President Obama’s plan for economic growth and deficit reduction
Living Within Our Meansand Investing in the FutureThe President’s Plan for EconomicGrowth and Deficit ReductionSeptember 2011OFFICE OF MANAGEMENT AND BUDGETBUDGET.GOV
Living Within Our Meansand Investing in the FutureThe President’s Plan for EconomicGrowth and Deficit ReductionOFFICE OF MANAGEMENT AND BUDGETBUDGET.GOV
THE MESSAGE OF THE PRESIDENTTo the Congress of the United States:This continues to be a time of challenge for our country. We face an economic crisis that has left millionsof our neighbors jobless, and a political crisis that has made things worse. Millions of Americans arelooking for work. Across our country, families are doing their best just to scrape by—giving up nights outwith the family to save on gas or make the mortgage, or postponing retirement to send a child to college. These men and women grew up with faith in an America where hard work and responsibility paidoff. They believed in a country where everyone gets a fair shake and does their fair share; theybelieved that if you worked hard and played by the rules, you would be rewarded with a decentsalary and good benefits. If you did the right thing, you could make it in America. For decades now, Americans have watched that compact erode. They have seen the decks too oftenstacked against them. And they know that Washington has not always put their interests first. Toooften, our Nation’s capital has been consumed by partisanship. Too often, the needs of special interestsor politics have been put ahead of what is best for the country.That is what must change. The American people work hard to meet their responsibilities. Now, as the Nationfaces an economy that is not growing and creating jobs as it should, so must its leaders. While the continuedrecovery of our economy will be driven by the businesses and workers across our land, policymakers inWashington can take steps to help Americans right now and set the most favorable conditions we can forgrowth and job creation for years to come. We can live within our means and invest for the future.That is why last week I presented to the Congress and the American people the American Jobs Act, toprovide a jolt to the economy and give companies confidence that if they invest and hire, there will becustomers for their products and services. This jobs bill will put more people back to work and moremoney in the pockets of those who are working. It will create more jobs for construction workers, morejobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide atax break for companies that hire new workers, and it will cut payroll taxes in half for every workingAmerican and every small business. It will create jobs for people to rebuild our aging infrastructureand repair and modernize at least 35,000 schools. Moreover, the proposals in the American Jobs Act arethe kind of proposals that have been supported by Democrats and Republicans in the past.I am committed to paying for this jobs bill. The Budget Control Act that I signed into law last monthwill cut annual Government spending by about $1 trillion over the next 10 years. It also charges theJoint Select Committee on Deficit Reduction with finding an additional $1.5 trillion in savings. Aspart of this jobs bill, I am asking the Congress to increase that amount so that it covers the full costof the American Jobs Act. In addition, I believe that the Congress should seize the opportunity thatthis new Committee presents and do much more so that we can put the country on a sustainablefiscal path, which is critical for our long-term economic growth and competitiveness.For this reason, I am sending to the Congress this detailed plan to pay for this jobs bill and realizemore than $3 trillion in net deficit reduction over the next 10 years. Combined with the approximately$1 trillion in savings from the first part of the Budget Control Act, this would generate more than$4 trillion in deficit reduction over the next decade. This would bring the Nation to the point wherecurrent spending is no longer adding to our debt and where our debt is no longer increasing as ashare of our economy—an important milestone on the way to restoring fiscal discipline and movingus toward balance. i
This plan is a balanced one that asks everyone to do their part. It includes nearly $580 billion in cutsand reforms to mandatory programs, of which $320 billion is savings from Federal health programssuch as Medicare and Medicaid. These changes are necessary to maintain the promise of Medicare aswe know it.The plan also realizes more than $1 trillion in savings over the next 10 years from our drawdownsin Afghanistan and Iraq. And the plan calls for the Congress to undertake comprehensive tax reformthat lowers tax rates, closes loopholes, boosts job creation here at home, cuts the deficit by $1.5trillion, and observes the Buffett Rule—that people making more than $1 million a year should notpay a smaller share of their income in taxes than middle-class families pay. To assist the Committee inits work, I also included specific tax loophole closers and measures to broaden the tax base. Togetherwith the expiration of the high-income tax cuts from 2001 and 2003, these measures would be morethan enough to reach this $1.5 trillion target.They include cutting tax preferences for high-income households, eliminating tax breaks for oil andgas companies, closing the carried interest loophole for investment fund managers, and eliminatingbenefits for those who use corporate jets.In sum, the plan I am sending to the Congress today is a blueprint for how we can reduce this deficit, paydown our debt, and pay for the American Jobs Act in the process. I have little doubt that some of theseproposals will not be popular with those who benefit from these affected programs. And some of thesechanges are ones that we would not make if it were not for our fiscal situation. But we are all in thistogether, and all of us must contribute to getting our economy moving again and on a firm fiscal footing.After all, we are all connected. No single individual built America on his or her own. We built ittogether. We have been, and always will be, “one Nation, under God, indivisible, with liberty and justicefor all.” We have always been a people with responsibilities to ourselves and with responsibilities toone another. This means that as Americans work hard to find a job, keep their businesses afloat andgrow, and provide for their kids, their representatives in Washington must meet their responsibilitiesand make the tough choices needed to get our economy back on track.This plan lives up to a simple idea: as a Nation, we can live within our means while still making theinvestments we need to prosper. It follows a balanced approach: asking everyone to do their part, so noone has to bear all the burden. And it says that everyone—including millionaires and billionaires—has to pay their fair share.These may be tough times for our country, but I have a deep faith in the American spirit, and weare tougher than the times we live in and bigger than the politics we have recently seen. If we allput partisanship aside and roll up our sleeves, I have no doubt that we can meet the challenges ofthe moment and show the world once again why the United States of America remains the greatestcountry on Earth. Barack ObamaThe White House, September 19, 2011.
TABLE OF CONTENTS PageThe Message of the President ��������������������������������������������������������������������������������������������������������������������iList of Tables ���������������������������������������������������������������������������������������������������������������������������������������������� vList of Charts ��������������������������������������������������������������������������������������������������������������������������������������������� vIntroduction ������������������������������������������������������������������������������������������������������������������������������������������������1The American Jobs Act ������������������������������������������������������������������������������������������������������������������������������7Mandatory Savings ����������������������������������������������������������������������������������������������������������������������������������17Health Savings �����������������������������������������������������������������������������������������������������������������������������������������35Tax Reform �����������������������������������������������������������������������������������������������������������������������������������������������45Summary Tables ��������������������������������������������������������������������������������������������������������������������������������������53 iii
LIST OF TABLES PageTable S–1. Bridge between OMB Mid-Session Review Baseline and Deficit Assuming Enactment of Recommendations to the Joint Select Committee �������������������������������55Table S–2. Bridge between OMB Mid-Session Review BEA Baseline Deficit and Adjusted Mid-Session Review Baseline Deficit �����������������������������������������������������56Table S–3. Bridge between CBO August Baseline Deficit and Deficit Assuming Enactment of Recommendations to the Joint Select Committee ��������������������������������57Table S–4. Bridge between CBO August Baseline Deficit and Adjusted CBO August Baseline Deficit �������������������������������������������������������������������������58Table S–5. Joint Committee Recommendations ���������������������������������������������������������������������������������59Table S–6. Deficit Reduction since January 2011 ������������������������������������������������������������������������������65 LIST OF CHARTS PageChart 1. Annual Deficits as a Percent of GDP ��������������������������������������������������������������������������������66Chart 2. Debt Held by the Public as a Percent of GDP ������������������������������������������������������������������67 v
INTRODUCTION At the beginning of this year, our economy was to get the Nation’s fiscal house in order. Thefinally gaining some traction after enduring President insisted on new transparency anda historic recession and coming back from the accountability in budgeting, for instance,brink of a depression. During the previous six bringing the costs of overseas contingencyquarters, real gross domestic product (GDP) operations (OCO) onto the budget. Thehad grown at an average rate of 3 percent and, President signed into law statutory pay-as-over the previous 12 months, the private sector you-go legislation, a key ingredient in previoushad created 1.3 million new jobs. The financial years of fiscal responsibility and budgetsystem was no longer in crisis. The credit and surpluses. In March 2010, the Presidentcapital markets were functioning, and the cost of signed into law the Affordable Care Act, whichstabilizing the financial and automobile sectors will cut the deficit by more than $200 billionwas amounting to a fraction of initial estimates. in its first 10 years and more than $1 trillionYet we also learned that the recession was in its second, as well as addressing the centraldeeper than many experts first thought: revised driver of our long-term debt: rising health careestimates showed that the economy contracted costs. And, this summer, he signed into lawat a 7.8 percent annualized rate in the last the Budget Control Act of 2011 (BCA), whichquarter of 2008 and first quarter of 2009, the represents a major down payment on deficitsteepest six-month period of contraction on reduction by capping discretionary spendingrecord. Then, this past spring, a trio of world and reducing it to its lowest level as a shareevents created strong headwinds to continued of the economy since the middle of the laststrong growth: uprisings in the Middle East century. Now that the economy is no longersent oil prices skyrocketing; an earthquake in in freefall, it is time to redouble this effortJapan prevented American auto companies to put the Nation on the path toward fiscalfrom getting the parts they needed to keep our sustainability.factories churning; and a widespread debt crisisin Europe roiled markets across the globe. The President’s recommendations to the Joint Select Committee on Deficit Reduction Taken together, this has meant that economic build on what we have accomplished so fargrowth and job creation, while remaining and address the twin challenges that thepositive, have not been strong enough to country now faces. In the short term, wesignificantly bring down a persistently high must reinvigorate the economic recovery withunemployment rate. measures to boost economic growth, and most critically, to spur job creation by passing the At the same time, our country must address American Jobs Act—and we must pay for theseyears of fiscal irresponsibility. When the measures over time. In the medium and longPresident took office, he faced an annual term, we must reduce the deficit and stabilizedeficit of $1.3 trillion and projected deficits of the debt as a share of the economy in order totrillions more in the years thereafter. Driving put the country on firm fiscal footing. Takenthese deficits were decisions made over the together, the plan would produce net savingsprevious eight years not to pay for two tax cuts of more than $3 trillion over the next decade,and a Medicare prescription drug benefit. The on top of the roughly $1 trillion in spendingsharp decline in receipts along with the steep cuts from the BCA—for a total savings ofincrease in automatic outlays to help those more than $4 trillion over the next decade.in need and the efforts needed to jumpstart This would bring the country to a place, by theeconomic growth also added to these deficits. middle of this decade, where current spending is no longer adding to our debt, debt is falling Even as the President has focused on getting as a share of the economy, and deficits are at athe economy going again, he also has worked sustainable—if not preferable—level. 1
2 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE To win the future and thrive in a competitive, deficit reduction plan that would place theglobal economy, the United States must focus country on firm fiscal footing by the middle ofon both job creation and deficit reduction. We this decade and jumpstart economic growthmust get our economy growing and people and job creation.working, and at the same time, live withinour means so that we can invest in the things THE AMERICAN JOBS ACTthat will power economic growth for decadesto come: education, innovation, clean energy, To create jobs, the President on September 8thand infrastructure. To do this, we must pursue unveiled the American Jobs Act—a plan madea balanced approach that looks at all parts of up nearly entirely of the kind of proposals thatthe budget and that does not put too much of a have been supported by both Democrats andburden on any one part of society. Republicans, and that the Congress should pass right away to get the economy moving Pursuing a balanced approach is what the now. The purpose of the American Jobs Act isPresident did in his 2012 Budget released simple: put more people back to work, put morein February, in the Framework for Shared money in the pockets of working Americans,Prosperity and Shared Fiscal Responsibility and do so without adding a dime to the deficit.released in April that built on the Budget toidentify $4 trillion in deficit reduction, and in a First, the American Jobs Act will providesimilarly sized plan presented to congressional tax cuts to help America’s small businessesRepublicans during negotiations this summer. hire and grow. The American Jobs ActUnfortunately, partisan divides precluded would cut payroll taxes in half to 3.1coming to agreement on a balanced package percent up to their first $5 million in wages,that included revenue increases. providing broad tax relief to all businesses but targeting it to the 98 percent of firms Instead, the President signed into law the with wages below this level, and it wouldBCA, which put in place a down payment completely eliminate payroll taxes next yeartoward deficit reduction and a structure to for any business that increases its payrollaccomplish even more. With approximately $1 by hiring new workers or increasing wagestrillion in deficit reduction achieved over the for existing workers. The Act would alsonext decade through the use of discretionary extend 100 percent expensing through 2012,spending caps, it took a substantial step allowing all firms—small and large—to taketoward bringing down our deficit. Yet, with an immediate tax deduction on investmentsdiscretionary spending projected to reach in new plants and equipment.historically low levels, we need to look atother parts of the budget for savings so that Second, this jobs bill will put workers backwe pursue deficit reduction in a balanced way. on the job while rebuilding and modernizingThis is not only critical to future economic America. Specifically, the President isgrowth, but if the Committee fails to achieve proposing tax credits to hire veterans, includingat least $1.2 trillion in deficit reduction, then those with a service-connected disability, whoa sequester would be triggered that could have have been unemployed for more than sixdevastating consequences for both defense and months. He supports investing $35 billion tonon-defense programs. prevent up to 280,000 teacher layoffs and to keep police officers and firefighters on the job. The Administration believes that the And to upgrade the Nation’s infrastructure, theCongress can and should enact sound policies President is proposing a $30 billion investmentand not rely on an automatic sequester in modernizing public schools and communityto reduce our deficits. Accordingly, the colleges; an immediate $50 billion investmentAdministration believes that the Committee in America’s roads, rails, and airports; a $10should use its unique standing to put forward billion investment to establish a Nationalan ambitious, comprehensive, and balanced Infrastructure Bank; and an expansion of
INTRODUCTION 3high-speed wireless networks to 98 percent of specifies that if the Joint Committee meetsAmericans. In addition, the President is calling the increased deficit reduction target, thefor a $15 billion investment in a national specific offsets in the American Jobs Act willeffort to put construction workers on the job be turned off. Thus, whatever the outcome ofrehabilitating and refurbishing hundreds of the Joint Committee’s efforts, the deficit willthousands of vacant and foreclosed homes and not increase if the American Jobs Act is signedbusinesses. into law. Third, the American Jobs Act puts forward DEFICIT REDUCTIONpathways back to work for Americanslooking for jobs. It accomplishes this by The President is asking the Joint Committeeundertaking the most significant reforms to take into account the costs of the jobsto the Nation’s unemployment system in 40 bill and make sure that it proposes enoughyears to help those without jobs transition deficit reduction to cover these costs, the $1.5to the workplace. Also, the Act will extend trillion it is charged to identify in the BCA,unemployment insurance, preventing 6 and additional deficit reduction that will putmillion people looking for work from losing the country on a fiscally sustainable path. Intheir benefits and offers employers a tax total the plan, together with the spendingcredit of up to $4,000 for hiring workers cuts already enacted in the Budget Controlwho have been looking for a job for over six Act, would cut the deficit by more than $4months. And the President’s plan will provide trillion over the next decade, with nearly $2hundreds of thousands of low-income youth of spending cuts for every $1 raised throughand adults with opportunities to work and to tax reform. As a result of this plan, the deficitachieve needed training in growth industries would fall from 8.8 percent of GDP this yearthrough a new Pathways Back to Work fund. to 2.3 percent of GDP, while the Budget would be in what economists call “primary balance” Fourth, the American Jobs Act will put by the middle of the decade. The debt undermore money in pockets of every American this plan would be on a declining path as aworker and family. The Act will expand the share of the economy over the next decade,payroll tax cut passed last December by falling from a high of 77 percent of GDP incutting workers payroll taxes in half next 2013 to 73 percent of GDP in 2021.year. This provision will provide a tax cut of$1,500 to the typical family earning $50,000 To reach these amounts, the President isa year. putting forward a balanced approach that both asks for shared sacrifice from all Americans Taken together, these measures will provide and draws from across the budget. This shoulda needed boost to our economy and do so in a include additional spending cuts in mandatoryway that maximizes the impact of every dollar programs, modest adjustments in importantinvested and puts a premium on creating or entitlement programs such as Medicare andretaining jobs. Moreover, the American Jobs Medicaid, capping spending on OverseasAct will not add a dime to the deficit. It includes Contingency Operations (OCO), and reformingspecific offsets that will, in combination, more our tax code so that we ask our biggestthan fully pay for its cost. These offsets are part corporations and wealthiest Americans to payof the larger deficit reduction plan detailed in their fair share.this volume, but have been specifically madepart of the American Jobs Act to ensure that it Specifically, the President is proposing $257is paid for. This is accomplished by a provision billion in cuts and reforms to a wide range ofin the American Jobs Act that increases the mandatory programs from Federal retirement$1.5 trillion Joint Committee deficit reduction to agricultural subsidies, reform of thetarget by $450 billion to cover the full cost Pension Benefit Guaranty Corporation, newof the jobs creation provisions. The bill then program integrity initiatives, and getting rid
4 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREof unneeded Federal real property to reduce carried interest loophole for investment fundthe deficit. managers, and eliminating benefits for those who use corporate jets. In health care programs, the President isrecommending a series of reforms that build Tax reform should draw on these specificon the historic savings in the Affordable proposals, together with elimination ofCare Act. Overall, these proposals will save additional inefficient tax breaks. The$248 billion in Medicare over 10 years and President’s preference would be to incorporate$73 billion in Medicaid and other health these specific tax measures into comprehensiveprograms—and more than a trillion dollars tax reform that lowers rates and reducesin deficit reduction in the second decade. They complexity. However, they could also beaccomplish this in a way that does not shift passed on a standalone basis to help reducesignificant risks onto the individuals these the deficit in a balanced way. Either approachprograms serve, slash benefits, or undermine would significantly improve the country’sthe fundamental compact they represent to fiscal standing, represent an important stepour Nation’s seniors, people with disabilities, toward more fundamentally transforming ourand low-income families. Even though these tax code, and serve as a strong foundation forreforms can and will save money, they also will economic growth and job creation.strengthen these vital programs and ensurethat they are robust and healthy to serve If the Joint Committee is unable to undertakeAmericans for years to come. comprehensive tax reform, the President believes the discrete measures he has proposed In OCO, the Administration believes that should be enacted on a standalone basis.the Joint Committee should reflect theAdministration’s current policy of drawing All together, the President’s plan would, asdown our troop presence in Afghanistan and of 2014, cut the debt as a share of the economythe transition from a military to a civilian-led and put the country on a sustainable fiscalmission in Iraq. Accordingly, the funding level course. However, the President believes thatmatched to this plan caps OCO over the 10- we must lock in that path and make sureyear budget window for a savings of more than future policymakers do not roll back what we$1 trillion. accomplish now as well as encourage further action if actual results turn out worse than Finally, the President is calling on the expected. That is why he is including in hisCongress to undertake comprehensive tax plan a debt cap which will ensure that ourreform that meets five key principles: 1) Nation’s debt is on a declining path as a sharelowers tax rates, 2) ends inefficient tax breaks, of our economy. 3) cuts the deficit by $1.5 trillion, 4) increasesjob creation and growth in the United States, If by 2014, budget projections do not showand 5) observes the Buffett Rule that people that the debt-to-GDP ratio has stabilizedmaking over $1 million should not pay lower and is declining in the second half of thetaxes than those in the middle class. decade, the debt cap will trigger an across- the-board spending reduction, including To advance tax reform, the President is spending through the tax code. The triggeroffering a detailed set of specific tax loophole will ensure that deficits as a share of theclosers and measures to broaden the tax base economy average no more than 2.8 percentthat, together with the expiration of the high- of GDP in the second half of the decade.income tax cuts, would be more than sufficient Consistent with prior fiscal enforcementto hit the $1.5 trillion target for tax savings. mechanisms put in place by PresidentsThese measures include cutting tax preferences Ronald Reagan, George H.W. Bush, andfor high-income households, eliminating tax Bill Clinton and agreed to by Republicansbreaks for oil and gas companies, closing the and Democrats under the BCA, the trigger
INTRODUCTION 5would not apply to Social Security, low- not act now, it will be more difficult to takeincome programs, or benefits for Medicare action in the years to come. Moreover, if we doenrollees. The cap would not apply during not act now, we will fail to get our economy outan economic downturn or interfere with of its rut and millions of Americans back toour Nation’s ability to respond to a national work and put our Nation on firm fiscal footing.security emergency. Rather, it is in place asinsurance against future political inaction or For all that we have been through, thean unfortunate turn of events. United States of America still has the capacity to meet big challenges. We have not lost the ability to shape our own destiny.CONCLUSION We remain the wealthiest nation on Earth. We have the best workers and universities There are those who will oppose some of these as well as the most daring innovatorsproposals, whether it is savings in Medicare and entrepreneurs. Our problems todayand Medicaid or revenue increases of any lie not with the character of our country,kind. There are powerful and vocal interests but with the state of our politics. Gridlockwho will vigorously object to any changes to and partisanship are nothing new intheir programs. The President believes that we Washington, but the American people haveneed to put aside politics as usual. We cannot never been more fed up with this city thanafford the finger-pointing and kicking the can they are today. At this moment, we need todown the road. If we are all willing to sacrifice come together as Americans and do the worka little to put our fiscal house in order, then of the American people. That is the promiseno one will have to sacrifice a lot. While there of the Joint Committee and the opportunitywill be some worthy programs that will be cut before it. The Administration hopes theseand some revenue that will be raised from the recommendations assist the Joint Committeewealthiest two percent of Americans, if we do in its vital work.
THE AMERICAN JOBS ACT While our economy is no longer at the of rules for everyone from Wall Street to Mainbrink of the second Great Depression, there Street. It will create the jobs of the futureare still millions of Americans who have by helping small business entrepreneurs, bynot yet felt the effects of the recovery. Too investing in education, and by making thingsmany have spent months looking for a job the world buys.to no avail. Others are doing their best justto scrape by—giving up a night out with the The planks of the American Jobs Act are thefamily to save on gas, spending less at the kind of proposals that have been supported bygrocery store, or postponing their retirement both Democrats and Republicans, and it willto send a child to college—and know that be fully paid for with specific offsets.they have no room for error. These men andwomen believe in the promise of America: Tax Cuts to Help America’s Smallthat if you work hard and play by the rules, Businesses Hire and Growyou will be able to provide for your familyand give your children a brighter future. Growing the economy and spurring jobFor too long, that promise has come up creation by America’s businesses, especiallyempty for too many Americans. They are the small businesses which are so importantmeeting their responsibility, and now those to our economic health, is the President’s topin Washington must meet theirs by ending priority. That is why, over the course of thethe political games, doing what they can to last year, he pushed for additional measureshelp the economy grow, providing the tools to jump-start our economic recovery and helpand assistance our businesses and workers small businesses: tax credits for businessesneed to succeed, and restoring some of the that hire unemployed workers, and taxfairness and security that has made America cuts and expanded access to credit for smallthe engine and envy of the world. businesses. In December, the President signed into law a bipartisan measure that Policy pursued in Washington cannot provided tax cuts that also gave businessessolve our problems, but there are specific two powerful incentives to invest and createsteps we can take immediately that will jobs: 100-percent expensing on the purchase ofmake a real difference in the economy and equipment, and an extension of the researchin people’s lives. That is why the President and experimentation tax credit.sent to the Congress the American Jobs Act.The American Jobs Act will put more people With the President’s jobs and growth plan,back to work, put more money in the pockets he builds on those steps that have been soof those who are working, and do so without critical to America’s families and businessadding a dime to the deficit. It will create owners by providing new tax cuts for millionsmore jobs for construction workers, more jobs of small businesses to provide incentives forfor teachers, more jobs for veterans, and more investments and hiring. These tax cuts wouldjobs for the long-term unemployed. It will be available to all businesses, regardless ofprovide a tax break to companies that hire size, but are designed to target their impactnew workers, a tax break for small business toward the smallest businesses.owners, and a middle-class tax cut for 150million workers. Provide a payroll tax cut to businesses, with a focus on small employers. The Moreover, this jobs bill will help the country President’s plan will extend the payroll taxnot just recover from this economic crisis, but cut to firms by cutting in half their payroll taxalso rebuild the economy the American way: on the first $5 million in payroll. Next year,based on balance, fairness, and the same set instead of paying 6.2 percent on their payroll 7
8 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREexpenses, firms would pay only 3.1 percent. provision that he signed into law in 2010,The President’s plan would provide tax cuts which rewards firms for making investmentsfor all of America’s six million firms, with by allowing them to deduct the full value offocused relief for the Nation’s five million those investments from their tax obligationssmall firms with fewer than 20 employees. through 2012. Extending 100-percentThe Congressional Budget Office (CBO) expensing for an additional year would putestimates that every dollar in payroll tax an additional $85 billion in the hands ofcuts for employers increases economic output businesses in 2012. Most of this relief would beby $0.40 to $1.20 over the next five years. recouped by the Treasury as businesses regainUnder the President’s plan, a typical company their strength. An analysis of the 100-percentwith 12 employees and an annual payroll of expensing provision in the December tax deal$392,000 would get a tax cut of $12,200 next by the Treasury Department found that thisyear. Because of the additional employee- policy would lower the average cost of capitalside payroll tax cut, its workers would get tax for business investment by 75 percent and incuts that averaged $1,000. There has been 2011, businesses have cited the benefits ofbipartisan support for a payroll tax cut for such policies.employers as a means to spur job growth. Help entrepreneurs and small Establish a complete payroll tax businesses access capital and grow. Theholiday for new jobs or wage increases. President also supports administrative,In addition to the 3.1 percent payroll tax cut regulatory and legislative measures—for all firms, the President’s plan provides a including those developed and recommendeddirect incentive to encourage firms to hire by the President’s Jobs Council—toadditional employees or raise wages for help small firms start and expand. Thistheir current employees. The American Jobs includes changing the way the GovernmentAct would completely refund payroll taxes does business with small firms. Thepaid on added workers or wage increases for Administration recently announced acurrent workers above the level of last year’s plan to accelerate Government paymentspayroll. To focus the benefit of this tax cut to small business contractors to help puton small businesses, payroll tax relief would money in their hands faster. The Presidentbe capped at $50 million in new wages. has also charged his Chief InformationFor example, under the President’s plan, Officer and Chief Technology Officer toa warehouse with a payroll last year of $7 stand up a one-stop, online portal for smallmillion that hires 40 new workers this year businesses to easily access Governmentand adds $2 million in payroll would get a full services. As part of the President’s Startuprefund on the 6.2-percent payroll taxes paid America initiative, the Administration willon the added $2 million in payroll—for a tax work with the Securities and Exchangecut of $124,000. (That tax cut would come on Commission to conduct a comprehensivetop of the maximum 3.1-percent payroll tax review of securities regulations from thereduction of $155,000 on its base payroll.) perspective of these small companies toThis tax holiday would be augmented by reduce the regulatory burdens on smalltargeted tax cuts for hiring the long-term business capital formation in ways thatunemployed as well as veterans who have are consistent with investor protection,been out of work six months or more. CBO including expanding “crowdfunding”has identified this type of job creation tax opportunities and increasing mini-offerings.cut as one of the most effective ways to help In addition, the President’s plan calls foraccelerate job growth. the Congress to increase guarantees for bonds to help small businesses compete Extend 100 percent business expensing for infrastructure projects and removethrough 2012. The President is proposing burdensome withholding requirements thatan extension of the 100-percent expensing keep capital out of the hands of job creators.
THE AMERICAN JOBS ACT 9Putting Workers Back on the Job While Prevent teacher layoffs and keep policeRebuilding and Modernizing America officers and firefighters on the job. As many as 280,000 education jobs are on the chopping The President’s plan will put Americans block in the upcoming school year due toback to work in key areas that are central continued State budget constraints. These cutsto America’s future competitiveness. It will could have a significant impact on children’srepair and modernize classrooms across the education, through the reduction of school days,country and make sure that teachers who increased class size, and the elimination ofhave been laid off because of budget cuts key classes and services. The President’s plancan be brought back to work. It will take on will support State and local efforts to retain,the fact that the American Society of Civil rehire, and hire early childhood, elementary,Engineers awarded the United States a ‘D’ and secondary educators (including teachers,for the overall condition of its infrastructure. guidance counselors, classroom assistants,Both to modernize the Nation’s roads, afterschool personnel, tutors, and literacyrailways, airports, and schools and to put and math coaches). The President’s planhundreds of thousands of workers back on will invest $30 billion to ensure that schoolsthe job, the President is proposing a strategy are able to keep teachers in the classroom,that combines immediate investments in preserve or extend the regular school day andinfrastructure with innovative reforms to school year, and also support important after-ensure that the best projects get financing. school activities. The President’s plan alsoThese investments in infrastructure would includes $5 billion to support the hiring andnot only put people to work now, but also retention of public safety and first responderyield lasting benefits for the economy, personnel. By supporting such jobs, the planincreasing growth in the long run. In fact, aims to keep communities safe from crime andwe know that investments in infrastructure able to maintain critical emergency responsehave a substantial multiplier effect— capabilities.creating economic growth and jobs now andlaying the foundation for the future as well. Modernize at least 35,000 schools.The Administration is proposing to: The President’s plan calls for substantial investments in our school infrastructure, Offer tax credits and career readiness modernizing and upgrading America’s publicefforts to boost veterans’ hiring. The schools to meet 21st Century needs. The cost ofPresident believes we have an obligation maintaining more than 100,000 public schoolsto make sure our veterans are able to is substantial for already overstretchednavigate this difficult labor market and districts. The accumulated backlog of deferredsucceed in the civilian workforce, and that maintenance and repair amounts to at leastis why he is proposing a plan to lower $270 billion. Schools spend over $6 billionveteran unemployment and ensure that annually on their energy bills, more than theyservicemembers leave the military career- spend on computers and textbooks combined.ready with a new Returning Heroes Tax For children in the Nation’s poorest districts,Credit of up to $4,800 for unemployed these deferred projects too often meanveterans, and a Wounded Warriors Tax overcrowded schools with crumbling ceilingsCredit of up to $9,600 that will increase and a lack of the basic wiring infrastructurethe existing tax credit for firms that hire needed for computers, projectors, and otherunemployed veterans with service-connected technology. The President’s plan will investdisabilities. The President also plans to form $30 billion in enhancing the condition of oura Department of Defense-led task force Nation’s public schools—with $25 billion goingto maximize the career-readiness of all to K-12 schools, including a priority for ruralservicemembers, and enhancing job search schools and dedicated funding for Bureauservices through the Department of Labor of Indian Education funded schools, andfor recently-transitioning veterans. $5 billion to community colleges (including
10 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREtribal colleges). The range of critical repairs and economically disadvantagedand needed construction projects would individuals in transportation-relatedput hundreds of thousands of Americans— activities, including construction,construction workers, engineers, maintenance contract administration, inspection,staff, boiler repairmen, and electrical and security. His plan will also invest anworkers—back to work. additional $10 million in 2012 to help minority-owned and disadvantaged Make an immediate investment in our business enterprises gain better accessroads, rails, and airports. In order to to transportation contracts. And it willjumpstart critical infrastructure projects ensure that infrastructure investmentsand create hundreds of thousands of jobs, allow for the hiring of local workers,the President’s plan includes $50 billion in to maximize economic benefits forimmediate investments for highway, highway communities where projects are located.safety, transit, passenger rail, and aviationactivities—with one fifth of the funding • Funding for innovative transportation.advancing a transformation of how we finance The plan includes $10 billion fortransportation infrastructure and what we innovative mechanisms to finance andfinance. invest in infrastructure. This includes $4 billion to develop high-speed • Investments in making our Nation’s rail corridors; $1 billion to support highway systems safer and more NextGen Air Traffic Modernization efficient. The President’s plan includes efforts, which will employ technology investments totaling $27 billion to make to make the National Airspace System our Nation’s highway systems more safer and more efficient; and $5 billion efficient and safer for passenger and for the TIGER and TIFIA programs, commercial transportation. which target competitive dollars to innovative, multi-modal transportation • Repairing transit systems and im- programs. proving our rail systems. The plan includes $9 billion of investments to • Expediting high-impact infrastructure repair our Nation’s transit systems, projects. The President recently many of which are desperately in need issued a Presidential Memorandum in of modernization. It also includes $2 coordination with his Jobs Council billion in funding to improve intercity directing departments and agencies passenger rail service. These funds will to identify high impact, job-creating connect communities, reduce travel infrastructure projects that can be times and congestion, and create skilled expedited through outstanding review manufacturing jobs. and permitting processes within the control and jurisdiction of the Federal • Improving our airports. The plan also Government. The President also includes airport improvement grants of directed the creation of a Projects $2 billion to improve safety, add capacity, Dashboard to ensure the details of and modernize airport infrastructure each project identified will be available across the country. for stakeholders to follow through the expedited review process and provide • Opportunities for all in the trans- public input. This initiative will create portation sector. The President’s plan infrastructure related jobs and use the will invest an additional $50 million lessons learned to develop best practices in 2012 to enhance employment and that can be applied more broadly to job training opportunities that will permitting and review processes going benefit minorities, women, and socially forward.
THE AMERICAN JOBS ACT 11 Establish a National Infrastructure • Addressing market gaps forBank. To direct Federal resources for infrastructure financing. The NIBinfrastructure to projects that demonstrate would issue loan and loan guaranteesthe most merit and may be difficult to fund to eligible projects. Loans issued byunder the current patchwork of Federal NIB would use approximately theprograms, the President is also calling for the same interest rate as similar-lengthcreation of a National Infrastructure Bank U.S. Treasury securities and could be(NIB), based on the bipartisan model proposed extended up to 35 years, giving the NIBin the Senate. The NIB would represent a the ability to be a “patient” partner side-bold reform of our Nation’s infrastructure by-side with State, local, and privatefinancing, independent of the political co-investors. To maximize leverage fromprocess. It would fund the most important and Federal investments, the NIB wouldeconomically viable infrastructure projects to finance no more than 50 percent of thethe Nation across the transportation, energy, total costs of any project.and water sectors. The NIB would also relyon the private sector, never extending loans Put people back to work rehabilitatingor loan guarantees that finance more than 50 homes, businesses, and communities.percent of a project’s costs, and in many cases The recession has left communities acrossproviding much less, just enough to induce the country with large numbers of foreclosedprivate investment. The NIB’s key provisions homes and businesses, which is weighingwould include: down property values, increasing blight and crime, and standing in the way of economic • Independent, non-partisan operations recovery. In these same communities, there led by transportation and financial are also large numbers of people looking for experts. While the NIB would be a work, especially in the construction industry, Government-owned entity, it would not where more than 1.9 million jobs have been be controlled by any Federal agency and lost since the beginning of the recession in instead would operate independently. December 2007. The President is proposing No more than four voting members of Project Rebuild to help address both of these its seven-member board could be from problems by connecting Americans looking for the same political party. Board members work in distressed communities with the work would have to possess significant needed to repair and repurpose residential and expertise either in the management of commercial properties. Building on successful a relevant financial institution or in the models piloted through the Neighborhood financing, development, or operation of Stabilization Program, Project Rebuild infrastructure projects. will invest $15 billion in proven strategies that leverage private capital and expertise • Broad eligibility for infrastructure to rehabilitate hundreds of thousands of and unbiased project selection. properties in communities across the country. Eligible projects would include Key components include: transportation, water, and energy infrastructure. In general, projects • Focus on distressed commercial would have to be at least $100 million properties and redevelopment to in size and be of national or regional stabilize communities. Many regions significance. Projects would have a clear with concentrated home foreclosures public benefit, meet rigorous economic, also have concentrations of vacant technical and environmental standards, commercial structures that weigh on and be backed by a dedicated revenue property values and make it less likely stream. Geographic, sector, and size that new businesses will come into the considerations would also be taken into community and invest new capital. account. Project Rebuild will tackle this problem
12 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE directly by allowing grantees to rebuild Rockefeller and Kay Bailey Hutchison and and repurpose distressed commercial includes an investment to develop and deploy real estate. a nationwide, interoperable wireless network for public safety. The plan includes reallocating • Participation of for-profit entities to the D Block for public safety (costing $3 billion) gain expertise, leverage Federal dollars and an additional $7 billion to support the and speed program implementation. deployment of this network and technological Many successful redevelopment development to tailor the network to meet strategies involve unique collaborations public safety requirements. This is part of a between local governments, non-profit broader deficit-reducing wireless initiative organizations, and developers and other that would free up public and private spectrum private actors. Project Rebuild will seek to enable the private sector to deploy high- to empower and expand these types speed wireless services to at least 98 percent of collaborations by allowing Federal of Americans, even those living in remote rural funding to support for-profit development and farming communities. In addition, freeing when consistent with project aims and up spectrum from the private sector through subject to strict oversight requirements voluntary incentive auctions that were to ensure that the funds are being used included in both the Rockefeller-Hutchison bill as intended. and the House-passed budget resolution would raise money to pay for these investments in • Increase support for “land banking.” public safety and also reduce the deficit. Land banks work with communities to buy, hold, and redevelop distressed Pathways Back to Work for properties as part of a long-term Americans Looking for Jobs redevelopment strategy and have shown impressive results in stemming The President is proposing the most property price declines and stabilizing innovative reforms to the unemployment communities across the country. Project insurance (UI) system in more than 40 years, Rebuild will seek to scale successful land including changes that will prevent layoffs and bank models, providing much needed give States more flexibility to use Federal UI infusions of capital that they can leverage funds to get Americans who have lost their jobs to raise private sector investment. This back to work. The President’s plan is targeted will increase the breadth and depth to address unemployment in an aggressive, of their reach in helping communities multi-pronged way, drawing from ideas about better handle their distressed properties. what is working from around the country and from both parties. First, the President’s • Create jobs to maintain properties plan marks the most comprehensive attempt and avoid community blight. in decades to reshape the unemployment In addition to creating jobs in the insurance system to grapple with long-term construction and redevelopment industry, unemployment and scarce job openings. Project Rebuild will enable grantees Second, the President’s plan will provide to use funds to establish property direct support to put hundreds of thousands maintenance programs to create jobs and of Americans back to work with tax credits mitigate “visible scars” left by vacant or for hiring people who have been unemployed abandoned properties. the longest, and prevent six million Americans looking for work from losing their benefits. The Expand nationwide wireless Internet Administration is proposing to:services for the public and the firstresponders and reduce the deficit. Reform the UI system to provide greaterThe President’s plan follows the model in flexibility while preserving benefits for sixbipartisan legislation from Senators Jay million people. Drawing on the best ideas of
THE AMERICAN JOBS ACT 13both parties and the most innovative States, the • Work Sharing: UI reform to preventPresident’s plan will equip the UI system to better layoffs. Preventing layoffs in the firstaddress our current long-term unemployment place is a win-win for workers andchallenge. In these times, the Federal emergency businesses. The President’s plan—unemployment system must offer not just a consistent with proposals championedweekly check, but also an aggressive strategy by leaders like Senator Jack Reed—to connect the unemployed to work—through calls for work sharing that would letreforms ranging from rigorous assessment and workers receive pro-rated UI benefits asjob-search assistance to flexible work-based uses compensation for a reduction in hoursof Federal funds to smart strategies to prevent at businesses that would otherwise laylayoffs in the first place: workers off. • Rigorous reemployment assistance. • State flexibility for bold reforms to Research has shown that providing put the long-term unemployed back more job search assistance can speed to work. The President is proposing to individuals’ return to work. Robust provide additional funds to allow States reemployment services combined with to introduce new programs aimed at long- eligibility assessments provide an term unemployed workers, including: opportunity to review the claimant’s work-search activities—a step that Bridge to Work. A number of States not only reduces improper payments, have innovative programs that but that also provides an opportunity give workers the opportunity to for UI recipients to receive face-to-face take temporary, voluntary work job search counseling. By requiring to keep up their skills and train at these services for all new claimants the workplace for a new job, while for Emergency Unemployment Comp- continuing to receive unemployment ensation (EUC, the Federal UI program insurance. The President’s plan for the long-term unemployed), the builds on what works in programs President’s plan will ensure that the like Georgia Works and Opportunity long-term unemployed receive maximum North Carolina, while instituting assistance and services to speed their important fixes and reforms that return to work. ensure minimum wage and fair labor protections are being enforced. States will be required to conduct This plan would authorize States Reemployment and Eligibility Assess- to implement “Bridge to Work” ments, to review most EUC claimants’ programs to help connect the long- eligibility for benefits, and provide term unemployed to employers— them with reemployment and career through temporary work that allows information to develop a work-search employers to bring on potential new plan. New EUC claimants will be employees and helps the unemployed required to check-in with their local maintain or learn new skills. One-Stop Career Centers. This will serve three purposes: to provide the Wage insurance to support paths to re- claimant with labor market and career hiring through a different career. Wage information and support the claimant’s insurance compensates workers who development of a reemployment and take a new job for lower pay rather work-search plan; to refer the claimant than claiming unemployment benefits. to reemployment services delivered The President’s plan would give States through the One-Stop Career Center; flexibility to set up wage insurance and to review the claimant’s eligibility programs for older workers who take a for EUC benefits. loss of pay to return to work.
14 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE Starting a new business. A number of losses and smaller savings than higher-income States—including Delaware, Maine, workers. In August 2011, African Americans Maryland, New Jersey, Oregon, and had an unemployment rate of 16.7 percent Pennsylvania—have self-employment and Hispanics had an unemployment rate of assistance programs that encourage 11.3 percent. The numbers were even worse for and enable unemployed workers to youth: 45 percent of all youth between the ages create their own jobs by starting their of 16 to 24 were employed last month, and only own small businesses. The President’s 33.8 percent of African American youth. In fact, plan would allow States across the only 21 out of every 100 teens in low-income Nation to support programs like these families had a job this past summer. Building with Federal UI funds, rewarding on highly successful Recovery Act programs that dislocated workers willing to strike provided job opportunities for low-income adults out on their own and removing and youths, the President’s “Pathways Back to barriers that discourage participation Work” Fund will make it easier for workers to in existing programs. remain connected to the workforce and gain new skills for long-term employment. This $5 billion • Continue unemployment benefits initiative will include: next year. To support unemployed people as they work their way back to a job, we • Support for summer and year-round need to make sure that benefits do not run jobs for youth. The Recovery Act provided out next year. EUC will prevent six million over 367,000 summer job opportunities Americans from losing benefits in 2012. through the public workforce investment system to young people in the summers Provide tax credits for businesses of 2009 and 2010. Such programs notthat hire the long-term unemployed. only provided young people with theirThe President’s plan includes a special bonus first paycheck, but taught them life-credit of $4,000 for firms that hire the long- long employment skills. Building on thisterm unemployed. On top of cutting payroll success, the new Pathways Back to Worktaxes in half for all American businesses, and Fund will provide States with support fora full payroll tax holiday for hiring or raising summer job programs for low-income youthwages, this credit will add $8 billion to the in 2012, and year-round employment for“bang-for-the-buck” of dollars employers spend economically disadvantaged young adults.to hire unemployed workers. With 6.2 millionpeople unemployed for at least six months, • Subsidized employment opportunitiesproviding a targeted incentive to hire these for low-income individuals who areout-of-work individuals ensures that we do unemployed. This effort builds off thenot waste the skills and ambitions of those successful TANF Emergency Fund wagebearing the brunt of the painful recovery from subsidy program that supported 260,000recession. As economists across the political jobs through the recovery. According tospectrum have noted—including Federal an analysis by the Center on Budget andReserve Chairman Ben Bernanke in recent Policy Priorities, this flexible programweeks—long-term unemployment poses a allowed States to reduce the cost and riskrisk to long-term growth by eroding skills and associated with new hiring, encouragingreducing attachment to the labor force. private-sector businesses to hire new workers. Invest in low-income youth and adults.The President is proposing an aggressive • Support for local efforts tostrategy to expand employment opportunities for implement promising work-basedcommunities that have been particularly hard strategies and to provide traininghit by the recession, and that may take longer opportunities. This initiative wouldto get back on their feet due to greater income support efforts that have good records
THE AMERICAN JOBS ACT 15 of placing low-income adults and next year. Rather than having 6.2 percent of youths in jobs quickly. Local officials, in their wages deducted in payroll taxes, workers partnership with local workforce boards, will only pay 3.1 percent next year. This builds business, community colleges, and other on the 2 percentage point payroll tax reduction partners, will be able to apply for funding that the President secured for workers in to support promising strategies designed 2011—providing 160 million Americans the to lead to employment in the short-term. certainty of ongoing tax relief and increasing the amount of that relief by more than 50 Combat discrimination against percent. Independent forecasters have statedthe unemployed. Recent reports have that a failure to extend last year’s payroll taxhighlighted companies that are increasingly cut would reduce growth next year by one-expressing preferences for applicants half to two-thirds of a percentage point. Thewho already have a job. Specifically, some President’s plan would not only extend thiscompanies are posting job listings that cut, but expand it by 50 percent.include language such as “unemployedcandidates will not be considered” or “must Cutting the payroll tax cut in half forbe currently employed” or “must be employed employees in 2012 will provide a tax cut ofwithin the last six months.” The exclusion $180 billion to American workers. A payrollof unemployed applicants is a troubling and tax cut provides middle-class families witharbitrary screen that is bad for the economy, substantial tax relief. This measure will resultbad for the unemployed, and ultimately bad in a tax cut of more than $1,500 for the typicalfor firms trying to find the best candidates. family earning $50,000. That represents aThis is particularly true at a time when so continuation of the $1,000 tax cut they aremany Americans have found themselves out receiving this year, plus an additional $500 toof work through no fault of their own. New help pay bills and cover expenses. For a familyJersey has passed legislation to address this earning $80,000 per year, the President’s planpractice, and members of the Congress also would cut their taxes by about $2,500. That ishave introduced legislation. The President a continuation of the $1,600 tax cut from lastis calling for legislation that would make it year, plus an additional $900 tax cut next year.unlawful to refuse to hire applicants solely Providing certainty to American families nowbecause they are unemployed or to include that they will receive a generous tax cut inin a job posting a provision that unemployed their paychecks next year is a common sensepersons will not be considered. idea that has enjoyed bipartisan support in the past.More Money in the Pockets of EveryAmerican Worker and Family Help more Americans refinance mort- gages at today’s historically low interest The President’s plan would put more money rates. The President has instructed hisin the pockets of working and middle-class economic team to work with Fannie MaeAmericans by providing tax relief to 160 and Freddie Mac, their regulator the Federalmillion workers—extending the payroll tax Housing Finance Agency, major lenders andcut passed last December. He is proposing to: industry leaders to remove the barriers that exist in the current refinancing program Cut the employee payroll tax in half (Home Affordable Refinance Program) tonext year for 160 million workers. Almost help more borrowers benefit from today’severy working American pays payroll taxes, historically low interest rates. This has theand middle-class Americans face a higher potential to not only help these borrowers, butburden because more of their income comes their communities and the American taxpayer,from wages and salaries. The President’s plan by keeping borrowers in their homes andwill cut payroll taxes in half for employees reducing risk to Fannie Mae and Freddie Mac.
MANDATORY SAVINGS In the Budget Control Act, the President from low yields or price declines, and strongsigned into law a measure that will generate crop insurance programs. But there are pro-approximately $1 trillion in deficit reduction grams and places where funding is unneces-over the next decade through the use of dis- sary or too generous. To reduce the deficit,cretionary spending caps. With discretion- the Administration proposes to eliminate orary spending projected to reach historically reduce those programs, while strengtheninglow levels, we need to look at other parts of the safety net for those that need it most.the budget for savings. Mandatory programs, The Administration is proposing to:those that are not generally appropriated onan annual basis, are an important area to find Eliminate direct payments. The directsavings. In some areas, these programs have payment program provides producers fixednot been updated or reformed for years. In annual income support payments for hav-others, parochial politics has allowed waste to ing historically planted crops that were sup-pile up or programs to stray from their mis- ported by Government programs, regardlesssion. The President is proposing $257 billion of whether the farmer is currently producingin savings over 10 years in mandatory pro- those crops—or producing any crop, for thatgrams outside of the health area. This list matter. Direct payments do not vary withdoes not include mandatory savings in higher prices, yields, or producers’ farm incomes. Aseducation programs, because savings from a result, taxpayers continue to foot the bill forthese types of programs should be directed these payments to farmers who are experi-back into helping America’s students enter encing record yields and prices; more than 50and finish college. percent of direct payments go to farmers with more than $100,000 in income. EconomistsAgricultural Sector have shown that direct payments have priced young Americans out of renting or owning the A strong agricultural sector is important land needed to enter into farming. In a periodto maintaining a strong rural economy. The of severe fiscal restraint, these payments areAdministration supports the farm and rural no longer defensible, and eliminating themsectors through a number of means, includ- would save the Government roughly $3 bil-ing funding agricultural research programs, lion per year.providing assistance to beginning and dis-advantaged farmers, pursuing trade agree- Reduce subsidies to crop insurancements, and increasing funding for programs companies. Crop insurance is a foundationto expand U.S. agricultural exports. For of our farm safety net. Our Nation’s farm-the past decade, the agricultural sector has ers and agricultural bankers understand thebeen extremely strong. Farm income has value of this effective risk management pro-been high and continues to increase, with gram, and currently 83 percent of eligible pro-net farm income forecast to be $103.6 bil- gram crop acres are enrolled in the program.lion in 2011, up $24.5 billion (31 percent) However, the program continues to be highlyfrom the 2010 forecast—the highest infla- subsidized and costs the Government approx-tion-adjusted value for net farm income re- imately $8 billion a year to run: $2.3 billioncorded in more than 35 years. The top five per year for the private insurance companiesearnings years for the past three decades to administer and underwrite the programhave occurred since 2004, attesting to the and $5.7 billion per year in premium subsi-profitability of farming this decade. The dies to the farmers. The Administration hasAdministration remains committed to a made a continued effort to improve the cropstrong safety net for farmers, one that pro- insurance program by covering more crops,tects them from revenue losses that result while implementing it more efficiently. 17
18 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE In 2010, the U.S. Department of Agriculture sis points off any coverage premium subsidy(USDA) and the crop insurance companies levels that are currently offered above 50 per-agreed to changes that saved $6 billion over cent, saving $2 billion over 10 years. Farmers10 years from administrative expense reim- who have premium subsidies of 50 percent orbursement and underwriting gains while also less would not be affected.improving service to underserved States. TheAdministration believes there are additional Better target agricultural conserva-opportunities for streamlining of the admin- tion assistance. Farmers, ranchers, andistrative costs of the program. A USDA com- forest landowners share a critical role in con-missioned study found that when compared serving the Nation’s soil, water, and relatedto other private companies, crop insurance natural resources. The Administration iscompanies’ rate of return on investment very supportive of programs that create in-(ROI) should be around 12 percent, but that centives for private lands conservation andit is currently expected to be 14 percent. The has made great strides in leveraging theseAdministration is proposing to lower the crop resources with those of other Federal agen-insurance companies’ ROI to meet the 12 per- cies towards greater landscape-scale con-cent target, saving $2 billion over 10 years. In servation; however, the dramatic increaseaddition, the current cap on administrative ex- in funding (roughly 500 percent since en-penses is based on the 2010 premiums, which actment of the Farm Security and Ruralwere among the highest ever. A more appro- Investments Act of 2002) has led to difficul-priate level for the cap would be based on 2006 ties in program administration and redun-premiums, neutralizing the spike in commodi- dancies among our agricultural conservationty prices over the last four years, but not harm- programs. At the same time, high crop pricesing the delivery system. The Administration, have both strengthened market opportuni-therefore, proposes setting the cap at $0.9 ties to expand agricultural production on thebillion adjusted annually for inflation, which Nation’s farmlands and decreased producerwould save $3.7 billion over 10 years. Finally, demand for certain agricultural conservationthe Administration proposes to price more ac- programs. These current economic realitiescurately the premium for catastrophic (CAT) and the ability to better target existing fund-coverage policies, which will slightly lower the ing for maximum environmental outcomesreimbursement to crop insurance companies. support a proposal to reduce the deficit whileThe premium for CAT coverage is fully subsi- preserving the most important agriculturaldized for the farmer, so the farmer is not im- conservation programs. To reduce the deficit,pacted by the change. This change will save the Administration proposes to reduce con-$600 million over 10 years. servation funding by $2 billion over 10 years by better targeting conservation funding to The Administration also proposes modest the most cost-effective and environmentally-changes in subsidies for producers. Today, pro- beneficial programs and practices. Even un-ducers only pay 40 percent of the cost of their der this proposal, conservation assistance iscrop insurance premium on average, with the projected to grow by $60 billion over the nextGovernment paying for the remainder. This decade.cost-share arrangement was implemented in2000, when very few producers participated Extend mandatory disaster assistance.in the program and “ad-hoc” agricultural di- The Administration strongly supports disas-saster assistance bills were regularly enacted. ter assistance programs that protect farm-The Congress increased the subsidy for most ers in their time of greatest need. The Food,insurance coverage by over 50 percent at the Conservation, and Energy Act of 2008 provid-time to encourage greater participation. Today, ed producers with mandatory disaster assis-participation rates are 83 percent on average, tance programs for the 2008 to 2011 crops. Toand the rationale for high subsidy rates has strengthen the safety net, the Administrationweakened. The proposal would shave two ba- proposes to extend these programs, or simi-
MANDATORY SAVINGS 19lar types of disaster assistance that are of a health care services and what retired militarysimilar cost, for the 2012 to 2016 crops. The personnel pay. The Administration is proposingprograms provide financial assistance to pro- a group of reforms to better align these retire-ducers when they suffer actual losses in farm ment programs with the private sector, whilerevenue, loss of livestock or the ability to graze still preserving the Federal Government’s abil-their livestock, loss of trees in an orchard, and ity to recruit and retain the personnel that theother losses due to diseases or adverse weather. American people need. The reductions soughtTo be eligible for the programs, farmers must in these programs are evenly split between ci-purchase crop insurance. The Supplemental vilian and military retirement programs. TheRevenue Assistance Program provides whole Administration proposes to:farm revenue coverage to farmers at a revenuelevel that is essentially 15 percent higher than Reform civilian Federal workertheir crop insurance guarantee. Payments are retirement. Whether it is defending ourlimited so that the guaranteed level cannot ex- homeland, restoring confidence in ourceed 90 percent of expected farm income in the financial system and administering a historicabsence of a natural disaster. economic recovery effort, providing health care to our veterans, or searching for cures toFederal Worker and Military the most vexing diseases, we rely on a highlyRetirement Programs skilled workforce committed to public service. The Administration has implemented efforts The men and women who serve their fel- to reform the hiring process and improvelow Americans in the Armed Forces and civil employee engagement, satisfaction, andservice are patriots who work for the Nation wellness. In line with its strong commitmentoften at great personal sacrifice. Just as fami- to Federal employees, the Administrationlies and businesses must tighten their belts to believes that we can make modest changeslive within their means, so must the Federal to Federal worker retirement contributionsGovernment. One area to examine is the retire- while maintaining the ability to attract andment and health benefits offered to the Federal retain highly qualified individuals to handlemilitary and civilian workforce. Over the past the challenging and complex work the Federalseveral years, there have been significant shifts Government is expected to do.both in how people work and how their benefitsare structured. Organizations of all sizes have The Administration is proposing that thehad to reform and alter the retirement benefits employee contribution toward accruing retire-they give in order to remain competitive and, in ment costs would increase by a total of 1.2some cases, solvent. As a result, compared to the percent (0.4 percent a year over three yearsprivate sector, the Federal retirement program beginning in 2013), but the employee’s totalcan seem generous. For example, defined bene- pension would remain unchanged. In addition,fit pensions are becoming increasingly rare, and the Administration is proposing to eliminateare now available to only one-third of private in- the FERS Annuity Supplement for new em-dustry workers in large firms and 21 percent of ployees. While Federal agency contributions forall private employees. Some estimates put the currently accruing costs of employee pensionssplit between employer and employee contribu- would decline, these employers would pay antions in the private sector at 55 percent paid additional amount toward unfunded liabilitiesby employers and 45 percent paid by employ- of the retirement system that would leave totalees (combining defined benefit and defined con- agency contributions unchanged over the 10-tribution plans), whereas on average Federal year budget window. The Administration doesemployers pay 67 percent of contributions to not anticipate this policy change will negativelythe Federal Employees Retirement System affect its human capital planning and manage-(FERS), while employees pay 33 percent. In ad- ment, nor inhibit the Government’s ability todition, a marked disparity exists between the serve the American people. This proposal is es-fees most retired private sector workers pay for timated to save $21 billion over 10 years.
20 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE While the modest retirement system change medical services, generally leaving the ben-proposed above is important, we also need eficiary with no out-of-pocket costs aside frombroader reform. The Federal personnel sys- Medicare Part B premiums and drug co-pays.tem that governs pay and performance for the In the private sector, this type of “Medigap”majority of Federal employees was codified in policy would likely require premiums, deduct-1949, when Government was composed of far ibles, and co-pays. In 2009 the average annualmore lower-grade employees handling rela- premium for a “Medigap” policy was $2,100.tively routine tasks that required few special- By contrast, there are no premiums underized or advanced skills and when computers the TFL programs. The Administration is pro-were massive mainframes. Despite employee posing to introduce modest annual fees forsurveys revealing that Federal employees be- the TFL program, beginning with a $200 an-lieve the current work environment fails to ef- nual fee in 2013. The fee then would increasefectively deal with poor performers and does to align with the modest increase in the feesnot reward innovation, reform efforts to date under the regular TRICARE program for in-have not been able to address this foundational dividuals under age 65 that was proposed inissue of Government performance. To manage the President’s 2012 Budget. This proposal isthe complex work agencies perform today in or- estimated to save approximately $6.7 billionder to meet the needs of the American people, in mandatory spending over 10 years.Federal managers and employees need a mod-ernized personnel system that reflects the re- Targeted increases to TRICAREality of the 21st century—where agencies offer pharmacy benefit co-payments. Thecompensation reflecting competing markets Administration supports a generous healthfor employees, facilitate career-development care benefit to recognize the service of mili-mobility across agencies and with the private tary members and retirees. This includes pro-sector, address poor performers consistently viding affordable options to access prescrip-and fairly, develop staff, and motivate better tions. However, the co-payments for militaryperformance using the best evidence-based members have lagged behind other Federalpublic and private sector practices. To advance and private plans. For example, the averagethis effort, the Administration recommends co-payment for a costly brand-name drug pur-that the Congress establish a Commission chased at a drug store by a Federal retiree inon Federal Public Service Reform comprised the most popular Federal Employees Healthof Members of the Congress, representatives Benefits Program (FEHBP) plan option is es-from the President’s Labor-Management timated to be $45, compared to $9 for a mili-Council, members of the private sector, and tary retiree. In an effort to slow the growth inacademic experts. The Commission would de- DOD’s health care costs, the President’s 2012velop recommendations on reforms to modern- Budget included minor pharmacy co-payize Federal personnel policies and practices adjustments, for which both the House andwithin fiscal constraints. Such reforms could Senate indicated support. This new proposalinclude but would not be limited to compensa- would move the TRICARE pharmacy programtion, staff development and mobility, and per- closer to parity with the most popular Federalsonnel performance and motivation. employee health plan, BlueCross BlueShield Standard and closer to the health plans that Initiate annual fees for TRICARE-For- most Americans have from their employers.Life enrollment (TFL). One of the ways The proposal would provide an incentive formilitary retirees and their families are rec- consumers to choose less expensive pharma-ognized for their essential service is through cy options by eliminating co-pays for generichealth insurance coverage called TRICARE. mail-order drugs while, at the same time,Upon turning 65, beneficiaries transition to shifting retail co-pays from a dollar figure toMedicare coverage, with TFL becoming sec- a percentage co-pay. This option would haveond payer. The TFL program pays the ben- no impact on active duty members, but wouldeficiaries’ Medicare out-of-pocket costs for affect active duty families and all military re-