Obama Seeks Middle Ground with 7-Step Budget Plan
Policy + Politics

Obama Seeks Middle Ground with 7-Step Budget Plan

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The proposed 2013 budget that President Obama unveils today is the Democratic Party leader’s election-year response to what is certain to be one of the major issues raised during the upcoming campaign. What will Democrats say when asked how they will bring down the deficit?

Obama’s answer: tax the rich; reduce spending, but more gradually than Republicans; and shift priorities from war to infrastructure.

The document, whose broad outlines were released to reporters late Friday, is as much a philosophical statement as it is a spending road map.  It rejects the immediate austerity measures being called for by every Republican candidate for president, and that were included in last year’s Republican House alternative, in favor of continued stimulus spending and tax cuts to keep the economy on the rebound.  Obama’s budget is unlikely to be enacted, however, since it was declared dead on arrival by the Republicans even before it was released to the public or sent for its official photo opportunity on Capitol Hill.

“There is pretty broad agreement that the time for austerity is not today," Jack Lew, Obama's new  chief of staff, said on NBC’s “Meet the Press,” one of five Sunday talk shows he visited. Hailing the recent jobs report that lowered the national unemployment rate to 8.3 percent, he added, “Right now we have an economy that’s taking root .... Austerity measures right now would take the economy in the wrong way.”

There wasn’t much broad agreement in evidence from the Republican responses offered yesterday. Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, promised a Republican alternative that would “tackle the drivers of our debt” with greater program cuts, which he said would be “bipartisan solutions.” Ryan and Sen. Ron Wyden, D-Ore., recently unveiled a privatization plan for Medicare called premium support that contained fewer cuts than the highly controversial initial plan Ryan offered last April.

While Obama is certain to have much to say about his new budget and deficit-reduction blue print in the coming months, congressional leaders on both sides of the aisle have signaled it will go nowhere on Capitol Hill. 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. Senate Minority Leader Mitch McConnell, R-Ky., meanwhile, vowed to bring the president’s budget to a vote in the upper chamber to prove that even many Democrats will reject the president’s spending plan.

Political wrangling aside, the president’s proposal is notable in both its goals and its content. It is a spending plan from an incumbent candidate who is clearly intent on seizing the middle ground in the upcoming budget debate.

Here are seven major initiatives in the Obama spending plan, which we’re likely to hear repeated over the next 8 ½ months:

• Deficit Reduction -- The president has accepted the deficit reduction goals of the bipartisan Bowles-Simpson Commission, which called for a $4 trillion reduction in projected federal deficits over the next decade. The Obama budget reaches the magic $4 trillion number by calling for slightly higher taxes than the commission. Instead of $3 trillion in budget cuts and $1 in higher taxes, Obama would cut spending by $2.5 trillion and raise $1.5 trillion in additional revenue.

The plan will lower the deficit in 2013 to below $1 trillion for the first time since the onset of the Great Recession. To the consternation of his allies on the left, the president has accepted the spending cuts in the Budget Control Act that was  enacted last August  to end  the debt ceiling crisis. If re-elected, Obama plans to continue budget constraint over the rest of his term, bringing the deficit down to $575 billion by 2018.

• Taxes -- The administration wants to avoid what it calls “draconian” budget cuts proposed by Republicans by raising taxes, primarily on the well-off. Though all the Bush-era tax cuts are due to expire next January, Obama proposes to keep them for the lower middle-class while letting them expire for families earning over $250,000 a year. As outlined in his State of the Union Address, he would also create the equivalent of an alternative minimum tax for anyone earning more than $1 million a year so they pay at least 30 percent of their total income.

• Entitlement savings -- On the spending side, at least some health care programs will be on the chopping block, allowing the president to say he has put entitlements on the table. The president will call for another $360 billion in reductions in the projected growth of Medicare and Medicaid, which would be on top of the $500 billion in reductions included in the Affordable Care Act.  One way of doing this is to raise the premiums for higher-income beneficiaries. While this is clearly less than the sharp cuts in entitlements called for by Republicans and deficit hawks, the president could wind up being attacked from both the right and left for gutting seniors’ Medicare.

• Stimulus spending -- To keep the economic recovery going, president will continue to push for new stimulus programs that have been routinely rejected by his Republican opponents. His budget will include 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.

• Other programs taking a hit -- Apart from proposing new taxes, the administration also is seeking program cuts in some areas to avoid mandated automatic cuts prescribed in last summer’s budget deal. These include reductions in agriculture subsidies, reductions in home heating assistance for the poor, and eliminating Saturday mail deliveries by the postal l service.

• Transportation -- The administration also wants to conclude negotiations over the next transportation bill, which is funded by the gasoline tax. The plan would spend $476 billion over the next six years.

• Finally, the president sharply reduces spending on the wars in Iraq and Afghanistan, which are winding down. While this has already been anticipated, it was still in the Congressional Budget Office’s baseline budget and can be used to pay for programs like maintaining physician salaries in Medicare – the so-called “doc fix.”
The White House says its plan will shrink the budget deficit to 2.8 percent of gross domestic product by 2018, which is below the 3 percent goal set by the Bowles-Simpson commission. While the target would go a long way toward meeting deficit hawk demands for a long-term plan to bring the budget into primary balance, its call for higher taxes means nothing of significance will happen until the voters have had their say.