Federal-budget game of chicken
The battle over what, and how much, federal spending to cut was officially joined yesterday with the presentation of President Barack Obama's $3.7-trillion, 2012 budget. The din will be long and loud as Washington postures and positions for political advantage en route to adopting spending plans for next year, and the seven months left in the current fiscal year.
For all the bluster, the 2012 fight will just be a minor skirmish in the war to rein in federal deficits. That's because the immediate debate will center on the small fraction of the federal budget that is spent domestically at the discretion of Congress. That includes programs such as education, medical research and environmental protection. But the bulk of federal spending goes to entitlement programs such as Medicare, Medicaid and Social Security. Specific proposals to trim those big-ticket items aren't yet on the table, but they should be soon.
Neither is military spending, beyond a modest $78-billion cut called for in Obama's budget. Nor much in the way of tax reform, except an important three-year fix for the alternative minimum tax that Obama proposes to pay for by capping the deductions that high income earners are allowed to claim.
At this point Obama's budget and Republican proposals for additional billions of dollars in cuts are essentially political statements signaling their priorities. Consider them opening positions for the bruising negotiation to come.
This year's budget debate will play out at a critical moment for the economy. The recovery is gathering momentum but remains fragile. Even so, Obama and congressional Republicans, pushed by the tea party contingent, are all poised to pivot from economic stimulus to deficit reduction. Washington does need to contain the red ink. The annual shortfall is projected to hit $1.65 trillion this year before dipping - according to Obama's budget - to $1.1 trillion in 2012, adding to the burdensome $14-trillion national debt.
But economic growth is the most powerful deficit fighter. Republicans will insist that cutting taxes and spending are all it takes to juice the economy. But if spending is cut too much, too quickly and too indiscriminately, economic recovery and job growth might stall. Without prudent investment, most notably in education, infrastructure and clean energy, the nation risks falling behind our competitors in the global economy.
Whether Washington ends up closer to Obama's budget, with its freeze on domestic spending and other cuts and tax increases worth $1 trillion over 10 years, or the deeper cuts that Republicans favor, it will just be round one of deficit reduction. The hard work of rethinking the military, Medicare, Medicaid, Social Security and taxes is yet to come. The GOP leaders in Congress and Obama seem to be playing a game of chicken on entitlements because whoever goes first will draw withering political fire. But taking the heat is in the president's job description.
