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Obama Budget Analysis: True Savings or Riddled with Gimmicks?

Dem lawmaker: Budget is a "nervous breakdown on paper" WaPo: "Annual deficits exceeding $600 billion every year except 2018" Reuters: $800 million for "Arab Spring" Senate GOP: "Fiscal sleight of hand" and "gimmicks" --

Copies of President Barack Obama's fiscal 2013 federal budget arrive at the House Budget Committee on Capitol Hill in Washington, Monday, Feb. 13, 2012. (AP Photo/J. Scott Applewhite)

The big news of the day is the release of and reaction to President Barack Obama's budget for FY 2013, which all signs point to being dead on arrival in the Democrat-controlled Senate for the third year in a row. Some stats from the budget assembled by the Associated Press at first glance:

  • Is a $3.8 trillion spending plan that seeks to achieve $4 trillion in deficit reduction over the next decade
  • Looks to achieve $1.5 trillion in deficit reductions through tax increases on the wealthy and removing certain corporate tax breaks. Will seek to make sure that households making more than $1 million annually pay at least 30 percent of their income in taxes.
  • Projects a deficit for the current budget year of $1.33 trillion, marking the fourth straight year that the deficit would top $1 trillion.
  • Projects the deficit would decrease to $901 billion in the 2013 budget year, which begins October 1, confirming $3.8 trillion in spending next year, an increase of 0.2 percent over this year's expected outlays, and a 17.5 percent increase in revenues.
  • Projects deficits to gradually go down to $575 billion in 2018, which would still be higher in dollar terms than any deficits run up before Obama took office. It would be below 3 percent of the total economy, however, and thus at a level economists generally consider sustainable.
  • Imposes a new $61 billion tax over 10 years on big banks aimed at recovering the costs of the financial bailout and providing money to help homeowners facing foreclosure on their homes.
  • Would raise $41 billion over 10 years by eliminating tax breaks for oil, gas and coal companies and it claims significant savings from ending the wars in Iraq and Afghanistan.
  • Would increase spending on transportation projects, including efforts to expand inner-city rail services, by $476 billion.
  • Proposes $30 billion to modernize at least 35,000 schools and $30 billion to help states hire teachers and police, rescue and fire department workers.
  • Seeks $360 billion in savings in Medicare and Medicaid mainly through reducing payments to health care providers.
  • Projects that Medicare spending will double over the coming decade from $478 billion this year to almost $1 trillion in 2022.
  • Medicaid would more than double from $255 billion this year to $589 billion by 2022.
  • Makes no changes to Social Security

The Washington Post notes that the spending plan forecasts the national debt to grow significantly faster than previously thought:

"The president’s outlook for debt reduction has deteriorated markedly since September, when Obama told Congress that his proposals would hold annual deficits well under $600 billion after next year and permit the debt held by outside investors to rise to $17.7 trillion by 2021, or 73 percent of the overall economy."

[...]

"The new 10-year blueprint shows annual deficits exceeding $600 billion every year except 2018. And the portion of the debt held by outside investors would grow to $18.7 trillion by 2021, or 76.5 percent of the economy — a full $1 trillion higher."

The Post notes that the administration will also slash Community Development Block Grants by half, terminate the C-27 airlift aircraft, cut airport grants by 27 percent and reduce funding for robotic exploration of Mars. Obama's call to tax the rich primarily comes from his decision to permit the Bush tax cuts to expire on income over $250,000 a year and from limiting the value of itemized deductions for those households.

The President makes the case for his budget on the Office of Management and Budget webpage:

"We now face a make-or-break moment for the middle class and those trying to reach it. After decades of eroding middle-class security as those at the very top saw their incomes rise as never before and after a historic recession that plunged our economy into a crisis from which we are still fighting to recover, it is time to construct an economy that is built to last.

The President’s 2013 Budget is built around the idea that our country does best when everyone gets a fair shot, does their fair share, and plays by the same rules. We must transform our economy from one focused on speculating, spending, and borrowing to one constructed on the solid foundation of educating, innovating, and building. That begins with putting the Nation on a path to living within our means – by cutting wasteful spending, asking all Americans to shoulder their fair share, and making tough choices on some things we cannot afford, while keeping the investments we need to grow the economy and create jobs. The Budget targets scarce federal resources to the areas critical to growing the economy and restoring middle-class security: education and skills for American workers, innovation and research and development, clean energy, and infrastructure.

The Budget is a blueprint for how we can rebuild an economy where hard work pays off and responsibility is rewarded."

But Republicans in Congress argue that the President's budget is not a practical plan to get the nation's fiscal house in order but rather a pure political document riddled with inaccuracies and false promises, that in reality achieves a deficit reduction of just $273 Billion not $4 trillion.

Republicans on the United States Senate Budget Committee released a statement shortly after the release of the President’s budget, arguing it's claimed deficit reduction is based on the following deceptions:

  • It does not count the cost of replacing the $1.2 trillion sequester (spending reduction plus interest savings) required under current law. This is plainly true because the president eliminates the reductions required by the law that he signed and replaces it with tax increases. Then he fails to score the cost of repeal, a monumental deception.
  • It counts the inevitable winding down of the war costs in Afghanistan—all of which is borrowed—as $1 trillion in spending reduction; and
  • It buries the $522 billion cost of freezing the Medicare physician update in the baseline, without identifying any source of funds to pay for it

The statement also notes the President's increases in the gross debt by approximately $11 trillion is on top of nearly $5 trillion that has already accumulated during Obama's first three years in office.

"Fiscal sleight-of-hand accounts for $3.7 trillion of the president’s deficit reduction, leaving the debt in the president’s plan largely unchanged from what would be expected to occur under current spending law and tax policies ($11.2 trillion rather than $11.5 trillion). Even worse, the president’s proposed switch from current law spending reduction to even higher taxes contributes to a 62 percent increase in spending between 2011 and 2022. Once the gimmicks are taken away, the president’s budget becomes another enormous tax-and-spend plan that ignores the drivers of our debt and is alarmingly inadequate for the undisputed fiscal realities of a growing debt and aging population."

Sure to ignite controversy, Reuters reports that the budget also contains more than $800 million in economic aid to help "Arab Spring" countries swept by revolutions. The President will maintain military aid to Egypt at the same level of recent years -- $1.3 billion -- despite a crisis triggered by an Egyptian probe targeting American democracy activists. Reuters notes that most of the economic aid for the Arab Spring countries -- $770 million -- would go to establish a new "Middle East and North Africa Incentive Fund," to "provide incentives for long-term economic, political, and trade reforms to countries in transition -- and to countries prepared to make reforms proactively."

Senator John Barrasso of Wyoming was on Fox News Channel this morning where he argued that the President is using "accounting gimmicks" in his new budget:

One last thing…
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