On February 14, President Obama sent his fiscal year 2012 federal budget proposal to Congress for consideration. As Washington gears up for a long-term budget debate, William Galston, Mark Muro, Robert Puentes, Bruce Katz and Alan Berube analyze the president’s proposal and offer recommendations for how leaders on both sides of the aisle can work together to address the federal budget crisis.
Different Ways of Looking at the President’s Budget Proposal
William A. Galston, Senior Fellow, Governance Studies
There are many ways to look at President Obama’s FY2012 budget proposal. For example, as many observers have noted, the proposal fails to incorporate the structural reforms in our revenue system and in major spending programs that the president’s own fiscal commission recommended last December. Instead, it gestures toward continuing bipartisan conversations on those reforms. There is a hopeful interpretation of this strategy: the administration really wants to be involved in those conversations but doesn’t believe that the ground has been adequately prepared for them. And there is a less hopeful interpretation—namely, that the administration doesn’t want those talks to begin in earnest until after the 2012 presidential election. In any event, we’ll find out which hypothesis is closer to the mark only after a pitched fiscal battle that may occupy most of 2011.
There is another way of looking at the president’s budget: to what extent does it move us off the track we’re now on? Last month, the Congressional Budget Office published its latest ten-year budget projection. As required by law, it began with the so-called “baseline” budget, which represents our fiscal future under current law. This is a Rip Van Winkle exercise that simulates the consequences of putting the government on autopilot—doing nothing new—for ten years. Under this scenario, spending would average 23.5 percent of GDP, revenues would average 19.9 percent, deficits would total $6.97 trillion dollars, and debt held by the public would rise to 76.7 percent of GDP.
Compare this to the president’s proposal: spending would average 22.7 percent of GDP (0.8 percent less than the CBO baseline), while revenues would average 19.0 percent (0.9 percent less. Because revenues fall more than spending, the deficits would total $7.21 trillion (about $200 billion more than the baseline) and debt held by the public would rise to 77.0 percent of GDP (0.3 percent more). In the aggregate, in short, the president’s proposal doesn’t move us much off fiscal autopilot.
Many people regard a ten-year estimate as inherently unreliable, in part because it incorporates assumptions about the long-term performance of the economy. So instead, let’s take a snapshot of our fiscal condition five years from now, in 2016. Under the CBO baseline, revenues will be 20.0 percent of GDP, outlays will be 23.5 percent, and the deficit will be $659 billion. Under the administration’s proposal, revenues will be 19.3 percent of GDP, outlays will be 22.6 percent, and the deficit will be $649 billion—again, almost no difference.
The administration will argue—rightly—that beneath the surface of these aggregates lie some significant policy differences: some of them move the CBO baseline closer to political reality, while others represent important initiatives. No one really expected the Bush tax cuts for the middle class to expire at the end of 2012, or the AMT to engulf the middle class, or draconian cuts in Medicare reimbursement to be imposed on doctors. And the president’s budget does make a good faith effort to clear fiscal space for investment in education, infrastructure, and other key priorities by cutting a number of long-established domestic programs.
At the end of the day, though, Obama’s FY 2012 budget starkly illustrates the limits of incremental budgeting that focuses on discretionary spending while avoiding the issues that his own fiscal commission pushed to the fore. Until our political system finds a way of coming to grips with those issues, we’ll be locked on a fiscal trajectory that few economists regard as sustainable. It remains to be seen whether the political system can do so if the president does not take the lead.
With budget chaos deepening in Washington and the politics of gesture ascendant, it’s hard to know how seriously to take President Obama’s FY 2012 budget proposals—released against the backdrop of budget melodramas and the massive proposed program cuts being pushed by the House GOP.
Still, as a statement of priorities, the new outline must be taken seriously, especially where it advances an expansive and important agenda for new investment in U.S. economic transformation.
Such an agenda is exactly what the 2012 documents released this week (and foreshadowed in Obama’s highly thematic State of the Union address last month) advance. On multiple fronts the Obama administration appears to be doubling down on innovation as the linchpin of a two-step strategy to acknowledge fiscal austerity with trims across many programs while embracing the need to invest in innovation so as to transcend the current budget crisis through growth.
The Obama administration’s FY2012 transportation budget request shows their continued strong support for a range of programs designed squarely to change the way Washington does business. Through the budget, they are trying incrementally to move transportation away from a roundly criticized federal block grant program that is as both broke and broken to one that uses competitive grants, rigorous analyses of benefits and costs, and leverages a range of both public and private funding sources.
They propose to do this through programs Race-to-the-Top-like competitions for transportation agencies, a National Infrastructure Bank, and governmental streamlining for outdated programs (though more details about the programs and their impacts on our metropolitan areas are still sorely needed.)
Efforts to boost U.S. competitiveness feature prominently in the administration’s FY 2012 budget. Significantly, the proposal expands the nation’s export playbook because growing exports requires more than trade and currency policy tweaks. Exporting companies need an efficient transportation system to ship their goods abroad, effective innovation, education, and workforce development policies to increase the quality of exported goods and services, and extensive export financing and trade services to maintain and expand their reach to markets across the world.
The Department of Energy’s ‘Cut to Invest’ Strategy in President Obama’s Proposed Budget
Mark Muro, Senior Fellow and Policy Director, Metropolitan Policy Program
The Obama administration’s FY 2012 budget is all about arguing—perhaps somewhat rhetorically given political realities—the role of investments in growth despite the imperative for austerity. Such tradeoffs are everywhere in the budget. And yet, in no domain are those twin stances more sharply visible than in the Energy Department (DOE) outline, which proposes a classic “cut-to-invest” strategy to maintain progress on key imperatives when retrenchment appears likely.
Overall, the new budget request proposes growing the DOE budget (see a detailed press release and Sec. Chu’s presentation and PowerPoint here and here) by a substantial 12 percent over FY 2010 spending levels, and it would importantly continue the Obama administration’s push to bolster the nation’s inadequate research, development, and deployment investments in clean energy.
As seasoned observers have acknowledged, a sharply divided Washington makes President Obama’s budget this year at least as much a political act as a policy one. Ambitious new initiatives stand little chance at passage. Yet it’s still worth asking how the administration sees education through a political lens. After all, President Obama identified education as one of the central pillars for investment in his State of the Union call to “win the future.”
Let’s start then with the top line. The Department of Education surfaces as one of the clear winners in the FY 2012 Obama budget. While the budget freezes non-security-related discretionary spending overall, spending at Education would rise 11 percent under the president’s proposal. Much of the increase is for pre-K through 12 spending, expanding and/or restructuring programs like Title I, Investing in Innovation (I3), support for early education, and Race to the Top, under the auspices of a reauthorized Elementary and Secondary Education Act (popularly known as No Child Left Behind).