The just-released federal budget proposed by the Obama White House has something for everyone to hate.
It’s a lose/lose proposition.
The Republicans hate it because it doesn’t cut deep enough and scraps tax cuts many of its key constituents have come to embrace.
The Democrats hate it because with the prospects of an uncertain mid-term election cycle, it’s too big swallow and doesn’t have enough pork to please its supporters.
It sounds just about right.
In reality, no matter the budget proposed by the President, it’s going to run into a buzzsaw of opposition from both sides of the political aisle.
According to the White House, the 2011 budget contains “tough choices.” While it eliminates tax cuts for the wealthiest Americans and a host of subsidies for fossil fuel producers, the $3.8 trillion budget also puts the squeeze on more than 120 beloved federal programs.
Savings Will Be Redirected
Although the proposal to ditch tax preferences to traditional energy companies is projected to save $40 billion over the next 10 years, those savings will be redirected into the President’s “clean energy” initiatives and jobs programs. The administration unsuccessfully proposed a similar energy overhaul last year.
Mr. Obama’s fiscal 2010 budget blueprint included a repeal of several oil industry tax incentives and new taxes for Gulf of Mexico producers to close loopholes that allowed companies to avoid royalty payments. Those provisions drew a swift rebuke from the oil industry as well as both Republican and Democratic lawmakers from oil-producing states.
Regardless of the details, the President’s spending plan forecasts this year’s budget shortfall will hit a record $1.6 trillion, following a $1.4 trillion deficit in 2009. The 2011 deficit, for the fiscal year that starts Oct. 1, is predicted to be $1.3 trillion, with deficits remaining above $700 billion for the rest of the decade, according to the projections.
The President’s proposed budget with its record deficit comes on the wings of a rejection last week by the U.S. Senate of a potentially powerful bipartisan commission to reduce the federal government’s swelling sea of red ink. The measure would have required Congress to accept or reject the commission's recommendations without making changes, a provision designed to prevent lawmakers from dodging the most politically risky proposals.
Against that backdrop, the President has said that he is willing to set up a deficit reduction commission by executive order. Unfortunately, such a panel would be functionally toothless because it could not compel Congress to accept its recommendations.
Counting on the ‘Wealthy’ and Banks to Bear Load
With the looming expectation of a doubling of the federal deficit over the next five years, and tripling over the next decade, the President has pledged to hold non-defense discretionary spending at 2010 levels for the next three years. The President also detailed plans to offset spending by more than $1.2 trillion over 10 years, partly through a freeze on several domestic programs.
The President’s budget presumes more than $800 billion in additional tax revenues from those earning in excess of $250,000. The budget projects the accumulation of more than $90 billion in additional fees directed at banks that benefited from the financial industry bailout.
Overall, the projected deficit reflects the deep impact that has resulted from the recession, the cost of two wars and tax cuts that have not been accounted for in previous annual budgets.
With unemployment still hovering above 10 percent, and the recovery remaining on tenterhooks, most economists agree that the President has little alternative other than to commit additional stimulus funds to his 2011 budget specifically directed towards reinvigorating the moribund job market.
The fact remains that since 2001, the federal budget has nearly doubled. No matter how much the Republicans or Democrats kick and scream, the outlook of bringing it under control in the near term remains grim.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
