President Obama's 2016 Budget Is Not A Middle-Class Manifesto
“Meet the new prez, same as the old prez.”
That bastardization of an old lyric by The Who promptly popped into my head upon learning this week that the White House is again floating the “chained CPI” as a means to whittle down its benefits obligations, through Social Security as well as other programs. Little more than two weeks earlier, Sen. Bernie Sanders (I-VT), who had been working closely with the White House on its fiscal-2016 budget, said President Obama had assured him that the budget would not contain the controversial change, which would apply a stringier formula to the cost-of-living adjustments Washington makes every year.
Yet here's what White House press secretary Josh Earnest said Tuesday: “We’re certainly open to that conversation with Republicans if they want to have a genuine conversation about strengthening Social Security. But frankly, we’ve not gotten a lot of serious willingness on the part of Republicans to engage in that conversation.”
Maybe not—and in any case, the chained CPI is mentioned nowhere in the budget that the White House submitted to Congress this week. But the fact that Obama told Sanders one thing about this very sensitive matter, which could greatly reduced benefits for everyone from Social Security recipients to military and civil service retirees to food stamp recipients—some 80 million people, all told—and then apparently put it back on the table, illustrates an important point about presidential budgets: they are bargaining chips, not blueprints.
The budget is the only matter before Congress that lawmakers—and the president—really have to act on every year, even if they do so in a chaotic and piecemeal fashion. But the numbers and the principles behind the budget, once they hit the hard reality of closed-door conferences where decisions finally get hammered out, are malleable. Anything goes.
Obama's budget, like every president's, tells us what he would like us to think he wants—and no more. This year, his party's progressive wing of his party is applauding him for producing a budget that, the White House says “lays out a strategy to strengthen our middle class.”
The storyline here is that, with no more elections to fight, Obama is liberated from the need to pacify the deficit hawks and can now fight for the progressive vision he always held. The proof is that the chained CPI isn't in the budget (oops), and that it calls for rescuing the trust fund for Disability Insurance by shifting funds from Social Security's Old Age and Survivors Insurance fund, rather than attacking benefits, as congressional Republicans would prefer. In fact, Obama makes no proposals to “reform” Social Security at all. Obama is, at last, “un-chained."
Not exactly. “It's a mixed bag,” Josh Bivens, research and policy director at the Economic Policy Institute, says of the president's budget. “The irony is that the elements that are the most bold and progressive are the ones with the dimmest chance of passing, while the weakest stuff is where there could be some negotiation with the GOP.”
On the positive side, Obama lays out a plan to raise at least $1.5 trillion in new taxes over 10 years by—among other things—boosting the capital gains tax rate of the wealthiest households from 23.8% to 28% and applying a separate capital-gains levy to some inheritances. He would lower the corporate tax rate from 35% to 28% (25% for manufacturers), apply a minimum 19% tax to profits that American companies keep overseas, and slap a one-time, 14% tax on profits that they repatriate from foreign countries. Revenues on that one-time charge—estimated at $268 billion over ten years—would be used to rebuild infrastructure at home.
At the other end of the income scale, Obama would expand the tax credit for child care, create a new tax credit for two-earner households, and require employers to offer participation in their retirement plans to any worker who puts in at least 500 hours a year for three years. That would give an additional 1 million workers access to employer-based plans like 401(k)s. In another move to encourage saving by people with no regular employment, the president is also asking for $6.5 million for a pilot project that would help states to set up their own individual retirement accounts with automatic enrollment or 401(k)-type accounts.
Whatever his longer-term intentions toward Social Security, the president's budget would expand it by allowing lawfully married same-sex couples to receive benefits regardless of where they live. Currently, if they live in a state that doesn't recognize same-sex marriage, they get nothing. This is an important step toward making gay marriages equal to heterosexual marriages. Obama is also asking for a $707 million increase in the Social Security Administration's operating budget. This would enable it to reverse the cuts in hours at local offices that have made it harder for the SSA to serve beneficiaries—many of them elderly or disabled—and reduce the backlogs of pending hearings on disability benefits.
What kind of tax system do we want?
The hard-core Republican congressional leadership will no doubt oppose these measures for the less affluent, but cost-wise, they amount to peanuts. The critical issue is whether Obama really means it when he says he wants to make the tax system—distorted by decades of Reagan- and Bush-administered “reforms” and riddled with loopholes for the 1%—more progressive. There are many reasons to be skeptical. That new, 19% tax rate on foreign profits is supposed to make it less onerous for American companies to bring their money home, generating more tax revenues. That goes a little in the right direction—but not very far.
“We should take the bias out of the system that favors companies taking their assets overseas,” says Bivens. “For that, we would just apply the US corporate tax rate to any earnings wherever received, with no deferral for leaving there, as at present. Given that this issue very much in play, I wish the president had been bolder.” Revamping corporate taxes is one of the areas where Washington insiders see the potential for an Obama deal with the Republican, however. Since the Republicans' longtime ambition has been to eliminate all taxation on companies' foreign earnings, going to the conference table arguing for a 19% rate “is not a very strong opening bid,” Bivens says.
It's another ominous sign that Obama caved almost instantly to demands that he reinstate a tax benefit for 529 college savings accounts after congressional leaders—including, in an unusual tag-team effort, Boehner and Democratic minority leader Nancy Pelosi—applied pressure. As Rep. Chris Van Hollen, ranking Democrat on the House Budget Committee, put it, “This particular proposal undercuts the message that they were focused on helping the middle class.”
Yet about 80% of benefits from 529 plans go to households with incomes above $150,000 and 70% to households making more than $200,000 (http://www.offthechartsblog.org/obamas-education-tax-proposals-a-big-step-forward/). And it's not as though Obama was proposing to wipe out the plans. Assets could continue to accrue tax-free; savers would only pay taxes when they withdraw funds, just as with 401(k)s. As Robert Greenstein of the Center on Budget and Policy Priorities told New York Times blogger Thomas Edsall, “The implications of this debacle are troubling. If we can’t reform a tax break that is highly inefficient and gives the overwhelming share of its benefits to high-income people who don’t need the benefits to engage in the desired activity (in this case, going to college) … then it’s going to be awfully difficult to address a number of the challenges the nation faces in the years ahead.”
Just as troubling, the White House wants to means-test Medicare by raising premiums for individuals with higher incomes and adding a premium surcharge for new beneficiaries who buy Medigap coverage—changes that would shift some $70 billion of costs from Medicare to individuals over 10 years. The budget also would add a copayment for home health care—adding to the burden faced by families with aging relatives. “But more affluent people already pay substantially higher premiums,” says Bivens at EPI, “and especially with projected health care costs already really slowing down, the idea that we continue to need to talk about premium fixes just isn't convincing.”
Regarding Social Security, the president hasn't got the message, either. While much of his party—including Sanders, now the ranking member of the Seate Finance Committee—advocate expanding the program, Obama is again toying with the idea of cutting it. His notion of how to help working households concerned about their ability to retire in comfort, instead, is to some modest moves to encourage IRA and 401(k) savings.
What remains to be seen is which elements of his budget are there merely to appeal to the working households Obama has so often ignored, and which ones could form the basis of a budget deal with the GOP. Republican leaders have been tossing hints for weeks that a deal on corporate taxes may be possible, suggesting the president's proposals for taxation of foreign profits—weak as they are—may be a starting point for negotiations. The fact that he's proposing to pass on more costs to Medicare recipients, and is placing the chained CPI back on the table, signals that a deal to cut Social Security and Medicare may not out of the question either. We already know that Obama and the GOP leadership see eye-to-eye on NAFTA-like trade deals in Europe and the Asia-Pacific region, even if many lawmakers of both parties—and the public—oppose them.
Maybe the president's budget is a middle-class manifesto. But that may only be what he wants us to think.