President Obama's FY 2011 Federal Budget Lowers Taxes and Deficit

President Obama released his Fiscal Year (FY) 2011 Federal Budget on Monday calling for broad tax cuts for the for middle class families and small businesses, letting tax cuts for those making over $250,000 per year, and increasing spending on Education and Homeland Security. The president also reiterated his call for a Fiscal Commission to find a way to balance the budget by 2015. Fiscal year 2011 runs from October of 2010 through September 30th, 2011, giving Congress eight months amidst mid-term election posturing to act upon the president's proposal before it is slated to go into effect.

Fiscal Commission to Balance Budget by 2015

A statement from the White House said that the Administration supports the creation of a "Fiscal Commission charged with identifying policies to improve the fiscal situation in the medium term and... balancing the budget excluding interest payments on the debt by 2015." President Obama would also charge the Fiscal Commission with recommending changes to "address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government." The budget numbers put forth in the FY2011 Federal Budget do not include any reductions that may arise out of actions of the Fiscal Commission. Congressional efforts to create such a Fiscal Commission look likely to fail as Senate leaders say they cannot garner support to pass the Conrad-Gregg proposal, according to a report by the Committee for a Responsible Federal Budget (CFRB). The CFRB report also quoted Senator Gregg (R -NH) as calling President Obama's attempt to create a Fiscal Commission by executive order "a fraud" since a Fiscal Commission created by presidential fiat could not compel Congress to vote on its recommendations. In the absence of Congressional will to create such a panel, however, it's the White House created commission or no commission at all.

FY 2011 Federal Budget by the Numbers

The FY 2011 Federal Budget released by the White House includes a $1.267 trillion deficit for the year. This represents a reduction of $289 billion over the prior year's deficit. Total spending in the FY 2011 Federal Budget is pegged at $3.834 trillion. Including $1.415 trillion in discretionary spending. The budget includes more than $300 billion in tax cuts over the next ten years, a savings of $250 billion over the same time period from a spending freeze on "non-security discretionary spending" over the same period, a spending increase of $3 trillion for Elementary and Secondary Education Act programs, and a 2% increase in spending for the Department of Homeland Security.

FY 2011 Federal Budget Tax Cuts

Among a number of tax cut provisions included in the FY2011 Federal Budget are a new Small Business Jobs and Wages Tax Cut totaling $33 billion "to spur small business hiring and wage increases." President Obama's FY2011 budget would also add 1 more year to the Making Work Pay Tax Credit for, says the Administration, "110 million American families." The child care tax break, would also be increased under the new budget proposal. The president would also eliminate capital gains taxes for profits made on new investments in small business and extend the Recovery Act's allowance of the immediate expensing of up to $250,000 on certain qualified investments.

"Tough Choices" in the FY 2011 Federal Budget

The budget overview statement released by the White House on Monday also contained a section called "Tough Choices." This section included the three-year spending freeze on non-security discretionary spending as well as $20 billion in savings through terminations and reductions in existing programs. This section included what can be called tax increases as well. Specifically, the FY 2011 Federal Budget calls for a "financial crisis responsibility fee" to recover $90 billion from those institutions who received TARP payments. While few on Capitol Hill may stand up against this fee to support big finance in the face of the recent publicity surrounding a new round of multimillion dollars bonus payouts, other tax increase provisions may garner much more opposition. Specifically, the FY 2011 Federal Budget would let tax cuts enacted in 2001 and 2003 for households making more than $250,000 per year to expire, and would "eliminate tax preferences" for oil, gas and coal companies." No doubt we will again hear claims that many families earning $250,000 per year are struggling to make ends meet and can't afford the loss of these preferential tax cuts. The oil, gas and coal company increases will likely be blamed for increasing our reliance on foreign oil by penalizing American producers.

Education Funding a Winner in FY 2011 Federal Budget

Those looking at college tuition will be pleased to see a $17 billion increase in Pell Grant funds compared to 2010 spending. President Obama is also asking for $28 billion for ESEA programs, with an additional billion conditional on significant congressional changes to existing ESEA laws. The White House budget proposal also seeks $1.35 in funding for the President's Race to the Top challenge. The Administration called education funding one of the "critical investments" that America must make to help "reverse the decline in economic security that American families have experienced.

2011 Budget Increase Spending for Homeland Security and Veterans Affairs

The president's budget also would fund the addition of 1000 Advanced Imaging Technology (AIT) screening machines in airports along with new explosive detection equipment for baggage screening. In total, the Department of Homeland Security would receive $43.6 billion for FY 2011, a 2% increase over the prior year. Including in record funding for the Department of Federal Affairs is a request for $50.6 billion in advance appropriations for the VA medical care program so "care for the nation's veterans is not hindered by budget delays." Given the vehement Republican opposition to anything the president proposes, and early posturing over deficit spending, delays in FY 2011 congressional budget approval would certainly not come as a big surprise.

Job Creation Provisions in the FY 2011 Federal Budget

The president also asked for Investment in Infrastructure, Innovation, Science and Technology to help spur new industries and new jobs. This included $100 billion in aid to states and local governments for investment in infrastructure projects. Cash-strapped states, not motivated by partisanship, will certainly welcome the additional funds which should also help them put some of their residents back to work. Another $6 billion for the development of clean energy technologies was also requested.

Summary of President Obama's FY 2011 Federal Budget Request

Overall, the FY 2011 Budget would represent $3.834 trillion in spending, or 8.3% of the projected FY 2011 Gross Domestic Product (GDP) of $15.299 trillion. The Administration stressed that the economy has been come back from the brink of depression and now looks to get Americans back to work as we move into economic recovery. The State of the Union address foreshadowed the tone and a number of the provisions contained in the president's FY 2011 Federal Budget request. While the 2010 Federal Budget Deficit set a mark of 10.6% of the nation's GDP, the current 10 year budget would reduce that to 8.3% in FY 2011, 5.1% in FY 2012, and between 4.2% and 3.6% through 2020.

Sources:

The White House. The Federal Budget, Fiscal Year 2011. Advanced copy received from the White House courtesy of Michael A. Harris, White House Press Examiner.

Committee for a Responsible Federal Budget. WH, Congressmen Hold Important Talks on Fiscal Commission and PAYGO. January 21, 2010. Retrieved from crfb.org/blogs/wh-congressmen-hold-important-talks-fiscal-commission-and-paygo on January 31, 2010.