This morning, President Obama officially submitted his fiscal 2014 budget request to Congress, which totals $3.77 trillion. The President’s budget priorities include investing in infrastructure and education, creating jobs for the middle class, and reducing the deficit by raising taxes on wealthy households and lowering the costs of Social Security and Medicare. The proposal exceeds the baseline projected by the Congressional Budget Office (CBO) in February by $160 billion due to new spending initiatives and the cancellation of the Budget Control Act sequester. The proposal forecasts a $744 billion deficit for fiscal 2014, 4.4 percent of gross domestic product (GDP), and it projects that the deficit will be reduced to 2.8 percent of GDP by 2016 and 1.7 percent of GDP by 2023 as the economy strengthens. The President’s proposal takes a long view, aiming to help set the stage for negotiations with Congressional Republicans over long-term deficit reduction. Congressional committees will begin holding hearings on the President’s budget request tomorrow, April 11. The House and Senate have already passed budget resolutions for fiscal 2014 (S Con Res 8; H Con Res 25), which differ markedly from one another.

The President's budget would cancel the sequester starting in fiscal 2014, replacing it with $1.8 trillion in deficit reduction over the next 10 years through a combination of phased-in spending cuts and new revenue. The long-term deficit reduction plan proposed in the budget essentially matches the President’s most recent compromise offer made to House Speaker John Boehner (R-OH) during fiscal cliff negotiations in December 2012. The proposal recommends $580 billion in additional revenue over the next decade by closing tax loopholes and reducing tax breaks that benefit wealthy households. This would include implementing the so-called “Buffett Rule” that would require households with annual incomes above $1 million to pay 30 percent of their income (after charitable contributions) in taxes. Like the President’s fiscal 2013 budget request, it also recommends limiting the value of tax deductions and other tax benefits for the top 2 percent of households to 28 percent (rather than their higher marginal income tax rate). On the spending side, the budget includes estimated savings of $400 billion in health care programs (mostly Medicare) by implementing payment reforms and reducing waste and fraud, as well as $230 billion in savings from switching to the chained Consumer Price Index (CPI) measure of inflation for calculating cost-of-living adjustments throughout the budget, including for Social Security benefits. The budget would cut $200 billion from other mandatory programs, such as reducing farm subsidies and reforming the federal employee retirement system. And it would cut discretionary spending by $200 billion, with equal reduction amounts for defense and nondefense programs. The proposal’s deficit reduction offer also counts $210 billion in savings achieved by lower interest payments on the federal debt. Additionally, the budget proposes to increase government efficiency and save more than $25 billion in fiscal 2014 by consolidating programs, reducing duplication, and eliminating waste.

The President’s budget also once again asks for $50 billion in upfront spending on infrastructure investments. This would include $40 billion for “Fix it First” projects, such as repairing highways, bridges, transit systems and airports, and $10 billion in competitive funding for innovative, high-value infrastructure projects. The proposal also proposes initiatives to promote private investment in infrastructure by establishing a National Infrastructure Bank and creating America Fast Forward (AFF) Bonds, dedicates funding for high-speed rail development, and simplifying and expediting the federal permitting process for major infrastructure projects.

The President’s budget also prioritizes investments in education and workforce training. In line with the “Preschool for All” initiative announced in the State of the Union address earlier this year, the President proposes increasing access to high-quality preschool for all low- and moderate-income four-year-olds and creating incentives for states to serve additional four-year-olds from middle class families. This initiative would be financed by increasing the federal tax on cigarettes and other tobacco products. The budget proposes a new competitive fund for redesigning and modernizing high schools to better prepare students for college and the workforce, as well as programs to strengthen federal STEM (science, technology, engineering and mathematics) education programs. Regarding higher education, the budget once again proposes a $1 billion Race-to-the-Top competitive grant program to encourage states to implement higher education reforms and restricting tuition and a $260 million “First in the World” fund to promote college affordability and increase degree attainment. Regarding financial aid, the President proposes to continue the federal government’s commitment to Pell Grants and implement budget-neutral reforms to federal student loans to make interest rates more market-based, while also using campus-based aid to reward institutions based on outcomes. The budget also calls for revisiting how the federal job training system is organized, recommending a Workforce Innovation Fund to test state and local training and employment program ideas and providing $8 billion for a Community College to Career Fund.

Regarding Medicaid, the President’s budget seeks to preserve funding for this state-federal partnership program, while proposing to save $16.9 billion over 10 years through a series of modest reforms. The budget proposes to help states and the federal government leverage the more efficient Medicare reimbursement rates for durable medical equipment, and improve rebate and payment policies guiding Medicaid prescription drugs. In addition, the budget proposes to delay implementation of cuts to uncompensated care payments for hospitals (known as Disproportionate Share or DSH payments) by one year so that they will begin in 2015. Under the Affordable Care Act, these cuts are scheduled to be implemented in 2014, by which time Medicaid was expected to be fully expanded, thus substantially reducing the number of unpaid hospital bills. However, this situation has changed since the initial adoption of the health care law, now that expanding Medicaid is optional to states as a result of the Supreme Court’s decision last year.

For more information on how the President’s fiscal 2014 budget proposal would affect programs of importance to states, Federal Funds Information for States (FFIS) has updated their “Jim Martin” Table, which lists program funding levels for major discretionary and mandatory grant programs. You can find the table on their website at http://www.ffis.org/node/3076.

Link(s): President’s FY 2014 Budget; S Con Res 8; H Con Res 25