During the 2012 campaign, President Obama and his allies insisted that, despite Republican rhetoric, he actually did have a plan to grapple with the nation’s debt problem. Released in Sept. 2011 following the debt limit standoff, the proposal (“Living Within Our Means and Investing in the Future“) claimed it would reduce deficits by $4 trillion if implemented. Now, with the “fiscal cliff” package that raised income taxes on wealthier Americans the law of the land, Obama has enacted roughly 70 percent of the claimed deficit reduction in that plan. So, what kind of deficit reduction will he propose going forward?
Here’s a list of the main components of his Sept. 2011 plan, with an explanation of whether they’ve been enacted:
– Discretionary budget caps: $774 billion (excluding debt service savings).
Enacted as part of the debt ceiling deal.
– War savings from Iraq and Afghanistan: $1.04 trillion
Enacted
– Tax hikes: $1.5 trillion
Partially enacted $617 billion of them as part of fiscal cliff compromise.*
– Health savings: $320 billion
Not enacted.
– Mandatory savings: $257 billion
Not enacted
– American Jobs Act: $447 billion in new stimulus.
Not enacted, though Congress did extend the payroll tax holiday in 2012 at a cost of $105 billion. A more generous version of the payroll tax holiday was part of the jobs bill.
– Total debt service savings: $138 billion from discretionary budget caps + $413 billion from the other components = $551 billion in reduced interest payments.
Partially enacted ($138 billion from discretionary budget caps + estimated $253 billion on the rest, calculated on proportional basis = estimated $391 billion)
Taking everything in Obama’s original proposal at face value, adding up all of the deficit-reducing components and subtracting the new stimulus spending, translates into about $3.5 trillion in deficit reduction excluding debt service savings and $4 trillion including everything. Of that, $2.4 trillion was enacted if you don’t include debt service savings and about $2.8 trillion was enacted if you do. Either way, it means roughly 70 percent of Obama’s deficit-cutting agenda has already become law. This leaves him with several problems going forward.
The CBO announced today that after the fiscal cliff deal, deficits would range from $6.9 trillion to $9.2 trillion over the next decade, depending on the baseline assumptions. Though we don’t have updated numbers yet, the CBO’s broader budget forecast will undoubtedly continue to warn about the nation’s long-term debt trajectory.
So what is Obama going to do when he reveals his budget next month? What is his position going into budget showdowns over the course of his second term? There’s still room for him to push for more taxes, but he has conceded setting the threshold for increased income taxes at $400,000 instead of $250,000. If he wants to avoid new tax increases on 98-99 percent of households, and has already raised $617 billion, there’s an upper limit to how much additional revenue he could propose. Maybe he can come up with another few hundred billion, or approach $800 billion, by getting rid of various deductions and loopholes in the tax code. But there isn’t much room beyond that. The few hundred billion in savings he could theoretically find by tweaking mandatory programs and health care in a way Democrats may be able to swallow would largely be offset by the stimulus spending he still wants to push. It’s harder to argue that intransigent Republicans are standing in the way of deficit reduction when most of his deficit reduction proposal has already been enacted.
*Note that the 2011 proposal was based on 2012 to 2021 budget years, and we’re now more than three months into the 2013 fiscal year, so the numbers are relatively, but not perfectly, comparable.
UPDATE: Since initially writing this post, the CBO released updated figures on the budgetary fallout from the fiscal cliff deal, which I have now integrated.
