The major news organizations, which unfortunately excludes me, were briefed on all this last week, so this morning there is plenty of in-depth coverage, such as these stories in The Fiscal Times, The Washington Post and The New York Times. The budget itself goes out at 10:30 this morning.
The rule of thumb that European countries have agreed on is annual budget deficits of no more than three percent, during normal, non-recessionary periods. (I suppose the reasoning is that a country's nominal debt can grow at three percent and remain constant in real terms, due to inflation. But I don't agree with that notion, because politicians always find reasons to view pretty much any time period as unusual, and allow themselves to break such rules.)
And a deficit of three percent, eventually, is what President Obama said he was targeting, but that's not what we get with this proposed budget until 2017.
From The Washington Post:
"The debate in Washington is not whether to cut or to spend. We both agree we should cut," said a senior administration official, who briefed reporters Sunday night on the condition of anonymity because the budget had not been released. "The question is how we cut and what we cut."
Obama also would raise hundreds of billions of dollars in fresh revenue, which Republicans adamantly oppose... He would end subsidies for oil and gas companies, and would eliminate certain tax breaks for corporations that do business overseas. And he assumes that Congress will develop a plan to pay for a $556 billion transportation bill, a measure traditionally funded by increasing the federal tax on gasoline.The latter measures are all seen by Corporate America, and therefore by both Republican and Democratic legislators, as sacred cows. As for higher taxes on gasoline, American consumers have had a break, compared to anywhere else, for many years, and higher prices would be great for conservation reasons. Proposing these sorts of adjustments is only facing up to the economic reality that will be necessary to restore some sanity to the federal budget, but are Democrats well-organized enough to push them through?
The Post tells us debt levels will be rising, too:
All told, Obama estimates that the nation would have to borrow an additional $7.2 trillion through 2021 under his policies - an improvement from previous projections that exceeded $9 trillion. His plan calls for annual deficits - and therefore annual borrowing - to stabilize at about 3 percent of the economy for much of the decade. That would cause the national debt to stop climbing and level off at about 76 percent of economy, nearly double the debt burden the nation carried before the recent recession.That experiment in increasing home ownership conducted by the Clinton and Bush administrations turned out to be awfully expensive.
Bloomberg cites a Treasury Department report forecasting the growing interest burden on GDP:
Barack Obama may lose the advantage of low borrowing costs as the U.S. Treasury Department says what it pays to service the national debt is poised to triple amid record budget deficits. Interest expense will rise to 3.1 percent of gross domestic product by 2016, from 1.3 percent in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015...In another story in The Washington Post, Ezra Klein highlights what may be the most important assumption underlying the budget:
One thing to note: The document assumes that the high-income tax cuts expire in 2012, as they're currently projected to do. The administration isn't counting that in their $1.1 trillion of deficit reduction, but if the prediction is wrong and the Bush cuts do get another extension, they'll wipe out most of this budget's savings in one fell swoop. Conversely, if we decided to get serious about the deficit and let all of the Bush tax cuts expire in 2012 -- yes, including the cuts for the not-so-rich -- the reduction in the deficit would be vastly larger than anything envisioned in this budget. It's an odd turn of events, but for all that this budget, and the various Republican proposals, attempt to actually do for the deficit, the biggest single thing we could do would be to do, well, nothing: Let the Bush tax cuts expire and let the health-reform law and the associated Medicare cuts and excise tax get implemented as planned. Doing by not doing: That's the zen of deficit reduction. Somehow, I doubt Washington will find it very calming.Maybe the math works that way, and it may be that we all have to face up to paying higher taxes eventually, but in this environment I can't see how we get there.