The President released his fiscal year 2015 budget stating that his goal is “to speed up growth, strengthen the middleclass, and build new ladders of opportunity into the middle class,” all while reducing budget deficits.
There is much to like in the budget proposal. Mr. Obama wants to expand the Earned Income Tax Credit for childless workers, which will encourage work and reduce poverty. He also provides additional funds for child care, education, research, and infrastructure. To pay for this he proposes to eliminate various tax loopholes for hedge fund managers and multinational corporations.
Seeing as how this budget proposal has virtually no chance of outmaneuvering the GOP blockade, its chief value is to demonstrate a vision of America that better addresses the core economic problems of the middle and working classes. And in this vein, the President’s budget could have been better.
The Administration projects that budget deficits would increase from 3.1 percent of GDP in 2015 to 3.4 percent of GDP by 2024 in the absence of any policy changes (this is the baseline budget deficit, which is almost a current law baseline). Over the 10-year budget window, accumulated deficits would be about $7.0 trillion. The President is proposing a budget that would have deficits shrinking from 3.1 percent of GDP in 2025 to 1.6 percent of GDP by 2024; accumulated deficits would be less than $5.0 trillion over this period. Of the $2 trillion in deficit reduction, over 80 percent is due to increases in federal revenues and the rest is due to spending reductions.
However, the part of the budget dealing with education, research, infrastructure investments, and many other investments (the items that increase future economic growth)—known as nondefense discretionary spending—increases by only $50 billion over 10 years. Under the President’s proposal, this spending falls from 3.2 percent of GDP in 2014 to 2.2 percent in 2024. If nondefense discretionary spending were to stay constant at 3.2 percent of GDP over the next 10 years, then the U.S. would be investing an additional $1.5 trillion in our economy and our future.
The President’s budget proposal could have been better in providing for more jobs and future opportunities. And even without additional revenues in the out years, deficits could be reduced compared to the current law baseline budget.
There is much to admire in President Obama’s budget proposal, especially compared with the previous alternatives proposed by Congressional Republicans, who have telegraphed that they will propose to gut the social safety net in their next interaction. However, as a document outlining what the federal government can and should do to invest in our collective future, the President’s budget fell short.