Updated February 10th to include National Infrastructure Bank.*
As the budget world waits for the FY 2012 Budget on Monday, some new proposals from that budget have already been leaked or presented by Administration officials. Let's take a look at them.
- 5-Year non-security discretionary freeze: This is the most prominent policy change. President Obama announced in advance of his State of the Union address that domestic discretionary spending would be frozen for five years, saving $400 billion over the next ten years.
- Specified discretionary cuts: OMB Director Jack Lew laid out a small sample of the cuts the President will make in the budget: $350 million from the Community Service Block Grant, $300 million from the Community Development Block Grant, and $125 million from the Great Lakes Restoration Initiative. Also, it came out Wednesday that the budget would cut $2.5 billion from the Low Income Home Energy Assistance Program (LIHEAP), along with cuts in the Forest Service, EPA's clean water fund, and farm subsidies.
- Increased investment in high speed rail: Though there is an overall non-security freeze, some discretionary programs are sure to receive increased funding. This week, Vice President Joe Biden announced a plan to spend $53 billion over the next six years on high-speed rail. This would include about $8 billion for the upcoming fiscal year.
- Funding for Wireless Networks: Bloomberg reports that the budget will include over $10 billion to establish a national wireless network for emergency responders, $5 billion for rural broadband investments, and $3 billion for communications research. However, this will be paid for by an auction of airwaves not currently in use, valued at $27.8 billion. On net, this proposal would reduce the deficit by $9.6 billion.
- Retrofitting incentives: Last Thursday, President Obama announced the "Better Buildings Initiative", which would provide numerous incentives for retrofitting buildings to reduce energy usage. The centerpiece of that effort is an expansion of a retrofitting tax credit. Supposedly, this initiative would be paid for by ending oil and gas tax preferences. Regardless of whether or not that is actually the case, it is clear that ending oil and gas tax preferences will be in the budget, since it has been in previous budgets.
- State unemployment benefits: The Administration announced on Tuesday a plan to help alleviate state debt problems by suspending state interest payments on unpaid-for unemployment benefits for two years and prevent automatic tax increases taking effect in about half of the states. Then in 2014, the state UI taxable wage base would be increased from $7,000 to $15,000 while the federal UI tax rate would be reduced to prevent the federal government from increasing revenue. But the states would be able to bring in more revenue from the expanded base if they keep their tax rate the same; the potential revenue increase is estimated at $100 billion from 2014-2023. This change will make the unemployment benefit system more countercyclical.
- Defense cuts: Secretary of Defense Robert Gates outlined a plan in January to save and reinvest $100 billion over five years and cut $78 billion from the Pentagon budget over that same period. This is small change compared to the domestic discretionary changes, but some officials have indicated that further defense cuts will be on the way, possibly by limiting spending growth to inflation (rather than the one percent real growth it had been receiving). If the Administration is going to meet its goal of a deficit of three percent of GDP by 2015, this is likely an area that will have to do some of the heavy lifting.
- Fannie/Freddie reform?: It is being reported that on Friday, the Administration could release a report on reform of Fannie Mae and Freddie Mac. The report is likely to simply list three possible options without any specific White House backing (with the exception of a few changes). It is possible that an account for Fannie/Freddie reform could show up in the budget with significant budgetary effects.
- Electric car rebate: According to The Hill, the budget will include transforming a $7,500 tax credit for the purchase of electric cars into a rebate of the same amount that would be available upon purchase. Presumably, making this into a rebate would cause more people to take advantage of it, but it's unclear if this plan will have a budget impact.
- Revenue-neutral corporate tax reform: By definition, this will have no explicit effects on the budget and no specifics about the reform will be provided, so there is not much news here. However, past budgets have relied on closing some business loopholes. If they choose to put those savings into this account, that would diminish the amount of revenue the 2012 budget would raise.
- Holdovers from the past: Some policies that have been proposed in the past include the aforementioned elimination of fossil fuel subsidies, the limitation of itemized deductions to 28 percent, making the R&D tax credit permanent, putting a tax on banks, and reducing agriculture subsidies, among many other things. Since none of these "holdover" policies have been passed, expect to see them reprised.
- *Creation of a National Infrastructure Bank: A new release from the Treasury Department states that the President's budget will seek to, "reform our current system to promote merit-based investment by creating a National Infrastructure Bank, which will select projects on the basis of rigorous analysis." It continues by saying, "These targeted infrastructure investments are a necessary component of creating the middle-class jobs we need now and strengthening our foundation for future economic growth."
If you hear of anything else leaked about the budget, let us know.