Week Ending February 6, 2015
President Submits Budget to Promote “Middle Class Economics” and End Mindless Austerity
President Obama submitted to Congress a Fiscal Year (FY) 2016 federal budget that, while conforming to the overall budget numbers agreed to in the Budget Control Act (BCA), erases the mindless across-the-board “sequester” cuts for non-defense programs this year, greatly reduces them over the next nine years, and matches the sequester adjustment dollar-for-dollar with commensurate increases in defense spending. The budget includes significant investments in health, education, public safety, infrastructure and other important public services paid for with new taxes proposed on wealthy individuals and corporations. The White House estimates that federal grants to state and local government will total $652 billion in FY 2016, representing a 13% increase from FY 2014.
AFSCME’s President Lee Saunders said: “This is a budget that uses federal policy to build the middle class and create opportunities for families who have been left out of the recovery. It makes good on the pledge the President made in his State of the Union to grow the middle class, fight income inequality, invest in education and end sequester cuts.”
President Obama’s budget stands in stark contrast to the budgets expected from the House and Senate Budget Committees next month, which will likely continue the sequester and the budget priorities of drastic cuts to public services and tax breaks for wealthy individuals and corporations spelled out by Rep. Paul Ryan (R-WI) in past budgets.
Highlights of the President’s budget include the following:
- Taxes and Revenues
President’s Obama’s budget proposals on taxes would raise $1.5 trillion over 10 years in new tax revenues by closing tax loopholes used by America’s wealthiest 2% and large profitable corporations. The President proposes reforming the international tax system to reduce incentives for corporations to send profits and jobs overseas with one-time transition tax revenues dedicated to investing in transportation infrastructure. He also proposes revenue-neutral corporate tax reform designed to simultaneously reduce the statutory corporate tax rate from 35% to 28% and close tax loopholes to broaden the tax base. For low-income and middle class individuals and working families, the President proposes more than $440 billion in new and expanded tax benefits to help with child care, college education, workplace savings, and related needs.
For the wealthiest individuals, there are four key tax changes. First, he caps the value of itemized tax deductions and selected tax exclusions at 28% (lower than the current maximum 39.6%) for top earners, which raises $603 billion. Second, he raises the highest tax rate on long-term capital gains and qualified dividends from 20% to 24.2% and subjects appreciated assets to the capital gains tax, which raises a combined $208 billion. Third, the implementation of the Buffett Rule with a new Fair Share Tax imposes a minimum income tax rate of 30%, which raises $35 billion. Fourth, the budget strengthens laws governing estate, gift, and generation-skipping transfer (GST) taxes by going back to 2009 rules, which raises $189 billion. This increases the top tax rate from 40% to 45% and reduces the exclusion for estate and GST from $5.2 million to $3.5 million per person. AFSCME is generally very supportive of all these proposals.
For multinational firms, large corporations, and financial institutions, President Obama proposes several key tax changes. First, he proposes to reform the international tax system by reducing incentives for corporations to shift profits and jobs overseas. He imposes a 14% one-time tax on previously untaxed overseas income, which raises $268 billion. $238 billion of this one-time revenue would be devoted to the Highway Trust Fund, financing the President’s proposed six-year Surface Transportation Reauthorization. He also imposes a 19% minimum tax on future corporate overseas income with no deferrals, which raises $206 billion. Unfortunately, the proposed tax rates of 14% and 19% are very low. Although AFSCME supports ending deferral and reducing existing tax incentives for offshoring, the tax rates should be higher. The plan for corporate tax reform reduces the top corporate tax rate down to 28% and will raise no additional revenues. AFSCME supports significant additional revenues generated from corporate tax reform. President Obama’s budget ensures enormous financial institutions pay their fair share by imposing a tiny fee on assets of .07% on the roughly 100 financial firms with worldwide assets above $50 billion, which raises $112 billion.
For low-income and middle-income families, the budget proposes $277 billion over 10 years in new tax breaks for child care and college education, and it expands the earned income tax credit for childless workers and adds a new $500 tax credit for dual-income families. He also proposes an additional $166 billion over 10 years to permanently extend recent improvements in the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and college education credits (American Opportunity Tax Credit (AOTC). These tax credits are currently scheduled to expire in 2017. President Obama’s budget also increases and standardizes tobacco taxes, which raises $95 billion and is designed to fund extending the Children’s Health Insurance Program (CHIP) and guaranteeing universal access to pre-school. AFSCME strongly supports these proposed tax benefits to help working families and those struggling to make ends meet.
- Build America Investment Initiative
The proposed budget drives infrastructure investment by “enhancing the role of private capital in U.S. infrastructure investment as a vital additive to the traditional roles of Federal, State, and local governments." Specifically, the President proposes new America Fast Forward (AFF) Bonds – based on effective Build America Bonds (BABs) expired program – and also proposes low cost Qualified Public Infrastructure Bonds (QPIB) to attract new private capital for U.S. airports, ports, mass transit, solid waste disposal, sewer, water, and surface transportation projects.
Finally, the President proposes changing the Foreign Investment in Real Property Tax Act (FIRPTA) to enhance investments in U.S. infrastructure and real estate to a wider set of private investors.
AFSCME is monitoring these proposals to minimize privatization, prevent worker displacement, and promote worker protections. We are concerned these proposals may promote public-private partnerships (P3s) on infrastructure projects. AFSCME will oppose harmful privatization and when needed, ensure these proposals support prevailing wages, employment security, and related protections for all affected workers, including those operating and maintaining these projects.
- Public Housing
President Obama’s proposed budget provides $4.6 billion for the Public Housing Operating Fund and $1.97 billion for the Public Housing Capital Fund. While both of these funding levels do not meet current needs, they would increase current funding.
The President proposes significantly expanding HUD’s Rental Assistance Demonstration Program (RAD), which affects public housing by permitting and encouraging local housing authorities to transfer ownership and management to the private sector. Specifically, he proposes to eliminate RAD’s current cap of 185,000 units of public housing and Moderate Rehabilitation conversions and eliminate the deadline for applications. He proposes $50 million for a targeted expansion of RAD to public housing properties not feasibly convertible at current funding and located in high-poverty areas. This request covers incremental subsidy costs of converting about 25,000 public housing units, thereby increasing private investment in targeted projects and surrounding areas. AFSCME is concerned with proposals to increase or eliminate the current cap of 185,000 participating units. This cap was previously 60,000 units and the increase to 185,000 was only recently enacted in the December 2014 federal funding bill.
- Workforce Programs
The Department of Labor’s (DOL) budget proposes significant new investments in workforce programs. It builds on the passage of the Workforce Innovation and Opportunity Act (WIOA) and the President’s commitment to expanding opportunities for workers to improve their skills to access middle-class jobs. Among the new initiatives proposed in Obama’s budget is a 10 year, $16 billion program that is projected to double the number of workers receiving training through the workforce development system. It would fund regional partnerships creating training programs targeted to in-demand jobs. This “High-Growth Sector Training & Credentialing Grants” would help ensure that training meets employers’ skill needs. Another goal is to drive industry adoption of credentials and assessments that have true labor market value. His budget also proposes $3.2 million in technical support to states and localities as they implement WIOA.
The budget proposes an increase of $400 million for supplemental Employment Service grants for states to provide intensive reemployment services and staff-assisted counseling to dislocated workers. This funding level is expected to provide intensive reemployment services to two million unemployed workers.
Funding for WIOA adult, dislocated, and youth training is modestly increased in the President’s proposed budget. The budget also includes a legislative proposal to reauthorize the Trade Adjustment Assistance (TAA) program, which assists workers who have lost their jobs due to U.S. trade policy. Congress recently extended the TAA program, but it will expire at the end of September if no further congressional action is taken.
The budget proposes an increase of $4.8 million for UI state administration over the current funding level. It also includes $10 million to improve state efforts to detect and remedy misclassification of workers as independent contractors, including prosecuting employers that fail to pay their full share of UI taxes and other illegal tax schemes due to worker misclassification. The President’s budget proposes a new permanent unemployment insurance UI extension program. Under the proposal, each state would trigger benefit extensions for up to 52 weeks based upon each individual state’s unemployment rate or a state’s UI rate plus the percentage point change over the past two years. This new program would be 100% federally financed in states that offer 26 weeks of benefits in their regular UI program, and 50% federally financed in those states that do not offer at least 26 weeks of state benefits. President Obama’s budget also provides $5 billion in federal incentives for states to modernize their UI programs to make more unemployed workers eligible and adopt new “work connection” strategies, and it proposes various measures that set a progressive federal financing standard for states’ UI trust funds, including restoring the 0.2 % FUTA surtax and increasing the UI taxable wage base.
- Minimum Wage
The budget supports raising the minimum wage. Although it does not specify the dollar amount, the administration has urged an increase that would keep pace with the higher costs of basic necessities for working families. Early last year, the President signed an Executive Order to increase the minimum wage to $10.10 for federal contractors and urged Congress to raise the minimum wage for the rest of the workforce. Additionally, several Members of Congress are developing legislation which is expected to raise the minimum wage to exceed the $10.10 proposal introduced in the past. Since the President’s actions last year to raise the minimum wage, 17 states and the District of Columbia have passed minimum wage increases. AFSCME continues to support raising the minimum wage.
The budget calls for an update to the nation’s overtime regulations. In recent years, the number of workers covered by DOL’s overtime rules has eroded and a higher number of workers do not have the protections of overtime. This means that a salaried worker can be expected to work 50 to 60 hours a week and not receive any overtime pay. To address the issue, Secretary of Labor Tom Perez is expected to update regulations regarding who qualifies for overtime protections. AFSCME supports updating these regulations and increasing the reach of overtime protections.
- Medicare and Medicaid
President Obama’s budget nets $423 billion in savings from the Medicare program over 10 years, mostly by reducing payments to providers and prescription drug costs. The budget brings good news to beneficiaries who need multiple expensive medicines and would close the “donut-hole” faster than under current law. Notably, the President calls for giving Medicare authority to negotiate with manufacturers to determine drug prices. The savings to Medicare’s budget (or for beneficiaries) is not calculated. AFSCME has long supported tackling escalating prescription drug prices by leveraging the collective buying power of Medicare. Regrettably, the budget imposes $77 billion in additional deductibles for new beneficiaries and higher premiums for 25% of all Medicare beneficiaries, which AFSCME opposes.
In Medicaid, the budget would add $6.3 billion in funding to states to continue to enhance Medicaid reimbursement rates for primary care providers. It would provide $7.3 billion that states will otherwise lose if Congress does not reauthorize federal support for state Children’s Health Insurance Programs. A new $4.1 billion pilot for up to five states would allow them to create equal access to home and community-based care and nursing facility care.
- Paid Leave
The budget provides more than $2 billion to assist states that choose to launch their own paid leave programs and an additional $35 million to help with infrastructure that would allow more states to advance paid leave and pave the way for a much-needed national program. In addition, the President has proposed allowing federal employees to use up to six weeks of paid sick leave in advance of accrual as a substitute for paid family leave and calls on Congress to pass legislation that would give federal employees up to six weeks of paid leave for the arrival of a new child that would help make the federal government a model, family friendly employer.
The budget includes significant proposed investments for education, spanning child care and early learning, K-12 public schools, and higher education.
Early Learning: The plan proposes an additional $82 billion over 10 years for the Child Care and Development Block Grant (CCDBG). The funding would be used to make child care assistance available to all children under age four in families with incomes up to 200% of the poverty line, expanding access to child care assistance to an additional 1.1 million children. For FY 2016, the budget proposes a $3.6 billion increase for mandatory child care funding and an additional $370 million increase for annually-appropriated child care funding. An increase of $1.5 billion is proposed for Head Start, including $284 million for a cost-of-living increase for staff and an additional $150 million for Early Head Start Child Care Partnerships. The budget proposes expanding Head Start to operate at least for a full school day and full school year.
Preschool: The proposal re-introduces the President’s “Preschool for All” initiative, requesting $1.3 billion for FY 2016 and $75 billion over 10 years, financed by a tobacco tax. A $500 million increase for Preschool Development Grants for FY 2016 is requested.
K-12: The budget includes an increase of $2.7 billion for K-12, including a nearly 7% increase, or $1 billion, for Title I disadvantaged schools and a $175 million increase to support special education.
Higher Education: The budget proposes a new program to provide two years of tuition-free community college for responsible students, investing $41 million in the first year and $60 billion over 10 years.
- Social Services
Child Welfare: The President’s budget proposes a new $586 million initiative over 10 years to provide matching grants to states targeted to preventing placements in foster care. States would be required to maintain their current funding for child welfare services. It also proposes an extension for Home Visiting, with an increase from $400 million to $500 million. The Social Services Block Grant, which often is the largest source of federal funds for child protective services, would increase to its pre-sequestration level under the President’s budget. The Promoting Safe and Stable Families and Child Abuse Prevention and Treatment Act (CAPTA) funding streams would remain essentially the same.
TANF: The budget maintains current spending for the Temporary Assistance for Needy Families (TANF) program at $16.5 billion. It re-proposes the Pathways to Jobs initiative within TANF that would support work opportunities through subsidized employment for low-income parents and youth, using the balance of the TANF Contingency Fund.
Child Support Enforcement: The budget request for child support enforcement (CSE) is slightly higher than current funding. It includes $2.8 billion over 10 years for an initiative to modernize the CSE program. It also encourages states to pass through child support payments to families rather than being retained by the federal and state governments.
The President’s budget proposes an additional $1.3 billion for the Justice Department than current funding. This includes $97 million for a new initiative to improve community policing and to fund a vast increase of body-worn cameras for officers. The budget would increase the Byrne-Justice Assistance Grant (JAG) program to $388 million, setting aside $22.5 million for the matching-grant program for bulletproof vests. The budget also proposes a $95 million increase to the Community Oriented Policing Services (COPS) program, providing $249.5 million for hiring grants, a $75 million increase compared to current levels.
The President’s Transportation budget for FY 2016 includes one of the biggest funding increases in years. The administration proposes paying for program increases partly through a proposed tax overhaul on past overseas corporate profits that would generate $238 billion. That money would help fund a new six-year, $478 billion highway bill. Under the proposal, Highway Trust Fund spending would be increased by almost $7 billion to $60.5 billion in FY 2016, receiving $40.1 billion from the proposed tax reform and $40 billion from fuel taxes. The latest stopgap transportation measure expires this May.
Additionally, the proposed budget seeks to move highway grant programs, highway safety, passenger rail and much public transit spending out of the annually-approved budget and into the Highway Trust Fund. This move would protect these programs from sequestration cuts as well as additional cuts often sought by GOP members of Congress.
- Social Security
The President’s FY 2016 budget calls for the transfer of funds from the Old-Age Survivors Insurance (OASI) trust fund to the Disability Insurance (DI) trust fund. This transfer process, known as “reallocation,” will allow beneficiaries to continue receiving full disability benefits. Without this transfer or an act by Congress, disability beneficiaries will see a 20% cut in their benefits beginning in late 2016. Similar reallocations have occurred 11 times in the past, with bipartisan support, to avoid benefit cuts. The administration requests that this reallocation occur while a longer-term solution to the program’s solvency is developed. Additionally, the administration urged Congress to strengthen Social Security, particularly for its most vulnerable beneficiaries, and registered strong opposition to efforts to reduce basic benefits, privatize or weaken the Social Security system. AFSCME supports reallocation efforts and strengthening Social Security.
The President’s budget also would also extend Social Security spousal benefits to all same-sex couples. Previously, if a same-sex couple married in a state that recognized same-sex marriage and moved to a state that did not, the couple would lose their spousal benefits. Under the President’s new proposal, the couple will still have access to their Social Security benefits. AFSCME applauds this policy change so that all married couples have the same spousal benefit protection.
- Federal Employees
The President’s budget proposes to increase federal employees’ salaries by 1.3%, thus helping the federal government "remain competitive in attracting and retaining a high caliber workforce.” Federal employees suffered a three-year pay freeze from 2011-2013. While AFSCME supports the proposed 1.3% raise, AFSCME has endorsed federal legislation for a larger 3.8% salary increase.
Three Futile Senate Votes on Funding the Department of Homeland Security
The House-passed bill (H.R. 240) funding the Department of Homeland Security (DHS) for the remainder of this fiscal year – which contains five poison pill amendments that would reverse President Obama’s executive actions on immigration – went down to defeat not once, not twice, but three times in the Senate this week. All Senate Democrats and Republican Senator Dean Heller (NV) consistently voted against ending debate on the bill, so it failed to garner the necessary 60 votes.
Democratic congressional leadership has declared that it will only support a “clean” DHS funding bill, without amendments. The GOP congressional leadership does not want to be blamed for allowing DHS funding to lapse on February 27, but they also want to placate the tea party wing of their party which successfully pushed for short-term DHS funding last December when all other federal departments were funded through the remainder of this fiscal year. It is not yet clear how this impasse will be resolved.
House Committee Passes $93 Billion in Tax Breaks
The House Ways and Means Committee approved seven bills that each permanently extends different tax breaks. The cumulative lost revenues total $93 billion over 10 years, which will significantly reduce federal funds available for vital services and programs and increase the federal deficit. GOP committee members strongly supported these bills while Democrats voted unanimously in opposition. The most costly bill, the so-called America’s Small Business Tax Relief Act of 2015 (H.R. 636), provides tax breaks to businesses and costs $77 billion. Ranking Democrat Rep. Sander Levin (D-MI), said: "Extending these provisions permanently without paying for their cost would add nearly $100 billion to the deficit. Worse, the helter-skelter approach being taken today only serves to leave behind vital provisions that help hardworking American families, like the expansion of the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit.”
These seven tax bills along with others, collectively termed “tax extenders,” expired on December 31, 2014. The key fight this year will be the duration of the extensions and whether or not these extenders are paid for. If passed, AFSCME strongly supports a short-term extension and fully offsetting their costs.
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