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Posted by on Feb 1, 2010 in Economy, Politics | 25 comments

Obama’s $3.8 Trillion Proposed Budget Set To Dominate Political World

The watchwords in 2010 — more than ever — will likely be “budget” and “deficit,” in light of the President Barack Obama unveiling a proposed $3.8 trillion budget, coupled with his comments that the fiscal situation remains “unacceptable.”

Get ready for a serious — and, in the scheme of 21st century politics in some cases extremely loud and outraged and not-so-serious — discussion of what government should do and should not do and what government’s role should be in a time of economic crisis when joblessness is a major national problem.

The numbers are staggering but, Obama argues, so are the challenges in the long term that need to be addressed:

President Obama declared in presenting his new 10-year budget proposal on Monday that “our fiscal situation remains unacceptable,” but he insisted that the country pursue his ambitious domestic agenda despite facing swollen budget deficits for the foreseeable future.

“Just as it would be a terrible mistake to borrow against our children’s future to pay our way today, it would be equally wrong to neglect their future by failing to invest in areas that will determine our economic success in this new century,” Mr. Obama said at the White House.

The budget projects that the deficit will peak at nearly $1.6 trillion in the current fiscal year, a post-World War II record, and then decline but remain at economically troublesome levels over the remainder of the decade. In the coming fiscal year 2011, which begins in October, the projected shortfall would be under $1.3 trillion.

Over 10 years, according to the administration, the budget would save an estimated $1.2 trillion, mainly by ending the Bush tax cuts for the richest Americans and freezing some domestic spending for three years. But that total is roughly one-fifth of the size of the debt that will pile up from now to 2020, the budget shows.

In the short run, some relatively minor domestic programs as well as big-ticket military equipment would be cut or eliminated, while education and civilian research would get big increases. Wealthy Americans, big banks and oil and gas companies would pay more in taxes, but the middle class and small businesses would get additional tax cuts worth hundreds of billions of dollars.

The Atlantic’s Nicole Allan offers this list of budget winners and losers.

The Wall Street Journal:

To get the deficit down by the middle of the decade, Mr. Obama will be relying on some cuts that have previously been proposed without success, on cooperation from a wary Congress and on a yet-to-be set up debt commission to suggest politically difficult choices.

At the same time, Mr. Obama is under pressure to address the country’s continued high unemployment rate. And he will propose increases in spending for priorities such as education and domestic scientific research. All of this raises questions about how much progress the president is likely to make in trying to fulfill his pledge to halve by 2013 the $1.3 trillion deficit he inherited.

The budget embodies Mr. Obama’s larger predicament of needing to contain the deficit without harming the economy, which remains fragile. The deficit has become a major political issue, as antigovernment activists swing independents against what they describe as Mr. Obama’s big-government policies and Republicans try to regain the mantle of fiscal responsibility after the Bush years saw surpluses swing to deficits.

Republicans have said they aren’t likely to cooperate with Mr. Obama on his deficit-reduction approach, opposing tax increases even as they attack Democrats for proposing cuts to Medicare. Meanwhile, senior Democrats in Congress have shown themselves reluctant to cut spending with unemployment hovering at 10%.

Under the Obama budget, this year’s $1.6 trillion deficit would fall to $1.3 trillion in the fiscal year that begins Oct. 1. It would drop to $700 billion in 2013 and 2014, the budget projects, on the assumption that the economy recovers, tax receipts start rising again with incomes, and stimulus spending drops off.

The deficit would drop to the equivalent of 5% of GDP in 2013 through expected economic improvement alone. Policy changes proposed by the president, such as a proposed freeze in nonsecurity domestic spending, would shave an additional percentage point.

The LA Times looks at the political aspect:

President Obama’s budget, formally unveiled Monday to set federal spending priorities, also bolsters a goal of his party for the 2010 elections: Show voters that the president is trying to persuade Republicans to share responsibility for governing the country, but that Republicans are turning him away.

The budget plan invites Republicans to join him on a bipartisan commission to cut the deficit — a concept that the GOP has backed in prior years. It includes tax cuts for small businesses long-championed by the GOP. It proposes a domestic spending freeze that infuriates many liberal Democrats.

Those olive branches were offered just days after Obama invited GOP cooperation in his State of the Union address and a televised give-and-take with House Republicans at a policy conference — a remarkable shift in approach after a year of intense partisanship and the bruising loss of the Democratic-held Senate seat in Massachusetts. But those seemingly conciliatory gestures lay the ground work for Obama to thrust his party back onto the political offense: Democrats are gearing up to campaign against the GOP as the root of the budget problem and an obstacle to its solution.

“Congressional Republicans have talked about fiscal responsibility and reducing spending, so I hope they will take this opportunity to work with President Obama on this budget,” said Democratic National Committee Chairman Tim Kaine. “The country will be ill-served by a strategy of opposing the president no matter what he proposes.”

Republicans remain confident that Obama’s budget proposal is their best argument against his party’s dominance in Washington, knowing that it will be difficult for Democrats to pass off responsibility for the record federal debt when voters seem poised to turn against incumbents with a vengeance.

“The fundamentals are clear,” said Senate Republican Leader Mitch McConnell of Kentucky. “This budget is more of the same: more spending, more taxes and more debt.”

Get ready for rhetoric far more fiery than that in coming months as partisans battle the issue out and each side uses its spin in the 2010 mid-term elections.

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  • ProfElwood

    Republicans have said they aren’t likely to cooperate with Mr. Obama on his deficit-reduction approach, opposing tax increases even as they attack Democrats for proposing cuts to Medicare. Meanwhile, senior Democrats in Congress have shown themselves reluctant to cut spending with unemployment hovering at 10%.

    I still remember how the Democrats shocked Republicans in 1995 by giving them enough votes to pass the constitutional balanced budget amendment. A Republican (Hatfield) had to vote no in order to keep it from passing the Senate. I have no proof, of course, but I’m pretty sure that the amendment was supposed to be a show piece that was never meant to pass.Maybe the Republicans could return the favor this year. They’re looking mighty silly trying to criticize the Democrats for supporting what were previously Republican proposals.

  • troosvelt_1858

    Just to set Hatfield’s record straight he was always opposed to the amendment.

    He even offered to resign so they would only need 66 votes.

  • shannonlee

    “The fundamentals are clear”

    Yes, according to past behavior from both sides, the fundamentals are to increase spending and cut taxes. McConnell can’t make believe that he wasn’t around for the past 9 years.

  • Axel Edgren

    So Obama cuts taxes and freezes spending in a recession (that worked so well for Ireland) and still gets tantrums from the GOP.

    I wonder at exactly what moment Obama realizes that swathes of America is actually rewarding the rhetorically focused psychopaths, not him.

    • shannonlee

      Well…maybe Obama realizes that a little tax cutting in the right spots is appropriate. He just released a massive budget with an incredible amount of deficit spending. Your response seems somewhat similar to rhetorically focused psychopaths that you mention. 😉

  • $1690528

    Wow.

    Have any of you actually looked at the budget? Obama in no way is proposing “cutting taxes and freezing spending”.

    He proposes increasing spending by $2 trillion between FY2010 and FY2020, from $3.7 trillion to $5.7 trillion.

    He proposes increasing taxes by $2.5 trillion over the same period from $2.2 trillion to $4.7 trillion.

    This latest proposal is fiscally irresponsible. It envisions enormous deficit spending in a full employment economy and is fiscally unsustainable according to both the President’s speech accompanying the document and his own budget director.

  • Don Quijote

    We could reduce the deficit by at least 300 to 400 billion a year as far as the eye can see, by closing our military bases overseas, ending the pointless and unwinnable wars we are involved in, and downsizing our military…

  • $1690528

    Don,

    Where’d you get those numbers?

    Cost of wars in Iraq and Afghanistan is less than $150 billion. Overseas bases are nowhere near $100 billion so I guess your unspecified reductions must be the rest. Too bad the deficit is $1.35 trillion

    • SteveK

      For people to state as fact that the cost of wars in Iraq and Afghanistan has not been one of the major reasons our economy is in the tank are either a) ignorant or b) liars.Bickering over the “exact” cost this week… this month… this year is merely a deceptive segue used to sidestep the legitimate points some don’t want to acknowledge.

      • $1690528

        Sorry, but that’s just not right. Every element of spending is equally responsible for the deficit. It is simply wrong to say that this spending or that spending is the cause. It’s the refuge of people who don’t like a particular policy. Said differently, if you point to the wars as the cost, you are first not explaining all of the deficit. In the case of FY10, you aren’t even explaining 15% of it. Second, you are just picking on a policy you don’t like.

        By the way, it’s fine that you don’t like it.

        Additionally, hyperbole is not an effective debating tool. I agree that the cost of the wars can and should be cut but claiming there’s $400 billion there is simply inaccurate.

        Facts are friendly. Here is the CBO analysis of the cost of the wars from 2000 to 2010. It never crosses $200 billion in any year.

        http://www.cbo.gov/ftpdocs/108xx/doc10871/Chapter1.shtml#1096708

        I’m not saying we should have done it, I’m simply saying that the claim that the wars are responsible for our financial crisis are simply incorrect and saying it doesn’t make it so.

        • SteveK

          Maybe you should reread Don Quijote’s comment. He was talking about the military budget and you turned it into Iraq / Afghanistan War funding. I in turn replied that those unnecessary wars are one of the reasons we’re in the predicament we are in today.This was as the top item in a “2011 military budget” google search:”Obama announces 548.9-billion-dollar defense budget for fiscal year 2011” and though I don’t agree that we can (should?) take “300 to 400 billion” out of it… the money is there.

    • Don Quijote

      Don,

      Where’d you get those numbers?

      Pulled them right out of my backside…

      We spent over $500 Billion on the military last year, not counting our little adventures in the Middle East and in Afghanistan. If we were end our pointless wars and cut our Military expenditures by 2/3, we would still have the world’s largest Military…

  • $1690528

    So we agree, the 300 to 400 billion is hyperbole. That’s what I said in my original post.

    And PS, the deficit is still $1.6 trillion this year and $1.3 trillion next year (but it will be higher because Congress will spend more and tax less than the President has proposed).

    I’m for reducing the military budget, I’m also for raising taxes on everyone, means testing entitlements, and freezing all other spending until the budget is balanced. It will take all of that to solve the problem that we have collectively created.

    And to your argument that the wars are one of the reasons we are where we are, I agree. Of course, so is Medicare spending, the Medicare part D benefit, Social security spending, and every other form of spending in the budget. A dollar is a dollar. In the end, you spend X and you have Y. If Y is less than X, all components of X are equally responsible for the gap.

    • ProfElwood

      all components of X are equally responsible for the gap.

      I have to take a partial disagreement on that. There’s spending for long term benefit (the now-hijacked term “investment”) and throwing money into a pit of no return. Wars, pork, corporate welfare, and quite a few other categories tend to fall into the “high cost/low return” slot.

      I absolutely agree with means-testing entitlements, and the not-mentioned reforms within those entitlements. However, those currently look politically impossible. Oh well, I guess we’ll get to those kinds of things after the house of cards collapses.

  • Leonidas

    The numbers are staggering but, Obama argues, so are the challenges in the long term that need to be addressed:

    I have to wonder if the government is the best way to meet many of these “challenges” or whether the private sector might meet them better and cheaper in many cases.

  • SteveK

    I’m for reducing the military budget, I’m also for raising taxes on everyone, means testing entitlements, and freezing all other spending until the budget is balanced. It will take all of that to solve the problem that we have collectively created.

    Good, I am, too.

    And to your argument that the wars are one of the reasons we are where we are, I agree. Of course, so is Medicare spending, the Medicare part D benefit, Social security spending, and every other form of spending in the budget. A dollar is a dollar. In the end, you spend X and you have Y. If Y is less than X, all components of X are equally responsible for the gap.

    I agree… but only to a point. Hopefully you see a difference between Medicare / Social Security costs and the cost of Bush’s preemptive, unnecessary war in Iraq. Everyone who receives, or will in the future receive, Medicare / Social Security has PAID for that privilege. If they haven’t pay enough that’s not their fault. It’s the fault, and problem, of congress. As far as Medicare Part D is concerned it’s a failure because to many congress critters felt they owed their loyalty (job?) to the drug cartels instead of their constituents. Removing Drug Price Negotiation turned a good idea into a disaster. Fortunately, many of those who sold out to the Drug Cartels are in the 111th Congress, maybe you (all of us?) should remind them of what they did, remind them that it’s their responsibility fix it. Then watch who does what what and remove the incompetent as necessary, this shouldn’t be a partisan thing.

  • DLS

    Sadly, Leo, rationality and constitutional federalism are being sacrificed to idealism and a power grab in Washington, as has been the case for decades. The 1990s outsourcing was merely a Dem concession to reality after 1994’s elections, and the functions being outsourced remained federal, not left to the state and local governments, as often should be the case, if done by those governments, too, at all.

    The budget suggested by Obama is trouble-ridden, and will dominate the politics, but unfortunately this will include a lot of nonsense, just as there is in the budget already: reliance on unrealistic future expectations, for example (not silly naive liberal idealism necessarily, but cynical dishonesty, exploiting the easily-fooled ignorant Dem defenders and supporters, I suspect).

    Letting the Bush tax cuts (actually, current and now normal tax rates) expire (and rates allowed to rise) is classic liberal passive-aggressive behavior, and makes perfect sense by these people. (It puts the onus on the Republicans to expose themselves to fiscal-mismanagement criticism, and making the deficit worse, if they attempt to retain the lower tax rates). The Dems have the upper hand on that.

    The new taxes being sought are potentially harmful. They are at cross-purposes to economic recovery; don’t the Dems realize that? Overall, this budget looks like another clumsy or amateurish job by the Obama team, superimposed on a still-alarming desire by the Dems to engage in enormous spending. (The sane Americans are aghast at the levels sought; the “infirm” Americans, be it intellectual or moral infirmity, don’t object at all, and even would want more spending.) The spending sought is so bad that it likely still alarms people more than the higher taxes that are sought, a struggle to raise taxes in a manner superficially as in the Clinton years, to reduce the deficit through tax increases rather than by spending reductions or controls. Note that even the unrealistic future projections this time are for continued deficits, indefinitely. There’s not even a pretence of achieving a surplus sometime in the future.

    Meanwhile, there are more sinister games happening. Naturally, that “temporary” bank tax might now (“surprise”!) be extended beyond ten years. (See below.) The scramble for money has started — and it’s going to get worse in the years to come, as the fiscal problems worsen more. (That’s more true in Europe than here; Europe’s programs and expenses are even more unsustainble, are worse. It’s not a surprise to some of us that they are scrambling for money at risk of starting internal discord or strife. Germany may buy stolen data on Swiss bank account holders. Anything for tax revenues. The offshore tax havens are doomed. It’s just a matter of when the bigger, more desperate or greedy nations will strike.)

    (Bank tax: The banks taking TARP money have claimed to have repaid it; the tax falls on banks that never took TARP money. This is simply a new tax that this gang in Washington wants to levy. They just want money and want to exploit public anger at “the bankers.”

    Real explanation as of now: They’re greedy for money, and they want to run GM for much longer. In any case, this is a nice, big, fat, glistening, tempting wellspring source of money.)

    “The U.S. may extend a $90 billion fee on the country’s largest banks beyond the planned 10 years if the government hasn’t recouped the cost of the financial rescue, Treasury Secretary Timothy Geithner said Tuesday.”

    http://online.wsj.com/article/SB10001424052748704022804575041101979317056.html

    The politics have begun.

  • Schadenfreude_lives

    For those who are insisting it is defense spending that is bankrupting our country, here is some food for thought:
    http://www.cato-at-liberty.org/2010/02/01/five-decades-of-federal-spending/

    • SteveK

      When a country spends almost one dollar out of every three on defense you can’t say defense spending isn’t a major part of the problem.

      Better go look at the chart you linked to again. I also suggest consider that your chart, “Federal Spending as a Share of the Gross Domestic Product” should have everybody concerned. FIVE PERCENT of Americas Gross Domestic Product is spent on Defense.

      If you think it’s because of paranoia, not the power of the defense industry, just look into the aircraft the Defense Department doesn’t need or want that congress keeps shoving down our throat (no pun intended Schadenfreude_lives).

      • Schadenfreude_lives

        It is also less than we spent in the 70’s, 80’s and the beginning of the 90’s.

  • $1690528

    SteveK,

    With respect, you are reading the chart wrong. Defense spending hasn’t been 1 dollar out of every 3 in decades. To do the portion, you need to divide the defense number (currently between 4 and 5) by the total number (sum of the 3 lines on the chart). Total number under Obama will be somewhere between 23 and 25. Your point on wasteful defense spending is right but the one in 3 figure is not.

  • $1690528

    Sigh,

    I’ve seen that hackneyed analysis so many times, I almost want to scream. Let’s take it line by line. Counterterrorism is defense fine. Foreign arms sales are not defense. They don’t make us any safer. They may be foreign policy but foreign policy is not defense. Veteran’s affairs is not defense either. It’s a pension program for a number of citizens who are not covered by OASI, SSI, DI or Medicare. It belongs in that bucket. Homeland security is partially defense, let’s say half.

    NASA satellites are not defense. They are largely scientific in nature. Veteran’s benefits…see Veteran’s affairs.

    Other, sure, take the $6 billion.

    The debt argument is bogus in its entirety. No source of spending can be said to be responsible for debt and the 123.7 number is completely specious. Do you even know how the calculation was done.

    So, using your numbers, I get about $710 billion on a 3.8 trillion budget. Still a long way from 1 in 3 but there you go. Even using your crazy analysis, I still can get to one in 3.

    • SteveK

      phooey! You seem to want to segue away from what we were talking about so I’ll leave you it.

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