President Obama today unveiled a $3.8 trillion blueprint for spending in the coming fiscal year that includes increased spending and taxes to keep the economic recovery going. But it also gives a strikingly gloomy forecast for mounting debt over the coming decade.
In his formal budget message to Congress, the president said that – taken together with the deficit reduction agreement he signed last summer – his new budget proposals will cut the deficit by $4 trillion over the next decade. “This will put the country on a course to a level of deficits below 3 percent of GDP by the end of the decade, and will also allow us to stabilize the federal debt relative to the size of the economy,” he said.
But the administration’s outlook for debt reduction has deteriorated markedly since September, when Obama told Congress that his proposals would hold annual deficits well below $600 billion after next year and permit the debt held by outside investors to rise to $17.7 trillion by 2021, or 73 percent of overall GDP.
According to the administration’s own fiscal 2013 budget tables, the new 10-year blueprint shows annual deficits exceeding $600 billion every year except 2018. Between 2013 and 2017, the government will rack up $3.4 trillion in additional deficit spending. And the portion of the debt held by outside investors – the so-called “public debt” – would grow to $18.7 trillion by 2021, or 76.5 percent of the economy, a full $1 trillion higher.
Administration officials said that about half the increase is due to policy changes, with the other half driven by gloomier economic projections that tend to depress tax collections, increase government spending and drive deficits up, according to the Washington Post. Job growth has proven stronger than expected since the budget was prepared, they said, adding that the picture would look brighter today.
Vigorous Defense by President – and GOP Response
Obama today offered a vigorous defense of his budget strategy, arguing that the government must continue to do more to keep the economic recovery on track before turning its full attention to controlling or reducing the deficit. Speaking to students and academics at Northern Virginia Community College, Obama said, “The main idea in the budget is this: At a time our economy is growing and creating jobs at a faster clip, we need to do everything in our power to keep this recovery on track.”
“The economy is growing stronger, the economy is speeding up,” he said, noting that the unemployment rate has fallen to 8.3 percent, the lowest in years. “The last thing we can afford to do is go back to the very policies that got us into this mess in the first place. We can’t afford it.”
To keep the economic recovery going, the president is continuing to push for new stimulus programs – including his jobs legislation – that have been routinely rejected by his Republican opponents. His budget includes a call for $50 billion of new transit projects, $30 billion to rehab schools and $30 billion to help hard-pressed states keep teachers, firefighters and policemen on the job. It also assumes the payroll tax cut and extended unemployment insurance will continue through the end of the year.
To pay for those programs, the president is proposing new taxes on banks and oil companies – a populist slant that plays well with traditional Democratic constituencies. Banks would have to pay $61 billion in new taxes over 10 years in return for the financial assistance they received during the 2008-09 crisis. Oil, gas and coal companies would pay an additional $41 billion by having 10 different tax breaks eliminated.
While Obama is certain to have much to say about his new budget and deficit-reduction blueprint in the coming months, congressional leaders on both sides of the aisle have signaled it will go nowhere on Capitol Hill. Sen. Jeff Sessions, R-Ala., the ranking Republican on the Senate Budget Committee, blasted the president’s new budget as a recipe for bankruptcy, on a par with the debt crisis in Greece and other European countries. He also claims that the budget plan includes an array of accounting gimmicks that, if discounted, would leave genuine savings well below Obama’s target of $4 trillion over 10 years.
“What the president is proposing does not change America’s debt course,” Sen. Jeff Sessions of Alabama, the ranking Republican on the Senate Budget Committee, told MSNBC. “We’re on a debt course that’s going to bankrupt this country. Everybody is telling us that, Republicans, Democrats and economists. And the president’s budget may cut a little here but it increases otherwise. . . But when the whole ten years are over he’s not making any real cuts.”
Senate Budget Committee Chairman Kent Conrad, D-N.D., defended Obama’s new budget: “The president’s budget would bring the deficit down as a share of the economy from 8.5 percent in 2012 to 2.8 percent in 2022. Importantly, the budget calls for everyone to share in the burden of deficit reduction. Over the next ten years, it includes a number of significant savings proposals from the administration’s September submission to the Joint Select Committee on Deficit Reduction. But we will need to do more to put the nation on a sustainable long-term fiscal path.”
He added, “The only true way forward is through a comprehensive and balanced deficit reduction agreement. We need to come together on a plan that modernizes our tax system, reforms our entitlement programs, and attacks wasteful spending."
Republicans would actually like to see the Obama plan come up to a vote in Congress because they know it would go down to defeat in both chambers. Senate Democratic Majority Leader Harry Reid of Nevada said last week, “We do not need to bring a budget to the floor this year – it’s done, we don’t need it.” Reid and Sen. Charles Schumer (D-N.Y.) argued that the debt-limit agreement in August directs spending for the next year, and said Senate Appropriations Chairman Daniel Inouye (D-Hawaii) has already asked the heads of the subcommittees to write their appropriations bills for fiscal 2013.