It isn't perfect and it avoids the touchiest areas, but President Barack Obama's budget blueprint for fiscal year 2013 broadly tracks the recommendations of the Simpson-Bowles fiscal commission. While the president would spend a bit more and raise a bit less revenue than the commission suggested, the trend lines are similar. The reality is that this is a political document as much as a financial one, and the next president will have to be more aggressive in raising revenue, cutting spending and addressing entitlements.
Obama's proposed budget embraces the commission's goals of reducing the deficit over the next decade through strategic cuts to federal spending and changes to tax policy. It would raise taxes on the affluent and invest in priorities such as infrastructure, research and education. When coupled with the spending reduction deal worked out with Congress last year, it would reduce the deficit by an estimated $4 trillion over 10 years. It is a vision preferable to that offered by congressional Republicans, who would cut spending without significantly adding revenue or investing in the future.
The deficit-reduction plan produced over a year ago by a committee headed by Republican Alan Simpson and Democrat Erskine Bowles included tough and unpopular changes to benefits under Social Security and Medicare. While Obama used Simpson-Bowles as a model in formulating his budget, he didn't offer a way forward on entitlement reform. That is politically prudent but ignores financial reality.
Even so, Obama's proposal does not shy away from steep cuts in federal spending. Among the sacrifices are significant defense cuts, $360 billion in health care reductions, the elimination of some farm subsidies and less money for the Justice Department and Environmental Protection Agency. The Simpson-Bowles recommendations would have reduced spending to 21.8 percent of gross domestic product by 2020; Obama's budget reduces it to 23 percent of GDP. The president's budget for defense and security spending is nearly 30 percent higher than what the fiscal commission proposed.
Obama proposes a budget that reduces federal spending overall but still makes investments in job creation and infrastructure. Education spending is supported. Funding is protected for clean energy and scientific research, and there is substantial money to modernize the nation's transportation systems — all designed to make Americans more competitive in the future.
New revenues would be raised by closing tax loopholes for oil and gas companies, letting the Bush tax cuts expire on households making more than $250,000 and other measures. The president suggests implementing the so-called "Buffett Rule" so that no households making more than $1 million pay less than a 30 percent effective tax rate. Overall the president's tax proposals are an attempt to make the tax code more progressive and fairer.
If Congress fails to adopt Obama's proposal or another package of cuts, the automatic provisions of the Budget Control Act would go into effect. That measure, passed as part of the compromise between congressional Republicans and the White House to raise the nation's debt ceiling, would reduce federal spending by $1.2 trillion in across-the-board cuts over 10 years. Obama's proposal would avoid these indiscriminate cuts, protect vital programs and offer a more balanced approach.