Obama’s Sensible Budget Priorities

The President Strikes the Right Balance

Michael Linden says the budget proposal has the right ideas for strengthening our middle class, protecting our economic recovery, and charting a responsible course for federal deficit reduction.

President Barack Obama’s proposed budget for fiscal year 2013 sets a responsible course for rebuilding the economy so that it works for everyone, not just the privileged few. Our middle class is the engine of economic growth, but is threatened by dwindling public investments, a tax system increasingly rigged to benefit the wealthy, a fraying safety net, and assaults on what should be the bedrock guarantees of Medicare, Medicaid, and Social Security.

The president’s budget protects those guarantees, boosts critical investments, and takes steps toward rebalancing the tax code so that all pay their fair share. And it does this in a fiscally responsible way, charting a path that nurtures the economic recovery while reducing the federal deficit, all without asking the middle class to shoulder a disproportionate share of the burden.

Strengthen our middle class. Protect our economic recovery. Chart a course for responsible, balanced federal deficit reduction. These should be the goals of any economic plan. Fortunately, President Barack Obama’s fiscal year 2013 budget proposal largely succeeds at meeting all three.

The FY 2013 budget proposal released today is unlikely to get much traction in the Republican-controlled House of Representatives this election year, but that doesn’t invalidate the many good ideas in it or the overall positive direction it outlines. Given our nation’s current circumstances—constrained by a difficult budget environment and in the midst of a fragile recovery from the worst economic downturn in generations—President Obama’s plan for the fiscal year beginning in October has much to recommend it.

Strengthen the middle class

We don’t think about it often enough, but quite a lot of what the federal government does, or should do, is build, maintain, and repair the foundations for a vibrant and growing middle class. Investments in education, infrastructure, scientific research all redound to the benefit of our middle class. Social Security, Medicare, and Medicaid provide basic protections for middle-class families, as do fundamental services such as food and drug inspections, air and water quality safeguards, and even law enforcement. In a tight budgeting environment, it can be difficult to find room to properly invest in these areas. And there are some in Congress who, judging by their budget plans, would rather not invest in them at all.

President Obama’s budget doesn’t make that mistake. His budget boasts significant investments in education, including a new $5 billion program to help schools attract, train, and keep high-quality teachers. It places a renewed emphasis on infrastructure, proposing a national infrastructure bank. And it gives a 5 percent boost to research and development.

As important as what his budget includes is what it does not include. It does not gut Social Security, Medicare, or Medicaid. It does not “transform” those programs into something unrecognizable to current retirees. It does not privatize them or voucherize them or otherwise upend them. It does contain some cost savings from Medicare and Medicaid, but in a responsible way that will not fundamentally change the nature of the programs, allowing them to operate at reduced costs.

This is not to say that the levels of middle-class investment in the president’s budget are sufficient or ideal. Given the trauma of the past few years, which was piled on top of a decades-long trend of increasing inequality and declining social and economic mobility, the gap between what we should be investing and what we currently are investing is particularly wide. But especially in comparison to other budget plans being offered by Washington policymakers, President Obama’s blueprint puts the needs of the middle class front and center.

Protect the economic recovery

Over the past few months, we’ve received some encouraging economic news. Since October of last year, the economy has added over 600,000 new jobs and the unemployment rate has fallen to 8.3 percent from 8.9 percent. That’s the right direction, but clearly, there’s still a long way to go before the economy is completely healthy again. It would be utterly foolish to do anything now to set the recovery back. In fact, it would be almost as foolish to simply sit back and just hope that things continue to get better.

The president’s budget recognizes these facts. It contains a hefty dose of practical, effective job creation ideas. First and foremost, President Obama calls for the immediate extension of the payroll tax cut and unemployment insurance benefits. On top of that, his budget includes a $50 billion investment in roads and railways, a $30 billion effort to revitalize and modernize thousands of schools, and another $30 billion to avoid further layoffs of teachers, cops, and firefighters—and maybe even rehire many that have been laid off over the past several years.

Responsible, balanced deficit reduction

Though accelerating the economic recovery and strengthening the middle class are the top economic priorities right now, any 10-year plan must also grapple with the challenge posed by persistent federal budget deficits. Dramatic fiscal contraction too soon would be counterproductive, but neither should we ignore the dangers of ever-rising debt. President Obama’s budget strikes the right balance—job creation now, deficit reduction soon. His plan would reduce deficits from $1.33 trillion in FY 2012 to $575 billion by FY 2018. Crucially, the president’s plan would stabilize the debt, and prevent it from rising into dangerous territory.

But responsible deficit reduction is more than a matter of timing. It’s also a matter of spreading the burden fairly and in the least economically damaging way. We cannot achieve responsible deficit reduction with spending cuts alone. Even if the economy were perfectly healthy and robust, trying to balance the budget solely through cutbacks in public services and social protections would be devastating, not to mention unfair. President Obama’s approach is to ask something from everyone, including the very wealthy, so that burden is spread more evenly.

His budget plan includes reforms to Medicare and Medicaid that will save hundreds of billions of dollars over the next decade. He adopts the severe spending restrictions that were passed as part of the Budget Control Act—better known as the debt-limit deal—back in August of last year. And he proposes billions of dollars in additional cuts to dozens of other programs.

Alongside these painful spending cuts are modest tax increases for the rich. Tax revenues are at historic lows and repeated tax cuts are the main cause of our current deficit troubles. Those same tax cuts overwhelmingly benefited those at the top end of the income spectrum. Though the president’s opponents will cry “class warfare,” the simple fact is that since it was tax cuts for the rich that helped get us in this mess, it’s going to take some tax increases to help get us out.

The president’s budget accomplishes this with some widely supported proposals, among them rolling back the Bush tax cuts for the richest Americans, instituting a minimum tax on corporations, and applying the “Buffett Rule” so that the extremely wealthy can’t get away with paying lower tax rates than the middle class. Of course, even with those proposals, the president’s budget would raise far less revenue than bipartisan budget plans like the one offered by Alan Simpson and Erskine Bowles, the bipartisan chairmen of the president’s fiscal commission, or by Alice Rivlin and Pete Domenici, the chairs of the Bipartisan Policy Center’s fiscal task force.

The right path

Ignore the inevitable complaints that the president’s budget doesn’t do enough to reduce the deficit. Remember that it was President Obama who was willing to accept even more spending cuts in order to achieve a “grand bargain” last August—and remember that it was congressional Republicans that walked away.

More importantly, remember that the key priority right now is getting the economy humming again. When that’s accomplished, deficit reduction will be much easier.

And definitely ignore the silly cries of “class warfare.” Asking millionaires to pay more than middle-class families isn’t radical. It’s not even new. Thirty years ago, President Ronald Reagan made the same call, in almost the same words.

President Obama’s budget isn’t perfect. The caps on nondefense discretionary spending are far too low to be realistic. We could find more savings in the Pentagon. There’s not enough revenue. And the middle class could use additional measures to boost their prospects. But it does have the right priorities, and given the current environment and the current pressures, this budget would put us on the right path.

Michael Linden is Director of Tax and Budget Policy at the Center for American Progress.

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Michael Linden

Managing Director, Economic Policy