Highlights From Obama's Budget Proposal The White House's budget request for the 2014 fiscal year drew headlines for its proposed changes to how entitlement benefits are calculated in a compromise effort to cut the budget. But how would other departments and programs be affected? While Congress almost never enacts the president's budget as proposed and Republicans oppose many of the specifics, the budget offers a window on Mr. Obama's priorities at the beginning of his second term. Times reporters provided analysis.3:20 P.M. Higher Ed: Changes to Student Loan Interest Rates The president's budget proposes that interest rates for new student loans, which are currently set by Congress, instead be tied to the government's cost of borrowing. Once set, the rates would remain the same for the term of the loan, which is typically 10 years. Consumer and student advocacy groups have generally supported the idea of a market-based rate, but only if there is a cap. The president's proposal does not provide any limit on how high the rate can rise. "While in the short term the President's budget includes critical savings for millions of students and their families who will rely on federal student loans to pay for college, we are concerned by the long-term implications," said Anne Johnson, director of Campus Progress, part of the Center for American Progress. Without a cap, a market-based rate means that future generations of students could face higher levels of education debt as a result of higher interest rates. The proposal contains a provision that would expand repayment options so that student borrowers" monthly payments would not exceed 10 percent of their discretionary income. Under the president's budget, interest rates would be pegged to 10-year Treasury notes, plus an extra 0.93 percent for subsidized Stafford loans, an extra 2.93 percent for unsubsidized Stafford loans, and an extra 3.93 percent for loans to parents and graduate students. The current rate for subsidized Stafford loans, which go mainly to low- and middle-income students, is 3.4 percent; that rate is due to double this summer. This week, Republican Senators Tom Coburn of Oklahoma, Lamar Alexander of Tennessee, and Richard Burr of North Carolina proposed legislation that would have set new student loan rates at the yield on 10-year treasury notes, plus 3 percent. Right now, that would mean an interest rate of 4.75 percent - higher than the 3.4 percent rate on subsidized Stafford loans but substantially lower than the rates on other student loans, all of which are at least 6.8 percent. The budget also contains a proposal for a $1 billion Race to the Top competition for higher education, something the administration failed to win from the last Congress. It would maintain Pell grants at the current maximum, $5,645, and undertake a reorganization of science and technology education programs. Tamar Lewin 2:27 P.M. Health: More on Medicare Changes President Obama's budget would reduce the growth of federal health spending by $401 billion over 10 years. The savings include $57 billion of higher payments by Medicare beneficiaries; cuts of $306 billion in projected Medicare payments to health care providers; and $19 billion to be squeezed out of Medicaid, the program for low-income people. Kathleen Sebelius, the secretary of health and human services, said Wednesday that the president was requesting $1.5 billion to operate health insurance supermarkets, known as exchanges, in 2014. In addition, the administration plans to raise $450 million by charging user fees to insurance companies allowed to sell their products to consumers and small businesses in the exchanges. The federal government will have the primary responsibility for operating the exchanges in more than 30 states. Mr. Obama would require high-income Medicare beneficiaries to pay $50 billion of additional premiums for coverage of doctors" service and prescription drugs over the next 10 years. In addition, he would require new Medicare beneficiaries to pay co-payments for home health care services, starting in 2017. And he would impose a surcharge on Medicare premiums for new beneficiaries who buy the most generous private insurance policies to supplement Medicare. Such Medigap policies reduce the incentive for beneficiaries to consider the costs of health care services, the White House said. The home health co-payments and premium surcharges would raise $3.6 billion from 2017 to 2013, the administration said. Mr. Obama would require drug manufacturers to provide additional discounts, or rebates, to Medicare for prescription drugs bought by low-income beneficiaries. Medicare would thus get discounts similar to those that drug makers now provide to Medicaid. The White House said this proposal would reduce budget deficits by $123 billion over 10 years. Drug makers have beat back similar proposals in the past, saying they amount to price controls. In addition, Mr. Obama wants to close the coverage gap, or "doughnut hole,"" in Medicare's prescription drug benefit by 2015, five years sooner than envisioned in the Affordable Care Act. This proposal would provide financial relief to many older Americans. In addition, by requiring drug manufacturers to provide larger discounts, the administration said, the proposal would save the government $11 billion from 2015 to 2023. Under the president's budget, Medicare would also cut payments to clinical laboratories by $9.5 billion over 10 years and slice $15 billion from projected payments to private Medicare Advantage plans offered by companies like Humana and UnitedHealth. The White House said its proposal would improve the accuracy of payments to private Medicare plans. With his Medicaid proposals, Mr. Obama would impose new limits on payments for medical equipment and supplies. He would also reduce special payments to hospitals that serve large numbers of low-income people. In his budget, Mr. Obama proposed "small targeted reductions"" in certain health care programs, like immunizations and cancer screenings. The White House said the cuts were justified because the new health care law would provide coverage for nearly 30 million Americans who would otherwise be uninsured. Mr. Obama seeks $31 billion for the National Institutes of Health, including additional money for research on Alzheimer's disease. In the wake of recent shootings, Mr. Obama sought $10 million for the Centers for Disease Control and Prevention to support research on the causes of gun violence and how to prevent it. He also sought $130 million to expand mental health services, including $50 million to train 5,000 new counselors, psychologists and others who could work with students and young adults. The budget includes $327 million for the Title X family planning program, an increase of $33 million, to expand services for low-income women. The White House requested $4.7 billion for the Food and Drug Administration, including new user fees to finance the agency's work on food safety and the regulation of medical devices. Mr. Obama said he supported "permanent, fiscally responsible"" changes in the way Medicare pays doctors. But he did not say exactly how he would alter the current formula, which would cut physician payment rates by about 25 percent in 2014. The administration said payments should be linked to performance, so that Medicare would increase payments to doctors who provide high-quality, efficient care, while reducing payments to those who provide low-quality care "at excessive cost."" The budget seeks $19 billion of savings in Medicaid over 10 years. The president would, for example, cut payments for medical equipment and reduce special Medicaid payments to hospitals that serve large numbers of low-income people. Robert Pear 2:13 P.M. Defense: Budget Closes Bases, Keeps Money for Drones The Defense Department's proposed $526.6 billion base budget trims money for the Army, which has carried the bulk of the combat operations over the past decade, while calling for $2.4 billion over five years to conduct another round of politically difficult base closings, which Defense Secretary Chuck Hagel said would deliver "significant savings" over the long term. The inventory of remotely piloted vehicles, commonly called as drones, will grow through 2017 and then level off, Pentagon officials said, and money is preserved for the new way of war as fought by Special Operations forces and in cyberspace. "This budget continues to balance the compelling needs of supporting troops at war in Afghanistan, implementing the president's defense strategic guidance, and sustaining the quality of the all-volunteer force - all while ensuring we maximize the use of every taxpayer dollar and address internal imbalances," Mr. Hagel said at a Wednesday briefing. "The costs of infrastructure and overhead, acquisitions, and personnel compensation must be addressed in order to put the Department of Defense's budget on a sustainable path - particularly given the pressures on our top-line budget," he added. The proposed budget does not incorporate potential additional cuts under the penalty of sequester, the across-the-board spending cuts that went into effect on March 1. But Mr. Hagel and Gen. Martin E. Dempsey, the chairman of the Joint Chiefs of Staff, said that dealing with the sequester already threatened military readiness. "We don't yet know the full impact or the cost of recovery from readiness shortfalls this fiscal year," General Dempsey said. It is more expensive to get ready than it is to stay ready. Recovery costs will compete with the costs of building our future force. Sequestration could require a further $41 billion in cuts by Oct. 1. One part of Pentagon spending not to be reduced pays for combat operations in Afghanistan. Personnel costs - salaries - were not cut, nor were programs to support wounded military personnel. And the nuclear triad of bombers, land-based missiles and submarines also was protected. The Army's budget proposal is four percent lower in constant dollars, while the Air Force's increased by three percent and the Navy's, which includes Marine Corps spending, was steady. Mr. Hagel said the Defense Department would save $34 billion over the next five years by changing Pentagon business practices and by reducing support costs. At least $8.2 billion would be saved by cancelling weapons purchases or by changing the schedule for their purchases. For example, revisions in how the Army's new Ground Combat Vehicle will be developed and bought will save over $2 billion. Thom Shanker 1:30 P.M. Education: Universal Preschool, More Money in Budget At the center of President Obama's education agenda, which was outlined in his budget proposal, is a program that would guarantee public preschool for all 4-year-olds from families with low and moderate incomes. In order to pay for the plan, the administration has proposed an increase in federal cigarette taxes from $1.01 to $1.95 per pack. That would cover the $66 billion cost of providing preschool over ten years and the $11 billion cost of home visiting programs for poor families. The budget also called for a total of $12.5 billion over the next two years to preserve teacher jobs and increase hiring as the economy recovers. Under the pre-K proposal, Arne Duncan, the secretary of education, told reporters on Wednesday, the federal government would initially support 90 percent of the cost of the programs for 4 year-olds, leaving 10 percent of the cost to states. Over time, the state contribution would rise to about 75 percent, with the federal government funding 25 percent. "We want to encourage states to have skin in the game," said Mr. Duncan. He added that funding the program with a cigarette tax could have the added benefit of reducing smoking, particularly among young people. Several other proposals for K-12 education included investments in hiring more science, math and technology teachers, help for struggling schools, encouraging schools to link with colleges and employers to create courses of study in high school, and a school safety program. While the budget proposed significant cuts for many other agencies, it proposes a 4.6 percent increase in discretionary funding for the Education Department over 2013 spending. Grover J. Whitehurst, a senior fellow at the Brookings Institution, noted that the Obama administration was continuing its education policy of using federal funds as incentives to drive its overhaul. Many of the programs require states to comply with administration priorities to get financing. Even the pre-K program, he said, was a partnership with states in which "it's a game in which not every state is going to play and which will require significant commitments by states to the administration's vision of what quality pre-K looks like." "This is a very activist budget," Mr. Whitehurst said. The administration intends to use the mechanism it has used successfully to impose its policy views widely on states and, in some cases, districts. Given these kinds of strings, Andrew J. Coulson, director of the center for educational freedom at the Cato Institute, a libertarian policy group, said federal funding would "tend to homogenize pre-K programs." As a result, he said, "we are going to lose the ability to figure out what works and why. The more they are caused to become uniform over time, the less variation and less opportunity there is to see how different policies work. Kris Perry, executive director of the First Five Years Fund, an advocacy group, said that the administration's program was "not a federal mandate but an initiative with great flexibility for states." Inasmuch as the federal funding is targeted at particular kinds of programs, she said, it would be for high quality pre-school programs. Mr. Duncan said that children could enter pre-K programs run by public schools, existing Head Start centers, or other community groups. "We are agnostic on who delivers" the education, he said. Motoko Rich 1:16 P.M. More for Manufacturing, But Will it Create Jobs? Once again, President Obama is making the case that manufacturing will be a major component of American middle-class job growth - and that the sector is worth plowing government money into. Mr. Obama calls manufacturing a "first priority" in a letter to Congress, noting that manufacturers have added more than 500,000 workers in the past three years after a decade of precipitous decline. "Companies large and small are increasingly deciding to bring jobs back to America," Mr. Obama writes, urging Congress to devote federal money to accelerate the trend. His budget requests financing for 15 manufacturing "hubs," manufacturing tax credits and incentives to draw foreign business to the United States. Despite the prominence that manufacturing gets in Mr. Obama's budget - the word "manufacturing" appears 88 times, whereas "Medicaid" appears 66 - his proposed figures are small given the scale of the American economy. The manufacturing "hubs" proposal asks for $1 billion. A proposal to strengthen communities with manufacturing bases would get $113 million. A Commerce program increase would get $25 million. The real money comes in restoring funds to federal research and development - the Obama budget devotes $143 billion to it - and in other tax credit and education programs. But there are real questions about just how big a driver of jobs growth manufacturing can be. It is true that more companies are bringing jobs back to the United States, in no small part because of real declines in American wages. The truth is that millions of American workers are less expensive for employers to hire than they were 10 years ago. Still, even with the recent job growth, there are about 2 million fewer manufacturing jobs now than there were right before the economy tipped into recession. There are about 7 million fewer manufacturing jobs than there were in the late 1970s, when employment in the sector peaked. That is because manufacturing simply requires fewer workers than it once did. Indeed, though the industry has shed jobs, it has not shrunken. Factories have become vastly more productive, as processes that were once done laboriously by hand are increasingly done by machine. There's an upside there: Much of the recent job growth has been not in low-wage, low-skill production-line gigs, but in higher-wage, higher-skill positions. But the downside is that manufacturing probably will not be a huge driver of job growth in the coming years, where housing and health care seem like more likely bets. Annie Lowrey 1:06 P.M. Some Sin Taxes Better Than Others Read more from David Leonhardt at Economix. 12:56 P.M. E.P.A.: Proposed Cuts to Water Treatment and Superfund The Obama White House has offered a pre-emptive reduction in the proposed budget for the Environmental Protection Agency, which always seems to be a favorite target of Republican budget-cutters on Capitol Hill. The administration's proposed budget for the fiscal year beginning Oct. 1 provides $8.2 billion for the E.P.A., a decrease of $296 million, or 3.5 percent, below current year spending. The cuts will be felt most deeply by state and local governments, whose federal financing for drinking water and wastewater treatment projects will fall by $472 million. The agency said smaller and underserved communities would be spared, although the broader programs are shrinking. The Clean Water and Drinking Water State Revolving Funds, will receive $1.9 billion, down from nearly $2.4 billion in the current year. The budget also trims $33 million from the Hazardous Substance Superfund program, which cleans up the most polluted industrial sites in the nation. The agency said that the cuts would chiefly affect new projects at the sites of older cleanup projects. The E.P.A. proposes to save an additional $54 million by eliminating what it calls "outdated, underperforming or duplicative" programs, part of a broader federal effort to streamline government. John M. Broder