President Obama submitted a 244-page budget proposal on Wednesday for next year—a tome that met with instant criticism before anyone could read it.
Obama largely delivered on what he promised during his re-election campaign last year. He raises taxes on millionaires, insulates Medicare from a dramatic overhaul, and keeps the national debt at a little more than 70 percent share of the economy.
The Fiscal Times dug through the summary tables, listened to lawmakers and lobbyists vent, and found five critical—but easily overlooked—takeaways:
- Obama’s Deficit Spending Means No Grand Bargain – The Obama administration does not share the GOP goal of a balanced budget—and that’s why House Budget Committee Chairman Paul Ryan said a “grand bargain” and chances for a balance budget are nil.
After ten years, the White House proposal lowers the trajectory of a deficit that would approach $1 trillion in 2023, according to the Congressional Budget Office. Instead, the government would rack up a $439 billion deficit in 2023, with the all-important debt-to-Gross Domestic Product ratio being 73 percent.
But this is a far cry from what House Republicans tried to engineer with their plan—a surplus by 2023, and a debt-to-GDP ratio of 54.8 percent.
Obama’s continued deficits take the notion of a grand bargain off the table, Wisconsin Congressman Ryan told reporters on Wednesday. This means that any negotiations will be geared toward small steps for reducing the deficit, but not elimination.
“A grand bargain implies that you can fix the problem. We’re so far from that with what the Senate has passed and the president has put out,” said Ryan, adding that Republicans “should rationalize our expectations to putting a down payment on the problem.”
- The cost of Servicing the National Debt Will Eclipse Defense Spending – A curious trend starts in 2020 under the Obama budget. The Pentagon would receive $601 billion to protect the country, while the sum needed to pay interest on the national debt would be $609 billion. That’s $8 billion more in interest payments than the price for funding the world’s military powerhouse.
By 2023, the government would devote $763 billion to debt service and $631 billion--$132 billion less—for the Defense Department.
It’s not just the military that will be less important than the government’s financing charges. Discretionary spending on government departments and agencies, personnel and programs would be about $647 billion in 2023 under Obama’s budget plan, $116 billion less than the interest payments.
- Obama’s “North Star” of Protecting the Middle Class Collapses Like a Supernova – The president said when introducing his budget that creating more jobs for the middle class “must be the North Star that guides our efforts.” But in a budget that aspires to be fiscally responsive while juicing up a slumping economy, the rhetoric far exceeds the commitment.
According to White House budget documents, spending on surface transportation projects, job creation initiatives, and early childhood education investments -- the heart of his new economic initiatives -- would total only $105 billion over the next four years.
That is slightly less than the annual cost of the payroll tax holiday that expired last year. It is little more than one seventh of the $825 billion in federal stimulus spending over a four-year period beginning in 2009 – at the depths of the Great Recession.
Even assuming that the Obama initiatives would amount to as much as $243 billion when projected over the next ten years--that is still the proverbial drop in the bucket compared with the overall economy and the perceived need.
The AFL-CIO acknowledged these projects, but focused its “moral” outrage on Obama’s plans to cut Medicare and Social Security. Similarly, the U.S. Chamber of Commerce blasted the budget as a misguided effort to boost the economy.
“Unfortunately, the president’s budget expands the government at the expense of American workers, families, and businesses,” said Martin Regalia, the chamber’s chief economist.
- Chained CPI More Trouble than It’s Worth - It’s an old saw of politics that entitlement programs are the third rail of politics – touch them and you die. And President Obama set off sparks yesterday with his budget proposal to reduce the future cost-of-living increases for Social Security and other benefit programs.
As expected, Obama was seeking a compromise with Republicans by replacing the current measure of inflation for Social Security with “chained CPI,” which assumes that consumers respond to higher prices by buying cheaper substitutes. The metric is guided by the idea that a family eats more hamburgers when steak becomes too expensive.
His budget tables indicate that moving to the chained CPI would save $130 billion over the next 10 years. This is 0.27 percent of all federal spending during the same period. It is less than the $216 billion in reduced spending on Social Security, Medicare and other benefits projected by the Congressional Budget Office.
The negative reaction from Democrats, labor leaders and seniors groups on the left was intense, while the positive response from conservatives on the right was so underwhelming.
“I would feel awful to think that people would spend 40 or even 50 years working and contributing into the system and then when it’s their turn, we say to them, ‘[expletive] out of luck,’” said Rep. Alan Grayson, D-Fla., an outspoken liberal who is circulating his objection in a letter signed by 35 of his colleagues.
As for the Republican response, House Budget Committee Ryan considers the offer to be small potatoes: “Is chained CPI a symbolic step? Yes. Is it entitlement reform? No.”
- Another Nasty Hurricane Spoils The Budget Projections – Climate change has contributed to more natural disasters striking the United States, imposing new costs on the government such as the $50.5 billion in emergency aid approved this year to cover the cost of damage caused by Super Storm Sandy.
“Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires and crippling drought and more powerful storms,” Obama said in his second inaugural address.
So the new White House budget proposal includes $88 billion—or an average of $8.8 billion a year—in “adjustments for disaster costs.” A footnote explains, “These amounts represent a placeholder for major disasters requiring Federal assistance for relief and reconstruction.”
But that $88 billion would not cover the damage inflicted by Sandy and Hurricanes Katrina and Rita, events that occurred within seven years of each other and stuck taxpayers with a $170 billion in emergency expenses.
To be fair, these potential costs were not factored into the House Republican budget tables at all.