Is Obama's Bold Budget Too Ambitious?

President Barack Obama unveiled a $3.6 trillion spending plan that pushes this year's deficit to levels not seen seen World War II. Longer term, though, the budget seeks to cut the deficit back to size by 2013. The budget can also be seen as a blueprint for the president's ambitious policy goals.

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It's MORNING EDITION from NPR News. I'm Renee Montagne.

STEVE INSKEEP, host:

And I'm Steve Inskeep.

President Obama released an outline of his budget for 2010 yesterday with these words:

President BARACK OBAMA: This budget is an honest accounting of where we are and where we intend to go.

INSKEEP: Okay. By his numbers, here's where we are. The president reports a budget deficit in the fiscal year we're in the middle of right now of $1.75 trillion. Within four years, the president projects a deficit that will come down to a little over $500 billion - a dramatic decrease that would still be a record high deficit for any other point in history.

The president wants to give tax cuts to the middle class, while the government seeks to cut greenhouse gases, develop alternative energy, reign in health care spending, and boost education. NPR's John Ydstie reports on whether it's all plausible.

JOHN YDSTIE: One of the first things reporters look for when a president unveils a budget is whether it involves a rosy economic scenario, one that overestimates growth and tax revenues and underestimates the size of the federal budget deficit. Indeed, the Obama White House is basing its budget on estimates somewhat more optimistic than a number of surveys of professional economists.

But Maya MacGuineas, president of the Committee for a Responsible Federal Budget, believes the administration's forecasts are as valid as any.

Ms. MAYA MACGUINEAS (President, Committee for a Responsible Federal Budget): You could tell me that this recession is going to last for two more years, you could tell me that we're going to have a strong recovery, or most likely it's going to be something in between. And I really don't think any economist knows where we're headed.

YDSTIE: But honesty in budgeting is not just about economic forecasts, something President Obama pointed out as he unveiled his budget yesterday.

Pres. OBAMA: For too long our budget has not told the whole truth about how precious tax dollars are spent. Large sums have been left off the books, including the true costs of fighting in Iraq and Afghanistan.

YDSTIE: But this budget is different, says Maya MacGuineas, who's also with the New America Foundation, a Washington think tank. She says it's the most transparent budget in a long time.

Ms. MACGUINEAS: It really includes all the items that this administration thinks are likely to consume resources in the coming years, and particularly the Alternative Minimum Tax, realistic funding for the war, some ways that we treat supposed savings in Medicare that never happened to materialize, have all be put in this budget in an honest way for the first time in years.

YDSTIE: But MacGuineas expresses one major disappointment. She says President Obama isn't cutting the deficit enough.

Ms. MACGUINEAS: Given the state of our budget deficits that are just well beyond what anybody could've imagined, we should be talking about how to do deficit reduction first, and then second, how to pay new tax and spending items. There's just not a lot of wiggle room in the budget right now.

Mr. DOUGLAS HOLTZ-EAKIN (Former Chief Economic Adviser to John McCain): I am disappointed but not surprised.

YDSTIE: That's Douglas Holtz-Eakin, chief economic adviser to John McCain's presidential campaign. He says President Obama made clear during the campaign that he would spend a lot of money.

Mr. HOLTZ-EAKIN: And made a lot of promises as the campaign evolved. It included trillions of dollars in new programs - we're seeing some of that now. He also talked about fiscal responsibility, and that's the part I find disappointing. Which is - I don't think they've taken the various pieces and put them together in a way that sets us up well at the end of his first term for the real big bills that we see coming in the future.

YDSTIE: Bills from entitlements, like Medicare, Medicaid and Social Security. Holtz-Eakin, a former head of the Congressional Budget Office, says running future deficits of the size implied in this budget could make investors, including sovereign investors like China, nervous about the U.S.'s ability to pay its debts. And that could force U.S. borrowing costs up.

There is one more positive thing Maya MacGuineas sees in this budget. The new administration seems ready to pay for its initiatives through tax increases or cutting other programs, she says.

Ms. MACGUINEAS: They have some significant tax cuts and a significant expansion in health care spending, both of which the White House is saying must be fully paid for. And I think that it's imperative that that's the case and I certainly hope the White House sticks to that, even when they get pushed back from Congress, which they will.

YDSTIE: Douglas Holtz-Eakin agrees.

Mr. HOLTZ-EAKIN: The real trick is going to be getting the Congress to go along. An administration can talk about it, an administration can propose it, the real issue is will a Congress chain itself to a pay-as-you-go system. And even this Congress, run by Democrats, has passed on occasion.

YDSTIE: The budget is now in Congress's hands, though the administration will send out more details fleshing out its proposals in April.

John Ydstie, NPR News, Washington.

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OMB's Orszag Backs Deficit Cut Despite Spending

Some people say President Obama's pledge to halve the budget deficit in four years is at odds with his budget, which proposes large spending increases for health care and energy programs. Not so, says Peter Orszag, director of the Office of Management and Budget.

Orszag tells NPR's Michele Norris that health care will be partially paid for with a reserve fund, and energy will be funded through a market-based cap-and-trade program.

Cutting The Deficit

The deficit will be reduced, he says, by an improving economy, ending tax cuts in 2011 for those making $250,000 and up, along with a clampdown on some corporate tax provisions. The winding down of the Iraq war also will save money, Orszag says, adding that the administration is poring over the budget in search of efficiency gains.

He says the budget contains a variety of things that will save money, and he offers up a Department of Health and Human Services program as an example. Orszag says evidence suggests that each dollar spent making sure medical providers "are receiving only what they are supposed to be receiving saves $1.60 in erroneous payments."

"We will invest in those kinds of programs and — hard evidence suggests — save $50 billion over 10 years through those kinds of efforts," Orszag says.

He dismisses criticism that the only way Obama's pledge to halve the deficit can be met is by extending the increase in the tax rate to a lower income bracket.

"We will get the deficit down to less than $533 billion in 2013," Orszag says. "We'll only be raising taxes on those making more than $250,000 a year. It's eminently doable."

Critics of the budget, such as Republican Sen. Judd Gregg of New Hampshire, say the proposal is a massive expansion in spending and taxes that passes on to future generations a government they cannot afford.

Health Care Costs

Orszag counters that the administration is taking significant steps to reduce the deficit it inherited though spending cuts as well as additional revenue after 2011.

"Perhaps, more important than all of that, though, is that if you look over time, the single most important driver of our long-term fiscal gap is the rate at which health care costs are growing," Orszag says. "And we have substantial improvements in efficiencies that are built into the ... down payment on health reform."

Obama's stimulus package, he says, included major investment in health information technology and comparative-effectiveness research.

"The budget builds on that by also starting to reorient incentive for providers toward better care rather than more care, and also eliminating a very significant subsidy that goes to private insurance firms that offer coverage under Medicare," he says.

But Orszag acknowledges that the budget projects a rise in gross domestic product beginning in 2010, noting: "To the extent that doesn't happen, the budget situation would be worse.

"These are our best projections, and the situation can wind up being better or worse than what we're currently projecting," he says.

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