Budget Proposal Avoids Making Tough Choices

Published Feb 21, 2011. By Paul M. Krawzak.

White House budget requests often debut with a splash, only to fade into the background relatively quickly as Congress asserts its spending prerogatives. President Obama’s fiscal 2012 blueprint, with its modest deficit reduction goals and spending plans, was swept away more quickly than usual last week, however.

That’s because lawmakers are already locked in an increasingly bitter fight over how to finance the government for the remainder of the current fiscal year. House Republicans are pushing to cut at least $61 billion from fiscal 2010 levels, and even more from Obama’s request from a year ago, while Senate Democrats are backing plans to maintain current funding levels.

In fact, the current Democratic position largely mirrors Obama’s spending request for the fiscal year that begins Oct. 1. The president’s fiscal 2012 budget would spend $3.73 trillion next year and trim more than $1 trillion from anticipated deficits over a decade, through a combination of tax increases and outlay reductions.

With partisan tensions running high — and no resolution in sight for the current year’s spending battle — there’s every reason to expect the two parties to remain at loggerheads when it comes time to make tax and spending decisions for fiscal 2012.

Many lawmakers, though, are also warily eyeing the nation’s fiscal health and the rising national debt. The moderate deficit reduction approach laid out by the administration, which notably doesn’t touch entitlements such as Medicare and Social Security, allows the president to tout his fiscal discipline but avoid angering traditional Democratic allies.

That suggests that while many of the particulars of Obama’s latest request may have faded away, the broad outlines of his latest budget proposal may stake out the Democratic spending strategy for the next two appropriations cycles.

The administration defended its spending blueprint as a down payment that would, within several years, at least temporarily stabilize the deficit and the national debt as a share of the overall economy.

Democrats greeted the plan with varying levels of support — some moderates preferring somewhat deeper cuts and liberals fearing the reductions go too far. Not surprisingly, many interest groups quickly urged Congress to reject reductions to programs they favor — in particular the high-profile proposal to cut almost in half a program to help low-income Americans pay their heating bills.

But the budget drew blistering criticism from Republicans who want to make much more sweeping reductions in spending both for the current year and next year.

Likewise, the plan didn’t impress many fiscal hawks who complained that at a time of record deficits and with a national debt approaching the size of the economy’s annual output, the administration offered no suggestions for curbing entitlement spending or actually reducing the debt.

In its defense, the White House says the budget would responsibly reduce spending and trim the annual deficit, while prudently investing in education, innovation and infrastructure to make Americans more competitive in a global economy.

“It puts us on a path towards having a sustainable federal budget where the deficit comes down to a level where we’re not adding to the debt by the middle of the decade,” says Obama’s budget director, Jacob J. Lew. “In short, it’s a program where we will live within our means and still invest in the future.”

Overall, the budget proposed to reduce actual outlays next year by 2.4 percent from the $3.8 trillion the president proposed for the current year. Compared with fiscal 2010, outlays would rise by $273 billion, or 7.9 percent.

The proposal calls for $1.12 trillion in discretionary budget authority, excluding the costs of military operations in Iraq and Afghanistan, a 2.1 percent increase over fiscal 2010. Such discretionary spending, which is directly controlled by Congress through appropriations, makes up less than a third of the budget.

Administration officials say the plan would reduce accumulated annual deficits by $1.1 trillion over 10 years, with two-thirds of the savings coming from spending cuts and one-third from tax increases. The spending reductions include a five-year freeze on domestic discretionary appropriations, which officials say would save an estimated $400 billion over a decade.

The plan would slice billions from grant and loan programs, including community block grants and programs that help state and local governments finance water infrastructure improvements. The administration also proposed to reduce health care spending by $62 billion to offset the cost of a two-year delay in reducing payments to physicians who treat Medicare patients.

While the budget would reduce spending in some categories, it would raise it in others, including $53 billion over six years to jump-start the development of a high-speed rail system.

The budget’s silence on the growth of entitlement programs such as Medicare, Medicaid and Social Security, which experts say will eventually overwhelm the government’s finances, gave members of both parties — but particularly Republicans — an opening for additional public criticism.

Obama largely ignored the recommendations of the bipartisan fiscal commission he appointed last year. The group put forth a plan to trim borrowing by $4 trillion over a decade through a combination of spending cuts, a tax overhaul and changes to entitlement programs. But many of those proposals, particularly such fundamental changes to Social Security as raising the retirement age, were deemed too controversial for this budget.

“While there are positive aspects to this budget, dealing with the nation’s unsustainable structural deficit is not one of them,” says Robert L. Bixby, executive director of the Concord Coalition. Bixby expressed disappointment that the plan incorporated few of the recommendations from the fiscal commission. “The president has not rejected these proposals, thus leaving them on the table for future consideration, but his budget does not move the ball forward on many of them.”

Trying Not to Repeat History

White House officials noted that President Ronald Reagan’s bid to make changes to Social Security in 1981 was set back when he released a proposal too early and before a bipartisan groundwork had been laid. Obama acknowledged in a news conference last week that rising health care costs “are huge problems,” and he said he is willing to work with Republicans and Democrats to find a solution. The president suggested that he intentionally avoided opening the discussion with his budget request because it might prove counterproductive.

“If you look at the history of how these deals get done, typically it’s not because there’s an Obama plan out there,” he said. “It’s because Democrats and Republicans are both committed to tackling this issue in a serious way.”

Hours after the budget was released, however, House GOP leaders announced that they would address the problem of entitlements in a budget resolution, to guide fiscal 2012 fiscal policy decisions, that they will propose in coming months. While the details were lacking, House Budget Chairman «Paul D. Ryan of Wisconsin says the resolution would include reductions to Medicare and Medicaid spending.

Ryan told Lew during a House Budget Committee hearing that “what’s so frustrating about this is, you know the drivers of our debt are entitlement programs and yet you’re doing nothing to address that.”

For their part, many Democrats stayed out of the fight for now, defending the budget plan even though they have problems with some of the specifics.

“It is a responsible place to start,” says Chris Van Hollen of Maryland, ranking Democrat on the House Budget Committee. “It prioritizes national investments that will help our economy continue to recover and keep America competitive, focusing on important investments in things like infrastructure, education and research.”

But the public sniping about who should lead on entitlements belied the fact that many Republicans have been wary of putting out their own plan before the president did his — and facing their own public backlash. And it illustrated that serious discussions on the budget situation — and beyond — are not currently to be found in the White House budget or the House Republican Conference.

The action, for now, is in the Senate. That’s where a small group of lawmakers has been working to turn the fiscal commission’s recommendations into some sort of long-term debt reduction package that spans entitlements, discretionary spending and an overhaul of the tax code. The core group includes Virginia Democrat Mark Warner and Georgia Republican Saxby Chambliss, as well as the four Senate members of the fiscal commission who actually voted for its recommendations — Democrats Kent Conrad of North Dakota, who is chairman of the Budget Committee, and Richard J. Durbin of Illinois, the majority whip; and Republicans Tom Coburn of Oklahoma and Michael D. Crapo of Idaho.

Second Thoughts

Conrad gave the White House proposal a qualified thumbs-up the day the budget was released. But he grew impatient a day later while questioning Lew during a Budget Committee hearing. Conrad asked Lew how the president planned to reduce the debt.

The budget projects that borrowing from the public — not counting debt held by government trust funds, such as those that finance Social Security — would increase by more than $8 trillion over the decade to almost $19 trillion in 2021, according to the White House projections. That would amount to about 77 percent of gross domestic product.

Total debt would rise to $16.7 trillion, or 105 percent of GDP, in fiscal 2012. By 2021, total debt would be $26.3 trillion, edging up to 106 percent of the economy’s output.

Lew called the budget plan just a first step, adding: “We have to figure out how to engage on this as different plans are put down and we see what the differences are and look toward working together toward the middle where we can agree.”

But Conrad wanted more. “In that answer, I don’t hear a plan for how we get to a serious discussion,” he said. “It cannot be the answer that we’re going to have a debt of over 100 percent of GDP throughout the next decade.”

The Senate group is still drafting legislative language and talking with other lawmakers, seeing who might buy into its plans. At what point these advocates for compromise might step into the fray with a detailed proposal — perhaps during a climactic debate over a government shutdown or a breach in the debt ceiling — remains unclear. Warner, a former Virginia governor who has cultivated ties in the business community, says that there is no firm timeline and that the effort is meant, in part, to be a signal to financial markets that the Senate is serious about reducing the debt.

Indeed, investors may help determine when lawmakers are forced to act. Critics noted that the Obama fiscal 2012 blueprint doesn’t propose to balance the budget over the next 10 years; rather, the annual deficit would never fall below $600 billion in any one year, and the debt would continue to mount.

With the Senate talks still far from fruition, some outside observers, such as the co- chairmen of the president’s fiscal panel, former Republican Sen. Alan K. Simpson of Wyoming and former White House Chief of Staff Erskine Bowles (who served under President Bill Clinton), are remaining measured.

“We were encouraged,” the two men wrote in an opinion article last week, that the budget “expressed the president’s interest in continuing the debate we began on tax reform and Social Security reform, while beginning a process that puts our nation back on sound financial footing.”