international analysis and commentary

Obama’s budget: going pragmatic


US President Barack Obama’s newly unveiled budget proposal continues along the lines he laid out in the State of the Union address: a more incremental approach to government. As he prepares for his 2012 re-election campaign, he clearly has his eye on independent voters.

Gone are the days of grand ambitions and far-reaching legislation – from the healthcare reform to the nearly $800 billion stimulus package – of the first half of his administration, when Democrats controlled both houses of Congress. Obama has been forced to embrace a pragmatic approach that reflects the new power dynamics in Washington, where the GOP-led House presents him with the need for compromise.

The President’s $3.7 trillion budget blueprint for fiscal year 2012 – which begins on October 1st – is an attempt at addressing America’s growing budget deficits and ballooning national debt, without undermining the country’s feeble economic recovery.

Obama’s proposal aims to progressively shave $1.1 trillion off the deficit over the course of the next decade, while making sure that those he identified as key sectors to “win the future” – education, energy and infrastructure – get the financing they need. “While it’s absolutely essential to live within our means,” the President said, “while we are absolutely committed to working with Democrats and Republicans to find further savings and to look at the whole range of budget issues, we can’t sacrifice our future in the process.”

Critics say that the White House plan is too timid and doesn’t go nearly far enough to even begin solving the issue of America’s indebtedness.

Under Obama’s plan, the Departments of Education, Energy and Veterans Affairs would see the largest budget increases. The Department of Defense, on the other hand, would have its funding cut by $78 billion over the next ten years, the figure Secretary of Defense Robert Gates had suggested, but far less than what many experts had indicated could be achieved without endangering national security.

The bipartisan Sustainable Defense Task Force, for example, headed by Representatives Barney Frank (D-Mass) and Ron Paul (R-Tex), advocated cutting $960 billion in defense spending over the next decade. According to military experts on the task force, these cuts “would not compromise the essential security of the United States.” The current US military budget is larger than those of the next 14 countries combined.

The President’s proposal also largely ignores the recommendations of the bipartisan debt reduction commission he had tasked, last year, with studying ways of tackling the fast-growing national debt. That commission reserved some of the most substantial cuts to popular programs such as Social Security, Medicare and Medicaid, which, combined, comprise over 40% of all federal spending. Erskine Bowles, who was the Democratic Chairman, said Monday that the President’s budget goes “nowhere near where they will have to go to resolve our fiscal nightmare.”

The problem with Obama’s blueprint is that, as budgets often do, it only skirts around the core causes behind rising federal spending, namely the mounting costs of entitlement programs – Medicaid, Medicare and Social Security – and the military, to focus almost exclusively on the 12.3% of the budget known as non-defense discretionary spending, which includes everything from housing subsidies to national parks. With Social Security, Medicaid and Medicare very popular among the electorate, and the Pentagon a sacred cow, nobody wants to take on these pillars of the federal budget, least of all the President, who has less than two years to go until he is up for re-election. Obama’s calculation is that by putting forth this more modest budget proposal now, he can defer the tough decisions to his second term, when he will be free of electoral concerns.

Obama’s attempt at striking a politically palatable balance between fiscal responsibility and investments also seems to mirror the apparently contradictory position of the American people. According to a recent poll by the Pew Research Center, 49% of Americans believe deficit reduction should be the government’s highest priority, while another 46% think that the government should first increase spending to boost the economy. Moreover, the poll shows an overall reluctance of people to identify specific areas of the budget that they think should be cut. In short, Americans would like to reign in the deficit, but they don’t want to pay for it.

For now, the savings projected by the White House would come from a mix of targeted cuts – to more than 200 federal domestic programs – and increased tax revenues – $1.6 trillion in the next ten years – to flow in from both households and businesses. Wealthier Americans would, starting next year, have a more limited array of deductions available to them. Additionally, by the end of 2012, the tax cuts first passed during the Bush era, and renewed during the lame duck session of Congress this past December, are set to expire. The President also asks that Congress eliminate tax breaks worth billions of dollars for the oil and gas industry.

Republicans were not impressed with the budget request that the President plans on sending to Congress, despite the fact that Obama took steps to move closer to the political center, even at the risk of antagonizing his liberal base. “It would be better doing nothing than it would be to pass this budget,” said Rep. Paul Ryan (R-Wis), the chairman of the House Budget Committee.

House Republicans won’t unveil their own budget proposal for fiscal year 2012 until later in the spring. But this week, under pressure from the freshman class of Tea Party-supported, hardcore fiscal conservatives elected in the 2010 midterm elections, the GOP House leadership will soon bring a vote to the floor on a bill that would produce $61 billion in cuts over the rest of the current fiscal year. Put side by side, President Obama’s budget for 2012 and the Republicans’ cuts for 2011 illustrate the stark contrast between opposing views on the role of government that dominate Congress today.

In any case, Democrats did not appear enthusiastic about the budget either. “We need a much more robust package of deficit and debt reduction over the medium and long term,” said Sen. Kent Conrad (D-ND), chairman of the Senate Budget Committee.

The White House predicts that this year’s deficit will peak at $1.6 trillion, the highest level since World War II. Thanks to the prescriptions contained in the 2012 budget proposal, however, it will then progressively decrease, to $1.1 trillion in 2012, and then to an average of approximately $600 billion a year through 2018. Clearly, this initial blueprint does not hope to balance the budget at any point and therefore won’t put a dent in the growing federal debt. Overall, under Obama’s current plan the US government would have to borrow $7.2 trillion more over the next ten years.

Maya MacGuineas, President of the Committee for a Responsible Federal Budget, was critical of the President’s effort. “This budget fails to meet the administration’s own fiscal target,” MacGuineas said, “it fails to tackle the largest problem areas of the budget, and it fails to bring the debt down to an acceptable level.”

For Paul Krugman, as for many other liberals, the problem is not Obama’s loose commitment to fiscal restraint, but his final abdication of a government-led agenda of job creation. “In effect, although without saying so explicitly,” Krugman, a Nobel Prize winning economist, wrote in the New York Times, “the Obama administration has accepted the Republican claim that stimulus failed, and should never be tried again.”

Robert Greenstein, Director of Center for Budget and Policy Priorities, was more upbeat. “Given current fiscal and political circumstances,” he wrote, “the budget strikes a tough but generally sound overall balance among the need for fiscal restraint, the need to avoid large immediate cuts while the economy is still weak, the need to protect effective high-priority programs (especially those that represent effective long-term investments), and the need to avoid inflicting serious harm on the poorest and most vulnerable members of our society.”

In a press conference Tuesday, President Obama acknowledged some of the criticisms but defended his proposal as a starting point for a larger conversation to be had with the GOP, and that should include entitlement programs and military spending as well. “I recognize that there are going to be plenty of arguments in the months to come, and everybody is going to have to give a little bit,” Obama said. “But when it comes to difficult choices about our budget and our priorities, we have found common ground before.”

At the end of the day, it is important to keep in mind that the blueprint Obama unveiled on Monday is nowhere close to the final version of the budget that will eventually pass. It is, rather, merely a first attempt on the part of the White House at framing the budget debate that will take place over the next several months. The President kicked off the discussion, but clearly chose to stay away from controversy and let Democrats in the Senate and Republicans in the House fight it out over the more contentious proposals that are sure to emerge soon.