Obama budget skips pain for now, chooses growth
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.