A Budget to End All Budgets

Last Thursday, President Obama and his economic advisers started a locomotive of change. Instead of merely attempting to patch the ailing economy, this comprehensive budget plan promises to “rebuil[d] its foundations.” Saturated with spending projections for health care, carbon-emissions caps, and education, the budget also prudently identifies funding sources, turning what may have been a blunt instrument into a refined tool. In short, the budget is another excellent step toward economic recovery.

The proposed budget is a savvy political vehicle for reform. The federal budget process has two purposes. First, it provides “a financial measure of federal expenditures, receipts, deficits, and debt levels and their impact on the economy” in order to maintain both stability and growth. Second, it allocates the means to fund such objectives. Although these tall orders might ordinarily lead to filibuster for other legislation, the Balanced Budget Act of 1997 mandates “fast-track” legislative procedures—limiting debate times and even restricting amendments based on relevancy—to protect against that. This means that Congress will have no choice but to confront the new and controversial policies in Obama’s proposal—many of which have been avoided otherwise.

Healthcare looms as one of the most controversial reforms in this package. Obama proposes to create a $634 billion “reserve fund for healthcare reform.” This national insurance program will spark some long overdue changes—like a national electronic platform for health-care records. Electronic records will make communication and exchange more convenient as well as reduce prescription errors, save lives, and reduce malpractice lawsuits. This efficiency will save taxpayers money in the long run and force modernization for hospitals that might not have otherwise done so.

But while the mechanics of this new health-care system may be more efficient, the overall insurance plan may not be. Some argue that many remain uninsured because they simply decide not to buy insurance—perhaps because of young age, for example. To avoid paying for those who can afford insurance, Obama’s team should encourage Congress to include a market mandate, which would require Americans to opt in to plans they could afford. This would help to avoid subsidizing those who do not need subsidies.

On the environment, Obama’s cap-and-trade proposal is a market-friendly, politically palatable way to reduce carbon emissions. This solution will establish a finite number of pollution permits—and thus a finite cap on pollution—that companies would be required to buy and trade in an open market. Not only will this efficiently reduce carbon emissions, but the administration projects that it would raise $79 billion in revenue. Importantly, the flexibility of cap-and-trade should make it a politically viable alternative to solutions like the gas tax, which has faced undeserved popular and congressional opposition in the past.

With the projected $79 billion in cap-and-trade revenue, the Obama administration should support the development of clean, alternative energies. Cap-and-trade will help reduce emissions, but it may not be enough to reach the budget’s goals of a 14-percent reduction below 2005 levels by 2020, and 83 percent by 2050. Such drastic, long-term reductions will depend on a low-emission energy infrastructure for America, which can only be developed with alternative energy technology.

Another pillar of the budget’s fiscal reforms proposes to eliminate federal subsidies to farmers with sales revenues in excess of $500,000 per year and cap total individual subsidies for farmers at $250,000. Combined with other agricultural subsidy cuts, this would reduce farm subsidy expenditures by about $2 billion annually. This potential savings would be a boon for taxpayers. Furthermore, the inefficient subsidies currently create a price floor—a minimum price above market equilibrium—which artificially inflates prices, hurting American consumers.

Education spending, another type of government subsidy, will also get a delayed tune-up under the budget proposal. In addition to spending more on education, Obama’s budget proposes to make student loans available directly from the federal government—rather than government-sponsored private intermediaries. Considering the scandal that has riddled this $85-billion-a-year industry, it makes sense for an uninterested lender like the federal government to help out college students.

Accomplishing these radical changes will require unprecedented tax increases. Fortunately, the Obama administration has aimed these hikes at the right brackets—the top five percent of taxpayers and what some have called the “shadow banking industry,” namely hedge funds and private equity firms. Currently taxed at only capital gains rates, these money managers would now face income tax rates, yielding a projected $24 billion in tax revenue. Not only is this logical, since they earn their income through capital gains, but it is the right target in leveling the playing field for middle-class Americans.

The historic magnitude of this budget is undisputed. Nationalized health care, cap-and-trade emissions regulation, an end to some agricultural subsidies, government loans, and, of course, tax hikes would have each—let alone all—been unheard of three years ago. Yet desperate times call for bold measures, and the recession demands the policy reform and funding plans of this budget.