New Obama budget plan leaves U.S. fiscal future fuzzy
This is my quick take on President Obama’s budget speech that went out to Reuters clients (more to come):
President Barack Obama’s budget do-over is certainly an upgrade. U.S. deficits a decade from now would be sharply lower than under his previous plan. But the approach is still full of accounting gimmicks, and ducks making necessary long-term fixes. That tactic may be good politics as the president heads into an election year, but it also shows a worrying lack of urgency.
The slight fiscal progress of Obama’s first attempt earlier this year mostly evaporated once the Congressional Budget Office re-ran the numbers. Debt as a share of the economy would have risen to 87 percent in 10 years versus 62 percent last year, according to the CBO. This updated version of his budget would aim to limit deficits to 2.5 percent of GDP in 2015 and 2 percent toward the end of the decade. That would more or less stabilize debt ratios at current levels and mimics the bottom-line numbers of the plan recently put forward by House Republican leader Paul Ryan.
But Obama sketches a starkly different path. While the GOP would torpedo the president’s healthcare legislation and cut taxes, the president counts even more heavily on his health reform’s as-yet unproven cost controls. He would also raise tax rates and limit deductions for the rich. In this way, Obama echoes the recommendations of his debt panel, which called for a mix of spending cuts and tax increases.
But there are dodges both big and small. Most federal budgets are calculated over 10 years, not 12 as the White House did this time. Choosing a longer term somewhat flatters Obama’s debt reduction objectives. Obama also offered no plan to substantially reduce America’s debt load. Many economists think this, at 40 percent of output, is plenty outside of recession or financial crisis. But it would be hard for Obama to hit that level without raising taxes on the middle class, which he’s promised not to do. The Ryan plan, by contrast, outlines a multi-decade glide path to solvency. Republicans see a debt crisis looming, while Democrats wager the United States still has some fiscal breathing room.
The political take is obvious. The president wants the public to perceive his plan as “balanced” next to the GOP’s “extreme” version. But hopefully, this second, more ambitious take will lead to active negotiations with the GOP and the bipartisan Gang of Six in the Senate. Voters and markets should demand no less.