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THE PROGRESSIVE REVIEW - February 17, 2011
Obama Budget Pivots From Stimulus to Deficit Cuts
by: Jackie Calmes
The New York Times News Service
Washington ? President Obama, pivoting at midterm from
costly economic stimulus measures to deficit reduction,
on Monday released a fiscal year 2012 budget that projects
an annual deficit of more than $1 trillion before govern-
ment shortfalls decline to "sustainable" levels for the
rest of the decade.
Still, annual deficits through fiscal year 2021 will add
a combined $7.2 trillion to the federal debt, Mr. Obama's
budget shows ? after allowing for $1.1 trillion in deficit-
reducing spending cuts and tax increases that the president
proposes over the 10-year period. As he acknowledges, after
2021, an aging population and rising medical costs will
drive deficits again to unsustainable heights.
The budget reflects Mr. Obama's cut-and-invest agenda: It
creates winners and big losers as he proposes to slash
spending in some domestic programs to both reduce deficits
and make room for increases in education, infrastructure,
clean energy, innovation and research to promote long-term
economic growth and global competitiveness.
The president is unveiling his budget to emphasize one of
the winners: He will do so on Monday morning during a visit
to a middle school and technology center in Baltimore.
Among the losers are programs that Mr. Obama has supported,
even expanded, in the past: Popular programs for home-
heating aid to poor families and for community services
block grants would be cut in half, and a multi-state Great
Lakes cleanup project would lose a quarter of its money
compared to 2010.
Pell grants for needy college students would be eliminated
for summer classes, and graduate students would start
accruing interest immediately on federal loans, though
they would not have to pay until after they graduate; both
changes are intended to help save $100 billion over 10
years to offset the costs of maintaining Pell grants for
9 million students, according to administration officials.
Officials contrast the administration's budgetary approach
with that of House Republicans, who are voting this week
to slash the current year's spending by much larger
amounts, sparing few programs from cuts and increasing
spending on none.
"The debate in Washington is not whether to cut or to
spend," said a senior administration official on Sunday,
speaking on condition of anonymity to brief reporters on
the budget in advance of Mr. Obama's Monday announcement
of the spending plan. "We both agree we should cut. The
question is how we cut and what we cut."
For the administration's part, the official said, "It
requires cutting programs that in a different environment
we would not want to cut."
For the current fiscal year 2011, which ends Sept. 30, the
Obama budget projects a deficit of more than $1.6 trillion,
a level equal to nearly 11 percent of the gross domestic
product, making it the largest shortfall since the end of
World War II. That projection has swelled recently mostly
due to the big tax cut deal that Mr. Obama and Congress-
ional Republican leaders agreed to in December to spur the
still-fragile economic recovery. It included a payroll tax
cut this year for all Americans.
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The deficit for fiscal year 2012 is projected to be more
than $500 billion less, $1.1 trillion, due largely to the
end of some of those tax cuts and of the two-year stimulus
package that Mr. Obama signed into law soon after taking
office. Economic growth and deficit-reduction measures
account for a lesser share of the expected improvement.
The 2012 deficit will be the fourth and final year it is
projected to exceed $1 trillion.When Mr. Obama took office
in January 2009, the deficit for that year was projected
to be ? and ultimately was -- $1.3 trillion. A similarly
large shortfall followed for 2010. After this year's spike
to $1.6 trillion, the president's budget charts a decline
from the trillion-dollar level after 2012 -- to a low of
$607 billion in fiscal year 2015 -- before the annual
deficits, in dollars, start inching up again.
Compared to the size of the economy, as economists prefer
to measure, the annual deficits would decline from a
projected 10.9 percent of gross domestic product this year
to 7 percent in 2012. By 2015, Mr. Obama projects, the
deficit would be just above his target of 3 percent ? the
level that many economists consider sustainable because it
means deficits are not growing any faster than a healthy
economy.
Of the $1.1 trillion in net deficit reduction that Mr.
Obama claims over the next decade with his budget, two-
thirds would be from cuts in spending and a third from
higher revenues.
The lower spending mostly would derive from Mr. Obama's
proposed five-year freeze of the same narrow category
of so-called non-security discretionary spending that
Republicans are cutting. His freeze would save an
estimated $400 billion through 2021.
Mr. Obama also would reduce the Pentagon's five-year spend-
ing plans by $78 billion, reflecting savings recommended
by his Defense secretary, Robert Gates. Separately, war
costs are declining, administration officials said, largely
due to the withdrawal of troops from Iraq.
Neither Mr. Obama nor Republicans are tackling the large
entitlement programs ? Medicare, Medicaid and, to a lesser
extent, Social Security -- whose growing costs are driving
projections of unsustainable long-term debt. But Mr. Obama
does propose to save $62 billion from Medicare and Medicaid
by squeezing care-providers' reimbursements and expanding
federal health programs' use of generic drugs.
But those savings, by the administration's accounting,
would offset for two years the costs of preventing a
scheduled big reduction in payments to physicians who
treat Medicare patients. Typically Congress just blocks
the mandated pay cuts for doctors and simply adds the
expense to the deficit.
Similarly, Mr. Obama proposes to stop another favorite
Washington budget gimmick: Adding to the deficit the
recurring costs of preventing the alternative minimum
tax, which is intended for affluent taxpayers, from
hitting middle-class households. He would offset the
roughly $300 billion revenue loss from fixing the tax
for three years, raising a like amount over 10 years by
limiting deductions for upper-income people in the top
two tax brackets.
That tax increase for affluent Americans would account for
the bulk of the revenues that Mr. Obama counts in his $1.1
trillion of net deficit reduction. The rest includes $46
billion over 10 years from eliminating a dozen tax breaks
for oil, gas and coal companies to offset the costs of
clean-energy initiatives.
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