A Progressive's Critique of the Ryan, Obama and "People's" Budgets

The President's proposal includes $770 billion in cuts in non-security discretionary spending.  This is basically an extension over a 12 year period of the $78.5 billion in cuts agreed for the 2011 Budget Compromise with the GOP-Controlled House struck in April 2011; those cuts represent the largest ever cuts in a year-to-year budget.  Details of this compromise are provided in http://www.erielead.org/node/6335. ; The original 2011 Budget proposal by the President is described in http://www.erielead.org/node/6336; the President's budget described above does preserve most of the President's proposed programs for infrastructure, innovation and education described in the last reference. 

The second element in the President's proposal is to find more savings in the defense budget.  Defense Secretary Gates has already taken on wasteful defense spending has secured some real savings, but an additional $400 billion in security savings will be needed by 2023 while guaranteeing America's capacity to maintain our national security.

The third element is to cut health care spending, not by shifting costs to seniors and poor families but by reducing the cost of health care itself. The approach builds off of the Affordable Care Act with new reforms aimed at reducing health care spending more while making Medicare and Medicaid stronger. Those reforms will help America keep its commitment to all our citizens and save us $480 billion by 2023, and another one trillion dollars in the following decade.

The fourth element is to reduce spending in the tax code.  The Bush tax cuts for the wealthiest 2% are not extended beyond Dec 2012.  This will generate about $1 trillion of tax revenue in 12 years (an average about $80 billion a year).  Moreover, itemized deductions for the 2% of top earners will be eliminated and this will generate another $350 billion in revenue over12 years.  In this contest Tax Code simplification by the Congress is also urged.  

To the above savings over 12 years in non-security discretionary spending ($770 billion), in defense spending ($400 billion), in health care spending ($480 billion) and in tax expenditures ($1.35 trillion), we should also add $1 trillion in savings from lower payments of interest for servicing the debt; this brings the total savings to $4 trillion for the period 2012 - 2023.  It does abide by the recommendation of the Deficit Reduction Committee to include $3 in spending cuts for each $1 in revenue increases, since it requires $2.65 trillion in cuts and $1.35 in revenue increases. 

Finally, President's proposal calls for the enactment of a "debt fail-safe" trigger that would guarantee a decline in the debt as a share of the economy.  This can serve as a big incentive for Congress to act to reduce the deficit and guarantee to meet that target.  The proposed trigger would require that, by the second half of this decade, America's debt is falling as a share of our economy. If that target is not met by 2014, there would be automatic spending cuts, both in direct spending and in spending through the tax code. 

The proposed budget does not balance the budget within the next 12 years, in fact it adds about $8 trillion more to the deficit.  It does lower though the deficit  as a percentage of the GDP without affecting in an adverse manner the social safety net (Medicare, Medicaid, and Social Security).  It keeps federal spending to between 23% and 24% of GDP as contrasted to GOP Ryan's budget whose spending is kept a 20% of GDP.  As for federal revenue Obama's budget sets  it at 20% of GDP as compared to the GOP budget limiting it to18% of GDP.

The criticism of the President's proposal from our perspective is two-fold: (i) it does not balance the budget in the 12 years of its time horizon and (ii) it does not call for additional investments in infrastructure, innovation and education which are necessary both for increasing our global competitiveness and for job creation.  By contrast it advocates for $770 billion in cuts of non-security discretionary spending, which will results in job losses and slow down the ongoing fragile economic recovery instead of accelerating it. 

The reason for this is the timidity of the President's budget proposal in calling for additional tax raises on the wealthy and corporations (including for example raising the capital gains tax rate) and keeping the Bush tax cuts intact for 98% of the population. However, we do comprehend the President's need to appeal to the independents by espousing some serious spending cuts and to avoid repealing the Bush tax cuts for 98% of the electorate preceding his re-election bid for 2012.

"People's Budget" Promotes Growth, Eliminates Deficits Faster