Strategic Briefing | 2.15.2011 | The President’s Budget Proposal

The White House released President Obama’s 2012 budget yesterday, a document that’s striking for its failure to address the main engine of the projected deficits: entitlement programs. The Republicans’ budget proposal isn’t published yet and so official comparisons aren’t available. Meantime, the President’s budget reportedly cuts the record deficit by $1.1 trillion over the next decade. Here are additional details/opinions on the numbers and the implications from various sources:
Budget Battle Lines Drawn
Wall Street Journal/Feb 15
If Congress accepted all the president’s proposals—which is unlikely—and the economy recovered, the federal deficit would fall from 10.9% of GDP this year to 3%, Mr. Obama’s goal, in 2017. The plan would place the federal government’s deficit next year at $1.1 trillion, down from $1.6 trillion this year, and the White House said it would reduce the government’s accumulated red ink over the next decade by a similar $1.1 trillion. Just over a third of that deficit reduction would come from Mr. Obama’s previously announced freeze in domestic discretionary spending. The balance would come from tax increases, largely on businesses and upper-income taxpayers; assorted fee hikes and spending reductions; and a cut in government borrowing costs, which will continue to rise dramatically but not quite as fast if the deficit is reduced.

Obama’s Budget Focuses on Path to Rein in Deficit
New York Times/Feb 15
Neither Mr. Obama nor Congressional Republicans are tackling the large entitlement benefit programs. As for tax revenues, Republicans want only to cut taxes further while Mr. Obama has promised not to raise taxes for the 98 percent of American households with income under $250,000 a year… Mr. Obama and Republicans are left, then, competing to cut just 12 percent of the federal budget, the so-called nonsecurity discretionary spending that Congress appropriates each year.
The President Chickens Out on Spending Cuts
National Review/Feb 14
The budget has 2012 spending falling a bit from record 2011 levels, but that’s because “stimulus” spending is winding down, war costs are supposed to fall, and unemployment benefits should decline as the economy improves.
Obama Budget Proposal Kicks Off Battle Over Spending Cuts, Tax Increases
Money Morning/Feb 15
About two-thirds of President Obama’s proposed deficit reduction is from spending cuts and the remaining one-third from tax hikes. The spending cuts affect a wide range of programs including spending for infrastructure, higher education, defense and farming subsidies. What the proposal does not address is any significant change in such deficit-inducing programs as Social Security and Medicare/Medicaid. It also falls short of meeting the suggested changes from President Obama’s fiscal commission. President Obama’s deficit commission said in December that about $3.9 trillion in deficit reduction would be needed through 2020 to make significant changes in federal debt.
Budget 2012: Obama vs. House Republicans
Politico/Feb 15
Monday’s release of President Barack Obama’s new 2012 budget puts in sharp focus the week-long brawl that lies ahead in the House, as newly empowered Republicans seek to deal a crippling blow to the president’s agenda, at home and abroad. Obama appears to have hurt his cause by not being more bold in approaching the debt problem facing the nation. At the same time, what began for Republicans as a budget-cutting exercise has grown into more of raw power play. Just hours after the White House documents arrived, the House Rules Committee was scheduled to meet late Monday in anticipation of floor debate Tuesday on the GOP’s own government-wide spending plan for the last seven months of this fiscal year. Never before has Washington seen two such complete budgets aligned at once — like two planets vying to eclipse one another.
The President’s budget: whistling past the graveyard 14
The fiscal problems of current law, which predate but were exacerbated by President Obama’s expansions of government in his first two years, should be driving the policy agenda. In this budget they are an afterthought. The President’s budget ignores the problem of entitlement spending under current law, and proposes Medicare and Medicaid savings only sufficient to offset a portion of his proposed spending increases. Team Obama’s topline message includes dangerous and misleading reassurances that Social Security is not an immediate problem. Demographics, unsustainable benefit promises, and health care cost growth are the problems to be solved. The President instead wants to build more trains and make sure rural areas have 4G smartphone coverage.
Obama’s Sideshow Budget Will Yield Little Real Fiscal Progress
Tax Policy Center/Feb 14
In today’s budget proposal, Obama would increase taxes to 17.9 of GDP in 2013. This is just about what revenues averaged under Reagan. And it would be a step in the right direction. Except the chances of it happening hover around zero. Obama would get there mostly with a collection of ideas that he failed to sell to even a Democrat Congress. They include: allowing the 2001 and 2003 tax cuts to expire at the end of 2012, capping the value of itemized deductions at 28 percent, taxing the compensation of hedge fund managers and other financiers at ordinary income instead of capital gains rates, and increasing taxes on multinationals.
President Obama’s FY 2012 Budget: An Analysis of the Budget Cuts
Economic Policy Institute/Feb 14
President Obama is proposing a number of budget cuts, many of which he and other administration spokespeople have been highlighting in an effort to show they take deficit reduction seriously. Outlined in the section of the budget titled “Terminations, Reductions, and Savings,” the administration is proposing 211 such actions that will save more than $33 billion in 2012 alone, essentially doubling the amount of cuts proposed in Obama’s FY 2010 budget request, and about $10 billion more in reductions than he proposed last year. And these proposed cuts should have a good chance of actually occurring: the Obama administration has, in the past, been more successful at getting proposed terminations and reductions actually passed compared with other administrations. Obama saw 60% percent of his proposed discretionary cuts become law for 2010, while other recent administrations have seen only between 15% and 20% of their proposed discretionary cuts approved by Congress.
Deconstructing the Spending Side of Obama’s Proposed FY2012 Budget
Cato Institute/Feb 14
President Obama’s proposed budget for fiscal year 2012 has been released and there is lots of rhetoric in Washington about “budget cuts.” At first glance, this seems warranted. According to the just-released fiscal blueprint, the federal government is spending about $3.8 trillion this year and the President is proposing to spending a bit more than $3.7 trillion next year. In other words, the White House is going beyond a budget freeze and is actually proposing to spend $90 billion less next year than is being spent this year. That certainly seems consistent with my proposal to solve America’s fiscal problems by restraining the growth of spending. But you won’t find a smile on my face. This new budget may be better than Obama’s first two fiscal blueprints, but that’s damning with faint praise. The absence of big initiatives such as the so-called stimulus scheme or a government-run healthcare plan simply means that there’s no major new proposal to accelerate America’s fiscal decline. But neither is there any plan to undo the damage of the past 10 years, which resulted in a doubling in the burden of government spending during a period when inflation was less than 30 percent.