National Priorities Project Reacts to President's Fiscal Year 2016 Budget

by Doug Hall, Ph.D., Lindsay Koshgarian, and Jasmine Tucker

President Obama today released his budget proposal for fiscal year 2016 (which runs October 1, 2015 to September 30, 2016), his first on-time proposal since 2011. The $4 trillion spending and tax proposal includes funding that would provide two years of tuition-free community college for students, investments in job training and early education, as well as substantial increases in military spending.

The new budget contains initiatives that would be widely popular with the American people based on opinion polling. With an emphasis on job training and job creation, education, and a reduction in corporate and other tax loopholes, the president has released a budget that reflects Americans’ priorities. 

Here are highlights of what the Obama budget contains:

Total Spending, and What’s New

President Obama proposed a total of $4 trillion in spending in fiscal 2016, an inflation-adjusted increase of around 1 percent relative to 2015 enacted spending levels.

The budget includes new spending of $60 billion over 10 years to allow students to attend community college tuition-free and would expand access to prekindergarten education, funded by new taxes on tobacco products. It also includes $478 billion over six years for infrastructure repairs, and other job creation measures.  According to opinion polls, expanding education funding and improving the job situation are initiatives that enjoy strong support among the American public.

Notably, the President’s proposal calls for funding above the levels called for in the 2011 Budget Control Act. Under current law, spending above those levels would trigger across-the-board spending cuts known as “sequestration.” Congress’ two-year deal that replaced Budget Control Act spending limits with higher amounts expires this year.

Jobs: Infrastructure and Manufacturing

Job creation and training is a central theme of the president’s budget. The plan would spend $16 billion over 10 years to double the number of workers who receive training through the workforce development system.

The proposal would also dedicate substantial investment in infrastructure, partially as a job creation measure. Among other infrastructure initiatives, the plan would provide $478 billion over six years for improvements to surface transportation such as roads and bridges, to be funded by tax reforms.

The budget supports job creation through business investment, providing $5 billion in start-up funding through a public-private partnership to support technology manufacturing in the U.S.

The budget also calls for a 5.5 percent increase in research and development funding over 2015, to $146 billion, which includes the president’s much-touted precision medicine initiative to improve the ability to target medical therapies, which would cost $215 million in 2016. This funding is intended in part to spur additional job creation opportunities.

Education: Community College, Preschool and More

Several of the president’s proposed major new initiatives center around education – something Americans consistently say is a major priority for government investment. The budget provides $70.7 billion in education funding, an increase of $3.6 billion over the 2015 enacted level.

The president’s budget proposal includes a key provision that would allow students to attend community college tuition-free for up to two years, which would help make a college education more accessible to millions of Americans. The proposal would cost the federal government $60 billion over 10 years.

The president also requests $1 billion in new funding for Title I, the federal program that provides aid to schools that serve disadvantaged students, as well as $3 billion for teacher training programs.

As in recent years, the budget also calls for funding the president’s signature Preschool for All initiative, beginning with $750 million in Preschool development grants in 2016, an increase of $500 million over the 2015 enacted level, and $15 billion over 10 years to continue and expand the existing home visiting program for young children, both to be paid for through increased tobacco taxes. The plan also calls for an additional $1.5 billion investment in the Head Start program.

Climate Change

The budget proposal’s measures to address climate change include an investment of $7.4 billion in clean energy technology programs, an area that received reduced funding under the fiscal year 2015 budget, and $1.29 billion for the Global Climate Change Initiative. The 2015 “CRomnibus” budget that passed Congress explicitly denied funding for the global Green Climate Fund.

The budget calls for a $4 billion Clean Power State Incentive Fund to provide funding to states that achieve faster or greater than planned reductions in carbon emissions.

In addition, the budget requests smaller investments in “climate resilience and preparedness,” including funds for new mapping efforts for flood zones, drought and wildfire resilience, and more.

Military and War

The budget proposal would spend $612 billion on national defense, including funding for the Pentagon, the war budget, nuclear weapons and other related expenses. This represents a $26 billion, or 4.5 percent, increase over the 2015 enacted level. This spending also exceeds the caps set by the Budget Control Act by $38 billion, setting Congress up for showdowns that pin defense hawks against deficit hawks.

The budget includes $534 billion for the Department of Defense base budget, a figure that does not include war costs of nuclear weapons activities at the Department of Energy. That represents $38 billion more -- a more than 7 percent increase -- relative to 2015 Pentagon spending. Among other things, it includes funding for 57 F-35s fighter jets – a big increase over the 38 F-35s authorized in fiscal year 2015, despite the fact that the planes are billions over budget, years behind schedule, and not yet battle ready.

In addition, the Department of Defense would receive a separate budget for war activities known as Overseas Contingency Operations (OCO). The president requests $51 billion for Department of Defense war spending, even as troop levels in Afghanistan decline – and only $5.3 billion of that is set aside for operations against Islamic State of Iraq and Syria (ISIS, or the Islamic State of Iraq and Levant, ISIL). The war budget is not subject to funding caps or sequestration cuts, and billions of dollars in the war budget have been widely referred to as a “slush fund.”

This represents a high-water mark for Pentagon spending – the proposed base budget of $534 billion would be the highest in history, and the proposed total Pentagon spending level is higher than any under President Reagan.

Taxes and Revenue: Capital Gains, Financial Institutions, and EITC

Increased Tax Revenue

The budget projects $3.5 trillion in total tax revenue in fiscal 2016. The president’s tax plan includes mechanisms for raising new tax revenues, and for providing new tax breaks as well.

The plan aims to bring in new revenues by changing how capital gains (income earned from investments in stocks, real estate etc.) are taxed, and by introducing a new fee on financial institutions. The budget proposed two major changes to the capital gains tax that would bring in $320 billion over the next 10 years.  It also closes loopholes for high-income individuals’ contributions to Social Security, which would provide the program with about $10 billion more per year by the end of the decade.

These initiatives would sit well with the majority of Americans, as polling shows the public believes wealthy individuals and corporations do not pay enough in taxes.  The new fee on financial institutions would apply to big institutions that engage in “excessive borrowing,” as a means to both raise revenue and discourage risky financial transactions.

Working and Middle Class Tax Breaks

The budget would expand the Earned Income Tax Credit (EITC), a successful anti-poverty program, for low-income childless workers, as well as expanding eligibility based on income and age. The change would benefit an estimated 13.2 million additional Americans. It would also provide a new $500 tax credit to families with two earners, expand availability for the American Opportunity Tax Credit to help students pay for college, and triple the maximum child care tax credit to $3,000 per child, making it easier for 5.1 million working families to afford child care. Proposed changes to the capital gains tax and financial services fees would offset the cost of these new tax breaks.

Social Security

The president’s budget supports a transfer of funds from Social Security’s retirement, or Old-Age and Survivors Insurance (OASI), program to its Disability Insurance (DI) program to ensure the continued viability of the disability benefits program until further changes can be made. This contradicts a rule proposed by House lawmakers in January that would prevent such transfers. Reallocating funds from one trust fund to another, which Congress has done 11 times in the past, has historically been a non-controversial measure that prevents cuts to Social Security benefits.

Budget Deficit Holds Steady

The president’s budget proposal would run a deficit of $474 billion in 2016. The proposal calls for raising revenues of $638 billion specifically for deficit reduction in 2016, resulting in a deficit reduction of $1.8 trillion over the next 10 years. Deficit reduction under the plan comes from a combination of new revenue from closing loopholes, and spending cuts, primarily through health savings from changes to the Medicare Trust Fund and Affordable Care Act (Obamacare), and positive economic consequences of immigration reform.

As a share of the economy, the deficit is expected to be 2.5 percent in 2016, down from a high of 10 percent in 2009 following the Great Recession. The president’s plan would keep deficits at approximately that level over the next ten years. Over the past 50 years, budget deficits have averaged around 2.8 percent of the economy.