(Corrects to remove reference to charitable contributions in sixth paragraph.)
April 10 (Bloomberg) -- President Barack Obama’s latest budget, it is said, lacks vision. It’s old wine in new bottles. It would require senior citizens to make painful sacrifices. It never reaches balance. It could stifle the recovery. It’s two months late.
All of this is true. Nevertheless, the $3.8 trillion U.S. spending plan is remarkable as a political document that both recognizes the stasis in Washington and presents a way around it. For that alone, the president deserves credit.
Budgets are part practical blueprint and part political manifesto. Too often, they sacrifice the former for the latter. The Senate’s, for example, its first in five years, won approval only from Democrats because it raised taxes yet 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 through whacking domestic programs that Democrats cherish.
Obama’s only real choice was to find a middle ground. He tries to do so by offering entitlement cuts in exchange for tax increases on the wealthy. This was always going to be the general outline of a compromise; Obama’s task was offering specifics about how to reach it.
True, his quid pro quo is small beer: He proposes $1.8 trillion in deficit reduction for the next decade, much of which would just 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 January’s 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. Obama would raise taxes another $600 billion by limiting most itemized deductions for households in the upper tax brackets. He would impose a minimum 30 percent rate on households with annual earnings above $1 million, invoking the so-called Buffett rule.
To conservatives, this is heresy. Yet it will undoubtedly be helpful in winning over Democrats who are chapped about the entitlement changes the president suggests.
And that’s where the president was bold. Seniors would see a less generous inflation adjustment to their monthly Social Security checks -- which is, let’s face it, a benefit cut. Although Obama has privately offered this concession before, he hadn’t formally done so.
To some liberal lawmakers, this makes Obama a traitor to the cause. They went to the White House this week to protest, arguing that Obama shouldn’t trim benefits while most families have yet to recover from the recession. These demonstrations, too, can be helpful as Obama tries to convince rank-and-file Republicans -- including the dozen senators with whom he’ll dine tonight -- that 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 5.7 percent this year. Such numbers, while an improvement, remain high enough to keep Obama in a political and fiscal straitjacket.
That, rather than a true lack of vision, prevents him from proposing big new projects. His budget would vastly expand preschool programs for low-income children by raising tobacco taxes. It would set aside a relatively tiny amount -- $50 billion -- for roads, bridges and other public-works projects. And it would dedicate $8 billion for community colleges and $1 billion for 15 institutes that would promote manufacturing innovation.
None of this is earth-shattering -- and none of it needs to be. It’s worthwhile to review what Obama and Congress have accomplished in several rounds of budget haggling. Since 2011, they have agreed to $2.5 trillion in spending cuts and new taxes over 10 years. The $1.8 trillion in spending cuts and tax increases in Obama’s 2014 plan would push total deficit reduction over the $4 trillion-in-10-years mark that most economists say the U.S. must reach to make the debt sustainable.
Thus the amount of new spending, entitlement cuts and fresh revenue in Obama’s 2014 plan is 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 Obama’s legacy. And if it frees Congress to start thinking about how to cure what really ails the U.S. -- such as long-term unemployment and high health-care costs -- then it could result in faster growth, higher tax revenue and lower deficits.
Those are two pretty big ifs, we realize. Still, even to suggest them counts as remarkable.
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