The President۪s Budget: Two Views

The President۪s Budget Is a Good Step, but More Is Needed
Maya MacGuineas, Committee for a Responsible Federal Budget

There is perhaps no single group more vulnerable to the fiscal health of the nation than the poor. As the United States makes its way down an unsustainable economic path, whether and how we make changes to our budget and to our borrowing practices will have profound effects on the nation۪s most vulnerable, and on the government services they and others receive.

It۪s clear that our elected leaders will have to make changes to our nation۪s fiscal path. But the question is whether we will have the courage to tackle the more politically sensitive issues of middle class entitlements and taxes, or if instead we will continue to squeeze long-term investments and the social safety net. If we fail to act soon, the economy will pay a terrible price in the long run, through slower growth and higher unemployment. At the same time, fiscal policy choices will only become more difficult.

A small step forward comes in President Obama۪s budget proposal. The president۪s budget joins plans from Republicans who control the House of Representatives and Democrats who control the Senate. Even though the budgets are quite different, they share the goal of reducing the national debt as a percentage of the economy and that۪s a start.

To improve the health of our economy, deficit reduction will have to go farther and should be combined with a spending shift away from consumption programs toward more investment. The president۪s budget does include ideas to spur the recovery in the short term as well as promote long-term growth. One proposal is to invest $75 billion to fund universal preschool. It۪s promising that the preschool initiative will be fully funded, which means that it won۪t add to the deficit. Offsetting the costs of the program will also make it more sustainable. This is a good precedent that should be emulated going forward.

While the president۪s budget makes strides in reducing deficits this decade, because it would still allow the debt to rise to unprecedented levels in the future, it does not go nearly far enough. Without serious action to rein in the debt and reform entitlements, interest payments on the debt and funding for entitlements will absorb over three-quarters of the federal budget within a decade, limiting investments in areas such as education and job training, which can alleviate poverty and boost incomes.

President Obama۪s proposal also contains some modest reforms to Medicare and Social Security that will strengthen their finances. It calls for using a chained Consumer Price Index as a more accurate measure of overall inflation. This means that Social Security and some other benefits will grow a little more slowly over time, but the proposal contains protections for the most vulnerable.

More will have to be done to improve Social Security۪s finances or the fund will run out of money in about two decades. This would mean an approximate cut of 25 percent for all beneficiaries. And much more needs to be done to slow the growth of healthcare costs, or Medicare will run into trouble even sooner.

The budget is about choices. We can make the choice to fix our economy, put the country back on a sustainable path, and protect the poor and vulnerable. This pledge should be part of any budget deal, but will only happen if our leaders are willing to begin making some of the necessary and tough choices.

Maya MacGuineas is the president of the Committee for a Responsible Federal Budget.

 

 
A Compromise Proposal That Seeks to Protect Low-Income Americans and the Recovery
Joel Friedman and Sharon Parrott, Center on Budget and Policy Priorities

The president۪s budget makes tough choices while largely adhering to the principle, as enunciated by the Bowles-Simpson commission, that deficit reduction should not increase poverty or hardship; it also achieves meaningful deficit reduction without shrinking deficits too much, too soon, which would slow job creation.  While the poor are mostly protected in this budget, achieving further deficit reduction through program cuts could threaten important supports that help low-income people make ends meet and foster economic opportunity.

The budget includes a package of spending cuts and revenue increases that would replace the sequestration cuts and put the debt on a slight downward path as a share of the economy over the next decade. In particular, the package includes: significant new revenues from upper-income taxpayers, substantial Medicare savings, an alternative cost-of-living adjustment the chained Consumer Price Index (CPI) that reduces Social Security and other retirement and disability benefits and raises revenues, cuts to non-defense discretionary funding which supports education, public health, and many other programs and cuts in non-health entitlements such as farm programs.

The spending cuts in the proposal would affect millions of Americans.  Nevertheless, two key facts are important. First, the proposals reflect the president۪s final offer to Speaker John Boehner (R-OH) in last year۪s negotiations, during which both sides made significant concessions.  Policymakers should consider them only as part of a package that like the president۪s budget replaces sequestration, stabilizes the debt, and raises substantial revenue in a progressive manner.  Second, the spending cuts are designed to protect low-income people to a substantial degree and avoid slowing the recovery.  For example: 

– The cuts to non-defense discretionary (NDD) programs $100 billion below the austere caps in the 2011 Budget Control Act are ill-advised, but they don۪t take effect until 2017, when the economy is expected to have recovered. Also, NDD spending would still be substantially higher than if sequestration continues.

– A large share of the Medicare savings come from reducing the prices Medicare pays for prescription drugs and other services and raising premiums for more affluent seniors. However, future beneficiaries except for the very poorest would face somewhat higher deductibles and co-payments.

– In the switch to the chained CPI, the budget exempts means-tested programs, notably Supplemental Security Income for very poor seniors and people with disabilities, and includes a benefit “bump” for the oldest seniors and others who receive Social Security for a very long time. No set of protections can fully shield the very old or the poor, but the Obama protection package is strong and well designed.

It is notable that the budget doesn۪t include two Medicaid proposals from previous Obama budgets that would shift costs to states. The president is appropriately acknowledging that these proposals could deter states from adopting health reform۪s Medicaid expansion, now that the Supreme Court made it a state option.

Other important proposals in the budget also deserve serious consideration. One is an initiative to expand high-quality preschool, care for infants and toddlers, and home visiting programs, with the goal of putting low- and moderate-income children on a path to success. Another is a fund to help people struggling in today۪s labor market to prepare for and find jobs. The budget also expands funding for infrastructure improvements designed to bolster short- and long-term economic growth. And, the budget includes offsets to cover the cost of these initiatives.

The president proposes significant compromises in a serious effort to reach a budget deal. The budget takes important steps to protect low-income families and the still-struggling economy, but policymakers have little room to cut programs further without jeopardizing services for millions of families of modest means and shortchanging key building blocks of our economy.

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Joel Friedman is the vice president for Federal Fiscal Policy and Sharon Parrott is the vice president for Budget Policy and Economic Opportunity at the Center on Budget and Policy Priorities.

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