Barack Obama Drops New Budget, Prepares For Battles To Come

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Another budget drop, another round on the Tilt-A-Whirl of political spin. On CNBC this morning, New Hampshire Republican Sen. Judd Gregg did not hold back. “I think it was Einstein who said that the definition of insanity was doing the wrong thing over and over again and expecting change,” says Gregg, who almost became Obama’s Commerce Secretary. “Eight years out the president is projecting a trillion dollar deficit. that’s not acceptable.”

The White House, meanwhile, is proclaiming a continuation of “responsibility.” “This is a budget that makes tough choices while investing in initiatives to create jobs and eliminate — and help reduce the economic pressures facing the middle class,” White House Communications Director Dan Pfeiffer.

Don’t get dizzy. Just look for the details. Here is one summary version of them, laid out in 7 easy-to-scan bullet points:

1. Obama is embracing a continuation of historically big short-term budget deficits, which result from a combination of the poor economic planning by George W. Bush (and Obama last year), two costly wars, stimulus spending and a huge reduction in tax revenues as a result of the recession: $1.413 trillion in 2009; $1.556 trillion in 2010; $1.267 trillion in 2011; $828 billion in 2012.

2. Economists and U.S. creditors care much less about the short-term deficits (which are excusable as a way of restarting the economy) than the middle-term deficits (from roughly 2013 to 2017), when the nation should be out of the recessionary woods and should be living within its means. Except the Obama budget does not live within its means during this period, according to the president’s own top accountant, Peter Orszag. He has said deficits should run at about 3 percent of GDP to be sustainable. In the new budget, the deficit is nearly a third larger than that, bottoming at 3.9 percent of GDP from 2014 to 2016.

3. To deal with the over-large middle-term deficits, the White House is proposing to punt the hard questions of big program cuts and tax increases to a bipartisan “Fiscal Commission,” which will be charged with proposing a way to balance the budget by 2015, which Congress will then be free to ignore, as has been its habit.

4. Obama has not abandoned his top spending priorities. Despite the much debated freeze on non-defense discretionary spending, Obama is proposing significant increases in a couple discretionary programs. The biggest story, in this regard, is education, which Obama is not skimping on despite the downturn. The Department will get $17 billion more for Pell Grants, which pays part of tuition for low income students, as well as billions more for elementary and secondary schools. The Department of Homeland Security also gets a 2 percent bump, with $734 million for new airport screening machines.Veterans Affairs and the State Department also get bumps in spending.

5. Obama has signaled a clear intent to take the deficit concerns directly to Congress, and few expect he will get his way in many of these areas, suggesting that deficits might run higher than he predicts. In addition to the spending freeze, which many in Congress scoff at despite its attached veto threat, Obama has targeted 120 programs for termination or reduction, saving a hypothetical $20 billion if Congress goes along. In the same vein, Obama wants to save $40 billion by eliminating tax preferences for oil, gas and coal companies, which may be about as doable as health care reform, considering the power of those industry lobbies on Capitol Hill. At the Defense Department, Obama wants cuts in the C-17 tanker program and the F-35 stealth fighter engine program. NASA is also slated to lose its next generation space vehicle program–a pet project of President Bush. “We don’t believe that just because it has a powerful constituency wasteful programs should continue to exist,” explained Orszag.

6. In terms of taxes, Obama still wants the Bush Tax Cuts to expire on schedule in 2011 for those who make more than $250,000, and he wants to expand the “Make-Work-Pay” tax credit one more year, providing hundreds of dollars in rebates to most of the middle class. There are also a bunch of other tax cuts in the short term that Obama wants–for small business, for home retrofits, for clean energy companies–that are meant, in part, as economic stimulus.

7. The bottom line: Obama is splitting the middle, trying to chart a politically palatable course that makes it look like he is tough on the deficit, allows him to pick fights with Congress and does not sacrifice his most cherished program expansions. At the same time, he has not yet provided numbers to back up the fiscal promise he made last year when he declared “A New Era Of Responsibility.”