Obama's toughest goal may be slashing deficit, skeptics say

The Baltimore Sun

WASHINGTON -As President Barack Obama presents his first budget today, the most daunting goal he has set might not be the ambitious proposals for economic recovery, health care reform or revamping the nation's energy policy. Big as those challenges are, they might be child's play compared to his promise to slash the federal budget deficit in half by the end of his term.

Two problems are already apparent if he is to cut the $1.3 trillion deficit to $533 billion. First, many of the methods he says he will use to achieve savings have often fallen short in the past - cutting waste, imposing new budget rules, curbing defense outlays and raising taxes on the affluent.

Second and potentially harder to overcome: There is fresh evidence that, for all the talk of fiscal responsibility, Congress is not ready to mend its free-spending ways.

Exhibit A: The House passed yesterday a huge spending bill left over from last year that increased expenditures by 8 percent. And it is laden with thousands of pet projects inserted by individual members, both Democrats and Republicans.

Even before the details of Obama's budget were released, his deficit-reduction target has been viewed with skepticism in a variety of quarters. It has been criticized variously for relying on overly optimistic assumptions, failing to be sufficiently ambitious, and creating a marker that will be used against him in four years if he fails.

"It's going to be very tough," said Robert Reischauer, former director of the Congressional Budget Office. "It's going to require either some significant cutbacks in low-priority programs or a failure to enact some of his signature programs."

"I don't see how he can do it," said William G. Gale, a tax policy expert at the Brookings Institution whose own analysis has found that even with the most optimistic assumptions, he would expect the deficit to be $850 billion in 2013. He believes that is almost surely an underestimate because his calculations assume that the economy will not worsen and another stimulus bill will not be needed.

And the experience of Obama's predecessor offers a cautionary tale: In 2004, George W. Bush vowed to halve the deficit by 2009 - and failed spectacularly, owing in substantial part to the economic downturn and bipartisan spending on Capitol Hill.

One sign that Obama might be more serious is that administration officials said that he would begin to pay for his vast health care initiative by raising taxes and cutting federal spending on health care.

That won't reduce the deficit, but it will at least keep it from getting worse.

Obama has suggested that the biggest building blocks of his deficit-reduction efforts will be increasing taxes on upper-income people, scaling back the Iraq war and making spending cuts that will presumably be specified when the budget comes out. He said in his speech to Congress Tuesday night that his administration had identified $2 trillion in trims.

The war in Iraq now costs $10 billion a month, but savings from the withdrawal will be more limited because thousands of "residual" troops will remain behind; the process of withdrawing would also carry costs of its own; and Obama plans to increase troop levels in Afghanistan.

Taking all those factors into account, the Center for American Progress has estimated that the government would save a net $240 billion over four years.

Obama's plan to increase taxes on families earning more than $250,000 a year would not begin to increase revenues until after the increase takes affect in 2011. At that point, revenues would rise by a total of $136 billion over 2011-2012, according to the nonpartisan Tax Policy Center.

A plan to raise taxes on private equity firms has great populist appeal but would raise only about $15 billion over the next four years.

Obama has also called for controlling spending by reinstating a form of fiscal discipline known as "pay-as-you-go" accounting. It required that every spending increase or tax cut had to be offset by an equivalent spending cut or tax increase so as not to increase the bottom-line deficit.

The device has many critics who say that in the past it has been riddled with loopholes and easily skirted.

"Paygo would do virtually nothing to control spending growth," said Brian Riedl, a senior budget analyst for Heritage Foundation.

Obama has acknowledged that his plan will call for spending cuts that will be difficult to swallow.

He told members of Congress that "everyone in this chamber - Democrats and Republicans - will have to sacrifice some worthy priorities for which there are no dollars. And that includes me."

Unfortunately for him, there are signs that Democrats and Republicans in Congress will not have much appetite for such restraint, including his call to ban "earmarks" for things he considers pork.

"Earmark" is the name given to spending provisions inserted at the behest of individual members. Traditionally, earmarks funneled money directly to construction and other projects in a member's state or district. In recent years, they became a subject of scandal because they were often linked to powerful lobbyists who made hefty campaign contributions or did other favors for members who used earmarks to help the lobbyists' clients.

In House debate yesterday, Republicans complained that the $410 billion omnibus spending bill represented the biggest increase in spending for those programs since 1978 (except for spending in the wake of the Sept. 11 attacks). They chided Democrats for not following Obama's call for fiscal responsibility and for loading the bill with earmarks.

Massachusetts Rep. Jim McGovern responded by saying "the vast majority" were for such worthy causes as hospital emergency rooms, schools and bridges. The Democrat noted that 40 percent of the projects were requested by Republicans.

"Physician, heal thyself," he told Republican critics.

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