The Obama budget: What’s NOT in it for you
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President Obama’s proposal for the fiscal year 2012 federal budget is just that: A proposal that would have to wind its way through a Republican-controlled House and a divided Senate to become law. So there’s no sense in panicking about what’s in it and what isn’t.
But here is why you need to pay attention: The wish list, released on Feb. 14, is indicative of the themes that will dominate the remainder of this presidential term and the 112th Congress. Individual taxpayers will find a tight budget. Retirees could get an extra break, and students may lose valuable subsidies.
Here’s a look at some of the key issues and specific proposals that will affect consumers.
Tax breaks and bumps. The Obama Administration’s plan includes a one-time payment of $250 to retirees. This was a move originally requested by the AARP to make up for the fact that there hasn’t been a cost of living increase for Social Security recipients for two years. The Democratic House already turned this down last year, but if it gets tucked into a much larger bill, it could make it through in 2011.
The White House plan also makes the “fix” for the alternative minimum tax permanent. That saves taxpayers who have big state tax bills along with large families from getting stuck by the AMT, which was intended to snag wealthy tax avoiders but instead penalizes those who have big writeoffs for state taxes or take personal exemptions for many children.
To pay for the first three years of the AMT fix, it attempts to revive the battle over tax cuts for the wealthy. The new budget blueprint would limit deductions for wealthy Americans (those earning more than $200,000 as individuals, $250,000 as couples) to 28 percent of their income. That would hit the home office deduction, charitable deductions and more. President Obama has proposed that before, and observers have suggested that Congress would be unlikely to go back in and start tinkering with income tax policy absent a complete tax overhaul drive.
Student loans could get pricier. The Obama budget takes a bite out of the benefits many graduate students receive. It would eliminate the federal subsidy which covers the 6.8 percent interest on those loans while the student is in school. Over a 10-year repayment plan, that would cost the typical graduate student roughly $2,314 in added interest for every year of graduate school, according to estimates calculated by Mark Kantrowitz, publisher of FinAid.org, a financial aid education web site. But that might be just the start of further cuts, says Kantrowitz.
Once Congress starts looking at the various federal subsidies for education, it could turn on undergraduate borrowers, too. The federally-subsidized rate for undergraduate students is scheduled to drop to 3.4 percent on July 1, 2011 but, without any legislation, it will double to 6.8 percent one year after that. Congress could allow that rate to rise, and could also decide not to cover the in-school interest for undergraduates either. That could hit middle-class students — although it might be a politically palatable way to protect and enhance the Pell Grant program, which is aimed at lower income students.
The Obama budget protects the maximum Pell Grant at its current $5,550 level, but eliminates their use for summer school, a cut that could hurt low-income students who work and take classes all year long to complete their degrees.
Grab bag of goodies. The Obama budget suggests a slew of other tax breaks that may never get enacted but that could be good for consumers. It replaces the current electric-car tax credit with a $7,500 instant point of sale rebate. It would broaden the eligibility of the child and dependent care tax credit to more families at higher income levels, and require more employers to offer their workers automatic enrollment in Individual Retirement Account programs.
More consumer protection? The President’s budget proposes big funding increases for agencies which oversee financial regulations, including the Securities and Exchange Commission and the Commodity Futures Trading Commission. “We are gratified that the president has proposed funding levels…that recognize the vital role these two agencies play in ensuring the safety of investors and the health and stability of our nation’s economy,” said Barbara Roper, director of investor protection for the Consumer Federation of America.
The proposal also provides the Treasury Department with funding to set up the Consumer Financial Protection Bureau, an agency that will ultimately be funded by the Federal Reserve. The agency expects to hire several hundred employees over 2011 and 2012 and bring in many more from other agencies, said Elizabeth Warren, a special advisor to President Obama on the CFPB. “We expect some of the biggest resource requirements to be in enforcement and examination — cops on the beat — and consumer complaints,” she said in a blog post about the budget proposal.
The proposal provides the IRS with more money for enforcement. That’s money that could be used to catch tax cheats, including those who avoid U.S. income taxes by keeping money in offshore accounts. Perhaps to offer a little bit of carrot with that stick, the IRS on February 8 announced a new amnesty program for tax evaders who come clean.
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Ask what your country can do for you?
@DrJJJJ – You’re right. The government should not provide any services. That’s the clear path to social stability.
Does that mean that the likes of Charlie Rangel would be investigated, and maybe even prosecuted for hit off-shore tax evasion? What about other elected officials (from all parties)?
class warfare – he still doesn’t get it – people want to keep their dream of becoming “rich” and don’t blame the wealthy – they blame him!
There is not one line of Obama’s budget that will make it into law in this Congress. He’s just setting up for the big game of chicken which will culminate in a government shutdown. He’s putting a modest package of cuts – ones that will still hurt, mind you – as well as a few dead-on-arrival tax increases out there so he can say he’s trying.
The Republicans’ proposals have zero chance of making it into law as well. The leadership have caved into their lunatic fringe base, ensuring instant death in the Senate. Without that development, there might have been a chance of compromise. Now – it’s 1995/96 all over again, except we don’t have an ascendant economy to absorb the fallout.
We are in for a couple of terrible, terrible years.
Increasing rates on student loans will only make people more reticent to further their education, which is rather counter-intuitive to the notion that Americans need to become more competitive. But yeah, rock and hard place, all that. I guess. I mean we could just cut military spending, or raise the cap on social security payroll taxes, but yeah, duh, that’s off the table, obviously. Those are such silly ideas anyway.
I’m mailing the president a can and a football tee, so he can properly kick the can down the road.
It is time to admit that the tit of America is dry. No more endless wars. No more blank check for the UN. No more full benefits for illegal aliens (latin or otherwise). I will give up the money if put into SSI for the past 27 years if you let me keep the money for the rest of my working life for my own investing choices. I don’t need a nanny. I’m not stupid. Don’t treat me like I am.
Let’s see here folks!
Hmmm! Right now the “FICA” cut-off point is $106,000 right?
Now we “Middle-income guys keep paying thru the NOSE ALL YEAR LONG, while the rich make that cut-off point like 9 mo. earlier (assuming $200,000 or more), they get to keep it while we’re NEVER able to get to that point we’re always PAYING into S.S while they’re getting richer! Back when I was a young working man the cut-off point was about $42,000 and after that the money would be added back onto our paycheck around “Oct.” of each year in the 1980s which meant about a $75 increase in “take-home pay” each week!!!!! The “Laboring class” is always screwed by Washington D.C and our own home-states!
I’m sooooooo tired of Obama blaming Bush…STILL! It’s his watch now. Grow up and take responsibility.
Madoff went to prison for the type of ponzi scheme Obama and the Dems have put in place with health care, the budget and all his entitlement/social programs.
The President is attempting to use a scapel, not a machete and I applaud his efforts. He is also focused on the long term goal of recovery for the country.
Personally, I think it is a lost cause. What they took from the independently funded Soc Sec fund, they now have to pay pack with interest on the bonds. And so they will blame me for being part of an “entitlement” program, that I have funded for forty years now, and now I am supposedly the problem. Way back when was how to fix it; when the idea was proposed to keep their frigging hands off of what they had no legitimate claim to as part of any govt budget.
Misery loves company. If my wife and I are to starve in our old age, then I hope the rest of the country hurts as well. And then we can all say together, “look at what that bunch of aholes have done to us.”
I’m not allowed to go beyond what I can reasonably afford to pay back. Either increase the income or cut back on the spending…there is no other solution.
Hang them all and start over. At least we get to keep all of our toys.
10% flat tax on earned income and a 5% consumption tax would be fair. I dont see why we cant just go with a new simple tax system. Actually I do. The more complex the system is the easier it is for the wealthy to find loop-holes.
Nothing ever changes except for the gap between the rich and poor. Bye Bye middle class!!!
There should be cuts, but there shouldn’t be any cuts at all in student loan programs. The future of the United States depends on the ability to educate its youth. If more people are denied access to an education because they can’t afford it, we will not be able to compete with nations that do invest in education. And the idea that we have tax breaks for more consumption is just nuts!!! We already get 70 percent of our GDP from consumption, which is too high. We need to stop these consumption tax breaks and invest in higher education. The decline of America follows the decline of education in America. After all, we were once the education powerhouse of the world.
billy_f14, Obama has never blamed Bush once. in fact, it would be counter-strategic to attack Bush due to the amount of Republicans in Congress. Democrats do tend to blame bush however very often on this forum. Me myself being a democrat, i believe this is childish, since we should now be focusing on creating a better USA rather then bickering over who’s fault this whole mess is.
The budget looks good to me. While i was originally disappointed at the lack of tough cuts, i am impressed at Obama’s efforts to jumpstart innovation and technological expansion through the high speed rail program and countless other subsidies. Overall these investments seem like a way better way to positively effect job growth and the economy rather than hardcore cuts. I only hope that the congress can agree on this bill – or a modified one – soon enough.
Someone said it best when they pointed out the political suicide each party would attempt if flying solo. So their answer was we all have to get in the boat at the same time.
Forgetting for one moment that we’ve already bailed out Wall Street gamblers, out of touch Detroit and zillions of McMansion owners; let’s attempt to get more into the lifeboat before the cannibals complain about their rations. Because whether we like the idea or not, someone is losing.
Regardless whether we “flood” ourselves with trickle-down Reaganomics or drive the bus over the cliff printing fresh 100s for the Chinese, someone has to pay or go without. Future innovation won’t get the unemployment line moving if we let the Chinese steal, copy and repackage it for our consumption.
So each side should pick their poison and pass it around. But education, infrastructure, and R&D should be reclassified as investments. National security shouldn’t mean constant land wars or propping up Kings, Princes and Generals.
bottom line(s)
-less government works for some problems but oil addiction needs intervention.
-tax codes are for lawyers or those who can afford a better one.
-I won’t tax you if you don’t tax, let’s tax that fella behind the tree!
The cuts to Pell Grants DO NOT effect the maximum dollar amounts ($5,500) that students can receive for post-secondary education. However, as was pointed out, Pell grants can no longer be used for summer school, which if you think about it can be considered a fiscally smart move to keep education costs down without depriving students of financial aid.
Many students choose to go home for the summer; others are employed by work-study programs on campus or have jobs off campus with local businesses.
The Pell grant cuts DOES prevent “for-profit” institutes, such as Kaplan and The Phoenix Institute, which have “proven” track records of misleading potential students and saddling them with exorbitant debt with nothing to show for it, from taking advantage of young people.