“The state of the union is getting stronger.” That is how President Obama characterized the current state of the union. But, as we wrote in our State of the Union preview on Tuesday, we still have a long way to go before the economy is back on its feet. In our article, we recommended doing away with the looming budget cuts, increasing taxes on capital gains and financial transactions, and using the additional revenue to pay for more infrastructure projects and public protections. So what fiscal issues did Obama talk about in his speech on Tuesday?

One of the main themes of the speech was fairness, which we said was important for creating opportunity and building a vibrant middle-class. First, the president again called for the tax code to follow the “Buffett Rule,” which would ensure that millionaires such as financier Warren Buffett pay at least as much in taxes as their secretaries. In his “blueprint” document accompanying the speech, Obama interprets the rule as meaning millionaires should have an effective tax rate of at least 30 percent.

However, he is unclear on exactly how this would be accomplished. The only specific policy change mentioned is limiting tax breaks for millionaires, saying “there is no reason that those making over $1 million per year should get any tax subsidies for housing, health care, retirement, and child care.” (And even this policy provision is ambiguous; is the president proposing eliminating itemized deductions and all credits for anyone making more than a million dollars?) But this policy change alone most likely won’t increase most millionaire’s tax rates, since their low rates are often a function of the preferable tax treatment of capital gains.

As we wrote in our Watcher article, the best way to increase fairness in the tax code is to treat capital gains (which is profit from stocks, bonds, and other investments) as ordinary income (such as wages). Right now, the top capital gains rate is less than half the top rate for wages, which allows millionaires, such as Mitt Romney, to have a low tax rate. While the president has called for allowing the upper-income Bush tax cuts to expire, which would bring the top capital gains tax rate up to 20 percent from 15 percent, he has resisted advocating for taxing capital gains like wages (for the wealth, this would mean a tax rate of 35 percent on capital gains). However, his argument for millionaires to pay at least 30 percent of their income in taxes functionally amounts to the same thing.

We also wrote about infrastructure spending in our State of the Union preview, saying that such spending (in the form of grants to the states) is one of the best ways the government can boost the economy. In his speech, the president proposed increasing infrastructure spending, and paying for it with half of the savings from the troop drawdowns in Iraq and Afghanistan. This proposal would add approximately $500 billion to infrastructure spending over the next ten years, based on estimates included in the president’s fall deficit reduction plan. According to the Congressional Budget Office, that much spending could – thanks to multiplier effects - spur the economy by more than a trillion dollars, while giving the nation’s workforce a helping hand.

The most disappointing budget news was that the president appears to be sticking by the cuts contained in the Budget Control Act (BCA, also known as the debt ceiling deal). He praised these cuts several times in his speech, and even called for more deficit reduction on top of the BCA. These cuts of almost two trillion dollars over the next nine years will slow our nascent recovery. However, if taxes on the wealthy are raised and all the Bush tax cuts expire, such cuts won’t be necessary to reduce the deficit.

The BCA's budget cuts are already written into law, whereas many of the changes Obama called for in his State of the Union speech require congressional approval. So, if nothing new passes this year (with Congress mired in partisan gridlock and elections swiftly approaching, this seems likely), the budget cuts will go forward as planned, and we’ll have a de facto austerity budget in place. This will be damaging to the economic recovery effort and would set back efforts to make this a more fair and equitable nation.

Image by Flickr user Secretary of Defense used under a Creative Commons license.

On Dec. 31, 2011, Recovery Accountability and Transparency Board Chairman Earl Devaney stepped down after leading the Board for almost three years. Devaney did more than anyone else to ensure Recovery Act spending was as transparent as it was, and his presence will be sorely missed.

While he didn't create the transparency provisions in the Recovery Act (those were written into the law or created by the Office of Management and Budget (OMB)), Devaney implemented the law's requirements. He and his team created the Recovery.gov website from scratch in remarkably little time and did a great deal to ensure that recipients understood their reporting responsibilities under the law. As a former inspector general (for the Department of the Interior), Devaney placed a strong emphasis on finding and preventing fraudulent contracting and wasteful spending, creating the Recovery Operations Center. He also insisted on making maps of Recovery Act spending the focal point of Recovery.gov, arguing that the government needed to do more to display information in useful ways.

Devaney understood the importance of providing information to the public and talked of empowering an army of citizen inspectors general. We appreciated the fact that he frequently reached out to the transparency community to get feedback and guidance. When we raised concerns about the quality of the data from the first rounds of recipient reporting, the Board moved quickly to fix the problems it could, such as automatically filling in some data fields for recipients (for example, pulling in company information from existing contracting databases) and creating algorithms to spot potential red flags (such as recipients reporting that they had spent more money than they had received).

Devaney also championed transparency beyond the Recovery Act. He has been a vocal supporter of unique identifiers for recipients of federal funds, a thorny problem that has long plagued federal spending transparency. For the past six months or so, he has also been the head of the Government Accountability and Transparency (GAT) Board, created by President Obama last year to "provide strategic direction for enhancing the transparency of Federal spending and advance efforts to detect and remediate fraud, waste, and abuse." The GAT Board's recent report advocated for many reforms, most importantly centralizing spending databases and streamlining reporting obligations, in addition to calling for a universal system of unique identifiers for contracts and grants throughout the federal government.

Devaney will be replaced by current Education Department Inspector General Kathleen Tighe. Tighe has been on the Recovery Board since March 2010, serving as the chair of the Board's Accountability Committee since March 2011. Interestingly, Tighe will not be stepping down from her inspector general role, which possibly indicates a diminution of the position of Recovery Board chair. The chair was a full-time job for Devaney, who stepped away from his Department of the Interior position to lead the Board, and Devaney clearly had Vice President Biden's ear, meeting frequently with him to discuss various issues related to the Board's work.

The chair's reduced prominence is likely a reflection of the administration's desire to move on from the Recovery Act. With most of the Recovery Act money already spent, Tighe's job will largely be overseeing the dissolution of the Board and the application of lessons learned from the Recovery Act to the entire federal government, a process Devaney has already started with the GAT Board. There's still much to be done to improve federal spending transparency, but hopefully, even in a part-time role, Tighe will bring to her new position just as much passion and success as Devaney.

Image by Flickr user OversightandReform.

Late Wednesday, the House Appropriations Committee released its proposed "megabus" spending bill, packaging the nine appropriations bills that have not yet been completed for Fiscal Year (FY) 2012. The House and Senate have been in negotiations to finish the nine bills before a stopgap spending bill expires on Friday.

The release of the House bill, H.R. 3671, brings the latest news of the fate of the Electronic Government Fund. OMB Watch has been working with the Sunlight Foundation and others to make the case for fully funding the E-Gov Fund, which pays for flagship transparency projects such as USAspending.gov and Data.gov.

The details of the House proposal are mixed. First, the unequivocally good news: the House proposal would preserve the E-Gov Fund as an independent budget line, retaining the E-Government Act's authorization and reporting requirements. Previously, both the House and the Senate appropriations committees had proposed to combine the E-Gov Fund with the Federal Citizen Services Fund, which might have resulted in e-gov dollars being used for other purposes.

The appropriations levels in H.R. 3671 are also partially good news. The E-Gov Fund would receive a modest boost, from the $8 million it received in FY 11 to $12.4 million. (The Citizen Services Fund remains essentially level.)

However, the combined appropriation for the funds in H.R. 3671, $46.5 million, is actually a slight decrease from the $50 million that the House appropriations committee approved previously. The E-Gov Fund's share of that $50 million would have amounted to $15.8 million, or $3.4 million more than the newest House proposal. And the number still falls far short of President Obama's recommended $34 million, which OMB Watch and Sunlight endorsed to best continue the fund's track record of successful transparency and efficiency innovations.

Nevertheless, in the current budgetary environment – the bill containing the E-Gov Fund declines by $222 million overall – any increase is remarkable. That Congress is now poised to partially reverse the steep cuts it hastily made in April reflects a growing understanding of the value of transparency.

Late last week, Congress passed the first spending bill for fiscal year (FY) 2012, 48 days after it began. The bill, known as a minibus, is a bundle of three smaller appropriations bills, and collectively, the three bills are about a billion dollars lower than their level last year. Because the remaining nine spending bills required to keep the government running have yet to be approved, the minibus includes another stopgap spending measure, designed to keep the government open until Dec. 16. However, tucked inside the minibus is a litany of restrictions on spending designed to change non-budgetary federal policy.  Even though congressional rules are supposed to prevent the practice of slipping policy initiatives into funding bills, the minibus includes 75 policy riders that affect everything from gun regulations to the weight of planes flying into New Jersey’s Teterboro Airport, and even declare that pizza is a vegetable.

[See the list of riders in the bill here.]

This spring, in the funding bill for FY 2011, House Republicans attached dozens of controversial policy riders. The riders would have created new policy on many issues, including greenhouse gases and abortion, and were inserted with little fanfare and no public debate. In effect, House Republicans were trying to create new laws by avoiding the normal legislative process. Fortunately, almost all were stripped out, except for a handful that only affected the District of Columbia.

According to an OMB Watch analysis, the minibus funding bill Congress passed on Thursday, Nov. 17 included at least 75 policy riders, some of which have been in appropriations bills for at least a decade. Over the past few weeks, as the House and the Senate conferenced their versions of the three bills, riders were added and dropped from both sets of bills. For instance, conferees dropped a rider preventing patents on human organisms, a rider that’s been attached for years, since a recent bill made the prohibition permanent. The bill also includes several new riders on firearms, including one relaxing rules on shotguns.

The conference report also changed a controversial policy rider to include language that wasn’t in either the House or Senate bill, impacting the U.S. Department of Agriculture’s (USDA) Grain Inspection, Packers and Stockyards Administration (GIPSA) rule. The GIPSA rule aims to level the playing field between livestock producers, contractors, and dealers. Unlike a similar policy rider in the House appropriations bill, the conference report’s rider does not prevent the USDA from finalizing the proposed GIPSA rule altogether. However, it effectively precludes USDA from issuing a number of the rule’s provisions that are considered crucial by the National Farmers Union and other agriculture groups.

The minibus includes a slew of other riders. It has two separate riders defunding ACORN, though the community organizing group is now defunct. Another prevents the Federal Aviation Administration from lifting weight limits at the Teterboro Airport, a provision that’s been added every year since 2003 (no other airports are specifically mentioned in the bill). The bill also includes two provisions changing the federal school lunch program, one to prevent limitations on potatoes in school lunches, and another classifying pizza as a vegetable.

With nine more appropriations bills left, which will likely be considered in one large package, Congress will be passing at least one more funding bill this year. This “omnibus” bill will include many controversial issues, including bank regulation, healthcare, and international aid, all of which will likely attract many more riders.

Image by Flickr user Instant Vantage used under a Creative Commons license.