The Obama budget’s big ambitions

The plan, projecting a $1.7 trillion deficit, includes a down payment on universal healthcare.

Charles Dharapak/AP
Ready to talk: President Obama went to the Eisenhower Executive Office Building on the White House campus Thursday to discuss his proposed federal budget for fiscal year 2010.

With his first proposed budget, President Obama is attempting to address some of the most difficult public-policy problems facing the United States.

He promised change, after all, and that’s what he may be trying to deliver.

From a down payment on universal healthcare to a proposed system of selling pollution permits to higher taxes on the wealthy, Mr. Obama’s fiscal 2010 budget outline contains a number of items that, if adopted, would represent major shifts in the direction of the federal government.

Congress is already reeling from the costs and effort of trying to revive the economy.

Obama’s budget is likely to lead to even fiercer debate about national spending and tax priorities.

But given last November’s election results, perhaps lawmakers should have seen these proposals coming.

“You would expect this in the first budget of the first year of a new administration,” says Stan Collender, a longtime Congressional budget staffer who is now managing director at Qorvis Communications. “If you didn’t get it, by itself that would have been a shock.”

If nothing else, the eye-popping numbers contained in the budget outline provide some context for the Obama administration’s recent focus on the need for US fiscal responsibility.

For the current fiscal year, the deficit will hover around $1.75 trillion, according to budget figures.

That figure equals about 12.3 percent of Gross Domestic Product, making it the highest deficit as a share of the economy since World War II. By way of comparison, the deficit for 2008 was $455 billion.

Accounting for the wars

The Obama administration inherited a $1 trillion deficit for 2009, due to the softening economy and the Bush administration’s financial bailout efforts.

The just-passed stimulus bill, plus additional financial rescue money, push that figure to the $1.7 trillion mark.

Administration officials point out that their new budget includes the expected cost of the war in Iraq, plus some other expenses that the Bush administration had not accounted for in its annual budget submissions.

“All told, we are showing $2.7 trillion in costs in this budget that were excluded from previous budgets, and I think that is a mark of the honesty and responsibility contained in this document,” said Office of Management and Budget director Peter Orszag in a budget briefing for reporters.

In 2010, the US government will spend a total of $3.5 trillion, according to the new budget outline. Between 2010 and 2014, the total spending figure will be $18.7 trillion, it projects.

Tackling healthcare

Among its major proposed changes is a 10-year, $634 billion reserve fund intended to eventually pay for the administration’s proposed expansions in national health care coverage.

Half of the reserve fund would come from new revenue. The other half would come from changes in the current system, such as assumed savings garnered by requiring competitive bidding in some areas of Medicare.

The $634 billion would cover only about half of the cost of Obama’s health plans. The source of the rest of the money is, in essence, penciled into the budget with the designation “TBD” – To Be Determined.

On climate change, the Obama budget assumes that the US government will reap hundreds of billions of dollars in revenue from a so-called “cap and trade” system, beginning in 2012.
Under a cap and trade system, the government would cap greenhouse-gas emissions that big industries are allowed to emit. They could then trade or sell their rights to release the pollutants, with the government getting a slice of the overall revenue.

The revenue from this system would be used to help pay for development of renewable-energy technology – as well as subsidize the inevitable cost hikes consumers would face if Congress passes cap and trade legislation.

“Because our future depends on our ability to break free from oil that’s controlled by foreign dictators, we need to make clean, renewable energy the profitable kind of energy,” said Obama in Feb. 26 remarks on the budget’s release.

Increased taxes on the wealthy

On taxes, the Obama administration in its budget proposes boosting federal revenue collections from about 16 percent of the GDP this year to 19 percent in 2013.

The White House would allow some of the tax cuts passed under the previous administration to expire for those making more than $250,000 a year. Officials would also allow the tax on the highest US income tax bracket to rise from 35 to more than 39 percent.
The bottom line here is that beginning in 2011, taxes would begin to rise on the nation’s wealthiest taxpayers.

Big policy shifts

The administration’s healthcare reserve fund, by itself, would represent a huge change in national direction, as it implies that the US will move towards some sort of universal healthcare system.

A cap and trade system similarly would be a matter of enormous import, by itself committing the US to an entirely new way of handling the economics of pollution.

Add in higher taxes – always an item of contention in Congress – and Obama’s budget can be seen as just the beginning of a lengthy and contentious Washington debate.

“This is not a responsible budget. This is a classic tax-and-spend budget,” says Brian Riedl, chief budget analyst at the Heritage Foundation, a conservative think tank.

The historical level of government spending is about 20 percent of GDP, says Mr. Riedl, yet Obama’s budget projects that that figure will stay at about 22 percent of GDP after the recession has ended.

“A lot of people will give the president a pass for increasing spending during a recession. But he’s assuming that a large expansion of government will occur after the recession,” says Riedl.

But people voted for change, points out Mr. Collender of Qorvis Communications. And, he argues, it is easy to exaggerate the degree to which Obama’s budget represents a permanent expansion of the federal government.

The budget contains a penciled-in increase of $250 billion to help fix troubled banks, for instance. It also contains continued spending for the wars in Iraq and Afghanistan, though the need for that spending is predicted to eventually diminish.

“On the domestic side, other than healthcare, the changes in this budget are relatively small,” says Collender.

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