Bloomberg View: Praise for Obama's Budget
Budgets are part practical blueprint and part political manifesto. Too often, they sacrifice the former for the latter. The Senate’s 2014 budget—its first in five years—won approval only from Democrats because it raised taxes and failed to offer Republicans any cuts to Social Security or Medicare. Meanwhile, only Republicans voted for the more austere plan in the House, which would reach balance by 2023 by whacking domestic programs that Democrats cherish. President Barack Obama’s $3.8 trillion spending plan recognizes the stasis in Washington and presents a way around it. For that alone, he deserves credit.
Obama offers entitlement cuts in exchange for tax increases on the wealthy. This was always going to be the general outline of the compromise, and his quid pro quo is admittedly small beer: He proposes $1.8 trillion in deficit reduction for the next decade, yet much of that would replace the $1.2 trillion in automatic spending cuts that took effect last month. And his entitlement cuts would reduce spending by only $830 billion over 10 years, a piddling amount considering that entitlements are now 60 percent of the federal budget and by 2023 will reach 64 percent—even with Obama’s trims.
For tax increases, Obama builds on the January fiscal cliff deal, which added $600 billion in new revenue over 10 years mostly by raising rates on families earning more than $450,000 a year. He’d increase taxes an additional $600 billion by limiting most itemized deductions for households in upper tax brackets. He’d impose a minimum 30 percent rate on households with annual earnings above $1 million, invoking the so-called Buffett Rule.
To conservatives, this is apostasy. Yet it will undoubtedly be helpful in winning over Democrats who are chafing at the entitlement changes the president suggests. And that’s where Obama was bold. Seniors would see a less generous inflation adjustment to their Social Security checks—in other words, a benefit cut. (Obama, who privately offered the concession before, formalized it.) To some liberal lawmakers, this makes him a traitor to the cause. That’s a useful credential as Obama tries to convince rank-and-file Republicans he’s willing to compromise.
Add it all up, and the fiscal 2014 deficit would shrink slightly to $744 billion, from $845 billion this year. The shortfall would be 4.4 percent of gross domestic product, down from 6 percent this year.
It’s worthwhile to review what Obama and Congress have accomplished. Since 2011 they’ve agreed to $2.5 trillion in spending cuts and new taxes over 10 years. The $1.8 trillion in deficit reduction in the 2014 plan would push total deficit reduction above the $4 trillion-in-10-years mark most economists say the U.S. must reach to make total debt sustainable.
The amount of new spending, entitlement cuts, and fresh revenue in Obama’s plan are almost beside the point. If this blueprint wins over enough Republicans—and doesn’t lose too many Democrats—it could be a major part of his legacy.