Road Map: Budget Brings Pain and Hope for Gain

Posted February 1, 2010 at 6:48pm

The federal stimulus gravy train is about to slam to a halt, but not before one last trip to the trough.

[IMGCAP(1)]That’s the takeaway left by President Barack Obama’s $3.8 trillion fiscal 2011 budget blueprint, released Monday, which has plenty to love and hate for liberals and conservatives alike.

Obama’s budget calls for $266 billion in new emergency spending and tax cuts, using a loophole in the pay-as-you-go rule he is signing into law.

But the president simultaneously wants Congress to impose a politically painful domestic discretionary spending freeze and assorted tax hikes as he tries to craft a new image as a deficit hawk.

Getting all that done in an election year will be a tall order, Democratic aides acknowledge.

“Passing a budget is always a difficult task, and with an economy struggling to recover from the damage the Bush administration did to it, we’ve got some tough choices ahead,— a House Democratic leadership aide said.

Indeed, every president’s budget is to some degree dead on arrival, but Obama’s blueprint could face even longer odds. Republicans immediately slammed his budget for projecting $9 trillion more in red ink over the coming decade and already rejected his call for a fiscal commission, while liberals and some appropriators have been complaining about his proposed freeze on most domestic discretionary spending even as he proposes an additional $159 billion for the wars in Iraq and Afghanistan.

And a host of Obama proposals — such as revoking $39 billion in tax breaks for oil and gas companies, adding a $90 billion fee on large banks to recover money spent on the bank bailout, or imposing more than $900 billion in tax hikes on the wealthy over the next 10 years — will face a legion of opposition from lobbyists on K Street.

Under the plan, deficits will shrink quickly, from $1.6 trillion this year to $727 billion in 2013, assuming that the economy recovers, stimulus spending expires, the wars wind down and tax increases on the wealthy take effect.

Republicans aren’t impressed.

House Budget ranking member Paul Ryan (R-Wis.) said Obama’s proposal “will increase spending, deficits, taxes and debt, and hasten our nation’s march down a disastrous economic and fiscal course.—

Meanwhile, Obama’s call for a domestic freeze, which he backed by a veto threat, appeared to set up a yearlong fight with fellow Democrats even though the moratorium only affects a sliver of the overall budget.

House Appropriations Chairman David Obey (D-Wis.) declined to endorse the freeze Monday, although he said appropriators would stick to Obama’s overall spending number.

“We will not exceed his requested level for appropriations, but we will also not exempt any department or activity from review, including foreign aid and the Pentagon, because none of them are without waste,— Obey said.

The showdown isn’t without political risk. In 2006, President George W. Bush sought to impose a domestic spending freeze, but Congressional Republicans were unable to pass their spending bills as a result when their moderate wing balked.

The failure to get the essential work of the nation done was one of the planks Democrats used against Republicans before sweeping them out of power that November.

At least for now, however, most Democrats are putting a positive spin on Obama’s plan. Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.), and most other Democrats had glowing words for it, arguing it balances job creation in the immediate term with deficit reduction in the longer term.

“President Obama’s budget directly tackles our nation’s most pressing challenges — reflecting our dedication to fiscal discipline and our commitment to keep jobs, growth and opportunity at the top of our agenda,— Pelosi said.

The Speaker also reiterated her desire to find savings in the Defense Department. “I look forward to examining the president’s proposal to freeze spending and believe waste can be found in all departments and agencies — including the Defense Department,— she said.

Office of Management and Budget Director Peter Orszag gave no ground when asked about complaints by Pelosi and House Minority Leader John Boehner (R-Ohio) about sparing the Pentagon from the budget ax.

“We’re at war. And we need to make sure that we adequately fund our troops while we are at war,— Orszag said.

The OMB director also expressed confidence that there is support in Congress to limit itemized deductions for the top 5 percent of taxpayers—an idea that Republicans and some Democrats resisted when it was proposed in the administration’s budget last year.

“There’s going to be lots of questions about the political economy of what can get enacted and what can’t. And I would just, again, return to the point that last year many people were skeptical that we would succeed in getting a lot of the terminations and reductions that we had put forward at that point. We are going to fight for the things that we put forward,— Orszag said.

But that’s easier said than done.

Obama pointed out in remarks from the White House that he is targeting the military’s C-17 transport for termination, saving $2.5 billion. Obama said the military had all the C-17s that it needed four years ago.

“Yet every year since, Congress had provided unrequested money for more C-17s that the Pentagon doesn’t want or need,— Obama said. “It’s waste, pure and simple.—

Waste or not, as Obama’s remarks showed, announcing you are killing a program in your budget and actually killing it are two different things.

Jennifer Bendery contributed to this report.