Obama's Budget Plans

By Dan Froomkin
1:51 PM ET, 02/23/2009

President Obama kicked off this afternoon's "Fiscal Responsibility Summit" at the White House by announcing what his aides had leaked over the weekend: That he intends to halve the country's budget deficit by the end of his first term.

By contrast, little news is expected on the entitlements front. (See my post from Friday: Obama's Sense of Entitlements.)

Jackie Calmes writes in the New York Times that Obama had considered announcing the formation of a bipartisan Social Security task force, but relented under pressure from "his party's left and... Democratic Congressional leaders who contend that his political capital would be better spent on health care and other priorities."

As for the budget, Lori Montgomery and Ceci Connolly wrote in Sunday's Washington Post: "President Obama is putting the finishing touches on an ambitious first budget that seeks to cut the federal deficit in half over the next four years, primarily by raising taxes on businesses and the wealthy and by slashing spending on the wars in Iraq and Afghanistan, administration officials said."

The plan "will press aggressively for progress on the domestic agenda Obama outlined during the presidential campaign. This would include key changes to environmental policies and a major expansion of health coverage that he hopes to enact later this year.....

"The plan would keep the deficit hovering near $1 trillion in 2010 and 2011, but shows it dropping to $533 billion by 2013, he said -- still high but a more manageable 3 percent of the economy."

On the revenue side, Obama "seeks to increase tax collections, mainly by making good on his promise to eliminate some of the temporary tax cuts enacted in 2001 and 2003. While the budget would keep the breaks that benefit middle-income families, it would eliminate them for wealthy taxpayers, defined as families earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule in 2011. That means the top tax rate would rise from 35 percent to 39.6 percent, the tax on capital gains would jump to 20 percent from 15 percent for wealthy filers and the tax on estates worth more than $3.5 million would be maintained at the current rate of 45 percent."

Jackie Calmes wrote in the New York Times: "Mr. Obama will propose cutting a variety of programs, including the Medicare Advantage subsidies for insurance companies that cover seniors who can otherwise acquire health coverage directly from the government. Another target is spending on private contractors, especially for defense, which spiked during the Bush administration. And he will scale back some promises, including his proposal to double money for foreign aid....

"'The president believes there are essentially three areas that have to move forward even as we pare back elsewhere — health care, energy and education,' said David Axelrod, his senior adviser. 'These are the bulwark of a strong economy moving forward.'

"While some people have predicted that Mr. Obama would have to shelve his priorities given rising deficits, his determination to proceed, especially on health care, reflects his economic advisers' conviction that the government cannot control its finances without reforming health care. The ballooning cost of health care, and thus Medicare and Medicaid, is the biggest factor behind projections of unsustainable deficits in coming decades."

And in his opening remarks at this afternoon's summit, Obama just announced he would push for "pay as you go" legislation.

Jonathan Weisman and John D. McKinnon wrote in this morning's Wall Street Journal: "Obama this week will propose using mandatory, across-the-board spending cuts to offset any new initiative that expands the government's red ink.

"The proposal, which would apply to any new tax cuts or spending, would return the government to the budget constraints that existed in the 1990s, a senior administration official said. Mr. Obama wants those rules to come in the form of a law, passed by Congress and signed by him. That would put presidential prestige on the line, raising pressure on Congress to observe the limits.

"Such restrictions have been in effect in recent years, in the form of rules adopted by Congress and enforced by the lawmakers themselves -- with spotty results....

"Any meaningful budget-restraint rules would likely face opposition from both parties. Many Republicans oppose constraints on tax cuts, which they say spur economic growth and generate government revenue. Some liberal Democrats have qualms about rules that could thwart long-sought expansions of government programs."

Non-movement on entitlements at today's summit would please many liberals. Joe Conason writes for Salon: "For many years, 'entitlement reform' has served as Washington jargon for slashing or even abolishing Social Security, Medicare and Medicaid, the basic social programs that remain objects of conservative ire despite their enormous success in reducing poverty and improving health....

"To get what he wants from this summit, the president should be prepared to brush back the slashers and privatizers and insist that they talk about the need for a healthcare system that is less expensive and more equitable."

Robert Kuttner writes in a Washington Post op-ed: "We need to increase public spending and debt now to restore economic growth and then gradually reduce the debt ratio once recovery comes. Social Security has little to do with this challenge. Nor does Medicare, if we reform our overall health system.

"Since the early 1980s, Peter G. Peterson [the private-equity investor who is the leading advocate of reining in entitlement spending] has been warning that future entitlement deficits would crash the economy. Yet when the crash came, the cause was not deficits but wild speculation on Wall Street.

"Now, with 401(k) plans swooning and health benefits being cut, Social Security and Medicare are the two bedrock programs that keep tens of millions of elderly Americans from destitution. Why perversely cut these programs to pay for the sins of Wall Street? The attack on social insurance is really an ideological assault, dressed up as fiscal high-mindedness."

© 2009 The Washington Post Company