Obama Budget 2009

The full budget:

http://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_Responsibility2.pdf


Very Readable, though heavily padded. Lots of repetition and cut and paste of the same rhetoric. I wonder if anyone read the whole thing (besides me).

The difference between the Obama budget proposal and the Bush budgets is wonderous. There are actually charts and graphs that show economic data to support the proposals rather than propaganda pictures of Bush and Cheney and other high party officials.

The budget demonstrates increased transparency and realism. It shows dramatically high deficits but only because it does not assume it will be saved by the AMT or by sunset provisions as was the practice under previous administrations. Further, it creates many allocations for emergency spending based on the likelihood that they will occur rather than pretending that nothing will ever happen. Included in this budget is war funding which the Bush administration routinely financed in a separate "emergency" bill.

The highlights below come from the first 42 pages of the budget request, which contain the President's message and summary. In future weeks, time permitting, I'll review the individual department budgets.


The Good


1. Investment in education and research:


Some studies show that for every dollar invested, there is a $4 to $9 return to society in higher earnings, higher graduation and employment rates, less crime, and decreased need for special education services, less use of the public welfare system, and better health.


Unfortunately the "studies" are not cited, but the sentiment is true. Education is one area where it is difficult to spend too much money (but like all areas important to spend the money properly). Education is the single most important factor in ensuring American liberty and prosperity in the decades to come.


The budget rightly does not intend to take action to "cut costs" in education. While college education expense has risen dramatically over the last 20 years (figure 8 on page 10), so have the rewards (figure 9 on page 11). We do have the best education system in the world, despite its faults and costs. We now merely have to ensure that our children have access.


The budget statement specifically encourages stem-cell research.


1a. $5 billion for key science program such as the DoE Office of Science and DoC National Institute of Standards and Technology

1b. Increased funding for Head Start and double enrollment in Early Head Start

1c. Encouragement of individual performace by teachers... more details?

1d. Double support for Charter Schools. I have been ambivalent on charter schools in the past. A large portion of the superior performance of these schools can be attributed to the selection of students and parents. Parenting is the first and most important contibuter to a child's successful education. If we can't make all parents good, then let's at least give the good parents a chance.

1e. Stable funding for Pell Grants. Now indexed to inflation + 1% and automatically funded.

1f. Huzzah! An end to government-guaranteed student loans, which served only as handouts to financial institutions, and a switch to direct lending.

1g. $2.5 billion to support low income students through college with the Access and Completion Incentive Fund

1h. Triple the number of graduate fellowships in science. This is how we grow the economy.


2. Culture of Life - more health care for children and workers

2a. Nurse-Home Visitation program to provide pre and post natal care for at-risk children and families

2b. Authorization of the Childrens' Health Insurance Program (CHIP) with a jab at Pres. Bush for vetoing it twice. It is retarded that we have free and subsidized healthcare for retirees who will never again be productive members of society while allowing our children to be hobbled preventable conditions through inadequate healthcare.

2c. More money for medical research on comparative effectiveness so that decisions can be made based on cost-effectiveness rather than simply cost.

2d. Pre-funding health care reform. He doesn't know what he's doing yet, but he's responsibly setting aide $630 billion because he knows it will be expensive.

2e. The budget strikes a balance between innovation and access. Inventors of new drugs retain their exclusivity period, but the process for access to generics is streamlined. (Not clear if the exclusivity period remains the same as before.)

2f. "Pay for Performance" Medicare will link a portion of the medical fee to quality standards. This is a step in the right direction. Should this "quality" be measured be impartial bureaucrats or untrained patients?


2g. 8 principles of the new health care system! (Page 27)


3. Tax increases for rich people

3a. Itemized deductions for families earning more than $250k/year will be deducted at 28% rather than 33-35% (and eventually 36-39.6%). Why should we be subsidizing mortgages and charities for the rich?

4. Tax cuts / subsidies for poor people

4a. Making Work Pay tax credit. This tax credit refunds 6.2% of income taxes for 95% of American workers so that they can use the refund to pay for the 6.2% employee-share of payroll taxes. Good idea, but poor implementation. We should just eliminate payroll taxes altogether.

4b. Extended and expanded unemployment benefits. This is especially important so that skilled workers are not forced to enter unskilled jobs by necessity of eating and can instead focus on finding a job that is right for them. America benefits by making sure the resources we've spent training our workforce are employed as effectively as possible.

5. Increased financing for our efforts to change the world, ie Defense and State

6. Reduction of stupid spending

6a. Specifically cuts in farm producer subsidies

The Bad


1. Continuing subsidies based on geography rather than income or population

1a. $1.3 billion in USDA loans and grants for "expanded broadband ... in rural areas". What does broadband have to do with Agriculture?

1b. Susidies for commerical flights to rural areas. People can live where they want to live, but they have no right to tax the rest of us to provide them more convenient transportation.

2. $15 billion in additional cash payments to retirees and the disabled. "These vulnerable populations are the first ones to feel an economic downturn." Why? They're not working so they can't lose their jobs.

3. Continuing subsidies for producers of "renewable energy", defined based on politics rather than sciene. This policy should be implemented as a tax on pollution rather than a subsidy for specific kinds of non-pollution. The effect is similar but does not limit creativity in finding new methods of non-pollution.

3a. $6.3 billion in subsidies for states to become more energy efficient. If energy efficiency were cost-effective, states already have an incentive to do this. If it's not cost effective, then why are we doing it?


4. Bury it! "The Energy Department will also scale up its demonstration projects for
geologic storage for carbon dioxide." Are you kidding?


5. Continuing subsidies for the low income nanny state. Wherever possible, subsidies should be in cash, not kind.

5a. Continued funding for the DoE "home weatherization" program. If people cannot afford to own and maintain their own homes, they should consider renting. We need to stop subsidizing homeownership in favor of other poverty-fighting priorities.

The Ugly - Ideological Errors

1. The budget correctly identifies that the illiquidity in the financial markets caused by a burst of the credit bubble is the proximal cause of the current economic turbulence. No provisions are made however to prevent such bubbles from occuring the in the future. Rather by endorising actions by the Federal Reserve and the TARP, the administration effectively "solves" this problem by encouraging a new bubble.

2. The budget focuses too much on job losses as a problem. The macro problem is a loss of economic production. If the economy can produce more without higher employment, that means we can consume more without working as hard. The micro problem is greater inequality due to loss of jobs and therefore income at the lower strata of our economy, but if growth is achieved, this can be solved by additional efforts at wealth redistribution. The budget addresses this issue in part with a more progressive tax code. (Figure 9 on page 11 is interesting.)


3. Health care. The budget notes that healthcare costs are rising faster than wages, as illustrated by Figure 11 on page 13, but this is a misleading statistic. As incomes rise and medical technology advances, individual choose to spend more money on healthcare because they like it better than spending their money on other things.


That there are more uninsured now than there were previously is a consequence of this choice not to spend on healthcare and the requirement that premiums remain the same regardless of health. If premiums are set by the average cost of care, healthy individuals will self-insure while individuals with chronic illnesses will seek insurance. This is exactly what is happening. We cannot fault the healthy for choosing not to pay for the healthcare of the sick when given that choice. What we can do is use the power of the state to tax and provide a minimum level of health insurance for all.


4. "... still preserving the important principle of a dedicated revenue source for Social Security." Why does Social Security need a "dedicated revenue source"? Does that make it any more or less important or stable? The Social Security Tax is regressive. The extra 12.4% places a highe marginal tax rate on those making less than $106k per year than those in the top tax bracket! The cost of this dedicated revenue source is the prevention of any meaningful reform. As inequality increases in society, the tax code must become more progressive, but the separate Social Security tax remains a special burden for lower income families. The "Making Work Pay" refundable tax credit that applies against payroll taxes further illustrates that this is stupid.


I hope you enjoyed it as much as I did!