Reimagining Fiscal Responsibility
President Obama's budget has been leaked to major news organizations in time for the Sunday papers, and it seeks to close a yawning deficit over the long term through entirely unobjectionable means like ending unnecessary wars and ensuring that everyone pays their fair share for using the public commons.
Obama proposes to dramatically reduce those numbers by the end of his first term, cutting the deficit he inherited in half, said administration officials, speaking on condition of anonymity because the budget has yet to be released. His budget plan would keep the deficit hovering near $1 trillion in 2010 and 2011, but shows it dropping to $533 billion in 2013 -- still high in dollar terms, but a more manageable 3 percent of the overall economy.
To get there, Obama proposes to cut spending and raise taxes. The savings would come primarily from "winding down the war" in Iraq, a senior administration official said. The budget assumes that the nation will continue to spend money on "overseas military contingency operations" throughout Obama's presidency, the official said, but that number is significantly lower than the nearly $190 billion the nation budgeted for Iraq and Afghanistan last year.
Obama also seeks to increase tax collections, primarily by making good on his promise to eliminate the temporary tax cuts enacted in 2001 and 2003 for wealthy taxpayers, whom Obama defined during the campaign as those earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule for the 2011 tax year, when the top tax rate would rise from 35 percent to more than 39 percent.
Obama also proposes to maintain the tax on estates worth more than $3.5 million, instead of letting it expire next year. And he proposes "a fairly aggressive effort on tax enforcement" that would target tax havens and corporate loopholes, among other provisions, the official said.
Overall, tax collections under the plan would rise from about 16 percent of the economy this year to 19 percent in 2013, while federal spending would drop from about 26 percent of the economy, another post-war high, to 22 percent.
The other big elements of this would be to eliminate the hedge fund loophole, which would tax their income as income instead of capital gains, and to institute a cap-and-trade plan for carbon emissions, which would provide revenue to the federal government by selling carbon credits at auction. And while floating a deficit equal to about 3% of GDP in 2013, which would be remarkable given the investments being made, we would have a more efficient health care system that costs less and covers more people in return.
The budget also puts in place the building blocks of what administration officials say will be a broad restructuring of the U.S. health system, an effort aimed at covering some of the 46 million Americans who lack insurance while controlling costs and improving quality. Many lawmakers said they had expected a health care overhaul to be pushed off while Obama deals with the economic crisis, but administration officials stressed they intend to forge ahead with comprehensive reform.
"The budget will kick off or facilitate a focus on getting health care done this year," the senior official said, adding that the White House is planning a summit on health care. The event has been delayed by former senator Tom Daschle's decision to withdraw from consideration as health secretary because of tax problems, a move that left Obama without key member of his health team.
Administration officials and outside experts say the most likely path to revamping the health system is to begin with Medicare, the federal program for retirees and people with disabilities, and Medicaid, which serves the poor. Together, the two programs cover about 100 million people at a cost of $561 billion in 2007. Making policy changes in those programs -- such as rewarding physicians who computerize their medical records or paying doctors for results rather than procedures--could improve care while generating long-term savings, expert say. It also could prod private insurers to follow suit.
They are talking about reducing Medicare eligibility to age 55, and also getting rid of the grossly inefficient Medicare Advantage, which is essentially a $35 billion dollar payoff to private insurance companies.
I know people are worried about the fiscal responsibility summit. Words matter, and using the language of those who have been trying for 40 years and longer to gut the social safety net is problematic. However, I am willing to judge the Administration on what they do. This budget is a Democratic statement of priorities, which states pretty clearly that we need a more responsible and progressive tax system that makes sure corporations and the wealthy are paying their fair share. It strives for progress in health care and climate change and a winding down of commitments to foreign military adventures. And it ends blatant giveaways to industry.
There will be details that come out that I imagine not to particularly like, and I'll certainly fight the off the books chicanery designed to prop up elites. But the budget is a major document. And this one is, so far, a very respectable manifestation of liberal principles.