This week President Obama sent his fiscal year 2013 budget to Congress for consideration. Isabel Sawhill, Ron Haskins, William Gale, William Galston and Bill Frenzel analyze the merits of the president’s proposals for spurring economic growth, creating new jobs and reducing the federal budget deficit—and how they may be received by a divided Congress in the midst of contentious election year politics.
No one seriously believes that the president’s budget will be enacted during 2012. Not only is 2012 a campaign year but our polarized politics makes taking even modest steps virtually impossible. Instead the budget is primarily a concrete way of signaling the administration’s priorities and what they would work on if reelected.
With this reality in mind, here’s my take on the overall themes in this year’s budget and what they signal about the administration’s priorities.
First, the administration cares about jobs. It proposes, as it did last September, a number of job-creating measures, including tax cuts and assistance to states. How much these will still be needed by 2013 is an open question and will depend on the strength of the economic recovery over the coming year. Sadly, in my view, political gridlock will prevent these measures from going into effect any time soon when they could do the most to bolster that recovery.
Another Disappointing Budget
Ron Haskins, Senior Fellow, Economic Studies
Deficit hawks are grounded again. President Obama’s budget for 2013 is yet another failure to seize an opportunity to put down a serious marker that could lead to real, bipartisan progress on the deficit. Instead, the president has offered a budget that is flawed in at least three respects.
First, although candidate Obama pledged to end the long reign of budget tricks in the nation’s capital, his 2013 budget contains a big one. He claims $850 billion from winding down the wars in Iraq and Afghanistan. But you can’t save money on war spending that was already scheduled to decline.
Second, the president increases several taxes in the context of increased spending. The fight for increased taxes—which most analysts admit must be part of a bipartisan plan to fully control the deficit over the next decade and beyond—could get further if the budget used every penny of new taxes for deficit reduction. But because the president proposes to increase taxes in a budget that also contains new spending initiatives, Republicans are sure to dismiss the budget out of hand. Republicans have certainly not been forthcoming on the role of tax increases in a bipartisan deficit solution, but the Obama budget plays into the long-standing Republican claim that Democrats want new revenues only so they can increase spending.
Raising Revenue in a Progressive Manner Without Raising Tax Rates
William G. Gale, Senior Fellow, Economic Studies
Amidst the myriad proposals in President Obama’s budget are two “big ideas” that would raise revenue in a progressive manner without raising taxes. These important ideas should be emphasized in the discussion of tax and fiscal reform that the country should be having and will have to have sooner or later. (The president also proposes letting the Bush tax cuts for high-income households expire, which would raise marginal tax rates modestly for high-income households.)
Some background: Revenue increases are going to have to be part of the medium- and long-term fiscal solutions. The required spending cuts from solving the budget problem on the tax side alone would be too draconian to gain public support, and durable budget deals that addressed earlier fiscal problems in the 1980s and 1990s contained a balance of spending cuts and revenue increases. In addition, the public supports having a combination of revenue increases and spending cuts, rather than all one or the other. And, if shared sacrifice is a key theme for fiscal solutions, tax increases are the only way to ensure that households with very high income participate meaningfully in helping to close the fiscal gap the nation faces.
Among the many intriguing features of the administration’s FY 2013 budget proposal, three strike me as especially significant.
First: the thrust of this budget is wholly (and in some respects literally) consistent with the political strategy toward which President Obama shifted last fall. The president’s budget message summarizes—and occasionally quotes verbatim—his Kansas speech and State of the Union Address. It isn’t clear the extent to which this budget will become the blueprint for our fiscal future. But one thing is entirely clear: it is a blueprint for the president’s reelection campaign—in particular, for the spending he argues is necessary to boost growth and job creation.
At the announcement of the president’s budget, many budget observers are wondering if it matters much anymore. There was a time when presidents’ budget requests to Congress had some meaning, and were not just opening bids in a political auction where no sales are final.
In those days, Congress usually responded with a budget of its own, often quite similar. The real battles were later fought over appropriations. The budget/appropriations process has always been a confused, competitive exercise. That was before debt and deficits became overwhelming.
The competitive exercise has become a blood sport in which there are no winners. The president’s 2013 budget signifies an intention to keep fighting. It is almost $1 trillion in deficit. It is full of new and added “investments” many of which Congress will not enact. Most notably, it contains $1.5 trillion in new taxes, none of them favored by the House.
“The 21st century has revalued these small geographies. That’s what the 21st century demands,” Katz said, noting that these days, “[w]e aren’t innovating in isolated business parks” in the suburbs.
"Instead of stopping trade, modernize the trade agreements, but also provide safety nets for workers. Because these things are going to keep happening, not only because of trade but because of modernization."