Obama's Budget Falls Short of Deficit Panel Recommendations

Republicans charge that the White House proposals don't go far enough.

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The Obama administration's 2012 budget attempts to achieve fiscal responsibility while spending on priorities the president says are necessary to "win the future." At an appearance at a Baltimore middle school on Monday, the President characterized the two goals as inextricably linked: "the only way we can make these investments in our future is if our government starts living within its means, if we start taking responsibility for our deficits." Though the proposed 2012 budget makes some major cuts, they fall far short of the recommendations made in December by the National Commission on Fiscal Responsibility and Reform, which President Obama charged with identifying ways to improve the government's fiscal situation.

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Obama's budget does take steps toward addressing federal red ink. It reduces spending to $3.7 trillion from 2011's total of $3.8 trillion, and it cuts the deficit even more steeply, from 2011's $1.6 trillion to $1.1 trillion for fiscal year 2012. Furthermore, it reduces the deficit as a share of GDP from 2011's 10.9 percent to 2.9 percent by 2018. But the deficit commission called for $3.9 trillion in overall deficit reduction through 2020. The White House budget would achieve just over one-fourth of that total, $1.1 trillion, through 2021.

Office of Management and Budget Director Jacob Lew said Monday that the budget proposal makes significant strides toward cutting deficits. "This budget does accomplish what was the task given to the commission, to bring the deficit down to 3 percent of the economy," Lew said, adding that the administration's proposal "draws heavily on the ideas of the commission."

While that may be true, the budget omits several major commission recommendations. One notable example is the commission's call for massive Social Security reform, including a gradual retirement age increase to 69 in the year 2075, up from the current range of 65 to 67 years. Likewise, the commission called for an overhaul of the income tax system, eliminating tax breaks like the mortgage interest deduction but also lowering tax rates across the board. The Obama budget makes only minor changes to Social Security and in part relies on tax increases, such as the 2012 expiration of the Bush tax cuts, in reaching its deficit-reduction goals.

In several other cases, the Obama plan echoes the commission but does not go as far. For example, the deficit commission's plan would get rid of all federal student loan in-school interest subsidies. Under Obama's plan, such subsidies would be eliminated for graduate students only. Additionally, the commission recommended a reform of corporate tax law by cutting tax rates but also eliminating many tax deductions and credits. The President's budget also eliminates "tax breaks and loopholes," particularly for oil, gas, and coal companies, and calls on legislators to start "the process of corporate tax reform." However, the budget does not contain a specific proposal for changing that tax code.

There are those who consider it a good thing that the budget proposal does not adhere closely to the commission's recommendations. Some high-profile economists, including Nobel Prize-winners like Joseph Stiglitz and Paul Krugman, were critical of the commission's recommendations, warning that drastic spending cuts are ill-advised at a time when they say economic stimulus ought to be a priority. And President Obama's budget includes initiatives that the administration has touted as potential engines for job creation. The proposal would allocate $148 billion for research and development in areas like energy and cybersecurity, and also includes significant infrastructure spending, including $53 billion to be spent over the next six years on passenger rail.

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Robert Greenstein is executive director of the nonpartisan Center for Budget and Policy Priorities, a policy institute that advocates for the interests of low-income individuals in public policy, and he believes that the Obama budget does not contain enough long-term deficit-reduction fixes. However, he says, it is an "important step," and one of its major accomplishments is the stabilization of the debt as a share of GDP. The proposal estimates that the debt-to-GDP ratio, at 75.1 percent for 2012, would only increase to 77 percent by 2021. "Stabilizing the debt as a share of the economy is the most important fiscal goal for the decade ahead, as recent high-level fiscal commissions have noted," says Greenstein, alluding to the deficit commission.