Obama's 2013 budget: 10 takeaways

Obama's 2013 budget: 10 takeaways

President Obama’s 2013 budget will be released publicly on Monday at 11:15 a.m., but senior administration officials gave a preview of what the president will ask for. 

Here’s a guide to what the White House wants spending and taxes to look like in the next fiscal year.

1. What is the total debt and deficit reduction?

Last year, the 2012 budget release involved major suspense since it was unclear if Obama would embrace the deficit cutting proposals of his fiscal commission. He did not, instead offering $1.1 trillion in deficit reduction instead of $4.3 trillion. Obama got hammered politically for this.

This year, Obama will include $3 trillion in deficit reduction based on his September 2011 recommendations to the failed debt supercommitee.


Administration officials said $1.5 trillion will be in new revenue, $278 billion in mandatory spending cuts such as to farm subsidies and $360 billion in healthcare reforms.

The deficit for 2012 will be forecast to be $1.33 trillion in 2012, higher than 2011, and higher than the $1.15 trillion that the Congressional Budget Office forecasts.

The difference with CBO's estimate is due to stimulus spending that Obama administration is seeking, including extension of the payroll tax cuts and extension of jobless benefits.

Officials highlighted that by the end of 2022, the deficit would be $704 billion, 2.8 percent of the economy. They said that this would "stabilize" the growth of the national debt.

2. What are the economic assumptions for this year and this decade?

The White House said this week that the economic assumptions in the budget of 8.9 percent unemployment in 2012 is too dire and were compiled before the economy gained steam in December and January. Unemployment fell to 8.3 percent in the most recent Labor Department reports. Updated figures are due out later this month in the annual Economic Report of the President.

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Steve Bell of the Bipartisan Policy Center points out that mid-decade figures will be key to scrutinize. In last year’s budget, the Obama administration forecast real gross domestic product to rise to 4.4 percent by 2013. CBO last month predicted 1.1 percent growth in 2013. Higher growth helps Obama’s budget meet its deficit reduction targets since growth raises revenue and lowers safety net spending.

3. What baseline “tricks” are there?

CBO uses a “current law” baseline that assumes everything currently scheduled to take effect happens. This means for example that the Bush era tax rates expire.

In contrast, OMB assumed last year that the Bush era rates for couples making less than $250,000 per year are extended. This makes the baseline deficit larger because there is less revenue and allows Obama to claim greater deficit reduction. If a current law baseline is used, then Obama would be charged with increasing the deficit by $1.3 trillion for extending the middle class Bush tax cuts.

Another major baseline effect involves “war savings” from the drawdown of troops in Iraq and Afghanistan.  The September supercommittee recommendations racked up $1.1 trillion in deficit reduction from counting this war savings. The GOP calls that a “gimmick.”

4. What does Obama do on the automatic cuts triggered by the August deal?

When the supercommittee imploded, $1.2 trillion in cuts over ten years were triggered under the August deal.

Defense hawks want to turn off the $500 billion in cuts to the Defense department. 

Obama will assume in his budget tables that the automatic cuts to discretionary spending do not occur and instead are replaced with other savings and revenue.

5. What does Obama do on entitlements?

The September recommendations included a number of smaller Medicare reforms including higher premiums for wealthy users and changing drug reimbursement policies. He has so far not outlined a plan that would deal with Medicare’s long-term demographic challenge. Experts do not expect him to do so, giving the GOP a chance to once again draw a contrast.

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It will also be important to look at how much savings Obama expected to get from the Independent Payment Advisory Board for Medicare. The GOP calls this healthcare rationing by bureaucrats.

Nothing is expected on Social Security.

6. What tax changes are included?

President Obama will once again lay out principles for corporate and individual tax reform including that it raise $1.5 trillion for the deficit.

Senior officials said that elements of the budget on tax reform will contain some details but a more complete corporate tax overhaul will be presented by the end of February.

Experts are looking to see detailed budget scores for the “Buffett rule” and a new minimum tax for multinationals that Obama unveiled in the State of the Union address. The "Buffet rule" mandates that millionaires pay no less than 30 percent of their incomes in taxes and caps deductions for those making more than $250,000.

Costs of new tax breaks for domestic manufacturers that Obama discussed in the SOTU will also be included.

7. What does it do to create jobs?

Obama in the fall called for the passage of a $447 billion American Jobs Act stimulus plan. The budget scales this back to $350 billion in stimulus, including an long-term extension of the payroll tax holiday.

The lower stimulus spending reflects the fact the payroll tax break and jobless benefits were already expended for two months and the fact the administration originally wanted a deeper payroll cut.

8. How is Defense spending handled?

Defense Secretary Leon Panetta in recent weeks unveiled how the Pentagon will find more than $487 billion in savings over the next ten years. This savings are mandated in the August debt deal. The cuts would reduce total ground troops by 100,000 and the budget should clarify where the cuts come from exactly.

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An additional $500 billion in cuts called for by the August deal to be excluded. This will likely anger liberals who want to see more cuts to defense.

9. Are there cuts to programs that are liberal priorities?

Obama got heat last year for proposing to cut low-income heating assistance (Liheap) in half and for proposing to gut Community Development Block Grants. These cuts were pared down in final spending bills. It remains to be seen if  Obama will include any sacred cows again.

10. Is Obama still trying to “win the future” on green energy?

The big rhetorical theme from last year was “winning the future” and this will probably be replaced this year. "Winning The Future" involved increased green energy subsidies paid for by closing oil and gas loopholes. It will be interesting to see if Obama scales this back in light of the Solyndra scandal.