Obama Punts on Long-Term Deficits

President Obama speaks about the budget in the Cross Hall of the White House.

Image: Reuters/Jason Reed

President Barack Obama’s budget plan projects a $1.3 trillion federal deficit next year, which would be whacked down to $706 billion by fiscal 2014.

That’s the good news in the president’s budget. The bad news is the annual federal deficit would jump back up to more than $1 trillion by fiscal 2020. Over 10 years, the federal government would accumulate an additional $8.5 trillion in red ink.

Obama deserves some credit for his proposal to freeze nonsecurity-related discretionary spending for three years, but as his budget numbers show, that’s not enough to make a serious dent in debt that threatens to bankrupt the country and make credit even harder to get for the private sector.

Peter Orszag, Obama’s budget director, said the plan does address the deficit issue in the medium term. The long-term solution, according to the Obama administration, is the creation of a fiscal commission that would address the exploding costs of Social Security, Medicare, and Medicaid—entitlements that dwarf discretionary spending—and look at whether the government needs to raise taxes to generate more revenue.

“The commission will have to get us the rest of the way there,” Orszag said.

Neither the president nor Congress has the guts to outline a long-term fiscal plan themselves. The Senate last week even refused to outsource this difficult task to a commission, which Obama endorsed only a few days before the vote.

The Center for a Responsible Federal Budget hopes the president can summon the courage to go beyond short-term patches to the deficit.

“This budget doesn’t go nearly far enough,” said Maya MacGuineas, the committee’s president. “It will require presidential leadership to develop a responsible fiscal plan. This has to be the start—not the extent of—the president’s push to implement a strategy to dig us out of this fiscal hole.

“And, yes, we know it’s an election year, but we cannot continue to delay—foreign credit markets are really not interested in our partisan infighting—they are interested in whether the U.S. will remain a safe place to invest,” MacGuineas said.

A bipartisan commission might be the best way politically to address the problem, but the president needs to develop “its own Plan B” in case the commission doesn’t work out, she said.

Robert Greenstein, executive director for the Center on Budget and Policy Priorities, also would have liked to have seen more long-term deficit reduction, but said Obama’s budget “likely goes as far in this area as today’s toxic political environment will allow, even if the president pushes forcefully for his policies.

“Indeed, many of his proposals that provide fiscal restraint, from closing unproductive tax loopholes to scaling back agricultural subsidies for wealthy farm operators, may prove to be beyond what a polarized Congress, facing continuous roadblacks and with one eye on the fall election, will produce this year,” Greenstein said.

In the near term, Obama would provide more breaks to small businesses—except for those whose owners make more than $250,000 a year, who would face higher taxes—and impose new taxes on multinational corporations, big banks, investment managers, and oil companies. He proposes increased spending for education, clean energy, research and development, and aid to exporters.

Agencies that regulate businesses would get more resources. The Department of Labor, for example, would receive more money for enforcing workplace-safety regulations and wage-and-hour laws. It and the Treasury Department plan to go after employers who misclassify workers as independent contractors.

Businesses that follow the law shouldn’t have too much to worry about from these proposals. They should be more concerned about our nation’s unsustainable fiscal path and the lack of a serious effort to address it.