Taxes & Spending

Obama Budget Keeps its Eye on the Prize: Reelection

The President’s budget released last week is more about reelection than deficit reduction.  This is not a partisan observation, just an inescapable one.  How else do you explain a proposal that so little addresses the issues his own deficit commission raised and he himself acknowledges?

The nonpartisan Congressional Budget Office (CBO) starkly laid out America’s budget problems last month.  In its estimates, which assume higher taxes from not extending the 2001 tax cuts and not reducing the Alternative Minimum Tax’s reach into the middle class, the federal deficit never falls below $550 billion over the next decade.  As a share of the economy, it never falls below 2.9%. 

The reason the deficit stays so high is because Washington’s spending does too.  The CBO estimates that federal spending stays stuck at around 24% of the gross domestic product (GDP).  Throughout the next decade, Washington will be consuming almost a quarter of everything that America produces.  As a result, the debt held by the public will grow to 76.7% of the GDP by 2012.

In a word now used universally, this scenario is “unsustainable.”  Enter the President’s budget—making essentially no impression at all.  Like the CBO, it assumes that the federal deficit never falls below 2.9% of the GDP.  As a point of comparison, in 2007, the year before the recession, the deficit level was 1.2% of the GDP. 

Over the next decade, the Obama administration’s budget estimates $45.95 trillion in federal spending—despite assuming substantially less spending in Afghanistan and Iraq than does the CBO.  Yet over the same time, the CBO assumes $46.1 trillion in spending. 

The administration’s budget also estimates $38.8 trillion in revenues over the next 10 years—despite assuming continuation of the 2001 tax cuts and three years of Alternative Minimum Tax relief for those it deems non-wealthy, neither of which the CBO does.  Yet over the same time, the CBO assumes $39.1 trillion in revenues.  

In short, despite some highly questionable spending savings and tax increases, the administration winds up in virtually the same place as the CBO started.  At the highest level, the President’s budget makes barely a blip on Washington’s future fiscal course. 

Whatever this budget’s sins of commission are, its sins of omission are greater.  Specifically, it includes neither entitlement reform nor tax reform, even though the President’s own deficit commission addresses both.  Obama himself acknowledged entitlement reform’s central role in deficit reduction in a press conference the day after his budget’s unveiling:  “[A]ll of us agree that part of it has to be entitlements.”  Except in his budget. 

Commenting on the administration’s budget, Alice Rivlin, former Office of Management and Budget director under President Clinton, said, “I had thought he might step out in the budget with a stronger set of proposals.  But he didn’t do that.”

So what was the President doing in his non-doing?  The only way to understand the numbers in the administration’s budget is to understand the numbers in the last two elections.

Following last November’s calamity, the President can take nothing for granted.  He must first hold his core supporters and turn them out at the polls in 2012—something that decidedly did not happen last November. 

Even the marginal spending cuts his budget made are anathema to his liberal base.  Unlike everyone else, liberals see the budget’s problem as one of undertaxing—there is no end to the sacrifices they call on others to make to fund their vision. 

So why take this risk?  He made his cuts because liberals made up just 22% (88% of whom supported him) of 2008 voters, according to exit polls.  Moderates made up 44% (60% supporting him) of 2008′s voters.  To get reelected in 2012, he has to thread the needle, making the maximum amount of spending cuts liberals will endure without alienating them, while making the minimum amount of spending cuts needed to argue budget seriousness to moderates. 

He went no further in his cuts because conservatives made up 34% of 2008′s voters.  They will likely make up a greater percentage in 2012.  He is unlikely to gain any in two years (amazingly, he got 20% in 2008).  While greater cuts would certainly appeal to conservatives, he will not appeal to conservatives. 

The administration’s hope for success in both budget and reelection is to appear credibly enough engaged in deficit reduction to augment his liberal base into a majority.  The real key to doing this, though, is not in the deficit reduction itself, but in having made a minimal offer to which conservatives over-respond in moderates’ eyes—as they did with the 1995-’96 Contract With America. 

Already four episodes evidence this strategy—the debt limit, the ongoing fight over the current year’s funding, the new budget, and the administration injecting itself into Wisconsin’s budget battle.  In each case the message has been the same:  We are reasonable, our opponents are extremists. 

Those who see this administration’s budget as about the budget are missing the forest for the trees.  This budget is about reelection.  As the numbers in both cases show, however, reelection may be no less difficult than deficit reduction.

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