FY 2012 Budget Proposals

President’s Budget Proposal

President Obama, on February 14, made public his proposed $3.7 trillion budget for the fiscal year beginning October 1. His spending blueprint is projected to reduce deficits from $1.1 trillion next year to 'just' $600 billion a year in 2018. The deficit reductions would result from a combination of spending cuts (about two-thirds) and increased taxes (about one-third). The following is based on an initial review of the budget which came out today.

• Spending Cuts: If enacted, the proposed budget would impose a five-year freeze in spending on domestic non-security programs and trim or terminate more than 200 federal programs next year. Among the cuts: $300 billion from Community Development Block Grants; $2.5 billion from Low-Income Home Energy Assistance Program (known as LIHEAP); and defense cuts of $78 billion over the next five years
• Tax Hikes: The President’s budget once again proposes an across-the-board 30 percent reduction in itemized deductions for high-income taxpayers, generating increased revenue that he would use to pay for a three-year fix to the alternative minimum tax, to prevent a tax increase for middle-class taxpayers. In prior budgets, the President has proposed using the revenue generated by cutting the tax value of itemized deductions to fund health care reform in FY2010 and deficit reduction in FY2011. According to the Treasury Department, this proposal would raise $321 billion over the next 10 years. The budget calls for eliminating the Bush-era tax cuts for people earning over $200,000. The blueprint would also end tax subsidies for oil and gas companies, and repeal certain tax breaks for corporations that do business overseas.
• Nonprofit Capacity Building: The President’s budget proposes $20 million for the Strengthening Communities Fund run by the Department of Health & Human Services Administration for Children and Families. This program had not been funded since a $50 million appropriation as part of the stimulus bill in 2009. The President’s Office of Management and Budget failed to recommend any funding for the Nonprofit Capacity Building Program that was part of the Edward M. Kennedy Serve America Act. By comparison, the President’s proposal recommends substantial increases to the budget for the Small Business Administration, which provides capacity building for for-profit enterprises.

House Budget Proposal

On April 15, the House approved a budget plan for 2012 through 2021 that reportedly would cut the federal budget by $5.8 to $6.2 trillion over the period. The proposal offered by Committee Chairman Paul Ryan (R-WI) would add $8 trillion to federal debt over 10 years and fails to balance the federal budget for 20 years.

• Non-Security Discretionary Spending: It seeks to reduce discretionary spending at below 2008 levels and freezes for 5 years (lowers spending from 24% of Gross Domestic Product to 20%).
• Entitlement Programs: It also calls for changes to mandatory spending programs which economists say have to be controlled to address the structural federal deficit. The Ryan plan would turn Medicaid health care for poor individuals into a block grant program to the states, and would convert Medicare health care for older persons from a defined benefit program to one that provides premium support so that individuals can purchase health insurance. The proposal calls for the repeal of the 2010 health care reform laws, estimating savings of an estimated $1.4 trillion over 10 years.
• Tax Reform: The House budget plan provides an outline for tax reform, instructing lawmakers to lower the top income tax rate from 35 percent to 25 percent, and paying for the revenue losses by eliminating $1 Trillion in “tax earmarks.” It is unclear how charitable incentives would be treated under the proposal, if adopted