Obama Budget: President Seeks Third Way Between Republican and Democratic Budget Plans

It is Wednesday in Washington DC and that means that Capitol Hill and the Press Corps are all celebrating one thing: that on this day President Obama releases his long awaited budget. At around six in the morning Obama released his proposal, an overview of which can be found here.

The proposal is being seen as a compromise of the two completing plans that emerged in the months before, the Democratic Senate's budget and the Republican House of Representatives' Budget. Including both tax hikes and spending cuts, including entitlement cuts, it represents something of a last pitch attempt at bipartisanship, something the Republican Party has not been eager to grasp. But what exactly does President Obama's budget propose? Here are some highlights from the overview and how they compare to the two previous plans.

In the realm of deficit reduction, the president's budget:

"Includes  $1.8 trillion of additional deficit reduction over 10 years, bringing total deficit reduction to $4.8 trillion.

Represents more then $2 of spending cuts for every $1 of new revenue from closing tax loopholes and reducing tax benefits to the wealthiest.

Deficit is reduced to 2.8% of GDP by 2016 and 1.7% by 2023 with debt declining as a share of the economy."

There is a consistent theme of long term saving and deficit reduction compared to the House budget written by Congressman Paul Ryan (R-Wisc.), where the pace is more breakneck. In his version of a budget plan, entirely based on savings derived through cuts, Ryan would aggressively eliminate the deficit in the short term, reaching a $7 billion surplus in 2023.  Critics have noted that the proposal also cuts taxes on the wealthiest, leaving a $5 trillion dollar hole that Ryan claims will be filled by closing tax loopholes.

When it comes to the actual cuts to be made, Presidents Obama does not hold back from cutting the scared cows of his party, Social Security and other entitlement programs:

"$400 billion in health savings that build on the health reform law and strengthen Medicare;

$200 billion in savings from other mandatory programs, such as reductions to farm subsidies and ?reforms to federal retirement benefits;

$200 billion in additional discretionary savings, with equal amounts from defense and nondefense programs;

$230 billion in savings from using a chained measure of inflation for cost-of-living adjustments throughout the Budget, with protections for the most vulnerable."

In comparison to the Democratic Senate's budget plan, Obama's plan cuts deeper and his tax proposal is much less ambitious. Both repeal the sequester cuts, while the Ryan budget utilizes them in its calculations. And Obama’s budget offers up something that Congressional Democrats have stood firm on in the past: the implementation of chained CPI, an alternative way of calculating inflation for benefits such as Social Security. Chained CPI is deeply unpopular with the Democratic caucus, with strongest levels of support among the party leadership being measured as reluctant at best to support the plan.

However chained CPI is one thing that Republicans have been demanding in exchange for new revenues. In December an aide to Speaker of the House John Boehner (R-Ohio) said that chained CPI was more important than other entitlement cuts. And back in November Senate Mitch McConnell (R-Ky.) explicitly told reporters that if chained CPI and other entitlement changes were offered, Republicans would consider new sources of revenue. Greg Sargent of the Washington Post quotes from a Wall Street Journal article where McConnell actually said that "those are the kinds of things that would get Republicans interested in new revenue."

Both proposals also include some stimulus, probably in consideration of the 7.6% unemployment rate. The Senate plan includes a $100 billion job and infrastructure package. Obama's budget increases research and development spending by 9%, $50 billion for infrastructure, and a Preschool for All initiative.

The fact that it cribs from two things that both parties will be unhappy with, revenue increases and slower deficit reduction on the Republican side and entitlement cuts on the Democratic side, means that President Obama sees this as a blueprint for a "Grand Bargain" on fiscal issues. The thinking on such a deal is by allowing the fiscal wars that have ravaged Capitol Hill to lessen in fervor, Obama would be able to more smoothly work on other part of his agenda and cement his legacy. Of course, this is all reliant on a deal being reached, which if past performance is something to go on, is unlikely at best.

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Gabriel Rodriguez

Gabriel Rodriguez is currently studying for a Masters in Applied Economics at Georgetown. He is a graduate of New College of Florida with a degree in Economics. He is interested in econometrics, statistical analysis, behavioral economics, and developmental economics.

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