Obama’s deficit reduction a major hypothetical

Jon Ward Contributor
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White House Budget Director Peter Orszag didn’t exactly sound bullish about the prospects for health care reform when asked Monday how its passage, or non passage, would factor into the federal budget deficit.

“It’s a very small share of the more than $1.2 trillion in deficit reduction [over 10 years] that’s contained in the budget,” Orszag said, noting that he had factored in about $100 billion over the next 10 years as savings from a health care bill.

Orszag appeared to be downplaying the impact on the deficit – projected to be $1.6 trillion this year and about $9 trillion over the next decade – if health care does not pass. White House staff pushed back hard Monday against such a characterization, and pointed to numerous statements by Orszag saying that he thinks health care will pass the Congress.

But that looks increasingly unlikely. In any event, the $100 billion toward deficit reduction is only one of several items in President Obama’s budget that the White House says will cut down the nation’s budget imbalance, but which very likely might not happen.

There is another $630 billion in additional deficit-cutting measures that is by no means a certainty, depending on whether Congress passes Obama’s proposals into law.

The reduction of itemized deductions for charitable giving, for those making $250,000 or more, would bring in $291 billion over the next decade. But Obama proposed that a year ago and the idea went nowhere, because of opposition in the Congress.

A tax on banks that received money from the $700 billion TARP bailout would bring in $90 billion. But that idea also faces a fight in Congress. And even then, the Obama administration has already extended TARP beyond its original expiration date at the end of 2009 and could do so again in October, when most of the $700 billion is scheduled to go toward debt reduction.

And a freeze on spending for non-discretionary, non-defense spending – about 17 percent of the budget – would yield $250 billion in savings. But Democrats in Congress want the military to be included in the freeze, and could pose a problem for the White House if the president refuses to budge.

Those four items alone – health care reform, reduced itemized deductions for charitable giving by wealthy Americans, the bank tax, and the spending freeze – amount to $730 billion in deficit reductions over the next decade that are highly uncertain.

Orszag acknowledged that “there’s going to be lots of questions about the political economy of what can get enacted and what can’t.”

“We’re going to fight for the things that we put forward,” he said.

Even if Obama were to pass all of the deficit reduction measures included in his budget, however, it would still be only a little more than 10 percent of the deficit over the next decade. And the long-term fiscal picture is even more grim, with entitlement costs for Medicare, Medicaid and Social Security projected to swamp the nation’s ability to pay for them.

Orszag admitted that deficit reduction measures are merely a prelude to the long-term systemic budget imbalances that need to be addressed, but said a fiscal commission appointed by the president will take care of that.

“We do face a substantial medium-term deficit problem. And what we have said is we put forward proposals to get us part of the way there,” he said. “The commission will have to get us the rest of the way there.”

The problem with a commission created by the president, however, is that it will not have binding authority on Congress forcing them to vote up or down on its recommendations, as a panel created by Congress itself would have had.

Budget experts said that the partisan politics of the moment prevent Obama from really being honest in his budget about what needs to be cut.

“The truth is that the partisanship that goes on right now would kill all those ideas,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

Indeed, even Rep. Paul Ryan, the Wisconsin Republican who has received plaudits from the president and from Orszag for detailing his own budget blueprint for the future, was also reticent, during an interview with The Daily Caller, to detail where he would cut from the federal budget right now.

Ryan promised more details in March, when he said he will release a budget alternative.

Despite the difficult political environment, MacGuineas said that Obama “hasn’t done nearly enough to set the stage for what needs to happen.”

She listed a major new tax, perhaps on energy consumption, tax code reform and entitlement reform as three of the major things that need to be done for long-term deficits.

Ryan told The Daily Caller that his plan would not require tax increases, but said a credible plan for the country’s long term fiscal future is vital to sustaining the nation’s credit rating and its ability to continue borrowing from debtor nations such as China.

“What matters most for the credit markets is if we’re putting a plan in place that shows we’re getting it under control and that we’re literally going to pay it off,” he said.

Gautham Nagesh contributed to this story.