This article originally appeared on MarketWatch.
President Obama’s eighth, and final, budget was released this week, and he is requesting $4.1 trillion in spending for fiscal 2017, funded in part by $3 trillion in higher taxes. The White House estimates that the deficit for fiscal 2016 will be $616 billion, up from $438 billion in 2015. So where can he cut?
Here are five proposals that could be usefully trimmed from the president’s budget:
Federally funded infrastructure is a favorite of Democrats, because it is built with union labor, and unions, after all, give the Democrats large contributions. The AFL-CIO spent $47 million in political contributions and lobbying in 2013, with practically all of the money going to Democrats. The president wants to spend (or “invest,” as he calls it) $320 billion over the next decade in a “clean transportation system for the 21st Century that speeds goods to market while reducing America’s reliance on oil, cutting carbon pollution, and strengthening our resilience to the effects of the changing climate.” That includes high-speed rail, an expensive form of transportation that always runs at a deficit because riders do not want to pick up the tab.
To fulfill promises made last year during the climate-change conference in Paris, President Obama wants to plow more government money into clean energy. Never mind that U.S. emissions of greenhouse gases are only 16% of global emissions, so reducing U.S. emissions will not help cool the planet. In order to reduce global warming, the U.S. needs to encourage large emitters such as China and India to reduce their emissions by helping fund cheap renewable energy such as nuclear power.
Nevertheless, the president wants to spend $7.7 billion “for fundamental and transformative clean energy R&D across 12 agencies” and $1.3 billion to speed up the use of solar, wind and low-carbon fossil fuels. In addition, Obama has earmarked $39 billion over the next decade for green-energy incentives, particularly renewable-energy tax credits.
President Obama wants to provide free tuition at community college for “responsible students,” whoever those may be. This, and related proposals, would cost $61 billion over the next decade. But community college is already affordable. Tuition for community college averages $3,260 per year, a fraction of the cost of four-year public and private colleges. In addition, financial aid is available for low-income students.
As University of California (Los Angeles) professor Armen Alchian wrote in 1968, college should not be free. The same argument holds true today. College is an investment that results in higher earnings. Taxpayers who do not have the good fortune to go to college should not subsidize those who get more education, and the associated stream of benefits.
Besides, people do not value services that they don’t pay for. If community college were free, people with no intention of completing it would start taking courses, and already poor graduation rates would decline. People would have less incentive to take courses that would translate into earnings.
Expansion of paid leave
President Obama wants to spend $2.2 billion over 10 years for states to set up paid-leave programs. Congress passed the Family and Medical Leave Act in 1993, which gave people up to 12 weeks of unpaid leave per year. Congress specifically declined to require employers to offer paid leave, although many of them do.
European countries require employers to offer paid leave, and a frequent refrain from liberals is that the United States should follow suit. However, European economic growth is lower than that of American, and Europeans have fewer children. Here in America we want higher GDP growth and more children, so we do not want to be like Europe.
Requiring paid leave discourages employers from hiring women, because they take more time off to care for family members than men do. Although the cost of this budget line to the taxpayer is not large compared with other proposed programs, the potential cost in terms of job loss is substantial.
Americans already have universal access to retirement savings through individual retirement accounts, which enable them to put away $5,500 a year on a tax-deferred basis. Many do not choose to set up these accounts because their paychecks are not large enough for them to save for retirement. The president proposes to encourage employers to automatically enroll workers in IRAs and other retirement accounts, and make accounts more portable. The cost of the president’s proposed changes to retirement and health plans is $21 billion over 10 years.
At the same time, the Labor Department has proposed a rule that would put thousands of financial advisers out of business by outlawing the commission-based approach for adviser compensation unless the adviser and the investor enter into a special “best interests contract.” Advisers would have cumbersome disclosures of commissions, and greater exposure to lawsuits by disgruntled investors.
The intent of the rule is to nudge investors away from commission-based advisers and toward those who charge up-front fees directly to their clients. But small savers may not be able to afford the up-front fees that fee-based, non-commission advisers will charge, and the result will be that many of those most in need of advice will go without.
Those two initiatives are contradictory. If the president wants people to save more, he should not prohibit a popular form of financial advice. Better yet, additional economic growth would increase paychecks and provide more funds for saving.
These are just a few examples of the waste that permeates the fiscal 2017 budget. Rather than expanding deficits in the long term, Congress should focus on ways to reduce federal spending and increase economic growth.
Diana Furchtgott-Roth is a senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter here.
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