The Obama administration appears to have resigned itself to a federal government that runs deficits in perpetuity, something that has deficit hawks in despair as they read the president’s budget proposal for Fiscal 2016.
The budget proposed by the president yesterday fails to balance the budget over its 10-year window. That, in itself shouldn’t be surprising. Notwithstanding Republican claims to the contrary, the level of spending cuts that would be necessary to balance the government’s books, even over 10 years, would be politically unbearable absent a minor miracle of economic growth.
What’s surprising is that, according the chair of the White House Council of Economic Advisors, a balanced budget isn’t even a long-term goal anymore, if it ever was in the first place.
CEA Chairman Jason Furman fielded questions from reporters after the administration’s budget proposal was issued on Monday. He took reporters back to 2008 when the primary focus of the president’s economic team was to restore economic growth.
“In 2008 in the transition…the whole original economic team was trying to figure out what the right fiscal goal was going to be,” he said. “And economically, the decision was the right fiscal goal was to make sure the debt was falling as a share of the economy, which would require the deficit to be below about 3 percent of GDP. That’s a goal we achieved in 2014.”
Early in the Great Recession, many otherwise fiscally conservative voices were supportive of substantial deficit spending to help pull the economy out of the doldrums. Most, however, wouldn’t have agreed that running a deficit continually was an acceptable economic plan.
Furman said, “That’s a goal we need to take additional steps on taxes, on healthcare, on immigration, to make sure we continue to meet…over the next decade and beyond. [I]t’s one that’s very consistent with what economics would tell you that you need to do to be in a sustainable and strong position to grow economically.”
White House Press Secretary Josh Earnest, who was on the same panel as Furman, jumped and pointed out, “The 3 percent target was also the one advocated by the minor deities that served on the Simpson-Bowles Commission,” referring to a bipartisan group chaired by former Wyoming Sen. Alan Simpson and Erskine Bowles, White House Chief of Staff under Bill Clinton.
The president’s budget plan does indeed aim to keep the federal deficit at a level below 3 percent over ten years, and the federal debt, while it will continue to increase in dollar terms, will decline as a share of GDP, from about 75 percent now to 73 percent. After that, it will flatten out – according to the numbers presented by the White House.
Some deficit hawks bemoaned the president’s decision to propose discretionary spending over and above the caps set by the controversial “sequester” put in place as part of the 2011 budget compromise. But Shaun Donovan, director of the White House Office of Management and Budget made the case that growing the economy is more important than worrying about spending levels, pointing out that the real money isn’t in the discretionary portion of the budget anyway.
“It’s not going to where our challenges are in the long term on the fiscal side,” he said. “Discretionary spending…is at a very low level relative to GDP. In fact over our budget window it continues to grow smaller as a share of GDP because it is not growing as fast as GDP. So it is not the fiscal challenge to be focused on. In fact, if anything, the reverse.”
“If we want to grow our economy,” Donovan said, it will require investing in the kinds of domestic programs, including education and childcare tax credits that the president proposed.
The administration’s plan was met with consternation by budget watchdogs, who believe that with the U.S. economy picking up steam, now is the time to address the growing federal debt.
“With debt levels at a post-war record high and the economic recovery finally starting to take hold, we needed the President to use this opportunity to begin tackling the drivers of our growing debt,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
Focusing on short- and medium-term growth instead of long-term debt reduction, she warned, is a dangerous tradeoff. “In the end, failing to address the drivers of the debt will ultimately undermine the President’s other priorities. The focus on promoting investment today will do little good if our massive debt is choking the investments of tomorrow. And the desire to strengthen middle-class families can’t be fulfilled if Social Security and Medicare remain on a path to insolvency with huge across-the-board cuts looming in the future.”
Robert L. Bixby, executive director of the Concord Coalition, pointed out that while the president’s budget might hold up on paper, it has no chance in Congress.
“The President’s budget sets the stage for a vigorous debate on the right mix of spending and tax policies needed to put the nation’s finances on a sustainable path,” he said. “Its heavy reliance on higher revenues to pay for new spending demonstrates one way to keep the debt from rising as a share of the economy, but it is certain to be rejected by the new Republican Congress.
“Moreover, the budget, even if fully enacted, would do little more than hold the debt near its currently high level because policies that could be used for sustained deficit reduction, particularly in the out years, are used to pay for new initiatives instead.”
Citizens Against Government Waste President Tom Schatz didn’t spare the metaphors in his angry comments about the budget proposal. “The President claims he has no intention of ‘trimming his sails’ in regard to any of his budget plans,” he said. “Unfortunately, the ship of state has been fiscally off course for years and the President’s FY 2016 budget will steer it into a massive, dangerous wave of red ink.”
Top Reads from The Fiscal Times