President Obama released his budget proposal for fiscal year 2014 on Wednesday, April 10, 2013. While the proposed budget includes a 4.5 percent increase for education and replaces the recent 5 percent sequestration cut, we are very disappointed to learn it also proposes painful cuts to Social Security benefits by using a new calculation of a cost of living adjustment known as Chained CPI, as well as new cuts to Medicare. More encouraging is the proposed significant commitment to fund pre-school for all 4-year-olds from low- and moderate income families. However, the focus on competitive grants over more equitable formula programs to states continues to be disappointing.
Also, this is the first time in recent history that the President’s budget has followed the U.S. Senate and House budget proposals. At this point in the process, the President’s budget is viewed as provided guidance to upcoming appropriations discussions in Congress. The following provides an initial overview of key provisions of importance to educators and public education.
Highlights of the President’s FY 2014 proposal:
The President’s budget proposes $71.2 billion for education – a 4.5 percent increase compared to FY 2012.
The budget proposes billions in mandatory funding for education and jobs and would also retroactively replace the devastating across-the-board 5 percent sequestration cut triggered last month for the remainder of FY13.
The President proposes cutting $100 billion in Social Security benefits by recalculating the cost of living for beneficiaries by using the Chained CPI or Chained Consumer Price Index for All Urban Consumers.
While the budget proposes $730 billion in Medicare savings it results in $400 billion in new cuts to Medicare.
The President proposes $100 billion in additional cuts to non-defense discretionary funding (which includes education funding), over the next decade.
The budget proposes raising $600 billion in new revenue by raising income tax rates for the highest income Americans.
When interest savings are added to the new revenue raised, the budget produces more than $2.5 trillion in deficit reduction, which is more than halfway to the goal of $4 trillion in deficit reduction.
The President continues to place considerable focus on early education by working with the states to make high-quality preschool available to every child in America and includes a new $75 billion investment to fund pre-school for all 4-year-olds from low- and moderate-income families.
The budget continues to create and fund competitive grants, including Race to the Top at $1 billion and a new $260 million First in the World fund, over investing in existing formula programs to the states.
A new proposal to link student loan interest rates to market rates is included in the FY14 budget.
Highlights of Education Budget Proposal
Early Childhood Education:
- $1.3 billion in 2014 and $75 billion over 10 years in mandatory funding for Preschool for All as a new federal-state partnership to support implementation of high-quality preschool programs.
- $750 million for Grants for Infants and Families program under IDEA, an increase of $20 million from FY13.
- $14.5 million request for College- and Career-Ready Students program – same as FY13
- $415 million for STEM Innovation targeting STEM teachers and increasing student engagement, an increase from $149.7 million in FY13.
- A new $300 million program for High School Redesign to help students transition to postsecondary education and careers.
- $300 million to significantly expand the Promise Neighborhoods program, an increase from $59.9 million in FY13.
- $280 million for a Successful, Safe and Healthy Students program to protect children from gun violence and to make schools safer, an increase from $195.9 million in FY13.
- Impact Aid would be funded at 1.224 billion – same as FY13.
- Title 1 level funded at $443.5 – same as FY13.
- Consolidation or elimination of 20 K-12 programs
No new funding for private school vouchers in the District of Columbia.
- $1 billion for Race to the Top dedicated to new College Affordability and Completion competitive grants, an increase from $549 million in FY13.
- A new $260 million First in the World fund to make competitive awards to encourage innovation and improve college completion.
- In response to student loan interest rates doubling to 6.8 percent on July 1, 2013, a new proposal to link student loan interest rates to market rates at the time of the loan, that would remain fixed for the life of the loan and provide for a repayment option that did not exceed 10 percent of a borrower’s discretionary income – with any remaining balance being forgiven after 20 years.
- Reforms campus-based aid programs by targeting funds to institutions with a demonstrated commitment to providing high-quality education at reasonable price. Revised allocations for Work-study, TEACH Grants, Federal Direct Loans and Unsubsidized Loans, among others, and are proposed to be funded at $22.824 million, a net decrease of $553.8 million from FY13.
- Proposes a maximum Pell Grant award of $5,785, up $120/award from FY13.
- TRIO is funded at $339.9 million – same as FY13.
- GEAR UP is funded at $302.2 million – same as FY 13.
Additional Budget Proposal Highlights:
Middle Class Tax Relief:
- Proposed to make permanent the Make the American Opportunity Tax Credit (AOTC), providing up to $10,000 for a student’s family over four years in college. The credit is expected to help 13 million families pay for higher education in 2014.
- Proposes to make permanent the Earned Income Tax Credit (EITC) for working families with three or more children and for married couples – more than 7 million families will benefit in 2014.
- Makes permanent the Child Tax Credit (CTC) and expands it by increasing the amount available for low-income working families.
- Increases the Child and Dependent Care Tax Credit for families with incomes between $15,000 and $103,000 who pay for child care.
- Requires employers with more than 10 employees who do not offer retirement plans to provide for automatic enrollment in individual retirement accounts (IRAs). The proposal would $18 billion in tax benefits over the next 10 years.
Everyone Paying Their Fair Share:
- Implements the Buffet Rule by imposing a new “Fair Share Tax” by limiting high-income taxpayers from paying a lower tax rate than middle-income families as well as paying at least 30 percent of their adjusted gross income in income and payroll tax – raising $53 billion over the next 10 years.
- Proposes to limit certain tax expenditures for the most affluent by capping their value at 28 percent – raising $529 over the next 10 years.
- Proposes capping tax-preferred retirement accounts at $3 million.
- Eliminates special depreciation rules for purchases of corporate jets and other passenger aircraft – raising $3 billion over 10 years.