Obama Releases Final BudgetFebruary 10, 2016
On Tuesday, Feb. 9, President Barack Obama released his final budget plan for fiscal year (FY) 2017 which is a $4.1 trillion spending outline that focuses resources on clean energy, education and health care through increased taxes on wealthy individuals and big banks. Below are a host of budget spending items relative to small business.
Health Care / Cadillac Tax
Obama is proposing relatively modest changes to the so-called Cadillac tax that the administration says would cost $1.26 billion over the next decade. In the FY 2017 budget, the administration wants to adjust the 40 percent levy on pricey health benefits to account for regional differences in health insurance costs. Essentially, the budget proposed to modify the threshold above which the tax applies to be equal to the greater of the current law threshold or the average premium for a marketplace gold plan in each state.
The budget also calls for changes aimed at making it easier for companies offering flexible spending accounts to figure out how much they would owe under the tax. Additionally, it would have the Government Accountability Office investigate how the tax would affect companies with large numbers of sick employees. Finally, the Obama administration has a $2.1 billion budget request to operate the Patient Protection Affordable Care Act exchanges in fiscal 2017, but needs Congress to fund $535 million of it.
Department of Labor Funding
The White House seeks a 4.9 percent increase for the Department of Labor (DOL) in the budget request, with $12.8 billion budgeted for the DOL in FY 2017.
DOL’s Wage and Hour Division would receive an especially large funding increase, with a 21.5 percent increase over the previous year. The Obama administration has stepped up enforcement of employee misclassification, and is finalizing a regulation that would extend overtime coverage to millions of new workers.
In addition, the Employee Benefits Security Administration would receive a 13.8 percent increase; the Office of Federal Contract Compliance Programs, an 8.6 percent increase; the Occupational Safety and Health Administration, a 7.6 percent increase; the Mine Safety and Health Administration, a 5.6 percent increase; and the Bureau of Labor Statistics, a 5.5 percent increase.
Other agencies that enforce labor law would receive only a slight rise in funding. The National Labor Relations Board would get a 0.4 percent increase, while the Equal Employment Opportunity Commission would get a 3.3 percent increase.
Internal Revenue Service Funding
President Obama’s final budget proposal would give the Internal Revenue Service (IRS) $12.3 billion, an increase of about $1 billion over current levels. Using a maneuver known as a “program integrity cap adjustment”—which allows for extra spending on programs that generate revenues greater than their cost—the administration would direct $231 million to the agency’s Enforcement account and $283 million to Operations Support.
The blueprint includes $2.5 billion for taxpayer services, a slight increase. It is the one area of the agency’s budget Republicans do not want to cut; the IRS’s $290 million boost in funding for the current fiscal year was confined to taxpayer services.
The plan would also adjust spending caps to direct an additional $18 billion to tax enforcement over 10 years. That investment would generate $63.6 billion in increased revenue over a decade, according to the proposal, for a net savings of $46 billion.
Small Business Administration
The President’s budget calls for a significant reduction in discretionary funds for the U.S. Small Business Administration (SBA). In the proposed budget, SBA’s discretionary funds will be reduced from $900 million in 2016 to $700 million in 2017. However, the budget makes up that $200 million difference by appropriating the same amount for disaster relief programs. SBA was not appropriated funds of that nature in the 2016 budget. Under the proposed budget, discretionary funding for SBA will slowly be increased over the next decade to $900 in 2026. In total, the budget projects $7.8 billion budgeted for SBA from 2017-2026.
The budget supports a program level of $27.0 billion for Section 7(a) loan guarantees that provide general business credit assistance. To address unanticipated spikes in lending, Section 521 of the SBA general provisions proposes administrative flexibility to increase the 7(a) program level by 15 percent if the program demands were to exhaust the appropriated limit, with notification to the Appropriations and Small Business Committees.
The president calls for trimming the deficit by $2.9 trillion over 10 years while keeping budget shortfalls below three percent of gross domestic product (GDP). The White House projects the budget would produce GDP growth of 2.6 percent this year and next, with growth holding at around 2.3 percent per year in the early 2020s. Debt held by the public would increase to 76.5 percent of GDP in fiscal 2017 but fall to 75.3 percent by 2026.
The administration also says the deficit would gradually shrink, going from 3.3 percent of GDP in fiscal 2016 to an average of 2.6 percent per year over the next decade. That would put the deficit in line with historical averages.
To achieve those targets, the budget includes hundreds of billions in new taxes, including raising the top tax rate on capital gains, adding a new fee on the biggest financial firms and imposing the “Buffett Rule,” which would require wealthy millionaires to pay at least 30 percent of income in taxes. President Obama also wants a new $10-a-barrel tax on oil, which would raise $319 billion over 10 years. In the past, unsurprisingly, these proposals have met with strong opposition from Republicans, and they will continue to remain nonstarters in this Congress.
Trans-Pacific Partnership / Trade Funding
The Trans-Pacific Partnership would cost the U.S. about $28 billion in lost tariff revenue over the next 10 years, assuming it takes effect next year, according to President Barack Obama’s proposed 2017 budget. Under House rules, that increase would have to be offset before it received congressional approval.
That lost revenue would add about $1.7 billion to the deficit in 2018, and that number is estimated to steadily increase each year, reaching $4.3 billion in 2026. These amounts accumulate to roughly $9.5 billion during the first five years, and $28 billion total over 10 years.
The FY2017 budgets also calls for boosting funding for the Office of the U.S. Trade Representative from its current $54.5 million to $59 million in FY2017, increasing every year to reach $71 million in 2026. It calls for a funding increase for the Commerce Department’s International Trade Administration, which investigates anti-dumping and anti-subsidy cases. Currently at $483 million, the agency would see its funding increased to $521 million in FY 2017 under the proposal. Commerce’s Bureau of Industry and Security, which administers export controls and has been involved in a reform effort regarding those controls, would see its budget increase from $112.5 million currently to $127 million in FY 2017 under the proposed budget.
Obama’s budget would provide $19 billion in resources for improving cybersecurity, which is roughly a 35 percent increase over 2016 funding. The proposed funding falls under the Cybersecurity National Action Plan which will put in place long-term actions to maintain public safety and economic security. A key provision of his proposal is the creation of a revolving fund of $3.1 billion called the Information Technology Modernization Fund (ITMF). The ITMF would be tasked with retiring the government’s current IT systems and secure the most high-risk networks. The ITMF would also make investments to strengthen cybersecurity education across the economy.
Environmental Protection Agency/Environmental Programs
With a focus on environmental infrastructure, the budget seeks $8.3 billion for the Environmental Protection Agency, a 1.5 percent increase from 2016. The budget proposes incremental increases each year until 2026, when it reaches $9.9 billion. It would provide $25 million to help states implement the Clean Power Plan, and $1.65 billion dedicated to upgrading vehicle fleets. The President’s budget includes $1.3 billion to support the Global Climate Change Initiative (GCCI) through multilateral engagement with other countries, $750 million of which will be directed to the Green Climate Fund (GCF), designed to help developing countries cut emissions. The budget would further support programs focused on the country’s water infrastructure and ensuring it can withstand stressors associated with drought and population increase.
Included in the budget is $1.3 billion dedicated to accelerating the adoption of clean energy technologies and low-carbon fossil fuels. Provisions in the budget increase by 20 percent government-wide clean energy research and development to $7.7 billion. These efforts to enhance clean energy research and development will be paid for by a $10 per barrel tax on oil. This proposal would increase investment in clean transportation by close to 50 percent.
Research and Development
The proposed budget contains a four percent increase on discretionary and mandatory research and development expenditures over 2016 levels, bringing the 2017 level to $152 billion. The budget would increase resources to the Manufacturing Extension Partnership to help small manufacturers access the most up-to-date technology and resources available. The budget additionally includes increases to the Research and Experimentation Tax Credit, which is designed to increases incentives for small-business investments in research and development.
Securities and Exchange Commission
The budget proposed for 2017 will increase funding for the Securities and Exchange Commission (SEC) by 11 percent. This increase will bring funding for the agency to $1.8 billion. As the president looks to increase oversight on Wall Street and as the Dodd-Frank Act significantly increased SEC’s responsibilities, the budget will continue to increase and according to the budget proposal, would double 2015 levels by 2021. The SEC is predominately offset by collected fees, as such the budget request has no impact on the federal deficit and the proposed increase indicates a significant uptick in the amount of fees expected to be collected in coming years.
Workforce and Job Training
The White House budget request includes a five percent increase in funding for state grants to update employment and job training services under the 2014 Workforce Innovation and Opportunity Act (WIOA). The budget also allocates $40 million to help states and localities monitor the results of WIOA programs, including the outcomes for job placement.
An additional $2 billion over five years would be allocated to an apprenticeship training fund intended to encourage more employers to provide on-the-job training. In addition, the budget would provide $10 million in state grants to determine whether occupational licensing requirements inhibit labor market entry or mobility.
The budget directs the Pension Benefit Guaranty Corporation (PBGC) to increase premiums for multiemployer plans by giving the PBGC board authority to raise an additional $15 million in premium revenue earmarked for the agency’s multiemployer program. The program—for pensions created through collective bargaining and funded by multiple employers—is in worse financial shape than the agency’s single-employer program and is projected to go insolvent in 2024.
Commodity Futures Trading Commission
The Commodity Futures Trading Commission (CFTC) received almost a one third increase in funding from 2016 in the president’s proposed budget. President Barack Obama requested $330 million for the agency in 2017. Similar to the SEC, the CTFC has a significantly increased role after the implementation of the Dodd-Frank Act. As such, the president is likewise proposing a significant increase in funding over the coming years, culminating with a doubling of 2015 levels by 2021. The CTFC is not currently funded through fees, however, the administration would like to propose legislation allowing that collection, and the budget is predicated on fees being collected starting in 2018.