Issues & AdvocacyFederal
President’s Budget Sets up Next Battles with Congress on Taxes, Spending
By Andrew Goldberg, Managing Director, Government Relations & Outreach
President Obama released his fiscal year 2014 budget proposal yesterday, calling for a mix of spending cuts and tax increases to reduce the federal budget deficit by $1.8 trillion over the next decade, and setting the stage for continued tough negotiations with Congress.
Following up on his proposals outlined in his State of the Union address last February, the President’s budget would provide $50 billion for infrastructure, including $40 billion for repairing highways, bridges, transit systems, and airports; and $10 billion for competitive programs to encourage innovation in completing “high-value infrastructure projects.” The proposal also seeks to create an independent National Infrastructure Bank and proposes the creation of America Fast Forward (AFF) Bonds, building on the Build America Bonds program the president enacted in his first term to attract new sources of capital for infrastructure investment.
The president’s proposal calls for corporate tax reform that would close certain tax loopholes, limit high-income tax benefits (but not raising marginal tax rates), provide new tax benefits to encourage hiring and wage increases, and eliminate numerous individual and business tax incentives. The President’s proposal also would make a number of tax incentives for energy efficient design – including the 179D energy-efficient commercial buildings tax deduction – permanent, negating the need for Congress to renew it every few years.
The budget proposal also proposes cuts in so-called entitlement programs, such as Medicare and Social Security. The president is proposing to adopt a policy known as “chained CPI” that would lead to reduced Social Security payments, and his budget cut spending on Medicare by $370 billion.
Despite the proposed 50 billion in new infrastructure spending, the budget plan also proposes a $472 million cut for the EPA’s state revolving loan funds for wastewater and drinking water improvements, as well as a $452 million cut to LIHEAP, the program that helps low-income families heat and cool their homes.
Impact on Architects and the Built Environment
The president’s budget proposal includes numerous provisions that would impact architects and their projects. The proposed funding for infrastructure projects, including a new proposed America Fast Forward bond program, could provide additional financing for design and construction projects that have had difficulty getting off the ground due to the financial crisis. In addition, the President’s proposals to permanently extend a number of energy efficiency tax incentives would provide certainty over tax policy and could serve as an additional spur for investment in design projects.
The President’s proposal for “corporate-only” tax reform, however, could pose serious challenges for the approximately 80 percent of U. S. architecture firms that organize as so-called pass–through entities (S corporations, partnerships, and sole proprietors) that pay taxes at the individual, not corporate, tax rate. The AIA has consistently argued that tax reform should address tax rates for companies of all sizes, and treat them fairly.
It is important to note that all of the proposals in the President’s budget are a long way from becoming law – and if recent history is any guide, many of them will be left on the cutting-room floor as Congress debates the budget. In fact, the President’s proposal already has garnered criticism from both sides of the aisle – from Republicans, for proposing increases in taxes; and from Democrats, for proposed cuts to entitlement programs and programs that help low-income people, including LIHEAP.
Outlook and Next Steps
Both chambers of Congress passed their own budget blueprints in late March, offering starkly different ideas on how to reduce the deficit and deal with taxes and spending.
The budget approved by the Republican-controlled House seeks to balance the budget in 10 years, solely through cuts in spending on various programs and without any tax increases. On the other hand, the budget approved by the Democratic–controlled Senate envisions a combination of spending cuts and tax increases, and proposes additional spending on infrastructure, as in the President’s plan.
The two chambers of Congress now need to reconcile their competing budget blueprints, and then move into the arduous task of turning their plans into specific funding bills for each federal agency, as well as addressing the bipartisan desire to reform the tax code. At the same time, Congress and the White House need to address the fact that in May, the government will once again hit its debt ceiling, requiring Congress to raise the ceiling or risk sending the government into default. It is likely that the President will call for the debt ceiling to be raised as a separate bill, while Congressional Republicans will demand some concrete deficit reduction in exchange for raising the debt ceiling.
The AIA continues to analyze the President’s budget proposal, as well as those passed by both chambers of Congress, and will provide additional information on specific provisions that impact architects and the built environment in the coming weeks.
Budget Proposals at a Glance
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