“Today President Obama released his budget request for fiscal 2013. In a welcome departure from last year’s intense focus on budget cuts, this budget focuses more heavily on the still-massive unemployment crisis. The proposal starts by investing $350 billion in job creation, more than $300 billion of which will occur in fiscal years 2012 and 2013. These proposals draw heavily from the American Jobs Act, the package of job-creation measures the president proposed to the Joint Select Committee (i.e., the Super Committee) last September. Included in the 2013 budget’s jobs package are an upfront investment in transportation infrastructure, the repair and modernization of at least 35,000 schools, aid to states and local governments to retain or rehire teachers and first responders, an extension of emergency unemployment benefits, and an extension of the payroll tax holiday. While we would argue that these proposals provide less fiscal support than the economy still needs, the budget wisely does reflect the reality that too-rapid fiscal tightening could impede the current economic recovery.
“The largest single investment in the president’s budget—a $476 billion transportation reauthorization—represents a $125 billion increase in investments in roads, bridges, and transit systems over 10 years relative to spending levels projected under current laws. These investments are vital to long-run economic growth and global competitiveness, and are in sharp contrast to the recent House GOP bill to slash transportation investments over the coming years.
“On the revenue side, this year’s budget goes further than prior Obama administration budgets in restoring tax-code progressivity and revenue that eroded under the administration of George W. Bush. As with previous budgets from Obama, the 2013 budget proposes to end the Bush-era tax cuts and limit tax preferences for upper-income households. But this year’s budget also proposes comprehensive tax reform in the form of a “Buffett Rule” that would ensure that the tax rate for taxpayers with incomes over $1 million (a group that accounts for only 0.3 percent of households but over 13 percent of all taxable income) doesn’t fall below 30 percent. The need for the Buffett Rule is largely driven by the preferential tax treatment of investment income over work income. The budget also proposes curbing this preferential treatment by reinstating taxation of qualified dividends as ordinary income and raising rates on capital gains for upper-income households.
“No budget is perfect, and this one is no exception. One area that disappoints is discretionary spending. The president proposes to maintain the very restrictive discretionary budget caps in the Budget Control Act, which would bring nondefense discretionary spending down to its lowest level as a share of the economy since Eisenhower. This section of the budget includes vital public investments in infrastructure, education, and R&D, along with portions of the safety net, economic development, consumer protection, public safety, and environmental protection.
“EPI will be releasing more in-depth analyses over the next few days on our blog, Working Economics.