Obama’s budget tradeoffs leave vital steps missing

"It's significantly less bad than the Republican budget - but it's not going to bring down unemployment in my hometown in Wisconsin." That was a comment by one Madison, Wis., reporter at a Feb. 14 White House press conference where Gene Sperling, chair of the president's Council of Economic Advisors, answered questions about President Obama's newly announced budget for fiscal year 2012.

"Education, innovation, infrastructure are the 'win the future' investments the president will demand," said Sperling, "but there will be many cuts that go beyond simply eliminating waste and redundancy, cuts that will hurt." The cuts are in the name of "the national consensus on the necessity of reducing the budget deficit."

On the investment side, here are the chief White House proposals:

* An 11 percent increase in education, investing in 100,000 new science, technology, engineering and math teachers, and a $1.4 billion new investment in early childhood education. In addition Pell Grant funding is increased by over 20 percent.
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* A 60 percent increase in transportation investments over six years, maintaining the current system and building out the transit and rail infrastructure. This includes an immediate $50 billion investment, and $30 billion for a National Infrastructure Bank, to attract private capital to partner in these investments.

* Doubling of energy efficiency research, development and deployment, increasing renewable energy investments by over 70 percent and vital investments in a national electric grid. Take away current tax subsidies to oil and coal industries.

* Double basic research at the National Science Foundation, the Department of Energy's Office of Science, and the National Institute of Standards and Technologies. The budget would also invest $15 billion in a national broadband network.

All these investments are absolutely necessary. The problem is: most if not all of this money will take years to have any significant impact on employment.

Proposed budget cuts:

Many of the proposed cuts will cause real-life pain, especially to low income families, including:

* Cuts to the Low-Income Home Energy Assistance Program (LIHEAP).
* Cuts to community development block grants and community service block grants.

In addition to line-item cuts, Obama is proposing a five-year budget freeze on "non-security discretionary spending," which will throttle any further direct stimulative action.

In all, nearly a trillion dollars is cut from the deficit, two-thirds through spending cuts, one-third through revenue increases.

Proposed revenue increases:

* The budget reprises Obama's campaign pledge to allow the Bush-era tax cuts for the wealthiest 2 percent of Americans to expire.

* The budget permanently extends middle-class tax relief for individuals earning less than $200,000.

* The current preferential tax rate on capital gains and dividends would increase from 15 percent to 20 percent for upper-income people.

*The president proposes budgeting for the annual patch of the alternative minimum tax (to protect middle-income earners) that will produce $321.3 billion (over 10 years) in savings.

* The president also proposes redirecting $46.2 billion (over 10 years) from tax breaks for the fossil fuel industry (oil) to funding electric cars, reducing buildings' energy use, and doubling renewable energy sources.

The use of the tax code to incentivize an industrial policy is less efficient than direct spending. If public policy is to build out an infrastructure that private capital will not spontaneously create because of excessive risk, a direct contract is the shortest, and cheapest, path to a planned result.

What will be the impact of this budget on unemployment? Not much. Can there be any solution for the budget with real unemployment at 10 percent or above? Not really. Is this the best we can do, as a country, in the midst of this crisis? No, it is not.

The Republican budget is much worse of course, proposing $500 billion in cuts. It is a fraud, in fact, since they will not touch the biggest item that causes the deficit, namely unemployment, about which the Republicans propose nothing, either long or hort range. Rather than their proclaimed "win the future," economist Paul Krugman calls the GOP approach "eating the future" since they propose investing only in the military, salted with further tax cuts for the rich.

Unfortunately, by agreeing to remove military spending and additional direct government hiring from the table, the administration's hopes for a progressive industrial reform may find its foundations firmly planted in mid-air. How can any serious progress be made if war and unemployment are not a primary focus of "constraints" and "belt-tightening"?

Clearly the political equation must change in Congress and the states before an economic recovery can happen. U.S. capitalism, as it is presently being governed, seems unable to correct itself. No one can make the reforms that recovery requires happen except the people themselves. Egypt, Tunisia and people across the globe are beginning to say "Enough!" It's time for a popular upheaval here too. Enough! Jobs, Jobs, Jobs!

 

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