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Obama Budget Cuts Deficit By $1.1 Trillion Over Ten Years

It’s important to recognize that there are two budget debates happening simultaneously right now. The first covers the rest of the current fiscal year, and that’s dealt with in the continuing resolution to which Republicans have proposed $58-$60 billion in spending cuts. This has elicited howls from Democrats who find the cuts cruel and debilitating to the nation’s fragile economy.

But there’s also the Fiscal Year 2012 budget to contend with, and the Obama Administration will set the baseline for that with the release of their official proposal tomorrow. And it will become nearly impossible for Democrats to decry the $60 billion in cuts in FY2011 when the Administration will detail $1.1 trillion in deficit reduction over the next decade starting in FY2012.

President Obama, who is proposing his third annual budget on Monday, will say that it can reduce projected deficits by $1.1 trillion over the next decade, enough to stabilize the nation’s fiscal health and buy time to address its longer-term problems, according to a senior administration official.

Two-thirds of the reductions that Mr. Obama will claim are from cuts in spending, including in many domestic programs that he supports. Among the reductions for just the next fiscal year, 2012, which starts Oct. 1, are more than $1 billion from airport grants and nearly $1 billion from grants to states for water treatment plants and similar projects. Public health and forestry programs would also be cut.

Home energy assistance to low-income families and community service block grants would be cut in half, and an initiative to restore the Great Lakes’ environmental health would be reduced by one-quarter.

Emphasis mine. If there’s any difference between what Republicans are proposing and the Administration is proposing, it’s that the Administration at least tries to raise a little revenue or close tax loopholes. But on the spending side, the level of cuts are virtually identical. And both sides are mostly playing in the shallow pool of discretionary spending. The White House at least includes some defense-related cuts and realizes savings from the full withdrawal from Iraq, but those mainly slow growth in military programs rather than make any deep cuts to them. In the main, the budget savings come from this narrow slice of about 10-15% of overall government expenditures. And the revenue enhancements are almost invisible compared to the massive loss of revenue that comes from extending the Bush tax cuts.

I don’t know how you can argue, as the Administration is about to, that any cuts deeper than this will threaten economic recovery. In fact, these cuts alone, materially similar to what Republicans are suggesting, will do the trick. Nobody alive thinks the jobs crisis will dissipate by October, when the FY2012 budget kicks in. Yet the White House budget proposal starts the cutting then.

Presidential budgets are typically discarded the moment they arrive in Congress. Here’s what’s different: with Republicans angling for major reductions, the President’s proposal represents the “left flank” in the debate, at least as the starting point. And here’s what we have in that flank:

(OMB Director Jack Lew) said the budget would mix sensible spending with necessary cuts. For example, it would enable nine million people to take advantage of Pell grants, Mr. Lew said, but to pay for that, it would eliminate Pell grants during the summer, limiting them to the academic year. Similarly, the budget will help pay for 100,000 new teachers, especially in the math and sciences. But it would also begin applying interest to graduate students’ loans while those students are still in school.

“The challenge we have is to live within our means but also invest in the future,” Mr. Lew said. “We’re doing what every family does when it sits around the table.”

Harry Reid has repeatedly castigated the GOP budget plan for reducing financial aid for college; in effect the Obama plan doesn’t do anything that different. And it’s not just about saddling students with additional debt they’ll carry throughout their lives, it’s the false comparison between government and family budgets that should gall here. And that’s the starting point for this battle.

Even the two promising things in this budget are used to basically offset other actions. The Administration pays for adjusting the alternative minimum tax through 2014 by capping deductions for the highest-paid individuals. Capping deductions, including mortgage interest and charitable deductions, makes sense and would raise lots of revenue. The budget also pays for a two-year “doc fix,” keeping the sustainable growth rate for Medicare reimbursement at the current level, by “squeezing hospital payments through Medicare and Medicaid and using more generic drugs in federal health programs.” Again, using more generics makes sense. But these are half-steps at best, and they’re used more as offsets than anything else.

A couple more things here. The Obama budget again holds to the idea that we should extend the Bush tax cuts on all incomes up to $250,000, while letting the tax cuts over that expire. You could disband every single fiscal commission and shelve every “hard choices” budget proposal simply by bringing tax policy back to where it was under the Clinton Administration. The revenue gains from that – $4 trillion over a decade – dwarf the Obama budget trims and equal what the cat food commission’s co-chairs recommended. It’s insulting to claim that the country cannot afford heating oil assistance for low-income individuals or environmental restoration or community development programs when the country’s same leaders just handed out trillions in tax cuts not but two months ago.

Finally, we don’t have to guess about the impact of austerity budgets at this point in time. They are devastating. Every country that has tried them in Europe has wound up hurting their economy; this is most observable in Britain, where their GDP went negative in the last quarter after a series of budget cuts. A lot of our budget is allocated poorly and inefficiently, and undoing that tangle will be a long-term project. Kicking it off immediately by taking the axe to programs that are vital to people and create hundreds of thousands of jobs makes no sense whatsoever.

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David Dayen

David Dayen