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Does the president’s budget present solutions for closing the economic gap?

March 4, 2014 at 6:23 PM EST
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JUDY WOODRUFF: Back in the U.S., the release of the president’s budget today touched off a fresh round of debate in Washington about spending priorities.

Mr. Obama called on lawmakers to support investments that would help create jobs. But Republicans said the plan spends too much and would hurt the economy.

In boxes and on dollies, the 2015 fiscal year budget blueprint arrived at the Capitol this morning, while President Obama was describing it as balanced and responsible in a visit to a Washington, D.C., elementary school.

PRESIDENT BARACK OBAMA: It’s a road map for creating jobs, with good wages and expanding opportunity for all Americans.

JUDY WOODRUFF: The nearly $4 trillion plan also serves as a kind of platform for Democrats in November’s congressional elections. It includes new spending for expanded preschool education, job training and public works. And it expands the Earned Income Tax Credit for low-wage workers, while separately adding more than $1 trillion in higher taxes over the next decade.

PRESIDENT BARACK OBAMA: This budget gives millions more workers the opportunity to take advantage of the tax credit, and it pays for it by closing loopholes like the ones that let wealthy individuals classify themselves as a small business to avoid paying their fair share of taxes.

JUDY WOODRUFF: Mr. Obama withdrew last year’s offer to slow down increases in Social Security benefits. But the White House says the plan abides by spending limits in last December’s budget compromise.

PRESIDENT BARACK OBAMA: And at a time when our deficit’s been cut in half, it allows us to meet our obligations to future generations without leaving them a mountain of debt.

JUDY WOODRUFF: The 2015 deficit would decline to $560 billion, but Republicans today said the red ink, spending hikes and tax increases mean the plan is dead on arrival.

Senate Minority Leader Mitch McConnell:

SEN. MITCH MCCONNELL, R-Ky.,Minority Leader: Rather than put together a constructive blueprint the two parties could use as a jumping-off point to get our economy moving and our fiscal house in order, the president has once again opted for the political stunt for a budget that’s more about firing up the base in an election year than about solving the nation’s biggest and most persistent long-term challenges.

JUDY WOODRUFF: Congressman Paul Ryan, the House budget chair, likewise called the Obama plan a disappointment.

In a statement, he said: “It would demand that families pay more so Washington can spend more. It would hollow out our defense capabilities. And it would do nothing to preserve or strengthen our entitlements.”

Ryan offered an extensive critique yesterday of federal anti-poverty efforts. He’s expected to release a Republican budget proposal in the coming weeks.

Some of the more notable pieces of the president’s proposal, and expected to show up in the Republican alternative, are the different approaches to poverty, inequality and social mobility.

We contrast those perspectives ourselves. James Capretta is a senior fellow at the Ethics and Public Policy Center. He served as associate director of the Office of Management and Budget under President George W. Bush. And Robert Greenstein, he is the founder and director of the Center on Budget and Policy Priorities.

Welcome to you both.

JAMES CAPRETTA, Ethics and Public Policy Center: Thank you.

JUDY WOODRUFF: So, Bob Greenstein, let me start with you.

The president said in his State of the Union address that he wanted Congress to reverse the tides of income equality, which he said have deepened in this country. Does he do so in that budget, and, if so, how?

ROBERT GREENSTEIN, Center on Budget and Policy Priorities: He does do it to some degree. There’s limits to what government can do there, but he makes, I think, a pretty solid effort.

What he does is, he raises money both by cutting some lower-priority spending and raising some revenues, particularly through a series of measures to curb loopholes that are used particularly by very high-income people to avoid paying taxes the rest of us pay.

He uses some of that money for deficit reduction, but he uses some of it for a series of investments. Some should help opportunity broadly, improvements in infrastructure, education, training, and scientific research. But some is targeted on encouraging opportunity from people low on the income spectrum through such things as an expanded wage supplement, Earned Income Credit, for very low-wage workers and significant investments in preschool education and early high-quality education for children from low-income families who otherwise start school already way behind their peers.

JUDY WOODRUFF: Jim Capretta, how do you see what the president is doing here or not doing here, in your view, to close this gap?

JAMES CAPRETTA: Well, first of all, I think the budget is really aimed at a political statement. I don’t think it’s really aimed at creating a legislative change. I don’t think there is any chance that many of these proposals will be enacted.

It’s really aimed at — at creating a political argument that the Democrats can carry into the November election. Frankly, the White House has all but admitted that’s really what their aim is with this kind of budget.

But, back to the issue of inequality, I think there is a real misunderstanding about how inequality came about and whether or not it really affects people on the low end. First of all, inequality has really happened because we have a global economy, and if someone finds a new idea or a new research effort or something that’s very innovative, you can do very, very well in this country if you’re a part of that.

Does that come at the expense of people at the low end? No. There’s been many, many economic studies that have shown that just because somebody at the high end is doing better, that doesn’t come on the expense of the low end. So the president’s proposals really mis — a prescription for the wrong problem.

Secondly, even if it was the right problem, the amount of money we’re talking about that he’s redistributing from people on the high end to the low end is very, very minor, given the size of our economy and really what the issue is. So I don’t think it is going to have much of an effect whatsoever, either because it won’t have any chance of passage and it’s really aimed at the wrong problem.

JUDY WOODRUFF: I want you to respond to that, Bob Greenstein, but I also want to get to what the two of you think the two parties might be able to come together on, if anything, this year.

ROBERT GREENSTEIN: Well, let me respond to Jim’s point this is just a political statement because it isn’t going to pass this year.

Paul Ryan’s budget isn’t going to pass this year either. Nothing much is going to pass this year. That doesn’t mean that the Obama budget or the Ryan budget, which I don’t agree with much in it, but it doesn’t mean that either budget is nothing but a political statement and should be ignored.

Both budgets set forth a framework and a vision for a year-long debate, because significant decisions are coming starting in 2015, I think.

JUDY WOODRUFF: OK. Then let’s talk about where you see — what do you see in here, Jim Capretta, where you see the two parties could work together?

JAMES CAPRETTA: Well, there’s one possibility. I don’t know how much of a chance, but around the Earned Income Tax Credit, there’s more bipartisan support for that kind of an approach to wage supplements than it is for just redistributing through taxing and spending.

Earned Income Tax Credit is a program that Bob knows well that provides additional support directly through the federal tax system to people that are actually working, have a job, and it boosts their income directly to the proportion of earned wages. It’s the kind of thing that could be built on.

It’s better than doing, frankly, a minimum wage increase, certainly of the size the president has pushed.

JUDY WOODRUFF: Which is what the president has called on.

ROBERT GREENSTEIN: I think we need to do both the minimum wage increase and the Earned Income Credit.

You can’t do the whole thing through the Earned Income Credit. It puts too much strain on government finances. You can’t do the whole thing through the minimum wage. That puts too much strain on employers.

But I think Jim is right that there is a potential here, for even another reason. The president is proposing to increase the Earned Income Credit for workers not living with minor children. We already have a sizable Earned Income Credit for families with kids.

JUDY WOODRUFF: Right.

ROBERT GREENSTEIN: When you look at these young workers or middle-aged workers who are single individuals, if they’re paid low wages, they’re the one group whom the federal government today literally taxes into poverty or deeper into poverty. That should be something that both parties can say, that’s not a good idea. And both parties want to encourage these people to work more, and the Earned Income Credit does that.

JUDY WOODRUFF: So, Jim Capretta, you see Republicans moving in the president’s direction, having more interest in doing something like this?

JAMES CAPRETTA: Well, I wouldn’t say that.

I think, in the area of Earned Income Tax Credit, which was your prior question, where there is possibility for some agreement, that might be some overlap. But, in general, I think the Republican approach would be very, very different. I think they are going to look at the range of programs that are aimed at helping the poor and say, look, a lot of these programs have been created without any relationship or understanding of how they interact with the others.

You create large disincentives to work when you stack them all together. Lots of studies have shown that when you pay someone an income-tested benefit and then withdraw it when their earnings rise, in a sense, you have provided a disincentive for people to move up the wage ladder.

So you stack all these things together, and some people are losing 80 percent or more of their additional earnings when they get a better-paying job. I think Republicans are going to look very hard at that and trying to get the work incentives right.

JUDY WOODRUFF: But just to bore in for a second here in our remaining minute on the Earned Income Tax Credit, what’s the point at which you see the two sides coming together?

ROBERT GREENSTEIN: There’s two possibilities.

You could do improvements, expansion of the Earned Income Credit as part of bipartisan tax reform, or you could do it as part of the package, a compromise package with the minimum wage. I’m not sure I see either of those happening in 2014, but I think there’s a potential in a subsequent year.

JUDY WOODRUFF: What do you see?

JAMES CAPRETTA: I very much agree with…

JUDY WOODRUFF: What’s the point of connection?

JAMES CAPRETTA: I agree with Bob on that. I don’t think much will happen in 2014. But…

JUDY WOODRUFF: Even on this?

JAMES CAPRETTA: Even on this. It’s just too contentious. There’s too much that — both sides are going to want to take this to the election in November. After November, there is the possibility, even around a low-income agenda, that there might be some modest agreements.

JUDY WOODRUFF: All right. Well, we are going to leave it there. We thank you both, Jim Capretta, Robert Greenstein.

JAMES CAPRETTA: Thank you.

ROBERT GREENSTEIN: Thank you.