James Pethokoukis

Politics and policy from inside Washington

No ‘substantial effect’ on long-term budget woes

Feb 14, 2011 19:50 UTC

Hey, it’s not just me pointing out the many flaws in the Obama budget. This from the Committee for a Responsible Federal Budget:

Unfortunately, the Administration does not achieve either of the fiscal goals it established for
its own Fiscal Commission. For one, the budget does  not reach primary balance in 2015.
Instead, at just over $600 billion, the deficit remains more than $100 billion away from
primary balance. Secondly, the budget does not make meaningful improvements to the longterm fiscal outlook. Few of the policies in the budget would have a substantial effect on the
trajectory of spending or revenues outside of the ten-year window.
As noted above, the level at which the budget stabilizes the debt – 77 percent of GDP – is
way too high. It is well above historical levels (about 40 percent of GDP) and the traditional
target of 60 percent of GDP – and could threaten the government’s ability to borrow in case
of a real emergency down the road. It also begins to creep up again at the end of the ten-year
window, and likely will grow substantially beyond this window.
Unfortunately, the budget doesn’t make any meaningful improvements to the largest
problem areas of the budget. The budget does keep defense costs from increasing, trim
Medicare and Medicaid spending a bit, and limit tax expenditures for high earners. But these
measures only scratch the surface when the Administration should be calling for real
defense cuts, serious changes in federal health spending, and fundamental tax reform – as
well as Social Security reform designed to achieve 75-year sustainable solvency.

Unfortunately, the Administration does not achieve either of the fiscal goals it established for  its own Fiscal Commission. For one, the budget does  not reach primary balance in 2015.  Instead, at just over $600 billion, the deficit remains more than $100 billion away from  primary balance. Secondly, the budget does not make meaningful improvements to the longterm fiscal outlook. Few of the policies in the budget would have a substantial effect on the  trajectory of spending or revenues outside of the ten-year window.

As noted above, the level at which the budget stabilizes the debt – 77 percent of GDP – is  way too high. It is well above historical levels (about 40 percent of GDP) and the traditional  target of 60 percent of GDP – and could threaten the government’s ability to borrow in case  of a real emergency down the road. It also begins to creep up again at the end of the ten-year  window, and likely will grow substantially beyond this window.

Unfortunately, the budget doesn’t make any meaningful improvements to the largest  problem areas of the budget. The budget does keep defense costs from increasing, trim  Medicare and Medicaid spending a bit, and limit tax expenditures for high earners. But these  measures only scratch the surface when the Administration should be calling for real  defense cuts, serious changes in federal health spending, and fundamental tax reform – as  well as Social Security reform designed to achieve 75-year sustainable solvency.

COMMENT

perhaps it would help us all understand if someone would put in plain english the effects of having a high and prolonged defecit. I’m conservative, but so far, I don’t see how the defecit has done much to the average joe in america. Certainly hasn’t hurt the stock market lately.

Posted by zotdoc | Report as abusive

Obama budget reveals Obama’s core

Feb 14, 2011 18:54 UTC

Here’s what President Barack Obama’s new budget tells me: He hasn’t shifted to the center, he’s shifted into 2012 campaign mode, one that let’s him be who is really is.

The budget is a political document that bets voters really don’t care much about deficits. (Over the next decade from 2012-2021, it would add another $8 trillion dollars to the national debt and take the national debt as a share of the overall economy to 77 percent from 62 percent in 2010). As such, Obama will portray himself as the jobs-first, going-for-growth candidate who does a bit of fiscal gardening on the side — just a few prudent budgetary snips here and there.

And on the other side (at least as painted by Team Obama): the fiscally austere Ryan-Rand Republicans who would savage Social Security and Medicare and recklessly slash critical investments necessary to win the future. No wonder his budget calls for cutting expected deficits over the next decade by just $1.1 trillion vs. the $3.9 trillion (including $556 billion in entitlement cuts) advocated by his own debt panel. To support his commission would mean going off message and losing a valuable campaign issue.

Any slight chance that Obama might chart a bold path on debt reduction probably died when the UK recently reported an unexpected economic decline, a drop some economists incorrectly blame on Prime Minister David Cameron’s tough-love budget. No way is Obama going to risk a renewed economic slowdown and his potential reelection. As it is, his budget forecasts average 2012 unemployment of 8.6 percent. That means Obama expects to try and win a second term in the most hostile employment climate since the Great Depression.

Oh, and tax cuts? Not there. This budget adds little to Obama’s vague State of the Union talk of cutting U.S. corporate tax rates, soon to be the highest among advanced economies. Obama only calls only for “beginning the process of corporate tax reform. Overall, he wants to raise a variety of taxes, including $700 billion in income and capital gains tax rates on wealthier Americans.

Of course, that merely circles us back to the driving force (besides ambition) behind the Obama presidency: to redistribute wealth after decades of growing income inequality and to finish weaving the social safety by creating universal healthcare. He certainly didn’t run to become an Eisenhower Republican — as Bill Clinton once referred to his administration — and comfort jittery bond markets. But markets will eventually have their say — and maybe sooner rather than later.

COMMENT

But the GOP is NEVER in campaign mode, right? This article reveals James Pethokoukis’ core more than anything else.
So let’s talk honestly about the budget. Republicans don’t care if their agenda puts hundreds of thousands of Americans out of work, by design. THey don’tcare if their cuts undermine education, law enforcement, infrastructure, and public safety. They don’t care if their budget plan undermines economic growth, competitiveness, and innovation.
But if the Obama administration wants to cut wasteful spending on military projects the Pentagon doesn’t want, all of a sudden, the GOP not only cares, but they are demanding unnecessary spending that looks, feels, and smells very much like earmarks and “make work projects” that benefit certain Republican districts.
And you have the gall to accuse Obama of being in campaign mode?

Posted by GetpIaning | Report as abusive

Obama budget skips pain for now, chooses growth

Feb 14, 2011 18:42 UTC

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By James Pethokoukis
U.S. President Barack Obama’s new budget is no Valentine’s Day love note to deficit hawks. The blueprint ignores the cost-cutting ideas of the president’s own deficit panel and will add $2.7 trillion in new debt over the next two years. It’s an economic and political bet that invites a fight with congressional Republicans.

The budget would cut cumulative projected deficits by $1.1 trillion over the next decade. That’s a bit more than 10 percent of the debt likely to be added during that span, according to Congressional Budget Office forecasts. Some two-thirds of the reduction would be achieved by spending cuts — including a five-year freeze on some domestic spending — and one-third by higher taxes.

Those proportions may not be so far away from what Obama’s deficit commission proposed in December. But the scale of debt reduction falls way short. The budget also skips the panel’s recommendations for reforming Social Security and Medicare spending, the biggest drivers of long-term deficits.

To be fair, most Republicans haven’t shown any serious inclination to address those giant problems, either. But the new budget does suggest the White House sees no mileage — economic or political — in austerity for now. After all, the U.S. economy is still generating relatively few new jobs and interest rates remain low, making government borrowing cheap and suggesting bond investors aren’t yet worried about inflation.

Obama’s team might also be keeping an eye on the UK, where big budget cuts are being blamed for a decline in GDP in the fourth quarter of 2010. The economics aside, the president next year is faced with trying to win a second term with unemployment still uncomfortably high. The new budget allows Obama to paint himself as a prudent budget trimmer and hawkish Republicans as reckless hatchet men.

But the GOP’s Tea Party faction has already forced party leaders to advocate deeper cuts in still-evolving 2011 spending. If that pattern continues and Republicans push harder for austerity, the new budget certainly hints that they will face opposition, not cooperation, from the White House. It will take more than flowers and candy to bring the two sides closer.

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