Search

Obama’s Budget Proposal Benefits Students, Highways

By Derek Wallbank and Roger Runningen
March 05, 2014 9:55 AM EST 147 Comments
A Senate staff member picks up a copy of President Barack Obama's Fiscal Year 2015 Budget at the Senate Budget Committee room in Washington, D.C., on March 4, 2014.
Photographer: Andrew Harrer/Bloomberg
A Senate staff member picks up a copy of President Barack Obama's Fiscal Year 2015 Budget at the Senate Budget Committee room in Washington, D.C., on March 4, 2014.

President Barack Obama’s $3.9 trillion budget proposal would benefit low-income families, college students, researchers and highway users, setting the tone for Democratic priorities in an election year.

In turn, Obama is asking more from airline passengers, U.S. multinational companies and high earners who would pay a “fair share tax” to pick up the tab for the added spending.

“The budget is not just about numbers, it’s about our values,” Obama said at a Washington grade school yesterday as his fiscal 2015 plan was released. “It’s a roadmap for creating jobs” in part through education, while it “adheres to the spending levels” agreed to by Congress, he said.

Related:

Obama’s spending blueprint for the year starting Oct. 1 is a snapshot of his political priorities that often align with those of Democrats seeking re-election in November. It also emphasizes differences with congressional Republicans, who immediately rejected the Obama budget and probably will offer one of their own soon.

“Folks just aren’t taking it very seriously, because it’s not a very serious document,” said Senate Minority Leader Mitch McConnell, a Kentucky Republican.

A budget agreement passed by Congress limits discretionary spending -- about 29 percent of the 2015 budget -- at $1.014 trillion, excluding war funding. The White House says its budget stays below that ceiling, while making some additions.

Deficit Reduction

Obama’s budget plan would continue the federal government’s trend toward deficit reduction while boosting spending for education and infrastructure.

It projects a $649 billion deficit this year. The shortfall is projected to shrink in each of the next three years to a low of $413 billion in 2018 before rising again.

The deficit-to-gross domestic product ratio is projected at 3.7 percent this year, dropping to 3.1 percent next year, a level most economists consider manageable. It measured 9.9 percent when Obama took office in 2009.

Obama’s plan includes $56 billion in what the White House calls “additional investments,” split between defense and domestic priorities and including education, research and development.

The budget plan would pump about $302 billion over four years into infrastructure projects such as roads and bridges.

Gasoline Tax

The proposal includes a four-year fix to patch a gap between receipts from the 18.4 cents-per-gallon federal gas tax and planned spending from the Highway Trust Fund on roads, bridges and mass transit. The change would aid users including trucking companies that would benefit from better roads and bridges without paying an increased usage fee.

The plan includes $60 billion over 10 years to expand the earned income tax credit for childless workers and $66 billion to support preschool programs for all children. The preschool would be paid for with increased taxes on tobacco that the administration said would raise $78 billion over 10 years. Congress took no action on those proposals last year.

The budget would make permanent the American Opportunity Tax Credit, benefiting about 11.5 million families and students with an average of more than $1,100 to help pay college costs. Another proposal would simplify tax treatment of 9 million Pell grant recipients.

The budget includes $7 billion for disaster relief and another $1 billion annually for wildfire suppression, reflecting an increasing fire risk in the Western U.S.

‘Fair Share’

The White House emphasized $598 billion in tax increases for the wealthy over 10 years that includes adopting the so-called Buffett Rule, which would impose a “fair share tax” on upper-income families to collect a projected $53 billion over a decade.

Obama proposed raising about $100 billion over the next decade through new taxes and restrictions on U.S. multinational companies.

That would affect digital goods, deductions for “excessive” interest and so-called hybrid arrangements that can lead to income that isn’t taxed in any country, according to the budget. In all, the budget plan seeks to raise $276 billion over the next decade from international tax changes -- 75 percent more than was sought in last year’s proposal.

Those changes “would move the U.S. economy in the wrong direction,” Business Roundtable President John Engler said in a statement. The group represents major company chief executive officers.

Crop Insurance

Crop insurance companies and farmers who purchase crop protection against natural disasters and revenue loss would be hurt under the plan. Obama said the U.S. could save $14 billion over 10 years by reducing subsidies that benefit farmers along with Wells Fargo & Co. (WFC) and Ace Ltd., the two biggest sellers of policies.

Companies that rely on the federal government’s discretionary spending may face “very constrained growth” over the next six years, Bloomberg Industries Analyst Brian Friel said. That could limit companies that rely on the government for most of their revenue, including ManTech International Corp., Engility Holdings Inc. and Booz Allen Hamilton Holding Corp. (BAH)

“The limits that the federal government placed on spending largely avoided Medicare and Medicaid, so you still see a lot of growth for companies exposed to health,” Friel said. He said they include HealthSouth Corp. (HLS) and Humana Inc. (HUM), which draw most of their revenue through federal health programs.

‘Foreseeable Future’

That growth could continue “until Congress decides to tackle entitlement reform, which is not for the foreseeable future,” Friel said.

Lockheed Martin Corp., Northrop Grumman Corp., and Huntington Ingalls Industries Inc. are among defense contractors whose programs won backing in the Pentagon’s $495.6 billion budget plan. Companies that would lose under the budget include Boeing Co., Austal Ltd. and General Dynamics Corp.

The F-35 Joint Strike Fighter from Bethesda, Maryland-based Lockheed received a boost in the budget, with plans to buy 34 of the jets, up from 29 ordered this year. The Defense Department would buy more Global Hawk surveillance drones from Falls Church, Virginia-based Northrop while retiring aging U-2 surveillance planes. Virginia-class submarines built by Newport News, Virginia-based Huntington and Falls Church, Virginia-based General Dynamics would get $6.3 billion.

Combat Vehicle

General Dynamics would lose out under the Pentagon’s proposal to cancel development of the Army’s Ground Combat Vehicle. The Defense Department’s decision not to conduct negotiations to buy more than 32 Littoral Combat Ships, compared with the 52 initially proposed, is a setback for Henderson, Australia-based Austal and Lockheed, which build separate versions of the vessel.

The proposal to retire the A-10 Warthog airplane would be a loss for Chicago-based Boeing, which has a contract to build new wings for the aircraft.

Avoiding deep funding cuts were Florida-based GEO Group Inc. (GEO) and other private-prison companies that the government increasingly relies on to lock up foreigners facing deportation. Reductions have been sought by Democrats who joined Obama’s push to revamp immigration law to allow foreign citizens to remain in the U.S.

Detaining Immigrants

Obama’s budget includes $1.3 billion to detain a minimum of 30,539 immigrants facing deportation every day. While that’s down from the current level of 34,000, some of Obama’s fellow Democrats want the requirement removed.

The president’s plan calls for automatic enrollment in individual retirement accounts costing $14.7 billion over a decade, and expansion of child care and dependent tax credits for $9.6 billion over 10 years.

The president proposed $143 billion in incentives for manufacturing research and clean-energy programs to create jobs. Of that amount, $108 billion would be earmarked for a research and experimentation tax credit.

The $56 billion for additional investments would be offset with spending cuts or tax increases. The plan would raise airline security fees by $5 billion, cap tax-preferred savings accounts like IRAs and block people who receive disability benefits from also collecting unemployment benefits.

Obama is recycling a proposal from last year to limit the value of itemized deductions and other tax preferences to 28 percent for the wealthiest Americans, which in 2014 would affect the top 3 percent of families.

Overtime Abuses

The budget plan includes a 19 percent increase in financing for the Labor Department’s Wage and Hour Division, to $269 million, allowing the unit to hire 300 investigators to crack down on overtime abuses. The division that enforces the minimum wage, overtime and child labor would focus on “industries and employers most likely to break the law,” according to a White House statement.

House Republicans plan to offer a budget that they say will balance within 10 years, a contrast from the White House’s plan.

House Budget Committee Chairman Paul Ryan called the president’s budget a “campaign brochure.” The Wisconsin Republican said in an e-mailed statement, “The president has just three years left in his administration, and yet he seems determined to do nothing about our fiscal challenges.”

Obama’s budget “is the most irresponsible yet,” said House Speaker John Boehner, an Ohio Republican. “In the president’s vision for our future, America’s budget never balances –- ever.”

To contact the reporters on this story: Derek Wallbank in Washington at dwallbank@bloomberg.net; Roger Runningen in Washington at rrunningen@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net; Steven Komarow at skomarow1@bloomberg.net

More related content »