Obama Budget Greeted
By Rough Hill Reception
President Obama can bank on plenty of budget migraines this year as he calls on a sharply divided Congress to effectively freeze domestic spending while unemployment remains in double digits and states and businesses struggle to regain their footing.
Obama’s challenge is twofold: He must create jobs now while also beginning to cut the deficit, expected to hit a record $1.6 trillion this year. A sharply divided Congress with lawmakers quickly criticizing different parts of his budget plan ensures a stormy season writing next year’s budget in the months leading up to the midterm elections.
Obama’s $3.8 trillion spending plan for fiscal 2011 anticipates a nearly $1.3 trillion deficit, or 8.3% of GDP, in fiscal 2011. Under White House economic assumptions and other calculus, that level of deficit would gradually fall to $752 billion, or 3.9% of GDP, in 2015.
But as an additional step, Obama wants a bipartisan deficit reduction commission to propose, and for Congress to vote on, a yet undefined plan to bring the deficit down further, to 3% of GDP or less in 2015. Three percent of GDP is what many economists consider a sustainable deficit and would be roughly equal to the interest payments on the national debt, which would grow by about $8.5 trillion over the 10 years covered by the Obama budget, roughly doubling today’s national debt.
The controversial commission plan is a way to punt very hard and possibly monumental decisions until after the midterm election. The idea is to create an 18-member panel to propose steps to reduce the near-term and longer-term budget deficit through spending cuts and possibly changes in tax policy and entitlements, namely Social Security and Medicare. Congressional leaders would pledge to vote on the proposal in December in a lame duck session after the election.
But it’s not clear Republicans will support such a commission or even participate, and many Democrats are already hesitant about allowing a yet unnamed commission to have so much power in determining the future course of the national budget. The problem is that many experts believe Congress will never summon the political will to make the tough choices on its own.
The commission plan will be hotly debated for months. Several Republicans are skeptical, because they recognize that one piece of any grand plan is likely to be higher taxes on business and individuals. (The GOP also anticipates gaining House and Senate seats in the midterm election and would probably strenuously object to voting on any such plan before a new Congress convenes.)
Also controversial is Obama’s proposed “freeze” on domestic spending because it excludes defense, veterans affairs and national security, which together amount to more than half of the discretionary budget that Congress has a say in. Also included in the budget are $180 billion for continued military operations in Iraq and Afghanistan this year and next. Liberals in Congress want to tap some of that war money for domestic spending.
Businesses that are burdened by much Washington regulation will have something to cheer, by default, about the proposed freeze. If approved, according to Obama’s prescription, it will mean regulatory agencies such as the Labor Department’s Occupational Health and Safety Administration, the Environmental Protection Agency and the Consumer Product Safety Commission would receive very slight increases, no increases or actual cuts in the next several years. That’s a big switch from this year, when they received big boosts and used them to play more aggressive roles.
Congress will probably back some form of a jobs package that Obama included in his budget, including tax breaks for small businesses and more for infrastructure spending that is popular with members in both parties and sought by governors. Some work will be required on his revived plan to provide small business tax credits for companies hiring new workers or raising wages. Congress rejected a similar proposal last year. His jobs package is $100 billion, about one-third less in cost than what House Democrats have already passed. Even so, several Republicans will object to it, saying it would amount to another “stimulus” of questionable impact.
Some defense hawks will oppose Obama’s plans to cancel production of additional C-17 military cargo planes built by Boeing, for halting funding for a second, or alternate, engine for the problem-plagued Joint Strike Fighter program and for cutting Navy shipbuilding accounts. Even with some program cuts, the defense budget would still rise to nearly $710 billion from $660 billion in the current year, a 7.6% increase.
Republicans will rail against the White House plan to let the Bush tax cuts benefiting families earning over $250,000 expire in 2011, but that budget proposal comes as no surprise. Obama has long pledged to let that tax cut expire as scheduled and to extend the related tax cuts for the middle class.
Backers of NASA space programs will object to Obama halting work on a manned mission to the moon by 2020, a project that would ultimately cost $20 billion or more over a decade. Obama wants more funding to go to unmanned missions and robotics work at the agency and to replacement of the aging space shuttles.