Up Front

The Scouting Report Web Chat: President Obama’s Budget Proposal

Isabel V. Sawhill

President Obama’s $3.8 trillion budget for the federal government landed on Capitol Hill this week with proposed spending cuts and freezes, increases for defense and homeland security spending, and a new jobs plan – along with a projected deficit of 1.55 trillion for this year. Some say that spending freezes could be dangerous while the economy is still recovering from crisis, but others argue much more must be done to tame growing debt and long-term deficits.

On Wednesday, February 3, Isabel Sawhill discussed the release of the federal budget and what it will mean for the coming fiscal year in a live web chat moderated by POLITICO’s senior editor Fred Barbash.

The transcript of this chat follows.

12:29 Fred Barbash-Moderator: Brookings expert Isabel Sawhill is with us today to take your questions on the budget. Welcome Isabel and welcome readers. Let’s get started.

12:30 [Comment From Gary: ] What do you consider some of the pros and cons of Obama’s budget plan?

12:32 Isabel Sawhill: Thanks, Fred. Let me start by talking about some of the pros and cons in this year’s budget. The President’s budget contains some good ideas, in my view. We need to freeze (or more accurately cap) non-security discretionary spending but make tough choices within that category and the Administration has done that. They have applied a scalpel rather than an ax and put a lot of emphasis on what works and on what might help the struggling middle class and put the nation on a firmer foundation for the longer run by not neglecting spending on education, research, infrastructure, and clean energy.

They have also had to struggle with how we keep the recovery going while also paying attention to the accumulation of debt over the longer run. I agree with them that the short-term focus has to be on creating jobs.

What’s missing in the budget is any solution to our longer-term problems. The Administration admits that the problem is very serious but their goal for 2015 is a deficit of 3% of GDP. That means, even if they achieve their goals, we would still have a deficit of $583 billion. They suggest we can make progress by some cuts in spending, some added revenues, and a paygo law that would prevent Congress from digging the hole deeper. They lay out some of the needed measures but not enough to do the job. So they also propose a commission to tackle the problem as well.

12:32 [Comment From Pete: ] Do you think Obama will be able to get Reps and Dems to cooperate on the budget?

12:34 Isabel Sawhill: No, I don’t. I recently wrote an opinion piece (on the Brookings website) that notes we face three deficits. A deficit of dollars, a deficit of jobs, and a deficit of trust. The third is the most serious because it’s a prerequisite for dealing with the other two. We have a badly polarized congress and so I’m very pessimistic here.

12:34 [Comment From KP: ] How do you think Obama’s budget plan balances between the two main problems right now; creating more jobs and bringing down the massive public debt?

12:36 Isabel Sawhill: As I think I noted in my first response, they do better on the short-run need to create jobs than on addressing the longer term problem. But they understand the need to do both which not everyone in Congress or elsewhere does. As Obama said when he spoke at Brookings this fall, the tension between creating jobs and reducing deficits is a false choice. I agree.

12:37 [Comment From Lester: ] I think the president said during the campaign that the way to trim the deficit should be delicate, like using a scalpel. Isn’t the spending freeze more like the hatchet?

12:38 Isabel Sawhill: I actually think they used a scalpel. The freeze is a cap which allows for trade-offs between discretionary programs. The focus is on investments that will make the nation stronger over the long run such as education, research, infrastructure, clean energy. It’s also on programs that work.

12:38 [Comment From Sally: ] What about the idea of a commission? Will that solve anything – or just be another delaying tactic?

12:40 Isabel Sawhill: That’s the big question. I hope they are able to accomplish something but I fear that Republicans won’t cooperate and that the commission will be a paper tiger that provides cover but isn’t able to change the long-term picture. The Vice President did lead an effort a few weeks ago to get the leadership in Congress to agree in writing to take up the Commission’s recommendations and put them to a vote. So that helps.

12:41 [Comment From Amy: ] In your opinion, what would happen we maintained our current fiscal policy and never reduced the debt?

12:41 Isabel Sawhill: At some point, I think we would have a crisis; it would not be a matter of if but only a matter of when.

12:42 [Comment From Tom: ] You and your colleagues have argued I think that we’re overspending on seniors to the detriment of children. But how do we stop those popular entitlements?

12:44 Isabel Sawhill: Thanks for this question. You’re right we have been arguing that. And see David Brooks on this issue (Monday, NYT, I think). We have made changes in these programs before. For example, we increased the retirement age in Social Security based on recommendations of a 1983 commission headed by Greenspan. We just need to slow the growth of spending. The changes don’t have to affect today’s elderly.

12:44 [Comment From Ralph: ] Will Congress approve pay-as-you-go rules? And will they do much good?

12:46 Isabel Sawhill: I hope they do. It helped quite a bit to have these rules in place when I was in OMB during the 1990s. By the end of the decade, by the way, we had surpluses in the federal budget. One house has approved statutory pay-go and I think the other may follow.

12:47 [Comment From Suzie: ] Who would you say are the winners in the budget? And who are the losers?

12:49 Isabel Sawhill: Among the winners are education (and thus kids and tomorrow’s adults), research and entrepreneurs, and the middle class more generally. The losers are the wealthy, the banks, the space program, and others that I can’t remember. But we are going to need more people and sectors to tighten their belts.

12:50 [Comment From Mark: ] I’ve heard some hubbub recently about Obama’s budget and NASA. It seems like “going to the moon” is the last place we want to be spending our money right now. What do you think?

12:50 Isabel Sawhill: I agree.

12:50 [Comment From Joyce Evans: ] There is a significant investment in education. What do you see as the challenges? What do you hope to see as the outcomes?

12:52 Isabel Sawhill: I have given the Administration high marks for their education initiatives. They are trying to expand charter schools, pay teachers based on performance, and perhaps redirect some of the formula-based money that goes to the states in a way that rewards reform. All great ideas.

12:52 [Comment From Dirk: ] People on the right say that we should run government like a business. Don’t businesses borrow money to expand? All businesses are in debt to someone.

12:54 Isabel Sawhill: Yes, businesses do. And governments can borrow as well and should during emergencies (e.g., wars) or to help the economy recover from a recession when the government is the spender of last resort. But business pay back the money eventually out of their profits and government needs to as well.

12:54 [Comment From Alex: ] is there any incentive in america anymore, to be a hardworking successful individual, or are we intent on rewarding mediocrity as usual. constantly punishing those who take out loans to put themselves through college and graduate school to actually make a decent living?

12:56 Isabel Sawhill: The administration has a very important proposal to limit the burden of student loans on people’s incomes, basically capping how much has to be paid back out of discretionary income. I think education is the key to success in a modern economy and more support for those aspiring to postsecondary education and training is critical.

12:56 [Comment From Alex: ] how about we reform medicaid and medicare. in new york state nearly 50% of our budget is devoted to outrageous medicaid/medicare costs.

12:59 Isabel Sawhill: You are right that reforming health care is absolutely key to getting our long-term budget under control. Medicare spending growth is what’s really driving up long-term deficits. Even small reductions in the rate of growth would help a lot. Peter Orszag had some interesting figures on this in his testimony yesterday. But this is why getting health care reform done is so important, although I wish there were more cost control in the current bills.

12:59 [Comment From Juhani: ] Only 20% of people entering college to become teachers are male at the moment. Seems like paying by performance might get the men interested in teaching. Moreover, what sort of issues the budget has when it comes to equality and sexes? Has anything pointed out to you that would significantly improve either men or women’s life?

1:01 Isabel Sawhill: One of the themes in the budget is the difficulty of balancing work and family — an issue of special concern to women but increasingly to men as well. There is a big increase in $ for child care and help for those caring for elderly parents as well.

1:01 [Comment From Jennifer S.: ] I’ve seen pundits say that with this budget,Obama now “owns” the deficit. Do you think that’s fair, given that the Bush Administration had eight years to run it up?

1:02 Isabel Sawhill: Glad you raised this question. The administration inherited a huge deficit from the previous administration – about $8 trillion over the next decade. More than half of those deficits was due to the Bush tax cuts and the prescription drug bill, neither of which was paid for. Most of the rest is due to the recession that began in Dec. 2007 and can’t be blamed on the Administration. The Recovery Act itself plays only a small role. So it’s simply not true, as some claim, that it’s the current administration’s big spending policies that are to blame. But they do “own” the problem now.

1:02 [Comment From Matthew: ] Speaking of health care reform, do you think that the cost-saving pilot programs in the bills will have any effect? Or are they just another useless thing used for PR purposes – like a presidential commission?

1:04 Isabel Sawhill: I think they could be important. I wish the bills allowed for a little more flexible and speedier way for them to be taken to scale. But my colleague Mark McClellan who heads our health care center here at Brookings and has studied them both here and when he was the head of CMS seems to think they’re very important. We need a Medicare commission with strong powers in any bill.

1:05 [Comment From Cookie: ] The last time we had a surplus, the economy was a lot stronger, in the Clinton Administration. But wasn’t it also the result of a package of spending cuts and tax increases that actually made it through Congress? is our systems so broken that a package like that just can’t happen anymore?

1:06 Isabel Sawhill: Yes, there were several major agreements during those years, one in 1993 and another in 1997. And the politics of this wasn’t as bad then as it is now.

1:06 [Comment From Pauly: ] Do other countries really take us seriously when our debt is so ridiculously huge?

1:09 Isabel Sawhill: At the moment, they are still lending us a huge amount of money — and they own about half of our gov’t debt. Interest rates are very low because the U.S. is still considered something of a safe haven in a turbulent world. But you are right that this could change any time and rather suddenly, leading to a fall in the dollar, a rise in interest rates and another economic crisis. Except in this case, we would be starting from a weaker point and have fewer ways to respond.

1:09 [Comment From Sally: ] A follow up on the commission idea. Do you think Obama has in mind something that covers spending cuts as well as tax increases?

1:13 Isabel Sawhill: Absolutely. Everything has to be on the table. Indeed, if such a commission didn’t address the big entitlement programs such as Social Security and Medicare and Medicaid, it wouldn’t have fulfilled its mandate, in my view. But revenues have to be on the table as well and most Republicans have said they wouldn’t participate under these circumstances. The bipartisan commission proposed by Sen Conrad and Gregg got 53 votes but not enough to be filibuster proof. Its Republican co-sponsors bowed out at the last minute, for what seemed to most people like purely political reasons.

1:13 [Comment From Julianne: ] What’s the #1 thing Obama should be doing to get our budget back on track? It’s hard to believe that only 8 or 10 years ago we had a surplus.

1:16 Isabel Sawhill: I was disappointed that this year’s budget didn’t do more. Even by 2020, the projected deficit is still $1 trillion — absolutely unprecedented for a peacetime, prosperous nation. But the reality is that it’s an election year and all of the things we should be doing are not going to be enacted, even if proposed. I think we may need to not extend all of the Bush tax cuts for the middle class, for example, but they are extended in the budget and they have a price tag of around $3 trillion over a decade.

1:16 [Comment From Matthew: ] A follow-up question on pilot programs: do you know of any pilot programs that went on to be successful full-scale programs?

1:16 Isabel Sawhill: I don’t but check with the health care center at Brookings.

1:16 [Comment From Ken: ] Defense seems to be one of the worst offenders when it comes to wasting money. Do you think they’ll be held more accountable? And do you think they should be asked to cut their budgets too?

1:19 Isabel Sawhill: This question comes up a lot. I’m no expert but I do think the pentagon is trying to rebalance their spending in sensible ways to get rid of obsolete weapons and move spending more toward intelligence, surveillance, personnel, and other areas needed in the modern era of terrorism. But the politics of doing this is hard. The base budget for defense goes up by under 4 percent this year. Would a freeze have made sense? Maybe.

1:19 [Comment From David: ] Back to the idea of a bipartisan fiscal commission. Who should serve on it? And does it matter who chairs it? Do you have any favorites?

1:22 Isabel Sawhill: The commission would have 18 members, 12 from congress and 6 public members. It would be bipartisan. That means you need some Republicans who are willing to work on both spending and taxes, I think — a tough challenge. I would like to see Alice Rivlin, David Walker, and Bob Bixby on the Commission but I don’t even know if they’re interested.

1:23 [Comment From Alyssa: ] What should our long-term goals be? It seems like a small surplus for one year would be remarkable but that would barely make a dent in the trillions of debt held by the public.

1:26 Isabel Sawhill: I think this is an important question. See my commentary on it at https://www.brookings.edu/opinions/2010/0129_deficit_sawhill.aspx. But basically I think the idea of balance is a good one. We have migrated away from this out of necessity and because many economists argue that the first thing we need to do in this deep hole is stabilize the debt to GDP ratio which means deficits of about 3% of GDP — the administration’s goal for 2015.

1:27 Fred Barbash-Moderator: That’s it for today. Thanks Isabel Sawhill…and thanks to all of our readers for your excellent questions.

See you here next week…same time for another POLITICO-Brookings live chat.