Obama's budget chief welcomes bipartisan Senate deficit talks

McClatchy NewspapersFebruary 17, 2011 

WASHINGTON — The White House Thursday welcomed an effort by a bipartisan group of senators to tackle the biggest challenges to solving federal budget deficits that President Barack Obama's new budget failed to confront.

The bipartisan group is drawing attention both because of the ambition of its emerging plan and because of the odd mix of senators working to produce it. The group includes liberal Illinois Sen. Dick Durbin, the number-two Senate Democrat, as well as the ultra-conservative Sen. Tom Coburn, R-Okla., a self-described fiscal hawk.

Both Durbin and Coburn were members of Obama's bipartisan deficit-reduction commission that recommended a plan in December to cut federal budget deficits by $4 trillion over 10 years. That plan included steep spending cuts and some higher taxes. The new group involves six senators actively trying to build on that plan's foundation, and up to 35 other senators from both parties who reportedly are interested in signing on.

The group is working on a plan to break deficit reduction down into four components, as first reported Thursday by The Wall Street Journal. These would be an overhaul of the tax code; cuts to non-mandatory government spending; changes to so-called entitlement programs such as Medicare and Medicaid; and separately, changes to Social Security. Their plan would create triggers for automatic new taxes and deep spending cuts if initial efforts fell short of deficit-reduction goals.

"I think it's important that there are conversations like that going on," Jacob Lew, head of the Office of Management and Budget, said during a luncheon Thursday with a small group of reporters. "The president made clear in the State of the Union (address) ... that we look forward to working on a bipartisan basis to work through this."

However, Lew stopped short of endorsing the idea of automatic triggers to reduce the deficit, now projected at $1.6 trillion this year.

"I don't want to overstate our degree of involvement. ... I think that it is very early in the process. I think we need to watch where their conversations go," said Lew, who held the same post at the end of the Clinton administration and has been involved in Washington budget battles since the Reagan era.

Obama didn't outline ways to overhaul Medicare, Medicaid or Social Security in his new budget. He and his aides have made clear that he thinks that would only generate a partisan debate that would hinder effective bipartisan negotiation when political circumstances allow. First, newly emboldened Republicans must show their backers that they're working hard to cut spending alone.

The emerging Senate effort is likely to offer the best hope for producing a serious deficit-reduction plan in the current two-year Congress. Whether Obama and House Republican leaders will join in is a question unlikely to be answered for some time.

Lew also backed away from Obama's claim Tuesday that "we won't be adding to the national debt" in the budget he proposed on Monday. Instead, Lew offered a more nuanced explanation.

"It's accurate to say that our budget would get us to the point where we are not spending money for current programs that we are not bringing in," said Lew.

In that phrasing, paying interest on the national debt is not considered a "current program."

Here's why that point is important. As McClatchy reported earlier this week, Obama's statement Tuesday overlooked that his budget says that in 2017 the government would have to borrow $627 billion to pay that much interest on the national debt. Such interest payments, funded through borrowing, would rise annually through 2021. All that borrowing would add to the national debt.

The Obama budget invents a new category called "primary balance." It means that revenues would balance government spending on all programs — except interest on the debt — by 2017. But interest on the debt by then would cost more than any other program except Social Security and national defense.

In fact, the national debt would jump by nearly $4.5 trillion in the four years after the government achieved "primary balance."

Lew also said that the president's budget would let tax cuts for the wealthiest 2 percent of earners expire because the government "can't afford" to leave them in place. Deficits grow too high unless those taxes rise, he said.

But when asked why all tax brackets shouldn't revert to higher 1999 levels — when the federal budget ran a surplus and the U.S. economy was thriving — Lew suggested that deficits can be tamed without canceling Bush-era tax cuts for the middle class.

"If we are in a world where we can put our fiscal house in order without crossing that line, I don't think we need to get to that question," he said. "I think what our budget demonstrates is you don't need to raise taxes on people earning $250,000 or less to make substantial progress in getting our economic house in order."


President's proposed budget

Deficit-reduction panel's report


Budget outlook: Fireworks in House, compromise in Senate?

Obama says he'd stop adding to debt, but that's not true

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To ask a question about this story or any economic question, go to McClatchy's economy Q&A

For more McClatchy politics coverage visit Planet Washington

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