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A New Era Of Responsibility


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A New Era Of Responsibility

  1. 1. A New Era of Responsibility Renewing America’s Promise Office of Management and Budget
  2. 2. A A New Era of Responsibility Renewing America’s Promise Office of Management and Budget
  3. 3. Table of Contents Page President’s Message ������������������������������������������������������������������������������������������������������������������������������������1 Inheriting a Legacy of Misplaced Priorities ����������������������������������������������������������������������������������������������5 Jumpstarting the Economy and Investing for the Future ����������������������������������������������������������������������17 Conclusion �������������������������������������������������������������������������������������������������������������������������������������������������43 Department of Agriculture �����������������������������������������������������������������������������������������������������������������������45 Department of Commerce �������������������������������������������������������������������������������������������������������������������������51 Department of Defense �����������������������������������������������������������������������������������������������������������������������������53 National Intelligence Program �����������������������������������������������������������������������������������������������������������������57 Department of Education �������������������������������������������������������������������������������������������������������������������������59 Department of Energy ������������������������������������������������������������������������������������������������������������������������������63 Department of Health and Human Services �������������������������������������������������������������������������������������������67 Department of Homeland Security ����������������������������������������������������������������������������������������������������������71 Department of Housing and Urban Development ����������������������������������������������������������������������������������73 Department of the Interior �����������������������������������������������������������������������������������������������������������������������77 Department of Justice�������������������������������������������������������������������������������������������������������������������������������81 Department of Labor ��������������������������������������������������������������������������������������������������������������������������������83 Department of State and Other International Programs �����������������������������������������������������������������������87 Department of Transportation �����������������������������������������������������������������������������������������������������������������91 Department of the Treasury ���������������������������������������������������������������������������������������������������������������������93 Department of Veterans Affairs ���������������������������������������������������������������������������������������������������������������95 Corps of Engineers—Civil Works �������������������������������������������������������������������������������������������������������������97 Environmental Protection Agency �����������������������������������������������������������������������������������������������������������99 National Aeronautics and Space Administration ����������������������������������������������������������������������������������103 National Science Foundation������������������������������������������������������������������������������������������������������������������105 Small Business Administration��������������������������������������������������������������������������������������������������������������107 Social Security Administration ��������������������������������������������������������������������������������������������������������������109 Corporation for National and Community Service �������������������������������������������������������������������������������111 Summary Tables �������������������������������������������������������������������������������������������������������������������������������������113
  4. 4. GENERAL NOTES 1� All years referenced for economic data are calendar years unless otherwise noted� All years referenced for budget data are fiscal years unless otherwise noted� 2� At the time of this writing, only three of the appropriations bills for 2009 had been enacted; therefore, references to 2009 spending in the text and tables reflect approximate estimates of final likely appropriations action that set total discretionary funding at the level assumed to conform to the total level for appropriations in the Concurrent resolution on the Budget for 2009� Adjustments are also made to include the costs of the just-enacted American recovery and reinvestment Act of 2009� 3� Details in the tables may not add to the totals due to rounding� 4� Web address: U�S� GOVErNMENT PrINTING OFFICE WASHINGTON, D�C� 2009 For sale by the Superintendent of Documents, U�S� Government Printing Office Internet: bookstore�gpo�gov Phone: (866) 512-1800 DC Area: (202) 512-1800 Fax: (202) 512-2250 Mail: Stop IDCC, Washington, DC 20402-0001 ISBN: 978-0-16-082552-1
  5. 5. PRESidENT’S MESSAGE Throughout America’s history, there have been private and public institutions from some of our some years that appeared to roll into the next largest companies’ executive suites to the seats without much notice or fanfare� Budgets are pro- of power in Washington, D�C� For decades, too posed that offer some new programs or eliminate many on Wall Street threw caution to the wind, an initiative, but by and large continuity reigns� chased profits with blind optimism and little re- gard for serious risks—and with even less regard Then there are the years that come along for the public good� Lenders made loans without once in a generation, when we look at where the concern for whether borrowers could repay them� country has been and recognize that we need a Inadequately informed of the risks and over- break from a troubled past, that the problems we whelmed by fine print, many borrowers took on face demand that we begin charting a new path� debt they could not really afford� And those in This is one of those years� authority turned a blind eye to this risk-taking; they forgot that markets work best when there We start 2009 in the midst of a crisis unlike is transparency and accountability and when the any we have seen in our lifetimes� Our economy rules of the road are both fair and vigorously en- is in a deep recession that threatens to be deeper forced� For years, a lack of transparency created and longer than any since the Great Depression� a situation in which serious economic dangers More than three and a half million jobs were lost were visible to all too few� over the past 13 months, more jobs than at any time since World War II� In addition, another 8�8 This irresponsibility precipitated the interlock- million Americans who want and need full-time ing housing and financial crises that triggered work have had to settle for part-time jobs� Manu- this recession� But the roots of the problems we facturing employment has hit a 60-year low� Our face run deeper� Government has failed to fully capital markets are virtually frozen, making it confront the deep, systemic problems that year difficult for businesses to grow and for families to after year have only become a larger and larger borrow money to afford a home, car, or college ed- drag on our economy� From the rising costs of ucation for their kids� Many families cannot pay health care to the state of our schools, from the their bills or their mortgage payments� Trillions need to revolutionize how we power our economy of dollars of wealth have been wiped out, leav- to our crumbling infrastructure, policymakers in ing many workers with little or nothing as they Washington have chosen temporary fixes over approach retirement� And millions of Americans lasting solutions� are unsure about the future—if their job will be there tomorrow, if their children will be able to The time has come to usher in a new era— go to college, and if their grandchildren will be a new era of responsibility in which we act not able to realize the full promise of America� only to save and create new jobs, but also to lay a new foundation of growth upon which we can This crisis is neither the result of a normal renew the promise of America� turn of the business cycle nor an accident of his- tory� We arrived at this point as a result of an era This Budget is a first step in that journey� It of profound irresponsibility that engulfed both lays out for the American people the extent of
  6. 6. 2 A NEW ErA OF rESPONSIBILITy the crisis we inherited, the steps we will take to To improve the quality of our health care while jumpstart our economy to create new jobs, and lowering its cost, we will make the immediate in- our plans to transform our economy for the 21st vestments needed to computerize all of America’s Century to give our children and grandchildren medical records within five years while protect- the fruits of many years of economic growth� ing the privacy of patients� This is a necessary step to reducing waste, eliminating red tape, It is true that we cannot depend on govern- and avoiding the need to repeat expensive medi- ment alone to create jobs or to generate long-term cal tests� We also will fundamentally reform our growth� Ours is a market economy, and the health care system, delivering quality care to Nation depends on the energy and initiative of more Americans while reducing costs for us all� private institutions and individuals� But at this This will make our businesses more competi- particular moment, government must lead the tive and ease a significant and growing burden way in providing the short-term boost neces- middle-class families are bearing� sary to lift us from a recession this severe and lay the foundation for future prosperity� That’s To give our children a fair shot to thrive in a why immediately upon taking office, my Admin- global, information-age economy, we will equip istration worked with the Congress to pass the thousands of schools, community colleges, and American recovery and reinvestment Act� This universities with 21st Century classrooms, labs, plan’s provisions will put money in the pockets and libraries� We’ll provide new technology and of the American people, save or create at least new training for teachers so that students in Chi- three and a half million jobs, and help to revive cago and Boston can compete with kids in Beijing our economy� for the high-tech, high-wage jobs of the future� We will invest in innovation, and open the doors This moment is one of great paradox and of college to millions of students� We will pursue promise: while there are millions of Americans new reforms—lifting standards in our schools trying to find work, there is also so much work and recruiting, training, and rewarding a new to be done� That’s why the recovery Act and our generation of teachers� And in an era of skyrock- Budget will make long overdue investments eting college tuitions, we will make sure that the in priorities—like clean energy, education, doors of college remain open to children from all health care, and a new infrastructure—that are walks of life� necessary to keep us strong and competitive in the 21st Century� To create a platform for our entrepreneurs and workers to build an economy that can lead To finally spark the creation of a clean energy this future, we will begin to rebuild America for economy, we will make the investments in the the demands of the 21st Century� We will repair next three years to double our Nation’s renew- crumbling roads, bridges, and schools as well as able energy capacity� We will modernize Federal expand broadband lines across America, so that buildings and improve the energy efficiency of a small business in a rural town can connect and millions of American homes, saving consumers compete with its counterparts anywhere in the and taxpayers billions on our energy bills� In the world� And we will invest in the science, research, process, we will put Americans to work in new and technology that will lead to new medical jobs that pay well—jobs installing solar panels breakthroughs, new discoveries, and entire new and wind turbines; constructing energy efficient industries� buildings; manufacturing fuel efficient vehicles; and developing the new energy technologies that regaining our economic strength also is criti- will lead to even more jobs and more savings, cal to our national security� It is a major source putting us on the path toward energy indepen- of our global leadership, and we must not let it dence for our Nation and a cleaner, safer planet waver� That’s why this Budget makes critical in- in the process� vestments in rebuilding our military, securing our
  7. 7. 3 PrESIDENT’S MESSAGE homeland, and expanding our diplomatic efforts package of tax cuts to 95 percent of working because to provide for the security of the United families� States we need to use all elements of our power� Moreover, to honor the service of those who have Finally, while we have inherited record budget worn our military’s uniform, we will make the in- deficits and needed to pass a massive recovery vestments necessary to take care of our veterans� and reinvestment plan to try to jump-start our economy out of recession, we cannot lose sight of For these initiatives to lay a foundation for the long-run challenges that our country faces and long-term economic growth, it’s important that that threaten our economic health—specifically, we not only change what Washington invests the trillions of dollars of debt that we inherited, in, but how Washington does business� We must the rising costs of health care, and the growing usher in a new era of responsibility in which we obligations of Social Security� Therefore, while empower citizens with the information they need our Budget will run deficits, we must begin the to hold their elected representatives accountable process of making the tough choices necessary for the decisions they make� We need to put tired to restore fiscal discipline, cut the deficit in half ideologies aside, and ask not whether our Govern- by the end of my first term in office, and put our ment is too big or too small, or whether it is the Nation on sound fiscal footing� problem or the solution, but whether it is working for the American people� Where it does not, we Some may look at what faces our Nation and will stop spending taxpayer dollars; where it has believe that America’s greatest days are behind proven to be effective, we will invest� This is the it� They are wrong� approach, for example, we have begun in allocat- ing funds to education, health care, and national Our problems are rooted in past mistakes, not security� And as we continue the budgetary pro- our capacity for future greatness� We should never cess, we will identify more cuts and reallocations forget that our workers are more innovative and for the full Budget presented this spring, and un- industrious than any on earth� Our universities dertake efforts to reform how the programs you are still the envy of the world� We are still home fund are managed so that overruns are avoided, to the most brilliant minds, the most creative en- waste is cut, and you get the most effective and trepreneurs, and the most advanced technology efficient Government possible� and innovation that history has ever known� And we are still the Nation that has overcome great In the little more than a month my Administra- fears and improbable odds� It will take time, but tion has had in office, we have not had the time we can bring change to America� We can rebuild to fully execute all the budget reforms that are that lost trust and confidence� We can restore op- needed, and to which I am fully committed� Those portunity and prosperity� And we can bring about will come in the months ahead, and next year’s a new sense of responsibility among Americans budget process will look much different� from every walk of life and from every corner of the country� But this Budget does begin the hard work of bringing new levels of honesty and fairness to your Government� It looks ahead a full 10 years, making good-faith estimates about what costs we would incur; and it accounts for items Barack OBama that under the old rules could have been left out, making it appear that we had billions more to spend than we really do� The Budget also be- gins to restore a basic sense of fairness to the The WhiTe hOuse, tax code, eliminating incentives for companies FeBruary 26, 2009. that ship jobs overseas and giving a generous
  8. 8. iNhERiTiNG A LEGACy Of MiSPLACEd PRiORiTiES Over the decades, the United States has grown record profits and paid themselves millions of and prospered when all Americans have shared dollars in compensation and bonuses� There’s in the opportunities created by our economy� nothing wrong with making money, but there Bottom-up growth that empowers hardworking is something wrong when we allow the playing families to climb the ladder of success and raise field to be tilted so far in the favor of so few� their children with security, opportunity, and hope for the future lies at the heart of the Ameri- This is the legacy that we inherit—a legacy can dream� It is the responsibility of our elected of mismanagement and misplaced priorities, leaders to create the conditions for our people to of missed opportunities and of deep, structural aim high, work hard, and realize the full promise problems ignored for too long� It’s a legacy of of American life� irresponsibility, and it is our duty to change it� yet for far too long, the resilience, optimism, A Deep AnD Destructive recession and industriousness of the American people have been frustrated by irresponsible policy choices No one reading this report needs to be told in Washington� Prudent investments in educa- that our economy is in crisis� We have lost jobs tion, clean energy, health care, and infrastruc- for 13 consecutive months for a total of 3�6 mil- ture were sacrificed for huge tax cuts for the lion jobs lost� According to the Bureau of Labor wealthy and well-connected� In the face of these Statistics, more jobs were lost last year than in trade-offs, Washington has ignored the squeeze any year since data collection of this kind began on middle-class families that is making it hard- in 1939 (see Figure 1, Annual Change in Payroll er for them to get ahead� Our Government has Employment, 1940-2008)� In percentage terms, spent taxpayer money without making sure the the job loss in the current recession is the worst numbers add up and without making it clear and since the early 1980s (see Figure 2, Job Losses in understandable to the American people where Five recessions)� their money was being spent� Tough choices have been avoided, and we have failed to make the Many newly unemployed workers will be fac- wise investments we need to compete in a global, ing long odds when they try to find another good information-age economy� job� Since the start of the recession, the number of those unemployed for 27 weeks or more has While middle-class families have been playing risen by 1�3 million including a 440,000-person by the rules, living up to their responsibilities as increase in December 2008 and January 2009� neighbors and citizens, those at the commanding Increasingly, workers are giving up looking for heights of our economy have not� They have tak- work or involuntarily settling for part-time work; en risks and piled on debts that while seemingly in fact, the underemployment rate, which mea- profitable in the short-term, have now proven to sures all those out of work or underemployed for be dangerous not only for their individual firms economic reasons, rose to 13�9 percent in Janu- but for the economy as a whole� With loosened ary 2009 (see Figure 3, The Underemployment oversight and weak enforcement from Wash- rate)� ington, too many cut corners as they racked up 5
  9. 9. 6 A NEW ErA OF rESPONSIBILITy Figure 1 ing Employment)� Housing starts and permits continue to fall; in Annual Change in Payroll Employment fact, the U�S� Census reported that 1940-2008 Millions of jobs housing starts were at the lowest 5 levels since monthly recording 4 of these data began in 1959 (see Figure 5, Housing Starts)� At the 3 same time, mortgages in the fore- 2 closure process increased 204 per- 1 cent between October 2006 and 0 October 2008, and over 1 million -1 properties went into foreclosure in 2008� -2 -3 Unsurprisingly, consumer -4 confidence too is at an all time 1940 1948 1956 1964 1972 1980 1988 1996 2004 low (see Figure 6, Consumer Source: Bureau of Labor Statistics. Note: Values reflect December to December changes in seasonally-adjusted payroll employment. Confidence)� Some Americans are unable to keep up with the mounting bills and dwindling Every sector of our economy has been affect- prospects: last fiscal year, personal bankrupt- ed by this recession� The automobile industry, cy filings topped 1 million, an increase of al- which required a Government rescue this past most 30 percent from 2007� The overall picture winter, has shed 204,000 jobs since the start of is bleak: GDP fell at a 3�8 percent annualized this recession� Over the last year, the Big Three rate in the last quarter of 2008, the biggest automakers have seen sales plunge anywhere economic contraction in more than a quarter between 39 and 55 percent� Manufacturing as a of a century� whole has been hard hit with employment fall- ing to a 60-year low (see Figure 4, Manufactur- A central cause of this sudden downturn has been a meltdown in our capital and credit markets� The subprime Figure 2 mortgage crisis is the result of a Job Losses in Five Recessions perfect storm of excessive risk- Percent decline from business cycle peaks taking by both investors and bor- 0.5 rowers, inadequate disclosure, 0 non-existent or myopic oversight, market gatekeepers compromised -0.5 by conflicts of interest, and irre- -1.0 sponsible lending to thousands of Americans who, when offered the -1.5 chance to own their own home, -2.0 were advised to throw caution to -2.5 the wind� Through sophisticated financial engineering, bad loans -3.0 Peak Months made on Main Street made their APR 1960 JUL 1981 JUL 1990 MAR 2001 DEC 2007 -3.5 way onto the books of some of the 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 largest firms on Wall Street, and Months from Peak Source: Employment data from Bureau of Labor Statistics. Business cycle peak dates from National Bureau of then were sold to pension funds Economic Research. and individual investors around
  10. 10. INHErITING A LEGACy OF MISPLACED PrIOrITIES 7 Figure 3 the world� Once the real estate The Underemployment Rate market began to cool, loans de- faulted at alarming numbers, these Percent 16 complex financial products started U-6—Total unemployed, plus discouraged to lose their value, and the credit workers, plus all other marginally attached 14 workers, plus total employed part time for boom unraveled, erasing enormous economic reasons as a percent of the civilian labor force plus discouraged 12 wealth for both families and busi- workers and all other marginally attached U-6—Underemployment Rate workers. ness as well as the jobs fueled by 10 consumer spending� 8 The resulting collapse laid low 6 some of the most prominent fi- nancial institutions in the Ameri- 4 U-3—Official Unemployment Rate can economy, and has wiped out 2 trillions of dollars in wealth and retirement savings for millions of 0 Americans who thought they had 1994 1995 1997 1999 2001 2003 2005 2006 2008 successfully provided for their Source: Bureau of Labor Statistics. golden years� Uncertainty about how far and wide the contagion has spread has brought our financial system An Anemic recovery AlreADy HAs Hurt to a near standstill� Loans to consumers, small AmericAn FAmilies businesses, and other borrowers are hard to Adding insult to injury, American families have come by, and likewise, the mortgage squeeze acts as a brake on the return of housing de- entered this recession weakened by the anemic mand� The injection of unprecedented amounts recovery from the last downturn at the beginning of funds by the Federal reserve and through of this decade� For millions of Americans, the re- the Troubled Asset relief Program (TArP) at- covery from 2001 through 2007 was hardly one at tempted to restore confidence in the financial all� Measured by job gains, the economic recovery markets to get capital flowing once more and has slowed or per- Figure 4 haps halted the meltdown—but it Manufacturing Employment is Lower than at has not been enough to fully re- Any Time Since 1946 store confidence and the smooth Millions of employees operation of credit markets� A 20 lack of trust still pervades mar- 19 kets� When that happens, inves- 18 tors pull their money out of the market, depositors make runs at 17 banks, and banks stop lending 16 to companies and to one anoth- 15 er� Because of this lack of trust, our credit markets are effectively 14 still frozen� As a result, business- 13 es are unable to expand, families 12 are unable to finance a new home, a new car, or a college education 11 1946 1953 1960 1967 1974 1981 1988 1995 2002 2009 for their kids; and our economy Source: Bureau of Labor Statistics. suffers�
  11. 11. 8 A NEW ErA OF rESPONSIBILITy Figure 5 Figure 7, 2000s Economic recov- Housing Starts have Reached ery Brought Weakest Job Gains)� real wages also showed very little an All-Time Low improvement in the latest expan- Millions of housing units per month 3.0 sion, rising on average at an annu- alized rate of just 0�1 percent each 2.5 month, compared with 0�7 percent during the 1990s expansion� 2.0 On top of that, this was the first 1.5 economic recovery since World War II where real median house- 1.0 hold income did not rise above its previous peak (see Figure 8, real 0.5 Median Household Incomes)� Be- tween 2000 and 2007, median in- 0 1960 1966 1972 1978 1984 1990 1996 2002 2008 come among households headed Source: U.S. Census Bureau. by those under 65 fell by $1,951� To keep up, more and more Amer- icans have turned to credit and in the 2000s was the weakest one in a generation� debt: by 2007, household debt as a percentage From 2001 to 2007, the period in which the econo- of disposable personal income was 133�7 per- my was expanding as measured by the growth in cent� And some Americans have not been able output, only 99,000 jobs were created each month to keep up, falling out of the middle class and on average� The period began with an outright into poverty� From 2000 to 2007, the number of decline in employment that did not end until Americans living in poverty increased by near- 2003� Average job gains were more than twice as ly 5�7 million, and 1�7 more children lived in large during the expansions of the 1980s (228,000 poverty in 2007 than in 2000� In fact, 18 per- a month) and the 1990s (200,000 a month) (see cent of children, about 13 million in total, lived in poverty in 2007� Figure 6 Consumer Confidence Has Fallen to a ignoring our long-term Forty-Year Low cHAllenges 1985 = 100 160 As the typical family saw its 140 income decline and the under- 120 pinnings of our economic growth become increasingly unsustain- 100 able, nothing was done to ad- 80 dress these mounting problems� These problems then were made 60 worse by policies that benefited 40 those at the top at the expense of almost all Americans and by 20 a failure to tackle some of the most significant, structural im- 0 1967 1972 1977 1982 1987 1992 1998 2003 2008 pediments to long-term economic Source: Conference Board, monthly values interpolated 1966-1977. growth�
  12. 12. INHErITING A LEGACy OF MISPLACED PrIOrITIES 9 Growing Imbalance: Accumulating beyond has become harder and harder to climb� Wealth and Closing Doors to the Middle The American dream has slowly slipped beyond Class the grasp of millions as we have deliberately ig- nored the very investments in our people that For the better part of three decades, a dispro- strengthen the middle class and neglected the portionate share of the Nation’s wealth has been drivers of economic growth that will sustain our accumulated by the very wealthy� Technological economy for the long run� advances and growing global competition, while Education transforming whole industries—and birthing new ones—has accentuated the trend toward ris- We know that the key to success in the 21st ing inequality� yet, instead of using the tax code to Century lies in investing in our people—in giv- lessen these increasing wage disparities, changes ing the chance to get a world-class education in the tax code over the past eight years exacer- from cradle to career� Economists from across the bated them� spectrum agree that in this digital age, a highly- educated and skilled workforce is critical not only According to the Internal revenue Service, the to individual opportunity, but also to the overall Nation’s top 400 taxpayers made more than $263 success of our economy� The more people we edu- million on average in 2006, but paid income taxes cate to the highest standards possible, the bet- at the lowest rate in the 15 years in which these ter off all of us will be� yet too many children are data have been reported� In constant dollars, the not getting the world-class education that they average income of the top 400 taxpayers nearly deserve and that they need to thrive in this infor- quadrupled since 1992� mation-age economy� It’s no surprise, then, that wealth began to be research has shown that there is a high return ever more concentrated at the top� By 2004, the wealthiest 10 percent of households held 70 per- for investments made in high-quality, compre- cent of total wealth, and the combined net worth hensive programs supporting disadvantaged chil- of the top 1 percent of families was larger than dren, and their families, from birth� Some studies that of the bottom 90 percent� In fact, the top 1 show that for every dollar invested, there is a $4 percent took home more than 22 percent of total national income, Figure 7 2000s Economic Recovery Brought up from 10 percent in 1980 (see Figure 9, Top One Percent of Earn- Weakest Job Gains in a Generation ers)� And these disparities are felt Average Net Jobs Per Month, 1974-2008 Thousand jobs per month far beyond one’s bank statement 500 as several studies have found a Average of 228,000 Average of 200,000 Average of 99,000 Jobs/Month During Jobs/Month During Jobs/Month During 400 direct correlation between health 1980s Expansion 1990s Expansion 2000s Expansion outcomes and personal income� 300 200 There is nothing wrong with people succeeding and making 100 money� But there is something 0 wrong when the opportunity for -100 all Americans to get ahead, to en- ter the middle class, and to create -200 a better life for their children be- -300 comes more and more elusive� That 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 is what has been happening: The Source: Bureau of Labor Statistics, Establishment Survey, dates for expansions from National Bureau of Economic Research. ladder into the middle class and
  13. 13. 10 A NEW ErA OF rESPONSIBILITy Figure 8 gyms and cafeterias; and one in Real Median Household Incomes Have Not four schools report that teachers Returned to the Levels Reached in the 1990s do not have their own classrooms in which to teach� Dollars in thousands 75 Family Head Age 45 to 54 Another part of the problem is 70 that when these students gradu- 65 ate from high school and look to- 60 ward continuing their education, Family Head Age 35 to 44 55 they face high costs of college attendance� The average tuition 50 and fees at public, four-year in- 45 stitutions between the 2000-2001 Family Head Age 25 to 34 40 school year and 2008-2009 year increased by more than 26 per- 35 cent, after adjusting for inflation 30 and increases in tax credits and 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 financial aid (see Figure 10, Aver- Source: U.S. Census Bureau. age Annual Undergraduate Tu- ition)� It’s no surprise, then, that to $9 return to society in higher earnings, higher 60 percent of college students graduate with graduation and employment rates, less crime, debt, and the typical debt load is over $20,000� decreased need for special education services, Facing numbers like these, many students will less use of the public welfare system, and better simply decide that they cannot afford college, health� However, we have yet to make a serious and many more already in college will decide commitment to our youngest learners� that they cannot afford to stay� While 94 per- cent of high school students in the top quintile From kindergarten through high school, too of socioeconomic status continue on to post-sec- many of our students are falling behind� Accord- ondary education, only 54 percent of those in the ing to the National Assessment of Educational bottom quintile do so� Progress, the Nation’s report Card, in 2007 only one-third of fourth-graders was able to demon- If all our young children are not able to go to strate solid academic performance in reading� a high-quality school with modern facilities and Similarly, only 31 percent of eighth-graders dem- great teachers and if older students are unable onstrated solid academic performance, a per- to afford to go to college and stay there until centage that has remained stagnant since 1992� graduation, there is no way that our economy will Achievement levels are similarly disappointing be able to expand opportunity, strengthen the in mathematics� middle class, and compete in a global economy� Health Care We have not yet created a credible system of accountability for strong outcomes and a way to One of the other big drains on family bud- provide teachers and principals with the tools gets and on the performance of the economy as they need to get results� The problem is exac- a whole has been the increasing costs of health erbated by our failure to invest in the physical care� yet the evidence suggests that substantial structures of our schools� A 2004 report by the reductions in costs could be achieved without sac- National Center for Education Statistics found rificing the quality of health care delivered� And that 8�5 percent of public schools have exceeded in part because of the high costs of the current their capacity; in almost one out of five schools, system, too many Americans remain uninsured teachers have to teach in common areas such as
  14. 14. INHErITING A LEGACy OF MISPLACED PrIOrITIES 11 Figure 9 or underinsured—causing them to Top One Percent of Earners Have Been forgo needed care and to bear un- Increasing Their Share necessary financial risks� Share of total income accruing to top one percent 25% Since 2000, health insurance pre- miums have increased faster than worker’s earnings� After adjusting 20% for inflation, family health insur- ance premiums have increased by 15% 58 percent while workers’ wages have increased only 3 percent (see 10% Figure 11, Family Health Insurance Premiums)� In 2007, 17 million in- sured Americans spent more than 5% 10 percent of their salary on health care, and 25 million Americans are 0 underinsured, without enough cov- 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 erage to keep costs in check� Source: Piketty and Saez (2003), updated by authors. Over the past eight years, the number of uninsured in America has jumped by GDP; now, it’s 16 percent; and at this rate will hit 6�9 million and now totals 45�7 million Ameri- nearly 20 percent by 2017� cans� Moreover, the number of people who have gone without health insurance for at least some We have a substantial opportunity to improve portion of the previous 12 months tops 60 mil- the efficiency of our health sector� Costs vary wide- lion� Many of those are people whom insurers ly across areas of the United States, but evidence will not cover because they have existing medi- suggests that the high-cost areas do not generate cal problems� Millions more have insurance, but better health outcomes than the lower-cost ones� could lose access as soon as they develop a seri- Costs are twice as high at some of our Nation’s ous medical problem� These Americans suffer, but leading medical centers than at others—and their lack of health care options impacts all of us: again the high-cost centers do not generate better every time an uninsured person walks into an outcomes than the lower-cost ones� Academic re- emergency room because there is nowhere else to searchers suggest that costs could be reduced by turn, a hidden tax is imposed on other citizens as as much as 30 percent—or roughly $700 billion a premiums go up� year—while protecting the quality of health care delivered if the high-cost areas and hospitals ad- At the same time, health care costs are impos- opted the practices of the low-cost ones� Accord- ing large burdens on families—often in unexpect- ing to Institute of Medicine estimates, as many as ed ways� Workers’ take-home pay is constrained 100,000 Americans die each year due to prevent- by health insurance costs to a degree that is able medical errors� Only four cents of every dol- both underappreciated and unnecessarily large� lar spent on health care goes to preventive care� For instance, as mentioned earlier, at the state And while the United States leads the world in government level, evidence suggests that ris- health care expenditures by a wide margin, our ing health care costs have crowded out support health outcomes often fall short of those achieved for higher education—raising tuition levels and by other developed countries� impairing the quality of public higher educa- tion� Overall, health care is consuming an ever- The bottom line is that the current path of ris- increasing amount of our Nation’s resources: in ing health care costs is unsustainable, not only 1970, health care expenditures were 7 percent of
  15. 15. 12 A NEW ErA OF rESPONSIBILITy Figure 10 Investing in the future has been Average Annual Undergraduate Tuition, Room and Board critical to long-term economic for Public Four-Year Institutions (List and Net Prices) growth and creating high-paying jobs for our people throughout our Dollars in thousands 16 history� yet, over the past several List Price Net Price (net of average grant and education tax benefits) years, we’ve been delinquent in 14 making these down payments on 12 future growth� 10 Infrastructure 8 As our society becomes more 6 mobile and interconnected, the 4 need for 21st Century transpor- tation networks has never been 2 greater� As our economy slows, 0 repairing and upgrading our in- 1994-95 1996-97 1998-99 2000-01 2002-03 2004-05 2006-07 2008-09 Source: College Board. frastructure is an effective way to revive it and create new jobs� In the longer term, infrastruc- for the Federal Budget but also for family bud- ture investment will enable the United States gets� to compete with the rest of the world and keep good jobs here at home� After all, in this day and age, businesses can now locate almost any- FAilure to invest in tHe Future where in the world and bring the jobs they cre- ate with them—and a modern infrastructure is America’s prosperity has always risen from critical if those jobs are to come to and stay in the ground up, seeded by the hard work and America� ingenuity of our workers, inventors, and en- trepreneurs� But germs of a good idea or a yet too many of our Nation’s railways, high- new way of doing business cannot take root ways, bridges, airports, and neighborhood streets and flourish without the Nation preparing the are not keeping up with the needs of our Nation conditions for growth� That takes sound man- due to lack of investment and strategic long- agement of the economy; access to capital; and term planning� The American Society of Civil investments in science, technology, and infra- Engineers gives our country’s infrastructure the structure� That’s why we built the great land- grade of a “D�” The unsatisfactory condition and grant universities as our Nation expanded operational performance of our roads and bridges west, sent the Greatest Generation to college carries real costs from billions of dollars in car on the G�I� Bill, and invested in science and repairs to wasted fuel and time� The Texas Trans- technology at the height of the Cold War� It’s portation Institute 2007 Urban Mobility report why previous generations built the Erie Canal estimates that drivers experienced over 4�2 bil- at the start of the 19th Century, the transcon- lion hours of delay and wasted approximately 2�9 tinental railroad after the Civil War, and the billion gallons of fuel in 2005� interstate highway system in the 1950’s� It’s why we electrified rural America during the Looking forward, we are behind in building depths of the Great Depression and laid fiber the infrastructure that we need to compete in optic cables in our own time� the global, information-age economy and are at risk of losing our Nation’s scientific dominance� Over the last three decades, Federal funding
  16. 16. INHErITING A LEGACy OF MISPLACED PrIOrITIES 13 Figure 11 for the physical, mathematical, Since 2000 Family Health Insurance Premiums Have and engineering sciences has Increased Much Faster than Workers' Real Earnings declined as a percentage of GDP at a time when other countries Index Levels 2000 = 100 are substantially increasing their 170 own research budgets� At one Inflation Adjusted Family Health Insurance Premiums 160 Have Increased 58% Since 2000 point not long ago, the United 150 States led the world in broadband deployment; now, that leadership 140 is in question� Wireless networks 130 in many countries abroad are faster and more advanced than 120 our own� Our electrical grid is While Real Hourly Earnings 110 Have Increased Just 3% Since 2000 still constructed around the 100 same model of 100 years ago, and in some places is as old� Power 90 interruptions and outages cost 2000 2001 2002 2003 2004 2005 2006 2007 2008 Americans at least $80 billion Source: Kaiser Family Foundation / Bureau of Labor Statistics. each year� Finally, because of an insistence on putting dogma ahead of science, the United States has fallen why they are racing to dominate these industries behind in some of the most important, cutting- and to transform their economies� edge research such as stem-cell research� yet, the last Administration approached our Clean Energy energy needs by focusing on finding more of the fossil fuels we use now� As a result, we are still This lack of investment in the future is most addicted to fossil fuels and more dependent on glaring in the area of clean energy� For decades, foreign oil than ever before� We have yet to make we have talked about the security imperative we important policy changes and critical investments have to wean our Nation off foreign oil, which is in the clean energy infrastructure that we’ll need often controlled by those whose interests are in- to transform our economy� Beyond clean energy, imical to ours� And in recent years, a consensus we have not kept up with investing in the basic has developed over the need to limit greenhouse science and research that will power this sector gas emissions, which produce global warming and and the entire economy in decades to come� In fact, increase the risk of severe storms and weather as a share of GDP, American Federal investment conditions that might ruin crops, devastate cities, in the physical sciences and engineering research and destabilize whole regions� All of these facts has dropped by half since 1970� are reason enough to invest in clean energy tech- nologies� But there is an economic imperative to eroDing trust AnD AccountAbility embrace these investments as well� Government is able to work on behalf of the The clean energy sector presents us with im- people and attend to their immediate needs and mense promise—to develop and dominate a new long-range problems when it truly is a govern- industry sector and to create high-paying jobs ment of, by, and for the people� Part of what ails here at home� From new, highly fuel-efficient cars our economy is a profound disconnect between to renewable sources of power, there are a host of our leaders in Washington and the rest of the Na- emerging technologies that can spur the growth tion� of new business while creating millions of new jobs� Our economic competitors know that� That’s
  17. 17. 14 A NEW ErA OF rESPONSIBILITy Over the past eight years, policy was made be- attempt to pay for them� Between 2000 and 2008, hind closed doors� In many cases, unprecedented real Government outlays increased at a 3�6 per- levels of secrecy have been invoked to block pub- cent annual average rate, three times the 1�2 per- lic scrutiny� In such an environment, the well con- cent annual average rate between 1992 and 2000� nected and those who are able to hire high-priced This has helped turn a surplus of $236 billion at lobbyists were able to carve out huge loopholes in the end of the Clinton Administration, that was our tax code, win massive subsidies that shifted projected to grow still larger over time, into a def- the tax burden to small businesses and the mid- icit of more than $1 trillion in 2009� (see Figure dle class, and obtain exemptions from the basic 12, Surpluses Have Turned to Deficits)� Further- rules of the road for themselves and their clients� more, the amount of debt held by the public has And they did this all without paying for it or be- nearly doubled to $6�4 trillion from 2001 to 2008� ing held to account� This must change� We are now living with the fallout of this deep fis- cal irresponsibility� Fiscal Irresponsibility Unfortunately, we are also inheriting the worst Another manifestation of irresponsibility is economic crisis since the Great Depression— the large budget deficits we are inheriting� These which will force us to increase deficit spending deficits, over time, will harm economic growth temporarily as we try to jumpstart economic and impose burdens on our children and grand- growth� This is an extraordinary response to an children� For the past eight years, in a time of eco- extraordinary crisis, and as we come out of this nomic growth, the Government spent recklessly recession, we must return to the path of fiscal re- on tax cuts for the few and hand-outs for the well- sponsibility� It will mean tough choices—choices off and well-connected, mismanaged billions of that are tougher because of the legacy of fiscal dollars in taxpayer money, and failed to honor the irresponsibility left to us� responsibilities we have to future generations� Erosion of Market Oversight Massive new programs have routinely been omit- ted from the Budget to mask their true cost, while Our Nation depends on private initiative and a new entitlement program and massive tax cuts on free markets� But the financial crisis has re- were proposed and signed into law without any minded us that without a watchful eye, the markets can spin out of Figure 12 control� In recent years, a dogmatic Surpluses Have Turned to Deficits deregulatory approach to our capi- tal markets, driven by ideology Surpluses (Deficits) as share of GDP rather than pragmatism, has now 4 put those very markets—the envy 2 of the world—in their most serious crisis in decades� Policymakers for- 0 got that markets work when there -2 is transparency of financial infor- -4 mation for investors and consum- ers alike; independent oversight; -6 and accountability enforced by ac- -8 tive and uncompromised regula- -10 tors� Because of deliberate policy Projected (2009) decisions, balance sheets did not -12 accurately reflect the risks that -14 firms were taking; large pools of 1980 1984 1988 1992 1996 2000 2004 2008 capital were left unregulated while
  18. 18. INHErITING A LEGACy OF MISPLACED PrIOrITIES 15 more and more investors were exposed to them; The growth of Federal contracting is another and conflicts of interest compromised the credit instance where special interests benefited from rating agencies upon which investors relied� In- special access� Federal spending on contracts vestors and consumers ended up participating more than doubled from about $208 billion in in complex transactions without full disclosure 2000 to more than $423 billion in 2006—and yet of the relevant risks, and eventually these mort- the number of contract officers overseeing these gages, credit card debts, and other loans ended up contracts remained flat� The value of contracts costing many Americans dearly� not subject to full and open competition grew from $48�6 billion to $112�5 billion during the Because our regulatory system atrophied and same period� Cost-type contracts that are partic- its patchwork quilt of different regulators and ularly vulnerable to waste since they provide no standard-setters was left untouched, it failed to incentive to control costs increased more than 75 keep pace with financial innovation� As a result, percent under the previous Administration� investors were led into investments that they neither understood nor were appropriate to their This special-interest driven use of taxpayer risk profile, and many people took on debts that dollars shows up in the billions of dollars in im- they never could have hoped to pay� Corners were proper overpayments for Medicare and Medic- cut, and rules were bent� At every level, some of aid, the billions that Federal taxpayers pay out the most important market actors failed to live up to fund corporate loopholes; and in the $4 billion to their responsibilities and failed to do what in- in Iraq-related spending auditors estimate is lost vestors need of them to invest their hard-earned to waste and ineffective programs� Most egre- money wisely� giously, we see this irresponsibility in the tens of thousands of Federal contractors and Medicare An Unresponsive Government service providers who make money off of the Gov- ernment, but fail to pay all their taxes—costing It is no coincidence that the policy failures of the us billions� past eight years have been accompanied by un- precedented Governmental secrecy and unprece- For the Nation to move out of this economic dented access by lobbyists and the well-connected crisis, and to put our country on the path to to policymakers in Washington� Consequently, productivity and growth, the American people the needs of those in the room trump those of need its leaders to live up to their responsibilities� their fellow citizens� We saw this with the Energy That means opening the doors to citizen input; Task Force convened in 2002� When a Supreme holding those entrusted with taxpayer dollars Court order finally opened up its proceedings to accountable for their use; and setting strong, review, it became apparent that regulatory deci- enforceable rules of the road to keep our sions were made that reflected specific requests markets free and fair� With a government that is by industry representatives with the Govern- accountable to the people, we can jumpstart our ment’s ear� economy in a way that is both quick and wise, and begin to make the long-term investments in areas long neglected�
  19. 19. JuMPSTARTiNG ThE ECONOMy ANd iNvESTiNG fOR ThE fuTuRE There are no quick and easy fixes to the reces- where their tax dollars are going and how these sion plaguing our economy� This crisis has been funds are being spent� many years in the making, and it is likely to get worse before it gets better� There is no doubt immeDiAte relieF AnD economic stimulus that our Nation has the creativity, capability, and industriousness to lift ourselves out of this As the year started, it became clear there was downturn and begin the process of transform- a wide and growing shortfall between what the ing our economy for the 21st Century� As we do economy could produce and what it was produc- this, we need to remember that throughout our ing� If we kept on this course, economists pre- history, the United States has grown and pros- dicted that the economy would shed millions of pered when all Americans have shared in the additional jobs, the unemployment rate could ex- opportunities created by our economy� While our ceed 10 percent, and over the next two years, the economy has made the transition from an agrar- country would lose roughly $2 trillion in income� ian economy to an industrial one and on to an With traditional monetary policy levers largely information-age economy, this essential truth exhausted, the Congress passed and the Presi- has not changed: America thrives when all our dent signed into law the American recovery and people have the chance to succeed� reinvestment Act of 2009 (the “recovery Act”), a nationwide effort to create jobs and transform The past eight years have discredited once and our economy to compete in the 21st Century� for all the philosophy of trickle-down econom- ics—that tax breaks, income gains, and wealth Because speed is of the essence when it comes creation among the wealthy eventually will work to acting to save our economy and millions of their way down to the middle class� In its place, jobs, approximately three-quarters of the funds we need economic opportunity to trickle up� We in this package will be spent out over the next need policies that will strengthen the middle 18 months� Many of the long-term investments class and create the conditions to spur innova- will stimulate the economy too as these elements tion and sustainable economic growth� Some of the package are simultaneously designed to may say that in this current environment this spark economic growth, save or create 3 to 4 mil- is aiming too high� Settling never has been the lion jobs, and help families through these tough American way, and now is no time to lower our times� To provide immediate relief and get the sights� While we have inherited unprecedented economy moving again, the Administration will: budget deficits and a weakened economy, now is precisely the time for the country to make Make Permanent the $800 “Making Work the long overdue investments that will funda- Pay” Tax Cut for Workers and Their fami- mentally transform our economy so that we can lies. The recovery Act created the Making Work compete and thrive in the decades ahead� As we Pay tax credit, a refundable income tax credit, jumpstart our economy out of this recession, the which will offset the payroll tax on up to the American people expect and demand that their first $6,450 of earnings for about 95 percent of Government does so with unprecedented trans- all American workers while still preserving the parency and accountability so that they know 17
  20. 20. 18 A NEW ErA OF rESPONSIBILITy important principle of a dedicated revenue source ployment Compensation program through De- for Social Security� This helps small business own- cember 2009, increasing weekly UI benefits by ers struggling to meet expenses� And with fami- $25, and providing financial incentives for States lies squeezed, this tax cut will put needed money to modernize their UI systems to expand cover- in their pockets for them to make ends meet and age� Beyond this year, the Administration will cover the costs of necessities� This is the first- update the Nation’s UI system to better address stage of a middle-class tax cut promised during the challenges and realities of the 21st Century the presidential campaign� The Budget will make workforce� The Budget proposes changes to make Making Work Pay permanent� the UI program a more responsive and effective social safety net and economic stabilizer� The Ad- Continue to Cut Taxes for the families ministration will propose to make the permanent of Millions of Children Through an Expan- Extended Benefit program more responsive to sion of the Child Tax Credit. By expanding changing economic conditions, making benefits the Child Tax Credit, the recovery Act provided available more quickly and avoiding the delays a new tax cut and increased the generosity of the associated with special, temporary extended un- existing credit to millions of children—fulfilling employment programs� Finally, despite the efforts the promise that a family that works hard and of States to reduce improper benefit payments, plays by the rules will be able to raise their chil- over $3�9 billion in UI benefits were erroneously dren above the poverty line� The Budget makes paid in 2008� The Administration will tackle this this tax cut permanent� problem by increasing funding for program integ- rity and proposing legislative changes that would increase food Stamp Benefits for Over 30 have the direct and indirect effect of reducing UI Million Americans. Even in tough times, our improper payments by $3�9 billion and reducing Nation is a nation of plenty, and no one should employer tax evasion by almost $300 million over have to go hungry� The recovery Act will spend 10 years� nearly $20 billion to increase food stamp benefits Reform Asset Tests. The Administration for overstretched families, and provide additional support for food banks, school lunch programs, would like to work with the Congress to revisit and the Special Supplemental Nutrition Program asset limits for Federal means-tested programs for Women, Infants, and Children (WIC) program� in the wake of new and expanded refundable tax credits� Current asset rules across a variety of Provide Nearly 60 Million Retired and programs are antiquated, inconsistent, and pres- disabled Americans an immediate $250 ent obstacles for low-income individuals who as- Through Temporarily increasing Benefits. pire to achieve self-sufficiency� The intersection These vulnerable populations are the first ones of the new credits and outdated asset rules may to feel an economic downturn� Through the re- disqualify new and current individuals and fami- covery Act, we will spend almost $15 billion to lies from Federal benefits, including Medicaid provide nearly 60 million retired Americans and and Supplemental Nutrition Assistance Program Americans with disabilities an immediate $250 (formerly Food Stamps)� through temporarily increasing Social Security, Supplemental Security Income, and Veterans creAting Jobs AnD investing in long-term benefits� economic growtH Extend, Expand, and Reform unemploy- ment insurance (ui) Benefits. With unem- These tax and benefit provisions of the re- covery plan will provide an immediate stimula- ployment on the rise and those out of work going tive effect on the economy� The other part of the longer without new jobs, we have provided both stimulus comes from expenditures on projects a boost to our economy and to these workers’ that will promote medium-term economic activ- well-being by extending the Emergency Unem-
  21. 21. 19 JUMPSTArTING THE ECONOMy AND INVESTING FOr THE FUTUrE ity while also providing some lift to the economy pal, and private co-investment in our Nation’s in the near term—as homes are weatherized, and most challenging infrastructure needs� These health records are digitized—to name just a few� projects will directly and indirectly support jobs In addition to immediate hiring and expansion and stimulate substantial long-term economic as these projects begin, the American people will growth� reap benefits from these investments for years to invest in Our Nation’s Roads, Bridges, come because the economic benefits of modern in- and Mass Transit. The President is committed frastructure, world-class schools, investments in research and development, health care reform, to instituting accountability for the $35�9 billion and clean energy will be enjoyed by generations provided in the recovery Act and to responsibly of Americans� The expenditures in many of these reauthorizing the Nation’s highway and mass areas then serve a dual role: to revive the econo- transit programs� The Administration intends to my in the short term and to restore its health for work with the Congress to reform surface trans- the long term� Through ambitious investments portation programs both to put the system on a in clean energy, health care, education and other sustainable financing path and to make invest- key areas, the plan will address long-ignored na- ments in a more sustainable future, enhancing tional priorities and make a historic down pay- transit options and making our economy more ment on our Nation’s economic future� The 2010 productive and our communities more livable� Budget will support, and in some cases extend as Further, our surface transportation system must well as expand the down payments made in the generate the best investments to reduce conges- recovery Act� tion and improve safety� To do so, the Administra- tion will emphasize the use of economic analysis Building a 21st Century Infrastructure and performance measurement in transportation planning� This will ensure that taxpayer dollars A century ago, Theodore roosevelt called to- are better targeted and spent� gether leaders from business and government initiate a New federal Commitment to to develop a plan for a 20th Century infrastruc- high-Speed Rail. To provide Americans a 21st ture� More than 50 years ago, republican Dwight Eisenhower and Democrat Al Gore, Sr� worked Century transportation system, the Administra- together to launch the Interstate Highway Sys- tion proposes a $1 billion-a-year high-speed rail tem� Today, however, too many of our Nation’s State grant program, in addition to the $8 bil- railways, highways, bridges, airports, and neigh- lion provided in the recovery Act� This proposal borhood streets are aging and congested due to marks a new Federal commitment to give the lack of investment and strategic long-term plan- traveling public a practical and environmentally ning� In the short term, modernizing our infra- sustainable alternative to flying or driving� Di- structure will create new jobs and provide a boost rected by the States, this investment will lead to to the economy� In the longer term, infrastructure the creation of several high-speed rail corridors investment will provide our Nation a foundation across the country linking regional population for long-term economic growth� The Budget will: centers� Establish a National infrastructure Bank. improve and Modernize Air Traffic Con- trol. Because of an outdated air-traffic control The Budget proposes to expand and enhance exist- ing Federal infrastructure investments through a system and over-scheduling at airports already National Infrastructure Bank designed to deliver operating at full capacity, an ordinary trip to a financial resources to priority infrastructure proj- business meeting or to visit family can become ects of significant national or regional economic marred by long delays� The Budget provides $800 benefit� The mission of this entity will be to not million for the Next Generation Air Transporta- only provide direct Federal investment but also tion System in the Federal Aviation Administra- to help foster coordination through State, munici- tion, a long-term effort to improve the efficiency,