Inside Obama's First Budget

February 26, 2009 — President Obama unveiled a multi-trillion-dollar budget Thursday, an ambitious plan to boost clean energy development, access to education and health care coverage. Some of those costs would be offset in part by allowing tax cuts to expire for the wealthiest households. Here, an overview of the spending plan:


President's Budget

Defense & War


The Pentagon budget for the next year, including war spending, will be $663.7 billion. That's a 4 percent increase over the current year.

For the first time, the war costs for both Iraq and Afghanistan are included in calculating the projected deficit. Before now, those costs were put in separate emergency spending bills called "supplementals." Now officials say the money for the wars will be put in an overseas contingency operations request. War costs will have greater scrutiny from Congress, and more details will be provided by the Pentagon about exactly how that money is spent.

The new request for that overseas fund is about $130 billion for next year, compared with about $140 billion for the current year. So why is it less? Some of the costs for recurrent spending have been added to the regular Pentagon budget, officials say, while changes in operations have also contributed to a lower figure.

Budget Highlights
Pentagon Budget
Supplemental funding for wars for 2009 75.5 billion
Overseas fund for wars for 2010 $130 billion


Adding some more of the war spending to the regular budget will increase pressure to cut Pentagon costs for weapons systems, like the Air Force's F-22 Raptor warplane or the Army's Future Combat System. Already President Obama and Defense Secretary Robert Gates have hinted at tough choices in the Pentagon budget: for example, cutting Cold War-era weapons programs in favor of other ones - like drone aircraft -- that help fight the current counterinsurgencies in Iraq and Afghanistan.


President's Budget

Labor Department

The Labor Department's discretionary budget will rise about $600 million -- or 4.7 percent -- for fiscal 2010. Obama's proposed budget highlights these areas:

Unemployment: Proposed legislation would make it easier and faster for people to get extended unemployment benefits.

Workplace Rights and Safety: During the Bush administration, labor rights advocates accused the Occupational Safety & Health Administration and the Mine Safety and Health Administration of being understaffed and doing little to protect workers. The Obama budget calls for increased funding for OSHA and increased "enforcement resources" for the Wage and Hour Division, which ensures that workers get the wages they are due.

Retirement Security: About half the nation's work force has no employer-based retirement plan. And many of those who have company 401(k) plans don't put nearly enough money into them. The budget plan says it will lay the groundwork for automatic enrollment in workplace pension plans. The budget also calls for employers who don't offer retirement plans to enroll their employees in direct deposit IRAs.


Much of what's in the president's budget to help the poor and disadvantaged was approved as part of the stimulus package. It would temporarily increase food stamp benefits for more than 30 million recipients by about 13 percent. That means a family of four, receiving the maximum benefits, would get an additional $79 a month. The budget calls for $1 billion more to strengthen child nutrition programs next year and would provide additional money for food banks. It also funds a $25 increase in weekly unemployment benefits through the end of the year.

The president is also asking for $3.2 billion to help low-income households pay their energy bills. That's a decline from the current year, when emergency funds were approved because of a sharp rise in energy costs. The budget proposes a new trigger mechanism that would automatically increase benefits, if prices spike again. The president has called for more money to provide housing assistance for low-income individuals, including $1 billion for a new trust fund to develop and preserve affordable housing.

The poor could see the greatest benefits from proposed changes in health care and the tax code. These include expansions in child care tax credits and a new $2,500 credit to help make college more affordable.

Budget Highlights
Labor Department funding for 2010 $13.3 billion


The Department of Labor budget reflects the worsening state of the economy as well as the politics of a new, Democratic administration with closer ties to unions and the nation's working class. But the budget summary has few, specific dollar details and it's not clear what role Obama will cast for a department that has often been seen as a political backwater.

Regarding poverty, it's difficult to tell exactly how much the administration proposes spending on the disadvantaged. Specific numbers will not be available until April, when the administration is set to release a more detailed budget. However, Sharon Parrott, a welfare expert at the Center for Budget and Policy Priorities, says it's clear the administration is not trying to reduce the deficit at the expense of programs for the poor. Some critics warn, though, that temporary benefit increases approved as part of the stimulus package could turn into a permanent expansion of welfare programs.


President's Budget


The Obama administration has proposed a major overhaul of the college student loan system.

Of the $85 billion currently available for college students for federal financial aid, the government subsidizes about $65 billion that banks and private lenders issue through the Federal Family Education Loan Program. Administration officials want to do away with this private loan system and replace it with a direct student loan program run by the Education Department.

It's a huge change. The Obama administration argues that a new direct student loan program would save about $24 billion over the next five years by lending the money directly to students through the college or university they plan to attend. The Education Department would hire a private vendor to run the program.

The president's budget also offers more money for the neediest college-bound students. The president has proposed a $500 increase in the Pell grant, raising the maximum award to $5,550 a year. The money for that initially comes from the stimulus bill. After that, Obama wants Pell grants to become an entitlement program. He also wants to tie increases in the award to the consumer price index beginning in 2010.

Education Secretary Arne Duncan said Thursday that the president's education budget reflects his promise to tie education to the nation's economic future.

Obama also wants to dramatically raise the number of college graduates by 2020, with more details to come in April. The president has urged all Americans to commit to at least one year or more of higher education or career training, saying, "A good education is no longer just a pathway to opportunity; it's a prerequisite."

Overall, Obama's preliminary fiscal 2010 education budget builds on the roughly $115 billion for education in the stimulus bill.

Most of the money would go for preschool programs, raising academic standards and improving tests and teacher training. There's also money for the first-ever federal pay-for-performance plan, which would reward the nation's best classroom teachers with higher pay. These were all campaign promises.

Obama has promised to end federal education programs "that don't work," but a list of them won't be available until April. That's when the president will also unveil a "race to the top fund," a $5 billion competitive grant program for "innovative, bold, school reform projects."

Budget Highlights
Education Department Budget
Total budget for 2010 $46.7 billion


Private lenders and banks will probably fight the change to direct funding of student loans, but it's hard to say how effective they'll be, given their present troubles.

Also, noticeably absent from the president's budget was any mention of the No Child Left Behind Act, which Congress and the Bush administration passed with great fanfare seven years ago. It is due for reauthorization but does not appear to be a priority.


President's Budget

Energy & Environment

Cap and Trade Plan: The budget underscores Obama's determination to move quickly to cut greenhouse gas emissions causing climate change. He pledges to reduce emissions 14 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050. The government will auction off the right to pollute and expects to collect $150 billion over 10 years starting in 2012. A portion of that money will be invested in clean energy; the rest will be sent to individuals and businesses to help offset the cost of transitioning to clean energy.

The budget outlines other environmental priorities, including restoring the Great Lakes and reinstating a tax to help pay to clean up toxic Superfund sites. Overall, the Environmental Protection Agency would get $10.5 billion in 2010 -- a 34 percent budget increase from 2009.

Oil and Gas Leases: The energy budget is sketchy on details, but it commits to investing in research and development of cleaner energy and modernizing the electricity grid. The president plans to increase the government's return when private companies develop oil, gas, coal and other minerals on federal lands and in federal waterways. This would include revamping royalty rates for oil and gas development on federal lands and imposing a new tax on offshore oil and gas production in the Gulf of Mexico. That won't kick in until 2011, after the economy has had time to recover.

Nuclear Waste: The budget also announces the Obama administration's plan to find an option for storing nuclear waste other than Nevada's Yucca Mountain. The budget doesn't specify what that other option will be.

Budget Highlights
Energy Department funding for 2010 $26.3 billion


Obama's environment and energy budget shows he's aiming high and staking out a strikingly different course than did President Bush. His biggest goal — and the one that will be hardest to accomplish — is getting Congress to pass a so-called cap-and-trade program to cut greenhouse gases. That would be a major accomplishment at any time, but especially during a recession, because it would impose costs on businesses and individuals by putting a price on polluting.

Supporters of a climate change bill argue that those costs won't be felt for a few years, when the economy most likely will have recovered. The odds against the president's plan are even higher, because he is determined to auction off 100 percent of the permits to pollute.

Many big polluters -- including the utilities that run the coal-fired power plants that supply about half of the nation's electricity-argue that they should be awarded some of the permits free, to allow them time and money to make the transition to cleaner power.


President's Budget

Health Care

The budget sets aside a reserve fund for what Obama calls a "down payment on health care reform": $633.8 billion over the next 10 years. About half of the money would come from reductions in payments to health care providers who serve the Medicare and Medicaid programs. The other half would come from limiting the value of itemized deductions for wealthier families, those earning $250,000 a year or more.

The budget also lays out eight principles for Congress to use in fashioning a health overhaul plan, including making health coverage affordable; guaranteeing people a choice of plans (including keeping the coverage they have through their employers); and investing in prevention and wellness. Another principle: "Aim for universality." The budget says any health care overhaul "must put the United States on a clear path to cover[ing] all Americans."

Food and Drug Administration

Obama has earmarked two areas within the FDA for special attention. The first is food: The White House is asking for more than $1 billion for the agency's food budget -- nearly doubling what the agency received two years ago. The money would go toward expanded inspections of food processing and shipping, domestically and abroad; improved food-testing laboratories; and quicker FDA responses to emergencies such as the current salmonella outbreak.

The second highlighted area is generic biologics -- complex drugs made by living cells, rather than the chemical reactions used to create most drugs. Right now, the FDA has little capacity to analyze generic versions of biologics, such as monoclonal antibodies, and it has yet to approve any generic versions. The proposed budget includes $9 billion in spending from 2013 through 2019 for the FDA to create a system of evaluation.

Another provision calls for the FDA to monitor the safety and effectiveness of lower-cost prescription drugs that consumers buy from other countries.

AIDS And Global Health

Groups in the global health community are regarding Obama's proposed foreign aid budget with hope — even if expectations have been lowered by the state of the world's economy. The plan proposes $51.7 billion for foreign aid in fiscal 2010, a $4.5 billion increase over last year.

Specific funding for global health programs has not been determined, but there are promises of increased funding for programs such as maternal and child health and family health. The government will continue its commitment to HIV/AIDS, malaria and tuberculosis programs.

Smita Baruah of the Global Health Council in Washington, D.C., an association of international health workers, believes the administration's request for global health programs will come close to the $6 billion a year for five years called for in an authorization bill passed last summer. "I don't think the administration will go back," Baruah says. "I think they are sincere in making good on the commitment."

Budget Highlights
"Down payment" on health care overhaul $633.8 billion over the next 10 years
Food inspections and safety budget for FDA more than $1 billion


Obama has been careful not to make the mistake of President Clinton: trying to do lawmakers' work for them. Obama is leaving the nitty-gritty legislative details to Congress, which appears eager to take on the task. Still, overhauling a health care sector that consumes more than a seventh of the economy is daunting, and doing it this year — as the president urged Tuesday in his address to Congress — is ambitious by anyone's standards.

Regarding the food budget, Congress may have other plans. Lawmakers have proposed creating a new food safety agency.

And as for global health, looking at the outlying years, many analysts see foreign aid continuing on a "growth path." AIDS groups are less certain about that, however, and are concerned that Obama may back away from a campaign promise to double funding for international HIV/AIDS programs.


President's Budget

Homeland Security

The president's budget outline seeks $42.7 billion for the Department of Homeland Security in fiscal 2010, up from $40.1 billion this year. That's in addition to $2.8 billion for homeland security included in the stimulus bill.

The plan outlines a number of priorities for DHS. The budget aims to strengthen security at airports, including $64 million to "modernize the infrastructure used to vet travelers and workers." It also calls for increasing in 2012 the fee that travelers now pay to fund airport security.

The budget allocates $355 million to make private and public sector computer systems more secure, and money for developing the next generation of sensors to detect biological attacks.

A large portion of the homeland security budget goes to border security and immigration. It includes $1.4 billion to Immigration and Customs Enforcement to ensure that illegal aliens who commit crimes "are expeditiously identified and removed" from the United States. An additional $110 million is provided to continue expansion of the E-Verify program, which helps employers ensure that their workers are authorized to work in the United States. The budget also includes $260 million in grants to states for intelligence-sharing "by adding thousands more state and local level intelligence analysts."

Budget Highlights
Homeland Security Budget
Total budget for 2010 $42.7 billion
Airport screening of travelers and workers $64 million
Increased security for private and public sector computers $355 million
Funding for identification and removal of illegal aliens $1.4 billion
Expansion of the E-Verify program for worker documentation $110 million
Grants to states for intelligence-sharing $260 million


Overall, the budget seems to reflect the priorities outlined by Homeland Security Secretary Janet Napolitano, who has stressed the need to improve transportation security and protect the nation's computer networks from attack. Grants to the states also seem to be an area where there are sharp differences between the current and previous administrations. The Bush administration generally opposed continuing grants, but Congress funded them anyway. Now the Obama administration and lawmakers seem to be on the same page.


President's Budget



President Obama has proposed increasing the Justice Departmentís fiscal 2010 budget by more than 3 percent to $26.5 billion. Also, the financial rescue plan that Congress passed earlier this month allocates $4 billion to the Justice Department for oversight, enforcement and litigation efforts associated with the financial crisis.

The budget proposal does not include a comprehensive breakdown of how much money goes to each component of the Justice Department. That will come in April. However, the government did release some specific numbers. The proposed budget for the Civil Rights Division, for example, increases to $145 million. Attorney General Eric Holder often says civil rights enforcement will be one of his top priorities.

The department says the budget "provides funding to begin to put 50,000 more cops on the beat." Thatís a boost for the popular Community Oriented Policing Services program, known as COPS, which awards grants to state and local law enforcement offices. However, this budget outline does not include a specific dollar amount for the increase in COPS funding.

The proposal also allocates more money for national security programs than did the previous yearís budget. According to a Justice Department official who spoke on condition of anonymity, the increase in national security funding is smaller than the fiscal 2010 draft budget proposal that the Bush administration initially presented to the Obama administration.

Budget Highlights
Justice Department Budget
Total budget for 2010 $26.5 billion
Oversight and enforcement related to financial crisis $4 billion
Civil Rights Division budget $145 million


In the past, members of Congress have complained about budget cuts to programs that provide grants to state and local law enforcement. Year after year, President Bush proposed cuts to those programs. Congress regularly undid those cuts before passing the budget.

The back and forth allowed the president to get credit for proposing a slim budget and members of Congress to get credit for saving community law enforcement programs. With the proposed expansion of COPS, this time it's different.

The Justice Department says providing funding for 50,000 additional police officers "will help states and communities prevent the growth of crime during the economic downturn."


President's Budget



One of the few areas to grow in Bush's budget is homeland security. President Bush would increase spending on homeland security across the government by almost 11 percent. Much of the Homeland Security Department's funding increase would be used to tighten border security and enforce immigration laws. The budget would also provide almost $1.5 billion to improve screening of airline baggage, cargo and passengers. The plan also calls for almost $1 billion to upgrade the Coast Guard's fleet of aircraft and ships, a program that's encountered numerous problems and delays over the past two years.

Budget Highlights
Agency Budget
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Lawmakers are likely to go along with many of the spending increases, since the funding boosts are largely the result of congressional complaints that the administration hasn't done enough to secure the nation's borders or clamp down on illegal immigration. However, lawmakers are unlikely to accept a proposed $1.5 billion cut in popular homeland security grants to state and local governments. Congress rejected a similar cut proposed last year. Also unpopular -- and almost certain to be rejected again -- is the administration's perennial request to pay for increased airport security with a 50-cent surcharge on airplane tickets.


President's Budget


Tax cuts for most working families and tax increases for those making more than $250,000 annually are the largest tax initiatives aimed at individuals in Obama's fiscal 2010 budget.

The tax cut, called the Making Work Pay tax credit, has already been passed as part of the stimulus package. It provides a tax credit of $400 for individuals and $800 for couples.

The tax hike for affluent workers results from allowing the Bush tax cuts to expire as scheduled at the end of 2010. That will reinstate the 36 percent and 39 percent marginal tax rates for individuals earning more than $200,000 and couples earning more than $250,000 annually. It will also put a cap on the value of itemized deductions and a 20 percent tax rate on capital gains and dividends for those affluent taxpayers.

President Obama promised these tax changes during his presidential campaign. His budget documents say he will use revenues from a new cap-and-trade system aimed at reducing greenhouse gases to fund the Making Work Pay tax credit. The documents also show that half the savings from the tax increases on the affluent will be used to help offset the costs of the president's initiative to overhaul health care.

Republicans argue that raising taxes on affluent Americans is counterproductive during a recession. The Obama administration believes that by the time the tax increases take effect in 2011, the recession will be over.

Budget Highlights
Make permanent the "Making Work Pay" tax cut $800/couple
Reinstates 36 percent and 39 percent marginal tax rates for individuals earning more the $200,000 and couples earning more than $250,000 annually


President Obama promised these tax changes during his presidential campaign. His budget documents say he will use revenues from a new cap-and-trade system aimed at reducing greenhouse gases to fund the Making Work Pay tax credit. The documents also show that half the savings from the tax increases on the affluent will be used to help offset the costs of the president's initiative to overhaul health care.

Republicans argue that raising taxes on affluent Americans is counterproductive during a recession. The Obama administration believes that by the time the tax increases take effect in 2011, the recession will be over.


President's Budget


The Obama administration proposes spending $70.5 billion next year on transportation, roughly the same as current levels. But an additional $48 billion was allocated in the stimulus bill for transportation needs. One of the biggest initiatives included in the budget is a proposed "National Infrastructure Bank," which would help direct financial resources to "priority infrastructure projects of significant national or regional economic benefit."

The budget includes $800 million for what's known as the next-generation air transportation system — a long-term effort to modernize the nation's air traffic control system, including replacing ground-based radar tracking with satellite-based GPS tracking. The budget also includes a $55 million increase in the fund used to subsidize commercial air service in rural areas.

The administration wants to spend $1 billion a year over the next five years for high-speed rail, marking "a new federal commitment to give the traveling public a practical and environmentally sustainable alternative to flying or driving." There is $8 billion in the stimulus bill for high-speed rail.

The budget also notes that the current system for financing surface transportation — the gas tax — is not "financially sustainable," but it does not suggest an alternative. The outline says the Obama administration intends to work with Congress on improvements for reducing congestion and improving safety.

Budget Highlights
Modernization of air traffic control system $800 million
High-speed rail funding over five years $1 billion


The budget ducks the issue, but the question of how to pay for the nation's highways and bridges beyond the stimulus money (a one-time infusion that will be added to the deficit) is sure to return in the not-so-distant future. Last year, Congress pumped some $8 billion into the highway trust fund because of shortfalls in gasoline tax revenue.

A bipartisan federal commission on highway funding has recommended a 10-cent-a-gallon increase in the federal gasoline tax, which has not been changed since 1993. The administration has so far been cool to either raising the gas tax or implementing the most likely alternative, a tax based on miles driven.


Sources: White House Office of Management and Budget

Credits: Alyson Hurt, Maria Godoy and Amy Morgan, NPR

Comments: Share your thoughts about these and other developments in the new administration.

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