Experts: Obama and GOP duck the big budget issues

McClatchy NewspapersFebruary 14, 2011 

WASHINGTON — The federal budget that the Obama administration unveiled Monday fails to address the structural problems that threaten to bankrupt the country and amounts to a missed opportunity, disappointed budget experts said.

While President Barack Obama's budget reduces some spending, it takes a complete pass on the most vexing fiscal challenge: the rising costs associated with mandatory spending on programs such as Medicare, Medicaid and Social Security.

Absent changes to these programs' finances, experts warn that the federal government will be unable to bring down dangerous levels of debt, which threaten to weaken America economically and strategically.

"We are disappointed that the budget submission failed to address the issues that comprise the majority of our debt problem, including Medicare and Medicaid, Social Security and other pensions, and fundamental tax reform," said Steve Bell, the director of the economic policy project at the Bipartisan Policy Center.

Bell said that Obama and Republicans in Congress are offering window dressing by focusing on smaller domestic programs while failing to tackle expensive but popular programs that are politically risky to cut.

"They really are having a fierce firefight over the tiniest of fiscal landscape. Both of them have decided they're not going to charge the hill, they're going to see if the other guy can do it," Bell said.

What most disappointed budget experts is that Obama's budget failed to follow recommendations from his bipartisan National Commission on Fiscal Responsibility and Reform, which issued a report in December outlining compromises that could put the nation's finances in order.

"Last year the rationale of the budget was this commission would make recommendations that would show meaningful progress . . . The commission lived up to the task, but the budget (released Monday) does not," said Bob Bixby, the executive director of the Concord Coalition, a nonpartisan budget watchdog group.

The whole idea behind the commission, he said, was to give Obama political cover to make tough decisions.

"He's not taking advantage of it. That's what is so galling," Bixby said.

One particularly sobering fact is what happens to the national debt. From 2000 to 2007, net debt held by the public equaled roughly 35 percent of gross domestic product — the broadest annual measure of goods and services. That number soared in response to the financial crisis, and under Obama's budget, the debt ratio doubles and stays over 70 percent for at least a decade.

That's dangerous. The total U.S. debt level is now past 90 percent of GDP when including money the government owes itself, such as funds borrowed from the Social Security Trust Fund.

Countries whose debt levels exceed 90 percent of GDP experience weak growth and high unemployment, according to a study of eight centuries of national crises co-authored by economist Carmen Reinhart, called "This Time is Different."

In an interview, Reinhart voiced concern that Obama's budget focuses cuts in domestic spending that's only 10 percent of the federal budget.

"Lets look at the little things, but forget about the big ones," said Reinhart, a senior fellow at the Peterson Institute for International Economics.

The Obama administration dismisses such warnings.

"The statistical evidence for permanent scarring comes mostly from the experiences of developing countries," it said in Analytical Perspectives, a 481-page budget book.

That argument echoes a line of thought that Reinhart's book cites from country after country, which all thought themselves immune to what befell other nations.

While Obama would cut non-security domestic discretionary spending by roughly $400 billion over a decade, he'd permanently extend tax cuts to about 98 percent of Americans without an offset to pay for it.

The lack of serious cuts to mandatory programs keeps the debt high and rising. Under Obama's budget, interest paid on the national debt would reach 3.2 percent of gross domestic product in 2018, surpassing spending on Medicare for the first time.

Yet tough tradeoffs are nowhere to be found in the president's budget — or in recent Republican outlines for debt reduction.

The president's budget also makes sober projections about jobs and the economy. It projects that the unemployment rate won't get under 8 percent until 2013, or under 6 percent until 2015.

However, from 2013 to 2015, the administration expects economic growth far above the historical trend rate of 3.2 percent. It assumes 4 percent growth in 2013, 4.5 percent in 2014 and 4.2 percent in 2015.

"It's not outrageously rosy . . . things are doing a little better now," said David Wyss, the chief economist for the rating agency Standard & Poor's in New York. However, he added, "It's more optimistic than I am."

While disappointing, the president's budget and the Republicans' response are what Wall Street analysts generally expected, Wyss said.

"My own view of it is they are not going to do anything dramatic until there is a crisis, but I am always a pessimist on Congress," he said, noting that making tough choices tends to cost politicians their jobs.

ON THE WEB White House Budget

Bowles-Simpson plan

Bipartisan Policy Center plan

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