The Budget released by the President this week uses a balanced approach to achievemore than $4 trillion in deficit reduction over the next 10 years. This level of savings and the manner in which they are accomplished are broadly consistent with the bipartisan deficit reduction proposals put forward by the Bowles-Simpson Commission and the Senate’s bipartisan “Gang of Six.” Using this balanced approach, the President’s Budget reduces deficits from about 9 percent of GDP in 2011 to below 3 percent by 2018, and stabilizes the debt as a share of the economy by the middle of the decade.
In general, there is little disagreement on the magnitude of savings that are needed over the next decade to put us on a sustainable fiscal course. Rather, the main difference between the President and Republicans are related to the composition of these savings.
As Secretary Geithner made clear in testimony on the Budget this week, the greatest impediment to bipartisan progress on reducing deficits is the unwillingness by Republicans in Congress to take a balanced approach. Instead, they have sought to achieve budget savings solely through cuts to critical programs like Medicare and Medicaid, without asking the most fortunate citizens to contribute anything more than they do today. This position is at odds with both of the bipartisan efforts cited above. Though often invoked by Republicans in Congress as a model for reform, the Bowles-Simpson Commission recommendations included about $2 trillion in additional revenues over 10 years, which is $2 trillion more than Republicans have been willing to support. In contrast, the makeup of the President’s more than $4 trillion in savings cuts spending across the Budget – mandatory, discretionary, and interest – by $2.50 for every $1 of revenue the wealthiest 2 percent of households and largest corporations are asked to contribute. The President’s approach saves a total of about $1.5 trillion through its tax reforms over 10 years, a level of revenue broadly consistent with – but lower than – the Fiscal Commission and the Gang of Six.
Under the President’s Budget, discretionary spending is cut by about $1 trillion as called for in the Budget Control Act (BCA) – a level consistent with what was found in last year’s House Republican Budget. But unlike the BCA, President Obama’s Budget spells out the difficult choices needed to achieve these savings.
With the end of our military presence in Iraq and as troops continue to draw down in Afghanistan, the President’s Budget also caps spending on “Overseas Contingency Operations” (OCO) – which is budget parlance for “war spending” – saving $848 billion to both fund infrastructure investments and to reduce deficits. These savings reflect the President’s policy decisions to wind down the war in Iraq and gradually reduce our presence in Afghanistan, and the caps will help stop OCO funding from leaking into other parts of the defense budget. The non-partisan Congressional Budget Office (CBO) counts these savings, and the House Republicans included more than $1 trillion in OCO savings in their own Budget last year.
As a result of these savings, discretionary spending is projected to fall from 8.7 percent of GDP to about 5 percent of GDP, its lowest level as a share of the economy since Dwight Eisenhower was President.
The Budget passed by House Republicans last year would have ended Medicare as we know it and cut deeply into Medicaid, again because of an unwillingness to raise any revenues, even from the wealthiest citizens.
Rather than address our fiscal challenges largely on the back of middle class families and seniors, the President’s plan calls on the richest two percent of Americans – those who have seen their incomes grow more than the rest – to make a contribution to our deficit reduction efforts. At the same time, the Budget carefully slows growth of spending in Medicaid and Medicare through both the Affordable Care Act and additional proposals in the Budget that save about $360 billion in mandatory health spending, while preserving these vital programs. It saves more than $270 billion in so-called “other mandatory” spending implementing a number of policies consistent with the Bowles-Simpson Commission’s recommendations.
Further interest savings add hundreds of billions of dollars of deficit reduction to these amounts, bringing the total to more than $4 trillion.
The President applauded Congress for taking the important step of extending the payroll tax cut and unemployment insurance benefits through 2012, but Congress should not stop there. For example, the President’s Budget includes proposals to help homeowners refinance their mortgages, make up-front infrastructure investments to get construction workers back to work and enhance long-run productivity, and strengthen incentives for businesses to invest in America today.
Notwithstanding the many misleading claims that were made about the President’s Budget over the past week, the fact is that if the President’s Budget were enacted today, it would boost growth and job creation in the short term, reduce our deficits and stabilize our debt by the middle of the decade, and put us in a strong position to pursue long-term reforms. As Secretary Geithner said this week, “This plan will not solve all the nation’s challenges, but it will put us in a much stronger position to deal with those challenges.”