President Barack Obama's 10-year budget proposal sets the right priorities in the short term but rings an alarm bell about the nation's long-term fiscal health. The proposal would add $8.5 trillion to the national debt, bringing it to 77 percent of the economy by 2020. There is an urgency to begin addressing this debt bomb now, because it is going to require hard decisions about raising revenue and reducing entitlements.
Obama's $3.8 trillion budget proposal for 2011 includes an estimated $1.3 trillion deficit. America would be borrowing every third dollar spent. This sounds profligate, but let's say the country tried to live within its means. Next year, there will be an estimated $2.5 trillion in tax revenues. Entitlements such as Social Security, Medicaid and Medicare and interest on the debt will cost $1.7 trillion. The defense budget and homeland security eat up another $895 billion. So that's it. Nothing would be available for any other government program.
What this points to very clearly is that only significant changes in tax policy and entitlements will return the budget to sustainable levels. Everyone in Washington knows it. But members of Congress are stalemated by fears that any proposal to cut benefits or raise taxes will be demagogued by political opponents.
Only something like a fiscal commission has a chance of moving the country toward a sensible financial footing. Even that idea has been divisive in Washington. Obama intends to establish one by executive order because the Senate already has rejected a more powerful one. Creating a fiscal commission at least would give the hard choices to a bipartisan group with a time line for action. But Republican leaders are so busy trying to deny Obama any successes that they are vowing not to participate, a posture that would make the commission unworkable.
There is no doubt that the national dissipation is a bipartisan disease. Even so, Obama is right when he says that he inherited much of the current deficit from the prior administration. Two weeks before he came to office, the Congressional Budget Office estimated that the country faced a $1.2 trillion deficit. Blame the down economy coupled with the cost of two ongoing wars, the Medicare drug benefit and the 2001 and 2003 tax cuts.
Obama is limited in what he can do in the short run by the economy. He is governing during the worst recession in 75 years and staggering unemployment that now stands at 9.7 percent nationally. Many economists say that pulling federal funds out of the economy now could reverse the nation's tentative growth.
The president deserves some credit for attempting to begin controlling federal spending. His budget freezes non- security domestic spending for three years for a 10-year, $250 billion savings and counts on more savings from the stalled health care reform. He would end Bush's tax cuts for families with incomes of more than $250,000 and impose a new tax on the nation's biggest banks. He sets smart priorities, spending more for education and clean energy programs while letting other programs expire.
Republicans in Congress have yet to offer viable spending cuts. When Obama supported shaving Medicare costs within health care reform, the Republicans loudly objected. The same would be true if Obama attempted to address big-ticket items such as the military budget. Serious proposals for deficit reduction need to come from both parties.
Ultimately, viable efforts to reduce the deficit boil down to raising taxes, either through higher rates or fewer deductions; reducing spending on entitlements such as Social Security; and slowing increases in health care costs. Obama has offered a bipartisan approach for beginning the difficult conversation, and Congress should embrace it.