Obama Budget Proposal 2014: 6 Things To Look For

on April 10 2013 9:00 AM

A fiscal 2014 budget proposal from President Barack Obama -- due since February -- will finally see the light of day Wednesday, weeks after the Senate and House each presented their own plan.

Congress has had to pass continuing resolutions to fund agencies and prevent a government shutdown.

Though both chambers of Congress have put forward 2014 budget resolutions in an attempt to return to normal order, there is still much dysfunction. Each budget proposal passed its respective chamber along partisan lines, and neither is expected to succeed in the other’s domain. Their profound differences mean negotiations about fixing the government’s pocketbook will start with the sides far apart.

For one, the House resolution prepared by Budget Committee Chairman Paul Ryan, R-Wis., does balance the budget in a decade. It does so with deep cuts to entitlements, a $5 trillion spending reduction, while counting on the $600 billion in new tax revenue from the “fiscal cliff” and another $700 billion in savings the healthcare law, or Obamacare, which Ryan wants to repeal.

On the other hand, the Democratic proposal by Sen. Patty Murray of Washington is seeking $1.85 trillion in savings over 10 years. This will be done through increase tax revenues and spending cuts. That resolution would also repeal the sequester -- a series of automatic, across-the-board spending cuts that took effect last month.

Though it is more than 60 days late, Obama’s budget blueprint, containing entitlement cuts and tax hikes, could well be the starting point for discussion. 

“It is a package and it would be a mistake to think you could take it apart and still have bipartisan support,” Treasury Secretary Jack Lew told NPR.

“The president has never said ‘take it or leave it.’ That’s just not his approach to negotiation, but it’s also not the beginning of this conversation,” he added. “We’ve had two years of intense back and forth and negotiation. I think some of early responses suggest that others may read it as a starting point and I would just caution them that that is a mistake. That’s not the way to go to find the sensible center to resolve these issues.”

Neither is being entrenched in ideology that is crippling progress. Changes to Social Security can spill into discussions of income and race, as well the safety net and taxes -- all contested issues. Still, there are many parts to the program that can be easily adjusted to save money -- retirement age and size of benefits for example -- that could attract bipartisan support if attractively presented.

With that said, here’s what we may see in Obama’s 2014 budget proposal:

Chained Consumer Price Index (CPI) Formula

Obama flirted with the idea of chained CPI, a new inflation formula that would reduce cost-of-living increases for government programs like Social Security, during last year’s fiscal cliff talks with Republicans. He will present the offer again despite Democratic backlash -- but only in a deal where Republicans accept tax hikes, he says.

The problem is the CPI inflation adjustment will quickly push more people into higher tax brackets, including the middle class, which Obama vows to protect from higher taxes. The White House has said such changes in calculation will be contingent on taxes.

On Friday White House Press Secretary Jay Carney explained that chained CPI is not Obama’s “ideal approach to our budget challenges, but it is a serious compromise proposition that demonstrates that he wants to get things done.”

Tax Reform

Experts don’t expect the president to ask for higher tax rates, but some do think he will be calling for closing loopholes and limit tax deductions for the wealthiest 2 percent of taxpayers.

Mattea Kramer, research director at National Priorities Project, thinks no new tax revenue will come from corporations, so expect a revenue-neutral tax reform on that regard. According to the Tax Policy Center, last fiscal year, corporate tax expenditure amounted to $151 billion.

“It forces taxpayers to choose which deductions to take up to a certain level,” she said.

Politico Pro reported Tuesday that Obama will use his budget to urge Congress to overhaul the corporate tax system in a revenue-neutral way.

Increased Early Childhood Education Funding

During his State of the Union Address in February, the president flaunted a free universal pre-kindergarten program for 4-year-olds. Experts estimated such a plan will cost between $10 billion and $25 billion a year, according to reports. The money to pay for the program could come from raising taxes on tobacco products, according to the New York Times.

But early childhood isn’t the only area that could see some cash infusion. High-priority areas like infrastructure and research could get some additional funding.

Replace the Sequester -- Maybe

The automatic spending cuts known as a sequester are set to bite harder this month. Whether Obama will replace the law he signed on March 1 and account for it in his budget or increase spending above sequester levels is still unclear. He has been asking for a mixture of tax increases and spending cuts in order to repeal the law, but Republicans refuse a tax increase and are willing to let sequestration continue.

Medicare, Other Entitlement Cuts

In the past, Obama has proposed cutting Medicare payments to providers and drug companies. We can look out for that in today’s budget – about $400 billion worth reported CNN -- but there will be no change for beneficiaries. Speaking of cuts, certain long-standing issues like reducing farm subsidies could be revisited.

Those who are reaping unemployment and disability benefits could see a limit placed on dual eligibility, according to Kramer.

Defense Spending Cut Or Not?

Like the sequester, it is a bit unclear what Obama’s plan for defense spending is at this time. It is possible that a budget for the Pentagon will comply with 2011 budget laws, despite the sequester reducing defense spending by about $40 billion this year.

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