Compromised: The President’s Budget Is Another Attempt to Reach a Fiscal Deal
Compromised: The President’s Budget Is Another Attempt to Reach a Fiscal Deal
The president’s compromise budget is constrained not by actual fiscal limits, but by perceived political limits.
President Barack Obama’s fiscal year 2014 budget is unlike any previous presidential budget request in recent history. It is not a statement of the president’s vision for the federal budget. It does not represent what he thinks is the best course of action for spending, taxation, and broader federal fiscal policy. It is not, in short, his preferred budget plan. Rather, for the first time ever, it is a preemptive compromise budget.
It includes more than $1 trillion in additional spending cuts, on top of the $1.9 trillion that the president has already accepted and signed into law. It includes significant changes to entitlement programs, as well as further cuts to a portion of the budget that was already cut down to historic lows. And it includes far less new revenue than the president has called for in the past. All told, President Obama’s compromise budget would raise less revenue and set government spending at approximately the same levels as the much-ballyhooed bipartisan plan proposed by former Republican Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles in 2010. By that standard, the president’s compromise budget is to the right of Simpson-Bowles.
And yet, for all the president’s willingness to make major concessions, conservative leaders in Congress already appear to have rejected the compromise out of hand. Last Friday before the full budget was even released, House Speaker John Boehner characterized it as “no way to lead and move the country forward.”
This immediate refusal to even consider the president’s generous offer is remarkable and indefensible when you consider the full scope of the deficit reduction it contains. Since the start of fiscal year 2010, Congress has already passed and the president has signed into law about $2.4 trillion of deficit reduction. Of that amount, nearly three-quarters were spending reductions, while only one-quarter was revenue increases. When you add to that the additional spending cuts that the president is willing to accept in return for some additional revenue, the totals swell to approximately $3 trillion in spending cuts and to about $1.3 trillion in revenue. This is a ratio of well over $2 in cuts to every $1 in revenue. Considering that the ratio of spending cuts to revenue increases in the Simpson-Bowles proposal was only about 1.4-to-1, the president’s proposal goes well past halfway to try to meet his political opponents on common ground.
Indeed, in nearly every portion of the federal budget, the president signaled his willingness to accept policies that fall far short of what he considered optimal in the past. To start with, his new compromise budget includes additional cuts to a category of spending known as “non-defense discretionary.” This blandly titled category actually includes most of the critical, foundational public services and economic investments that make up the day-to-day operations of the federal government. Despite this, it has already absorbed enormous spending cuts as the lion’s share of the programmatic spending cuts that Congress already passed was directed at this one category of spending. As a result, funding for everything from education to highways to food safety is now—even without additional cuts—projected to decline to its lowest levels on record. Yet the president is willing to accept even further cuts in this area.
The president’s compromise budget also again signals his willingness to make significant changes to entitlement programs. “Again” is an important descriptor here. Proposing reforms in health care programs to save the government money is nothing new for the president. In each of his previous budget plans, President Obama put forward policies to improve efficiency in Medicare and to reduce spending. In this new compromise budget, the president upped his offer to $400 billion in reforms to federal health care programs. In fact, the president’s compromise offer includes more Medicare savings than does the House Republican budget.
On top of the $400 billion in health care reforms, the president also proposed $200 billion in changes to other mandatory programs. He also included a change to the way that inflation, commonly called “chained CPI,” is calculated. These changes would reduce Social Security benefits compared to what is scheduled in current law, producing another $130 billion in reduced spending.
This proposal to change the indexing formula for Social Security is an especially large concession, given that conservatives in Congress have given no reciprocal movement on revenues, and given that they may not accept this proposal as the final parameters of a large-scale budget deal. And while a few progressive groups, including the Center for American Progress, in the past called for the switch to chained CPI in policy proposals, it was always done in the context of a comprehensive plan to resolve the long-run shortfall in Social Security. Additionally, it was always paired with progressive reforms to the payroll tax and always included protections for low-income families and the elderly—populations for whom the chained index likely understates inflation. To the president’s credit, he does include the latter protections, but his compromise offer does not include a comprehensive strengthening of the Social Security system, nor any reforms whatsoever to the payroll tax. Even the Simpson-Bowles plan, which also proposed switching to the alternative measure of inflation, included revenue-raising reforms to the payroll tax as well.
All told, the president is proposing more than $1 trillion in additional spending cuts. And what is he asking for in return? With his oft-stated commitment to a “balanced plan,” one might expect him to propose a similar amount of new revenue. But that is not the case. The president’s budget includes only $580 billion in new revenue, plus another $100 billion in additional tax revenue generated from the switch to chained CPI. And recall that the deficit reduction to date is already significantly tilted toward spending cuts. Even combined with the $600 billion in revenue generated from the American Taxpayer Relief Act, better known as the fiscal cliff deal, that still leaves him well short of the revenue of his previous budgets, which were already lower than the levels proposed by bipartisan experts. Yet another compromise.
Of course, compromise means both sides giving up something to reach an agreement. And certainly the president is hoping and expecting that conservatives will be reasonable and accept his proposal for this eminently moderate amount of additional revenue. Moreover, the president’s specific proposals for how to raise that revenue are equally reasonable. Right now, for example, itemized deductions such as those for mortgage interest and income exclusions such as the one for employer-provided health insurance benefit higher-income households more than middle- and low-income households. President Obama’s budget wouldn’t eliminate these breaks for anyone, but would limit their value for higher income tax payers so that the benefits aren’t quite so skewed. That alone would raise $530 billion.
The president’s compromise proposal also includes numerous other smart offers. It includes $50 billion in immediate job-creating investments—an absolute necessity given the fact that getting our budget in order will be impossible if unemployment remains high. In the realm of health care, the president’s suggested policies focus on improving the efficiency of Medicare without harming beneficiaries. Indeed, his reforms largely mirror those proposed by the Center for American Progress. The president also proposed some additional cuts to military spending, though certainly less than he could have.
But it is outside the confines of his compromise budget offer where one can find the president’s best ideas. The president’s call to expand quality pre-kindergarten to all 4-year-olds, for example, is an important step toward ensuring the country’s future competitiveness in a global economy. He correctly identifies billions of dollars in inefficient, unnecessary, and wasteful business tax breaks that are ripe for reform. And we sorely need to reinvest in transportation infrastructure, as the president suggests.
Unfortunately, most of these good ideas are relegated to a kind of second-class status. They are not part of the president’s compromise budget offer, despite the fact that each and every one of them is fully paid for and would not add to the deficit or debt. As a result, the president’s compromise budget is fundamentally constrained despite the presence of many good ideas. It is constrained not by actual fiscal limits, but by perceived political limits. And those constraints have produced a budget offer that looks decidedly compromised when compared to the president’s previous budget plans, when compared to other progressive budget plans, and even when compared to bipartisan budget plans.
Michael Linden is the Managing Director for Economic Policy at the Center for American Progress.
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Managing Director, Economic Policy