Obama rejects budget finesse

The Baltimore Sun

WASHINGTON - After eight years of administration budget practices that often camouflaged the full extent of federal spending, President Barack Obama is planning to put as many of the expected costs on the books as possible to show the full extent of the challenges facing the country, senior White House officials say.

Obama's first budget, scheduled to be released in broad outline on Thursday, will include money for the Iraq war, the troop buildup in Afghanistan, economic aid and other expenditures at the outset, instead of tucking such costly commitments into separate spending requests that would later go to Congress - a device President George W. Bush often used.

"The president is determined to treat the American people as adults and be straight up about what we're facing and what we need to do to move forward," said David Axelrod, a senior adviser to Obama. "He's completely confident we can do that, but only if we face up to our challenges. You can't finesse the situation we're in."

The new approach, which is likely to be set out in the president's address to Congress tonight, follows up on Obama's repeated campaign pledges to make government more transparent, but it also fits with an immediate political need - to persuade Congress and the public to accept costly and controversial measures to rescue the economy, reform health care, and reshape energy and environmental policies.

Paradoxically, Obama's strategy of piling costs into the budget could also make it easier for him to keep his promise to cut the federal deficit in half by the end of his first term. The economic crisis is driving the deficit so high that, even if it were cut in half by 2012, the overall budget and the amount of red ink could still be huge by historical standards.

In other words: Loading in stimulus spending, war appropriations and other special costs will raise the deficit immediately. But, barring unforeseen circumstances, those costs are likely to be gone or at least sharply reduced by the end of Obama's present term. And, since he has pledged to cut the annual deficit - not the entire national debt - in half, starting with huge deficits now means he can slash spending in his fourth year relative to 2009 and still afford major programs.

For years, the White House and Congress have engaged in a kind of Kabuki theater around the federal deficit. In February, the president would release a budget for the forthcoming fiscal year that would show declining deficits into the future. But that budget would exclude most war costs and use several unrealistic assumptions, including overly optimistic predictions of economic growth and rising federal revenues. Budget makers also tended to assume the country would experience no significant natural disasters.

"When the budget came out, there were significant costs that were excluded from the budget because the Bush administration pretended that certain policies that everyone knew would continue wouldn't continue," said Jim Horney, a budget expert with the Center for Budget and Policy Priorities.

One particularly deceptive practice was including revenues from the alternative minimum tax in the projections. Congress passed the alternative minimum tax four decades ago to prevent millionaires from escaping taxes. But because lawmakers forgot to index the income levels for inflation, the higher tax rate would hit a large swath of middle-income taxpayers unless lawmakers pass AMT relief - which they do every year.

For political reasons, Congress never fails to lift the AMT. But for budget reasons, the Bush administration continued to assume that the AMT would take effect in future years, unrealistically raising tax revenue assumptions by nearly $1 trillion over 10 years.

Similarly, every year the Bush administration would issue an initial deficit projection that was much higher than other economists' projections. That way, when the final deficit count was released, the administration could claim it had brought the deficit "down."

In fact, deficits accumulated each year that Bush was in office, from $158 billion in fiscal 2002 to $455 billion last year - totaling roughly $2.5 trillion all together.

The legacy of Bush's federal deficits leaves Obama in a difficult position, in that he has to make deficits worse in the short term while signaling that he means what he said in the campaign about long-term deficit reduction.

As he opened a fiscal summit with lawmakers and budget experts yesterday, the president emphasized the role that health care costs are playing in the deficit, calling it the "single most pressing long-term fiscal challenge we are facing, by far."

In fact, by 2018, more than 51 percent of all health care spending in the United States will be done by federal, state and local government, totaling about $2.2 trillion, according to the latest estimates released today by the Centers for Medicare and Medicaid Services. In 2008, government accounted for an estimated 46.6 percent of the nation's health care spending, with the majority provided by consumers and private insurance companies.

For some lawmakers, the way to contain health care costs has nothing to do with Obama's idea of reform.

"Looking ahead, we're hearing from some people that we can't reform government entitlement programs until we reform the entire health care system," said Iowa Sen. Charles E. Grassley, the ranking Republican on the Senate Finance Committee.

"The problems with our health care system need fixing," he said. "But for a lot of people, health care reform is code for spending more, not less."

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