The six most important ideas in Obama’s plan for the US government

Full of ideas.
Full of ideas.
Image: Reuters/Larry Downing
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We’re not going to bore you with all the details of President Obama’s budget before it goes through the Republican Congress’s legislative meat-grinder, but we did want to pick out six smart ideas that show the direction the White House wants to take the United States.

Not panicking about the national debt.

Obama proposes scrapping the sequester—the automatic budget cuts that helped reduce the deficit—at the expense of targeting the smartest possible cuts. It’s not that he’s arguing for a wild expansion of spending; as the Center on Budget and Policy Priorities notes, his average yearly spending—21.75% of GDP—is the same average maintained by Ronald Reagan’s administrations. Simply keeping the deficit under 3% of GDP is sufficient to reduce it relevant to the size of the economy, and Obama’s budget does this, in part by targeting deeper cuts at programs it feels are wasteful, like crop insurance, and in part by raising taxes banks, hedge funds, and the wealthy. Spending on mandatory programs like Social Security and Medicare has been steadily squeezing away discretionary investments in science, infrastructure, education and energy, and something has to reverse this trend if the US wants to remain competitive.

Do Republicans support this? The Bowles-Simpson commission endorsed keeping the deficit below 3% of GDP, and it garnered some Republican support. The dealbreaker was that commission endorsed revenue increases as well.

Making recession fighting more automatic.

After the recession, there was lots of debate over unemployment insurance—is it too generous, or not generous enough? At various times, the extension of unemployment insurance has been held up in unrelated policy battles. This isn’t a smart way to respond to recessions, and the Obama administration is proposing that expansions of UI kick in on a state-by-state basis as the unemployment rate grows, and terminate as it shrinks. This would eliminate some of the lag of policy behind events, and is also an opportunity to modernize UI systems in states that are inefficient or fraud-prone and connect them more directly to re-training and job finding programs.

Do Republicans support this? There has been some support for programs that help the jobless find new opportunities, but the fiscal implications (and the funding sources) for this program aren’t popular on the right. Best to emphasize that the reductions, as well as expansions, are automatic.

Solving demographic problems with demographic solutions.

So much of the fiscal pressure the US is under comes from its demographic obligations: A growing number of retirees being supported by a shrinking number of workers. To keep the promises underlying the US public pension system and state-provided healthcare for the elderly, Americans will either need to borrow more or tax more. But there is another way—get more workers, and particularly more younger workers, to support all those retirees. One way to do that would be enacting the comprehensive immigration reform bill that passed the Senate in 2013. Government actuaries think it would save $160 billion in the first ten years and reduce the short-fall in Social Security by $300 billion.

Do Republicans support this? At least the 14 who voted for the Senate reform bill do.

Paying for health, not care.

To put it simply, an important problem with US health care is that doctors are paid for treatments, not for outcomes. Medicare, the government-run health insurance for the elderly, works on a fee-for-service model that reimburses physicians for what they do—procedures, tests or check-ups—regardless of how those treatments affect their patients. To improve care while cutting costs, the Obama administration has announced that by 2018, 85% of Medicare payments will be linked to cost—and 50% of payments will be delivered through mechanisms that create incentives for efficiency, like giving health care providers a lump sum to cover a specific set of patients, for example, with penalties for excessive spending.

Do Republicans support this? Cutting Medicare spending is popular with Republicans, and influential lawmakers like Senator Orrin Hatch are on board with payment system reform. But targeting provider fees has proven tricky for both political parties, since physicians are an important lobby. Plus, this whole proposal comes under the framework of Obamacare, which makes it a political minefield.

Giving money to low-income workers.

Inequality is on everyone’s lips, and this policy gets directly at it. Obama confirmed that he wants to expand the Earned Income Tax Credit, a cash transfer for low-income workers. It’s one of the most successful poverty-fighting policies in the US, and Obama wants to expand the program’s reach to some 13.6 million people, including childless workers, people ages 21-24, and 65-66.

Do Republicans support this? Rep. Paul Ryan has endorsed a very similar expansion of the EITC, but as always, the two parties differ on how to pay for it: Obama wants to tax private equity funds; Ryan wants to eliminate federal grants that help states provide services like daycare, housing and substance abuse rehabilitation, as well as fresh fruits and vegetables for schoolchildren.

Thinking of the children.

Obama’s budget would expand tax credits for two-earner families, tax credits for people with children, tax credits for education, paid family leave, and universal pre-school—all policies designed to support and encourage child-bearing. This gets at item number three—demographic solutions for demographic problems—but is also an investment, in the Democrats’ view, in the skills of the future work-force and a shove back against inequality. With the cost of education rising even as many families see their earnings stagnate, expect this to be fertile ground for politicking heading into the 2016 elections.

Do Republicans support this? Not so much. Republicans don’t like the idea of paid family leave or education subsidies, although more state-level Republican officials are getting behind universal pre-school. But Republicans are behind tax credits for married couples.