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Budget May Take Small Steps Toward Deficit Cuts

President Obama's budget is expected to include plans for spending on new initiatives and dramatically cutting some programs. Copies of Obama's fiscal 2011 budget are seen above. (Getty Images)

The new budget for 2012 will detail the Obama administration's plans for spending on new initiatives and dramatically cutting some programs. But details are likely to be fuzzy in one area: a comprehensive plan to attack the nation's budget deficits.

The president won't ignore the threat of huge deficits in his budget plan, which will be unveiled Monday. He made that clear in his State of the Union address last month.

"Tonight, I am proposing that starting this year, we freeze annual domestic spending for the next five years," he said. "Now, this would reduce the deficit by more than $400 billion over the next decade."

It sounds dramatic. But even the president acknowledged the programs affected represent a small sliver of the federal budget — only about 12 percent.

A Starting Point

Bill Gale, a senior fellow with the Brookings Institution, says the freeze is only a start: "The proposal to freeze discretionary spending will help. It certainly won't solve the problem though."

That's because even the official estimate puts the accumulated deficits over the next decade at $7.5 trillion. And, Gale says, realistically, that Congressional Budget Office projection is less than half what the deficit is likely to be.

He says the problem is that the CBO is required to assume that Congress will let tax cuts and spending programs expire when they're supposed to, rather than extend them. Gale and a colleague made the opposite assumption in their own estimate of the deficit.

"What we did was simply assume that the things that typically get extended will continue to get extended — that is that Congress in the future will act like Congress in the past has," he says.

So, for instance, the Bush tax cuts for the middle class and wealthy that are now scheduled to expire again in two years will be extended, just as they were in December.

Add that to other extended programs and the result is accumulated deficits of more than $14 trillion over the next decade, Gale says.

Republicans Look For Deep Spending Cuts

Republicans say the answer is deep cuts in spending right now. Many new Republicans in the House, who campaigned on cutting spending this year by $100 billion, insist on making good on that promise.

But with the 2011 fiscal year close to half over, that would mean 30 percent cuts in many programs.

Federal Reserve Chairman Ben Bernanke expressed concern about that kind of approach before the House Budget Committee on Wednesday in response to a question from Rep. Bill Pascrell (D-NJ).

"What do you see as the results of the immediate and drastic cuts to the federal budget?" Pascrell asked.

"Well, I think that if that's all that was done that the costs to the recovery would outweigh the benefits in terms of fiscal discipline," Bernanke said. "I think we really need to take a long-term view. Now, maybe a little bit of a down payment is needed, but the best approach is to take a longer-term perspective."

Changing Terms Of The Discussion

Gale, of the Brookings Institution, agrees. He says strengthening the recovery is the most important thing to do right now to reduce the deficit.

As for a long-term plan, Gale says Obama's deficit commission provided a helpful road map by making concrete suggestions for cutting entitlement and defense spending, as well as raising tax revenue.

While the president may not endorse any specific elements of that road map, his new budget document may discuss some of them, Gale says. And he thinks the commission's work has changed the terms of the discussion on Capitol Hill.

"Now, I think the debate is much more of the lines of, 'Well, how would you solve this versus how would I solve this? And so, if you don't like my solution, fine, but tell me what yours is.' You can't just say, 'I don't like that option,' you have to offer a different option," he says.

There is an effort in Congress to build a bipartisan group of senators willing to have that kind of discussion. But an agreement in the current political climate would seem a long way off, at best.

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Transcript

AUDIE CORNISH, host:

We're following news from Egypt and the Middle East throughout today's program. But we begin here in the U.S. with another story that's likely to drive the debate in Washington this week. President Barack Obama unveils his budget for 2012 tomorrow. It will detail his administration's plan for spending on new initiatives and proposed dramatic cuts in some programs.

But as NPR's John Ydstie reports, details are likely to be fuzzy in one area: a comprehensive plan aimed at reducing the nation's budget deficits.

JOHN YDSTIE: The president won't ignore the threat of huge deficits in his new budget plan. He made that clear in his State of the Union address a couple of weeks ago.

President BARACK OBAMA: Tonight, I am proposing that starting this year, we freeze annual domestic spending for the next five years.

(Soundbite of applause)

Mr. OBAMA: Now, this would reduce the deficit by more than $400 billion over the next decade.

YDSTIE: Sound dramatic, but even the president acknowledged the programs affected represent a small sliver of the federal budget - only about 12 percent.

Bill Gale of the Brookings Institution says the freeze is only a start.

Mr. BILL GALE (Senior Fellow, Brookings Institution): The proposal to freeze part of discretionary spending will certainly help. It certainly won't solve the problem though.

YDSTIE: That's because even the official estimate puts the accumulated deficits over the next decade at seven and a half trillion dollars. And Gale says, realistically, that Congressional Budget Office projection is less than half than what the deficit is likely to be. He says the problem is that the CBO is required to assume that Congress will let tax cuts and spending programs expire when they're supposed to, rather than extend them.

Bill Gale and a colleague made the opposite assumption in their own estimate of the deficit.

Mr. GALE: What we did was simply assume that the things that typically get extended will continue to get extended, that is that Congress in the future will act like Congress in the past has.

YDSTIE: So, for instance, the Bush tax cuts for the middle class and wealthy, that are now scheduled to expire again in two years, will be extended just as they were last December. Add to that other extended programs and the result is accumulated deficits of more than $14 trillion over the next decade, says Gale.

Republicans say the answer is deep cuts in spending right now. Many new Republicans in the House who campaigned on cutting spending this year by $100 billion insist on making good on that promise. But with the 2011 fiscal year close to half over, that would mean more than 30 percent cuts in many programs.

Federal Reserve Chairman Ben Bernanke expressed concern about that kind of approach before the House Budget Committee on Wednesday in response to a question from New Jersey Democrat Bill Pascrell.

Representative BILL PASCRELL (Democrat, New Jersey): What do you see as the results of the immediate and drastic cuts to the federal budget?

Mr. BEN BERNANKE (Chairman, Federal Reserve): Well, I think if that's all was done, that the cost to the recovery would outweigh the benefits in terms of fiscal discipline. I think we really need to take a long-term view. Now, maybe a little bit of a down payment is needed but the best approach is to take a longer term perspective.

YDSTIE: Bill Gale agrees. He says strengthening the recovery is the most important thing to do right now to reduce the deficit.

As for a long-term plan, Gale says President Obama's deficit commission provided a helpful roadmap by making concrete suggestions for cutting entitlement and defense spending, as well as raising tax revenue. While the president may not endorse any specific elements of that roadmap, his new budget document may discuss some of them, says Gale. And Gale thinks the commission's work has changed the terms of the discussion on Capitol Hill.

Mr. GALE: Now, I think the debate is much more of the lines of, well, how would you solve this versus how would I solve this. And so if you don't like my solution, fine, but tell me what yours is. You can't just say I don't like that option. You have to offer a different option.

YDSTIE: There is an effort on Capitol Hill to build a bipartisan group of senators willing to have that kind of discussion. But an agreement in the current political climate would seem a long way off, at best.

John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

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