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.
About the author: Michael Linden is the Managing
Director for Economic Policy at the Center for American Progress.
This article was published by the Center for
American Progress.
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