Populism And Pain In Obama's Budget Proposal

By Karen Dolan, cross-posted from Other Words

Mitt Romney said it this way:

"I'm not concerned about the very poor. We have a safety net there. If it needs a repair, I'll fix it. I'm not concerned about the very rich, they are fine....I'm concerned about the very heart of America."

President Barack Obama said it this way:

"We can restore an economy where everybody gets a fair shot, everybody does their fair share, everybody plays by the same set of rules — from Washington to Wall Street to Main Street. That’s the America we believe in."

Both want to appeal to a hurting middle-class electorate. Only one has a populist message with appeal and effect. He most likely will win re-election in 2012.

Obama's $3.8 trillion 2013 budget proposal, with its 10-year outlook, is by design a populist campaign tool. Though not politically viable now, his newly released budget is critically important in this election year both for the values it reflects, the vision it promotes and the potential it promises.

Obama's budget has a populist tone, appeals to the middle class, and has some good proposals, both on investment and revenue-raising. But it also reflects the strict spending caps mandated this past summer by the Budget Control Act and hits some struggling families hard. It doesn't go nearly far enough in revenue-raising. For instance, it does't propose a tax on financial transactions that would curb Wall Street's worst speculation or propose significant corporate tax reform that would actually raise needed funds. And, by reducing non-security discretionary spending from its current 3.1 percent of GDP to a 50-year low of 1.7 percent over the next decade, a lot of pain will set in when the populism starts to wears off.


Let's start with the good. Among the good proposals on investment side:

• The extension of the payroll tax cut and unemployment benefits through the end of 2012.
• School modernization and plans to retain teachers and first responders.
• Project Rebuild which helps to match unemployed in distressed communities with those communities'  infrastructure needs.
• A small business tax credit that incentivizes new hiring.
• Increased child care funding.
• Improvements in Earned Income Tax Credit and Child Tax Credit.
• Tax incentives for manufacturers that keep and create jobs here in the United States.
• A National Infrastructure Bank that would fund projects that increase sustainable transportation and infrastructure investment.
• A total of $850 million in Race to the Top education proposals intended to improve the quality of education from early childhood through higher education.
• Efforts to make college more affordable through sustaining Pell grant funding, keeping interest on student loans from increasing, and reining in tuition hikes.
• A 7 percent increasing in new biomedical research grants.
• Support for a more sustainable economy through goals of increasing electric car production, doubling the share of "clean energy" electricity sources, and reducing the energy consumed by buildings by 20 percent by 2020.

And, among good proposals on the revenue side:

• Support sustainable energy and environment innovations by eliminating 12 tax breaks to the oil, gas, and coal industries by $41 billion over the next 10 years.
• Spend $487 billion less on the military over the coming decade.
• Make the "Buffet Rule" law, ensuring that millionaires pay a 30  percent tax rate on un-earned income.
• Let the Bush Era tax cuts for families making over $250,000 a year expire.

On to the bad. Here are some aspects of Obama's proposed budget that aren't as good as they might first seem:

• According to the Citizen's For Tax Justice, although the Obama plan proposes revenues from letting Bush era tax cuts expire for couples making over $250,000, it makes permanent 78 percent of the Bush tax cuts at a cost of $3.4 trillion over the next 10 years.
• Obama's proposal to replace the Alternative Minimum Tax with the "Buffet Rule" may not produce any new revenue at all.
• Details remain undisclosed about corporate tax reform proposals, but Obama has suggested they will be revenue-neutral. How is that a good thing?
• Even with this modest reduction in Pentagon spending, Obama's budget proposal still leaves an extreme imbalance between military and non-military spending.

Now, for the Ugly: Last year's Budget Control Act mandated $1 trillion in discretionary cuts. Much of that must come from programs that low-income people rely on for critical human needs. After a hard year of cuts in 2011, this budget proposal calls for a devastating 14 percent cut in social spending. Here are some examples where cuts occur:

• Health care services, career opportunities programs for low-income people.
• Children's mental health services.
• Housing for disabled people.
• Housing for people with HIV/AIDS.
• Rental Assistance benefits for low-income people.
• Home heating assistance for low-income people.
• Community Development Block Grants which help to fund critical human need services.
• Programs in the Environmental Protection Agency.
• Programs in the National Park Service.

This budget proposal will appeal to the middle class and puts Obama in a more popular position than Romney as the 2012 presidential election season heats up. But while this budget has the populist thrust of cutting long-term deficit and debt by attempting to balance spending cuts and revenue increases, it falls short. It bolsters some needed programs, but unnecessarily defunds others. By not calling for all of the Bush era tax cuts to expire, not calling on Wall Street to pay its fair share through enacting a small levy on speculative financial transactions, not cutting military base and war spending deeply enough and not calling for the kind of corporate tax reform that will produce revenue, Obama is letting the 1 percent off rather easy, while the rest of us, especially the poor, shoulder  the pain.