and other modes of transportation. The budget uses a fix-it-first strategy to make our transportation network safer and maximize the value of existing infrastructure. The American Society of Civil Engineers grades our nation’s infrastructure as a D+, so there is much work to do.
Recognizing the size of the challenge, President Obama’s budget would increase highway funding by 22 percent and provide almost 70 percent more for transit options such as buses and light rail. The budget would more than double the successful Transportation Investment Generating Economic Recovery, or TIGER, grant program, which was initially created by the American Recovery and Reinvestment Act. TIGER grants are awarded competitively to the projects that demonstrate the most economic value, often connecting different modes of transportation and encouraging local jurisdictions to work together.
Proposals such as these to create jobs and expand economic opportunity are at the center of the president’s budget, while the White House is deemphasizing efforts to strike a grand bargain on long-term debt with congressional Republicans. President Obama offered this grand bargain in writing as part of his FY 2014 budget, which included a mix of new revenues and deep spending cuts, including to Social Security and Medicare.
This year, The Washington Post characterized President Obama’s budget as calling for “an end to era of austerity.” However, the president has made clear that he stands by his earlier compromise proposal, and his budget still includes a balanced plan to address the nation’s long-term fiscal challenges. The main difference in this year’s budget is that it places a greater emphasis on economic proposals over debt reduction, in part by removing the most controversial elements of last year’s grand bargain compromise offer. Case in point: President Obama’s budget no longer cuts Social Security benefits by using a slower formula for cost-of-living adjustments called the Chained Consumer Price Index.
There are two reasons for this shift away from austerity. First, and most importantly, austerity-driven policies have hurt the economy. Second, there is no point in pursuing negotiations that have little chance of success. As Third Way President Jon Cowan said, there was no reason to keep putting long-term budget compromises on the table “…because there’s no more table, as the House GOP has refused to consider equally crucial parts of any economic bargain: new revenue and increased investments.”
Ultimately, President Obama’s ability to set economic policy is severely limited by Congress, which has repeatedly blocked many of his initiatives. Although many of the economic ideas in the president’s budget have bipartisan support, such as expanding the EITC, it is still possible that conservatives will choose to block these proposals. There is no doubt that others will have different economic ideas—and some will strongly disagree with President Obama’s solutions. But by focusing on the economy, at least we will be having the right conversation.
Harry Stein is the Associate Director for Fiscal Policy at the Center for American Progress.
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