Stay Informed!

President’s 2013 Budget Supports Investments in Working Families’ Financial Security and Asset-Building Opportunities

By Inemesit Imoh and Katherine Lucas-Smith on 02/14/2012 @ 02:10 PM

Tags: Federal Policy, Policy Alerts

Proposal is a strong start but reduces support for some critical programs

Yesterday, the Administration rolled out its budget proposal for Fiscal Year (FY) 2013 (October 1, 2012 to September 20, 3013). The President delivered this budget request to Congress, which must now decide on and vote to approve funding levels for each agency. His accompanying letter to Congress portrays a relentlessly-squeezed American middle class which faces a tipping point: “For many Americans, the basic bargain at the heart of the American Dream has eroded.”

In response, the President’s FY 2013 budget proposal aims to ensure that America will continue to be “a country where working people can earn enough to raise a family, build modest savings, own a home and secure their retirement.” In essence, the Administration sees this budget as a blueprint for advancing financial security and asset-building opportunities for American households. But to what extent does it achieve this objective?

One major limiting factor is that billions of dollars in budget cuts are, under laws passed in 2011, set to take effect in FY 2013. Under deals struck between House Republicans and the Obama Administration, the cuts will focus on discretionary domestic programs—specifically, the 18% of the federal budget that remains after accounting for national security spending and entitlement programs such as Medicare, Medicaid and Social Security. For FY 2012, the President proposed a total of $458 billion in discretionary domestic spending; this year’s request is just $410 billion. This means that nearly every agency faces some reduction in total funding, including cuts to many programs that support low-income families who are working hard to make ends meet, save and invest in their futures. On the other hand, the budget proposal emphasizes investments in infrastructure and education, support for the housing sector and incentives to spur job creation—including entrepreneurship. In short, it’s a mixed bag for asset builders and the families we serve.

Highlights:

Tax Policy: The President asks Congress to take several concrete steps on tax policy and establishes principles to guide future work on comprehensive tax reform. He rejects today’s upside down policies that benefit “the people who have done fantastically well over the last few decades” but neglected “the middle class [and] those fighting to get into the middle class.” The budget includes several tax incentives that would provide significant support to low- and moderate-income families that are making tough choices today to build wealth and invest in their futures.

Specifically the budget:

• Makes permanent the American Opportunity Tax Credit, a partially refundable credit that helps families pay for their students’ higher education.
• Extends tax preferences that reward small businesses for hiring new workers and spur those businesses to make capital investments.

It compensates for the cost of these measures by curtailing some tax preferences that only benefit the affluent:

• Institutes new taxes on the largest financial institutions and households earning more than $1 million per year.
• Eliminates several corporate tax loopholes and the Bush tax cuts for families earning more than $250,000.

Retirement Security: The budget once again supports Automatic Individual Retirement Accounts (Auto IRA), a policy that would require businesses with more than 10 employees who do not currently sponsor retirement plans to enable their employees contribute to IRAs through payroll direct-deposit. The vast majority of these employers already use payroll systems that support direct deposit into IRAs, and the Administration’s proposal includes a tax credit to offset the cost of upgrading for those businesses that need to. This will make retirement savings accounts available to as many as 40 million of the 78 million American workers who currently do not have access to a retirement plan at work. Employees would be automatically enrolled at a low contribution rate but could opt out at any time. They would also retain the right to change their savings levels, and reallocate their investment portfolios. The Administration proposal echoes legislation introduced by Senator Bingaman (D-NM).

Assets for Independence (AFI): AFI, the primary source of federal funding for Individual Development Accounts, provides savings opportunities and incentives for low-income families who are saving to purchase homes, go to college and start businesses. The FY 2013 request of $19.9 million increases funds for program evaluation; it would also fund an estimated 47 AFI grantees and strengthen ongoing program administration and support. The Administration requests that HHS be granted authority to recapture funds that grantees have not used after three years, and that they be able to reallocate those funds to new grantees in order to expand the program’s reach with its existing budget.

Furthermore, the AFI funding request indicates the Administration’s support for program reauthorization and improvements, similar to those that have been proposed by Congressman John Lewis (D-GA) in the Stephanie Tubbs Jones AFI Reauthorization Act.

Funding Levels for Specific Agency and Department Programs

Of course, the devil is in the details. While the big-picture view of the budget is largely positive, some specific programs that support asset-building opportunities for low-income families are targeted for cuts. Funding levels for a variety of these programs are below:

Department of Agriculture:

• RD 502 Direct Loans (Rural Housing): $653 million, down from $900 million in funding for FY 2012.
• Rural Business Enterprise Grants: $30 million, an increase of $6 million from last year’s enacted level.

Department of Education:

• Race to the Top: $850 million, up from the FY 2012 funding level of $550 million.
• Promise Neighborhoods: $100 million, a $40 million increase above FY 2012 funding.

Health and Human Services:

• Assets for Independence: $19.9 million, level with the funding authorized for FY 2012.
• Community Services Block Grant maintains funding levels of $350 million from the FY 2012 Budget request, but is a cut of more than 50% of the $714 million that was enacted for FY 2012.
• Low Income Home Energy Assistance Program (LIHEAP): $3.02 billion, down $450 million from FY 2012.

Department of Housing and Urban Development:

• Family Self-Sufficiency program: $60 million, equal to FY 2012 funding.
• Housing Counseling: $55 million, $10 million above FY 2012.
• Community Development Block Grants maintained funding at $3 billion.
• Resident Opportunities for Self-Sufficiency maintained its FY 2012 funding at $50 million.

Small Business Administration:

• Microloan loans: $18 million, a 28% reduction from the FY 2012 level of $25 million.
• Microloan technical assistance: $19.8 million, slightly below the FY 2012 enacted level of $20 million.
• The Administration again targeted the Program for Investment in Micro-Entrepreneurs (PRIME) was again targeted for elimination. In FY 2012 PRIME is funded at $3.5 million.
• The Administration proposes a new training and technical assistance program for disadvantaged entrepreneurs, focused exclusively on veterans, to be funded at $7 million.

U.S. Treasury:

• Community Development Financial Institutions (CDFI) Fund: $221 million, level with FY 2012 funding.
• Bank On USA would be funded through the CDFI Fund, authorized at up to $20 million.