Commentary | Budget, Taxes, and Public Investment

President Obama’s 2012 budget: An analysis of the budget cuts

The FY 2012 budget request submitted by President Obama reflects many of the ideals and priorities he laid out in his State of the Union address. While Obama’s speech provided the rhetoric behind his vision, his budget request delivers the details. In short, Obama’s budget attempts to balance deficit reductions with priority investments. The budget contains funding in areas such as research and development, high-speed rail, and biomedical research at the National Institutes of Health, but it also engages in a series of tough, and in some instances damaging, budget cuts.

Budget Cuts

President Obama is proposing a number of budget cuts, many of which he and other administration spokespeople have been highlighting in an effort to show they take deficit reduction seriously. Outlined in the section of the budget titled “Terminations, Reductions, and Savings,” the administration is proposing 211 such actions that will save more than $33 billion in 2012 alone, essentially doubling the amount of cuts  proposed in Obama’s FY 2010 budget request, and about $10 billion more in reductions than he proposed last year. And these proposed cuts should have a good chance of actually occurring: the Obama administration has, in the past, been more successful at getting proposed terminations and reductions actually passed compared with other administrations. Obama saw 60% percent of his proposed discretionary cuts become law for 2010, while other recent administrations have seen only between 15% and 20% of their proposed discretionary cuts approved by Congress.  

While some of these cuts are to programs that have been found to be redundant or wasteful, many others are being levied on programs that provide important services, and “about whose mission the administration cares deeply” (according to its FY 2012 Budget).

Nonetheless, many of these cuts will cause real-life pain. These include cuts to the low-income home energy assistance program (LIHEAP), community development block grants (CDBG), and community service block grants (CSBG).  The administration is proposing cutting $2.5 billion, or about half of the 2010 enacted funding, from LIHEAP. Though it justifies this cut by stating that returning LIHEAP funding to 2008 levels lowers it to where it stood prior to the energy price spikes, this cut unnecessarily targets an important low-income service. In 2010, 8.3 million households relied on LIHEAP for heating and cooling assistance. The National Energy Assistance Directors’ Association has estimated that cutting LIHEAP funding would eliminate assistance to 3.5 million low-income households. And though energy prices may drop, many people also have lower incomes today, due to the recession, than they did in 2008, meaning the need for this type assistance is likely to remain as high as it was in 2010.

Similarly, cutting funding to CSBG (from $700 million to $350 million) and CDBG ($4 billion to $3.7 billion) would harm communities that rely on these grants to support local initiatives that aid community and economic development. The Urban Institute found in a 2002 report that “larger CDBG investments are linked to improvements in neighborhood quality.” Though the administration claims to care about community-building investments such as these, and laments the difficulty of these cuts, at the end of the day such cuts are unnecessary, and can and should be avoided as the antidote to high deficits.

Budget Freeze

Along with the proposed line-item budget cuts, President Obama is pursuing a five-year freeze on non-security discretionary spending. This freeze – which is meant to serve as an extension of last year’s proposal to freeze non-security discretionary spending for three years – will cut the deficit by just over $400 billion in the next decade (last year’s proposal yielded $250 billion in deficit reduction over the same time period). The freeze is an aggressive effort to restrain non-security discretionary spending, and as the administration has been touting, would bring non-security discretionary funding to its lowest level as a share of GDP as it has been since the Eisenhower administration. If enacted, the reduction from pre-recession levels (2007) to 2020 would bring down domestic appropriations from 2.7% of GDP to 1.9% – a 30% reduction. While the freeze does contribute to deficit reduction, it all but ensures that the battle to create jobs and engage in future economic growth will be limited.

Overall, the budget request includes more than $1 trillion in total deficit reduction, with two-thirds of that coming from spending cuts and the rest resulting from revenue increases. Obama’s budget succeeds in dropping the deficit to 3.2% of GDP by 2015, and 3.0% of GDP by 2017 (the level his fiscal commission was charged with bringing deficits to). In fact, for the entire second half of the 10-year budget window, Obama’s budget has the country running sustainable deficits of around 3.0% each year.

GOP Spending Cuts

On Feb. 11, the House Appropriations Committee, led by Chairman Hal Rogers, detailed line-by-line cuts Republicans would like to make in the continuing resolution (CR) to fund the rest of this fiscal year, after the current CR expires on March 4. If enacted, it would be the first time in history a CR would include actual spending cuts. Compared to 2010 enacted budget levels, this plan would result in $60.8 billion in cuts; it would cut $100 billion relative to Obama’s FY 2011 budget request. Specific cuts in funding the rest of FY 2011 would include, for example, $5 billion to agriculture programs, $4 billion to energy and water development, almost $10 billion to the Department of Education, and $14 billion from the Departments of Transportation and Housing and Urban Development.

Prior to calling for these cuts, the Appropriations Committee had called for $74 billion in cuts to government funding for the rest of the fiscal year. The day after that number was publicized, many House members publicly said that cuts of that magnitude did not go far enough. In fact, cuts of that magnitude would significantly undermine programs that offer services and help to people who especially need it during a time of economic weakness and high joblessness. And while Republicans have been quick to label most Democratic initiatives as “job killing,” cuts of that magnitude would result in hundreds of thousands of additional job losses.  Cuts of $74 billion would likely lead to job losses of around 700,000,  while cuts of $100 billion, which Speaker John Boehner called for as early as last fall, would result in job losses of closer to 1 million

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