Chad Stone is chief economist at the Center on Budget and Policy Priorities.
The deficit-reduction package President Obama included in his budget submission this week, like the Senate Democratic budget I discussed here a few weeks ago, is the kind of plan that should appeal to centrist pundits and budget analysts. But the President has gone about as far as he can go to try to compromise with Republicans if he wants to maintain the core principles that deficit reduction should be achieved through a balanced package of revenues and spending cuts and that it should not increase poverty or inequality.
President Obama and Congress have already enacted significant deficit reduction since the President's deficit commission chairs Erskine Bowles and Alan Simpson released their plan in late 2010. In contrast to the rough balance between spending cuts and revenues that Bowles-Simpson envisioned, however, about 70 percent of the enacted policy savings for the years 2014-2023 have been on the spending side (see chart). Smaller deficits and less borrowing from these policy savings also produce less debt and thus lower interest payments.
The spending cuts enacted so far largely result from the limits (or "caps") on discretionary (i.e., non-entitlement) spending established by the Budget Control Act (BCA) passed to resolve the 2011 debt ceiling impasse. The revenue savings result from the January "fiscal cliff" deal that allowed some of the Bush-era tax cuts on very high-income individuals to expire. These figures do not include the automatic "sequestration" spending cuts that began in March.
The current Republican alternative to the president's proposal – the budget shepherded through the House by Budget Committee Chairman Paul Ryan – achieves over $5 trillion of additional policy savings ($6.2 trillion with interest savings) over the next decade, almost exclusively through spending cuts. The president is seeking roughly $1.5 trillion in additional policy savings ($1.8 trillion with interest savings) in the same time, roughly equally divided between spending cuts and revenue increases.
The spending cuts proposed in the Ryan budget are savage, unnecessary, and harmful to the economic recovery. But even the president's plan takes another bite out of the portion of the budget that has already borne the brunt of the deficit reduction achieved thus far – spending on so-called non-defense discretionary (NDD) programs. NDD programs encompass most of the activities that the federal government performs, from supporting education to maintaining national parks to funding biomedical research to helping low-income families afford housing. (NDD excludes defense and mandatory or entitlement programs such as Social Security, Medicare, and veterans' compensation.)
Government spending outside of health programs and Social Security spiked in the Great Recession, but it has already begun to decline (relative to the size of the economy as measured by gross domestic product, or GDP) and is projected to continue falling in the coming decade (see chart).
Within this category, non-defense discretionary spending has been on a similar trajectory. The limits ("caps") on NDD enacted in the Budget Control Act pushed NDD spending below its 2010 projected levels, and sequestration will suppress it further. In contrast to the Ryan budget, which seeks even deeper cuts in NDD, the president's budget replaces sequestration – which includes substantial cuts in 2013 and 2014 – with a more balanced deficit-reduction package that phases in spending cuts and revenue increases more gradually, while still shrinking deficits substantially over the decade.
Nevertheless, the president proposes a further $100 billion reduction in NDD spending that will inevitably further squeeze the resources available to protect vulnerable Americans.
There is much to commend in the president's approach to reducing the deficit without harming the economic recovery (you can read more CBPP analysis here). But it is important to recognize that the president's deficit-reduction proposal already reflects considerable compromise. The elements fit together to achieve substantial budget savings without jeopardizing the economic recovery and without putting the burden of deficit reduction on those least able to bear it.