Obama's Budget: Cuts and Investment

Obama budget announcement - AP Carolyn Kaster - banner.jpg

President Obama speaks about his budget proposal at Parkville Middle School and Center for Technology in Baltimore. credit: AP Photo/Caroly Caster



President Obama's 2012 budget, out this morning, calls for $1.1 trillion in deficit reduction over the next 10 years, with roughly two-thirds drawn from spending cuts and another third from revenue increases.

Under the White House plan, the deficit would peak this year at $1.6 trillion, or 10.9 percent of GDP -- slightly higher than recent congressional projections. The deficit would decline to $1.1 trillion in 2012, or 7 percent of GDP, and stabilize at about 3 percent of GDP by 2015. But then it would start to creep back up in 2021, as retiring baby-boomers drive up outlays for Medicare and Social Security.

White House officials say they are still on track to meet the president's target of halving the deficit that he faced upon taking office. But they admit that last year's goal of reaching a "primary" balance -- matching revenues to spending, except for interest payments on the debt -- will be postponed from 2015 to 2017.


The $3.7 trillion budget blueprint freezes domestic discretionary spending over five years and institutes an inflation-adjusted freeze on defense spending for the same period.

In a notable concession to fiscal honesty, the budget also lays out a plan for paying some big costs that Washington has glossed over for years.

It proposes to pay for the annual "doc fix" -- Congress's avoidance of Medicare's sustainable growth rate -- with $62 billion in health care savings.  To patch the alternative minimum tax for three years, which would hit millions of middle-class income earners if Congress doesn't act, Obama's plan would reduce the value of tax deductions for high-income Americans back to Reagan-era levels.

Although the budget includes 200 terminations, reductions, and savings, few of those cuts would reduce total spending because most would be plowed back into targeted investments in education, research and development, and infrastructure. The plan maintains an increase in the maximum size of the Pell Grant by cutting $100 billion from other expansions in the program, and it pays for a national wireless broadband network with revenues from auctioning additional segments of the radio spectrum.

The budget does not contain a specific program to address long-term entitlement reform, though it does build on the administration's health care cost controls. It also endorses a deficit-neutral reform of the corporate tax code, and it lays out principles for a Social Security overhaul.


Whether it ends up defining the fiscal debate or not, the president's budget at least stands as an answer to House Republicans' clamoring for spending cuts.

Fielding questions before the official release of the plan, Office of Management and Budget Director Jacob Lew defended the White House's treatment of entitlement spending, saying the budget had forced "tough tradeoffs."

Lew, pressed during an interview on MSNBC to point out substantive provisions in the blueprint, said the budget marks a first step toward real reform of entitlement and defense spending -- the primary drivers of the nation's long-term debt problem.

"Our budget actually makes cuts in many of those areas," Lew said. "We reduce defense spending by $78 billion over the next five years. We do have savings in health programs."

Presented by

Tim Fernholz is a reporter at Quartz.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Politics

Just In