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President’s Budget Not Dead on Arrival

By Steve Bell

Monday, February 2, 2015

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President Obama’s Fiscal Year (FY) 2016 budget released today becomes one of the few presidential budgets of the last decade that isn’t dead on arrival.

Instead, the Obama budget starts a fiscal debate that both White Houses and Congresses of the past have ignored. While Congress will certainly not enact the president’s FY 2016 budget as presented, it nonetheless lays out a path of economic growth ideas that will challenge policymakers in the present slow-growth economy that is forecast by both the Congressional Budget Office and most other budget analysts.

Obama’s recommendations start with repeal of the existing FY 2016 “sequester caps,” which threaten national security and hamstring necessary domestic investment in education, infrastructure, and basic research in health and science. BPC has recommended repeal of the sequester regime and are glad to see the president’s initiative. Continuing these cuts endangers the international standing of the United States and shortchanges the engines of an economy clearly in need of a boost. The real question now is whether the president is willing to come to the negotiating table with Republicans in order to find a way to pay for reversal of the sequester and make it a reality.

The starkest shortcoming of the Obama budget remains a failure to undertake structural and fundamental reform of entitlements in health and pension areas. It also lacks a full tax reform plan. Without such entitlement and tax reform, the nation’s fiscal health will continue to falter in the longer run. We are also disappointed in the failure of the budget to endorse gradual but fundamental reforms to military compensation and benefits, the growth of which endanger military readiness and investment.

By increasing defense spending above the sequester levels, and suggesting a long-term investment in infrastructure paid for by new taxes on the international earnings of domestic multi-national corporations, the presidential budget clearly challenges congressional budget policymakers. We anticipate that both the House and Senate budget resolutions will try to achieve balance within a decade, an effort that would require very substantial reductions in entitlements, particularly if the majority party continues supporting revenue-neutral tax reform. These changes could be proposed within the reconciliation regime of the Congressional Budget Act. While congressional budget resolutions are merely blueprints that don’t have the force of law, the Reconciliation instructions can lead to real changes in law that make that blueprint a reality. We expect that enacting a reconciliation bill that achieves balanced budgets will pose serious political challenges for Congress as it tries to make what would have to be very abrupt reductions in entitlements to present beneficiaries.

The president’s budget has the obvious shortcomings outlined above, but it nevertheless could begin a serious discussion of the long-term needs of a national economy whose growth is challenged by demographic realities.