April 19, 2014

Concord Coalition Says Obama Budget Challenges Congress to Make Necessary Compromises

WASHINGTON -- The Concord Coalition said today that President Obama’s proposed budget for Fiscal Year 2014 provides a credible framework for the bipartisan negotiations that are needed to curb the growth of the federal debt over the next decade and beyond. Congress should consider the President’s proposals through a House-Senate conference committee as it works on a joint budget resolution. 

“While elected officials have made some progress on deficit reduction in the last two years, much remains to be done to rein in the federal debt and ensure that the country is on a sustainable long-term path,” said Robert L. Bixby, Concord’s executive director. “The President deserves credit for political courage in proposing meaningful savings from entitlement programs, including Medicare, and new revenues from curbing government subsidies in the tax code.”

The Concord Coalition has long argued that a combination of entitlement and tax reform will be needed in any plan big enough to stabilize and gradually reduce the nation’s debt-to-GDP ratio. The President’s budget does a better job than either the House Republicans’ blueprint or the Senate Democrats’ plan in recognizing this political reality. The fact that the budget is already drawing criticism from both sides is an indication of its strength rather than weakness. If there is no package of mutual compromises, there can be no deal.

Despite this, however, the President’s budget would leave the debt-to-GDP ratio higher than either the House or Senate budget committee plans at the end of 10 years. A more ambitious target should be achievable through additional bipartisan negotiations.

Many members of Congress have expressed theoretical support for the types of entitlement and tax reforms in the administration’s budget -- thus its release will test the level of support in practice.

Over the last year, there has been considerable optimism about how much money could be gained by closing or limiting tax “loopholes”, but details were often lacking. In his budget, the President proposes to limit itemized deductions for those in higher tax brackets while eliminating certain specific tax breaks.

“Hopefully, the President’s proposals will shift the discussion towards greater specificity, with elected officials spelling out exactly which tax breaks they intend to abolish -- something they failed to do in both the House and Senate budgets,” said Joshua Gordon, Concord’s policy director.

However, it bears mentioning that while the deductions rate cap and the “Buffett rule” proposal raise revenue by limiting tax expenditures, the proposed budget does not contain the type of comprehensive tax simplification plan suggested by Simpson-Bowles or Rivlin-Domenici. Thus the long-term potential of the plan to spur economic growth through increased efficiency in revenue collection would be limited.

At the same time, the President has put specific Medicare reforms on the table and included a different index for calculating inflation adjustments (chained CPI) that would reduce spending in many programs, including Social Security, and raise revenues.

One drawback of the budget, which is shared with the House and Senate budgets, is an over-reliance on discretionary spending cuts. The favorable deficit numbers and stabilized debt-to-GDP ratio assume that discretionary spending will shrivel to 4.9 percent of GDP by 2023. To put that in context, defense discretionary spending alone was roughly that size as recently as 2010. 

“The administration’s assumption of historically low discretionary spending is particularly striking in a budget that calls for major investments,” Bixby said.

Another shortcoming in Obama’s budget that is shared with its congressional counterparts is that it makes no specific proposals on Social Security reform. While switching to the chained CPI would result in a modest spending reduction for Social Security, it would not be a reform of the program itself but a government-wide reform in measuring inflation. 

In many ways, the President’s budget is a two-part proposal. The first part is a reiteration of the administration’s last offer to Republican leaders in the “fiscal cliff” negotiation at the end of last year. The second part consists of new initiatives that are presented as deficit-neutral, such as the proposal to fund a pre-K program for children with a tobacco tax increase.

“Renewing the fiscal cliff offer is really the heart of this budget,” Bixby said. “It keeps alive the possibility of a bargain, grand or otherwise, that eluded the so-called 'Super Committee' and led to the arbitrary across-the-board sequestration that has now gone into effect. The new initiatives should remain on hold for now, even if paid for in theory. We should not add new budgetary commitments until we’ve figured out how to make our commitments sustainable.” 

“This budget should help propel the debate forward, with the next step being appointment of a House-Senate conference committee to work out a compromise plan,” Bixby said. “At the same time, the White House should remain open to further discussion and resist the temptation to present its budget on a take-it-or-leave-it basis.”

Media contact: Steve Winn, swinn@concordcoalition.org, (703) 254-7828