There’s been lots of attention paid in the media to the Ryan budget and to Romney’s stated budget goals and they ways in which they do and don’t match Ryan’s plans, but there’s been far less information on Obama’s budget. So before delving into and sorting out the treasure trove of information on Romney and Ryan I’m going to look at the Obama budget and the priorities we can infer from it.
The ratio of new revenue to spending cuts in the Obama budget is 1:2.5. So for every dollar of new revenue there is two dollars and fifty cents of spending cuts.
The top priority in the Obama budget is infrastructure and research and development. Obama talks about an economy built to last and his budget puts the money where his rhetoric is. It includes 350 million for the American Jobs Act, a combination of tax cuts (like extending the payroll tax cut and a tax cut for business investment) and spending that is designed to both create jobs and update our transportation infrastructure. The budget also invests heavily in research and development (140.8 billion), with a particular emphasis on the manufacturing sector (2.2 billion), which while not a large percentage of overall R&D is a big increase for manufacturing.
The other big priority of the Obama budget is education, which his budget documents tend to frame in terms of human capital. It includes 850 million for Race to the Top and 300 million for childcare. It also maintains Pell grants for college at their current levels and implements a review reforms to incentivize colleges to keep tuition rates low.
On the revenue side the budget plans to raise 1.5 trillion while simplifying the tax code, lowering rates, and eliminating deductions. Most of the actual spending cuts, 7.5 trillion dollars worth, come from cuts, consolidations, and administrative savings. I haven’t seen solid outside analysis, but I think it’s just to be somewhat skeptical of this.
Yes, there’s waste in government, but if eliminating it were as easy as Obama (and Romney) make it seem then most of it would have been gone a long time ago. Likewise, since both Obama and Romney want to simplify the tax code by lowering rates and removing deductions, why hasn’t it been done? Take a look at the top 12 tax expenditures. They are all very popular, in fact, Romney has already promised not to cut the biggest one (Employer health care), the third biggest one (mortgage interest) and the sixth biggest one (charity) and hasn’t named the deductions he would eliminate. Obama has been no more forthcoming. Obama’s position only obligates him to reduce rates by as much as is possible while raising revenue and removing any deductions he’s able to, but my guess is that won’t mean much of a rate reduction.
The biggest criticism though is not the political feasibility of Obama’s stated revenue and spending goals, it’s that even if they were achieved they wouldn’t do enough to eliminate the deficit. Obama’s lone defense is that by reducing the deficit to three percent of GDP by 2018 thereby stabilizing the debt to GDP ratio. This, of course, assumes that our economy is growing at three percent a year (if our debt grows at the same rate as the GDP then the debt to GDP ratio will remain the same). That said, the budget doesn’t balance in the long-term.
As I pointed out in my last piece, in the long-term it is health care costs that are wrecking the budget. The Affordable Care Act does attempt to bend the health care cost curve downward, but by itself it doesn’t do enough to get our long term health care spending under control. I have a separate piece devoted to health care, but in assessing priorities it’s important to note that the Obama budget allows for 32 million more Americans to have access to health insurance.
This last part risks being somewhat subjective, but hopefully useful. Below is my assessment of Obama’s priorities based on his budget:
- Infrastructure and R&D
- Education/Human Capital
- Health Insurance
- Poverty Assistance Programs
- Other Discretionary Spending