The 2013 Federal Budget: A Political Strategy

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.

Second, he will restrain the deficit principally through tax increases on corporations and wealthy individuals, daring his Republican adversary to take the other side of this case. Between 2013 and 2022, the deficit will fall by 2.7 percent of GDP. Revenues will account for 2.3 percent of that total, rising from 17.8 to 20.1 percent of GDP. By contrast, outlays will be nearly constant, falling by only 0.5 percent of GDP over the next decade and remaining at nearly 23 percent.

Third, the growth of entitlement programs will continue, virtually unchecked. Between 2013 and 2022, Social Security will grow from $820 to 1361 billion, Medicare from $523 to 908 billion, and Medicaid from $283 to 578 billion, for a total increase of $1219 billion for those three programs alone. By contrast, the portion of the budget subject to annual appropriations is projected to remain flat in nominal dollars ($1261 billion in 2013, $1287 billion in 2022), which implies a substantial real cut over the decade. Put as a share of GDP, spending for the three large entitlement programs will rise from 9.9 to 11.2 percent, while discretionary programs (defense and domestic) will fall from 7.0 to 5.1 percent.

In short, what is already the largest share of the budget will surge ahead on autopilot, while the portion from which investments in the future can be drawn will decline to levels not seen for decades. I doubt that this will happen, and I’m pretty sure that it wouldn’t be good if it did.