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Compromised: President’s Budget, Another Attempt to Reach Fiscal Deal

   President Barack Obama’s FY 2014 budget is unlike any previous presidential budget request in recent history. It is not a statement of the president’s vision for the federal budget. It does not represent what he thinks is the best course of action for spending, taxation and broader federal fiscal policy. It is not his preferred budget plan. For the first time ever, it is a preemptive compromise budget.
Michael-Linden-Point-mugLinden   It includes more than $1 trillion in additional spending cuts, on top of the $1.9 trillion that the president has already accepted and signed into law. It includes significant changes to entitlement programs, and further cuts to a portion of the budget that was already cut to historic lows. And it includes far less new revenue. All told, President Obama’s compromise budget would raise less revenue and set government spending at approximately the same levels as the much-ballyhooed bipartisan plan proposed by former Republican Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles in 2010. By that standard, the president’s compromise budget is to the right of Simpson-Bowles.
   And yet, for all his willingness to make major concessions, conservative leaders in Congress appear to have rejected the compromise out of hand.
   This immediate refusal is remarkable and indefensible when you consider the full scope of the deficit reduction it contains. Since the start of FY 2010, Congress has already passed and the president has signed into law about $2.4 trillion of deficit reduction. Of that, nearly three-quarters were spending reductions. When you add to that the additional spending cuts that the president is willing to accept, the totals swell to approximately $3 trillion in spending cuts and to about $1.3 trillion in revenue. This is a ratio of well over $2 in cuts to every $1 in revenue, compared with the ratio of spending cuts to revenue increases in the Simpson-Bowles proposal, which was only about 1.4-to-1.
   Indeed, in nearly every portion of the federal budget, the president signaled his willingness to accept policies that fall far short of what he considered optimal in the past. His new compromise budget includes additional cuts to a category of spending known as “non-defense discretionary.” This actually includes most of the critical, foundational public services and economic investments that make up the day-to-day operations of the federal government. Despite this, it has already absorbed enormous spending cuts as the lion’s share of the programmatic spending cuts that Congress already passed was directed at this one category of spending. As a result, funding for everything from education to highways to food safety is now - even without more cuts - projected to decline to its lowest levels on record.
   The president’s budget also again signals his willingness to make significant changes to entitlement programs. “Again” is an important descriptor here. In this new compromise budget, he upped his offer to $400 billion in reforms to federal healthcare programs.
   The president also proposed $200 billion in changes to other mandatory programs and included a change to the way that inflation, or “chained CPI,” is calculated. These changes would reduce Social Security benefits, producing another $130 billion in reduced spending. This proposal to change the indexing formula for Social Security is an especially large concession.
   All told, the president is proposing more than $1 trillion in additional cuts. What is he asking for in return? The president’s budget includes only $580 billion in new revenue, plus another $100 billion in additional tax revenue generated from the switch to chained CPI. The deficit reduction to date is already significantly tilted toward spending cuts. Even combined with the $600 billion in revenue generated from the American Taxpayer Relief Act, better known as the fiscal cliff deal, that still leaves him well short of the revenue of his previous budgets, which were already lower than the levels proposed by bipartisan experts.
   Of course, compromise means both sides giving up something to reach an agreement. Moreover, the president’s specific proposals for how to raise that revenue are equally reasonable. Right now, itemized deductions and income exclusions benefit higher-income households more than middle- and low-income households. President Obama’s budget wouldn’t eliminate these breaks for anyone, but would limit their value for higher income tax payers so that the benefits aren’t quite so skewed. That alone would raise $530 billion.
   His compromise proposal also includes $50 billion in immediate job-creating investments - an absolute necessity given the fact that getting our budget in order will be impossible if unemployment remains high. Indeed, his reforms largely mirror those proposed by the Center for American Progress. The president also proposed some additional cuts to military spending, though certainly less than he could have.
   But it is outside the confines of his compromise budget offer where one can find the president’s best ideas. One is his call to expand quality pre-kindergarten to all 4-year-olds, an important step toward ensuring the country’s future competitiveness in a global economy.
   Unfortunately, most of these good ideas are relegated to a kind of second-class status. They’re not part of the president’s compromise budget, despite the fact that each would not add to the deficit or debt. As a result, the president’s budget is fundamentally constrained. It is constrained not by actual fiscal limits, but by perceived political limits. Those constraints have produced a budget offer that looks decidedly compromised when compared to the president’s previous budget plans, when compared to other progressive budget plans and even when compared to bipartisan budget plans.
   Michael Linden is the managing director for economic policy at the Center for American Progress.

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