The President’s Budget: Not as DOA As Many Might Think

DOA, the dreaded acronym for “dead on arrival,” has greeted most White House budgets in recent decades of growing partisanship. There is certainly reason for believing that designation is appropriate for President Barack Obama’s $3.8 trillion budget for fiscal 2014 released today. It is two months late, and appears after completely divergent budget plans were adopted in Congress: one put forward by Representative Paul Ryan, the Republican House Budget Committee chairman, and another from Senator Patty Murray, that was backed by all but four of her Democratic colleagues in that chamber.

 But there may be more than meets the eye behind the president’s budget. At the broadest level, his plan stands somewhere in the middle, more closely aligned with the Senate proposal than the House one, but still containing features that should appeal to, and possibly challenge, both sides.

 And at the micro level, the president’s budget always matters. Every year, a significant chunk of the president’s program-by-program request for discretionary funds is approved by Congress largely as proposed by the president — a fact obscured by the annual fights over high-profile items such as abortion funding, foreign aid and Medicare spending.

FINDING THE MIDDLE

One definition of the “middle” in this case is the size of the deficit as a share of GDP each plan projects for 10 years from now. Another definition of the “middle” looks at the ratio of publicly held debt to GDP by 2023, because that burden is seen by many as an indicator of whether budget policies are sustainable, and the macroeconomic risks of future crises they entail.

 Each of the various plans would substantially reduce the current deficit-to-GDP ratio from the current 6 percent to roughly 2 percent or less in 10 years. By 2023, the Ryan plan would reduce the ratio of debt to GDP to 55 percent; it was nearly 73 percent in 2012. The Murray and Obama plans would keep that ratio between 70 and 80 percent through the rest of the decade.

 The Ryan plan — which assumes no new revenue — would rely solely on spending cuts to balance the budget by 2023, largely by repealing the 2010 health-care law, restructuring Medicare and Medicaid and making unspecified changes to Social Security. Ryan would shield defense programs, spending $500 billion more during the next decade than if automatic spending cuts are carried out. Under these assumptions, the deficit and its share of GDP would be reduced to zero in 10 years — a marked change from Ryan’s 1.2 percent-of-GDP goal 10 years out advanced last year.

 In contrast, the Murray plan envisions additional revenue of almost $1 trillion during the next decade, coupled with an equal amount of spending cuts, such as $240 billion from defense compared with the higher set of caps in the Budget Control Act. She aims at a deficit of 2.2 percent of GDP by 2023.

OBAMA’S MIDDLE GROUND

 President Obama calls for about $580 billion in revenue increases from limiting high-income tax benefits, about double that in spending cuts, and a projected 2023 deficit of 1.7 percent of GDP. Obama also is seeking about $100 billion in cuts to defense programs by 2023 (also relative to the BCA caps).

In contrast with his plan last year, the president’s 2014 proposal offers some specific changes to Social Security through the use of the “chained CPI” to adjust for inflation rather than the conventional CPI. That measure would be used for other programs, too, with “protections for the most vulnerable,” according to a White House fact sheet. The Obama plan also would attack Medicare waste and fraud, a perennial in presidential budgets. He also proposes some specific cuts in prescription drug reimbursements and more Medicare cost-sharing by beneficiaries beginning in 2017.

 The president’s negotiating strategy also differs from last year, indeed his entire first term. Rather than seeking compromise with congressional leaders, the president is hoping that he can reach a deal with key Republican senators who are not in the leadership, especially those who have shown some openness to additional revenue as part of a deal. Then, he’ll persuade his Democratic allies in the Senate to sign on to the deal, even with entitlement changes they may not like.

From there, he is hoping that a Senate-passed plan would be hard for the House, even one controlled by Republicans, to turn down or modify significantly.

 The president’s budget represents his opening bid in this round of the delicate talks, which may come to a head this summer in advance of votes on increasing the statutory debt limit. This convergence of factors may provide all sides with incentives to make a deal, as Republicans in recent months have backed away from using threats of shutting down the government — or worse, allowing the nation to default on its debts — to extract concessions from Obama.

 Whether Obama’s new strategy will work will depend on how much trust he can establish with key Republican senators and their Democratic counterparties. At this point, no one can say what the outcome will be. But the game has been reset by the budget’s release and its centrist position.

 With apologies to Mark Twain, reports of the budget’s death may be greatly exaggerated.

Co-authored with Loren Duggan, Director of Congressional Analysis, BGov

For more information about BGov, go to www.BGov.com

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