The budget battle of 2011: Deja vu all over again

By Glenn Kessler

"Rather than fight the same tired battles that have dominated Washington for decades, it's time to try something new."

--President Obama, in a quote displayed on the home page of the Web site of the Office of Management and Budget

A brand-new Republican-led Congress demanding serious cuts in the existing-year budget. A Democratic president under assault for increasing the budget deficit. A budget proposal that claims to cut hundreds of programs while leading the nation on a "sustainable path" to deficit reduction

It's 1995 all over again.

The players are different and the numbers are larger but the playbook is the same. President Obama's 2012 budget blueprint--overseen by a man who once was Bill Clinton's budget director (that's Jack Lew in the video above)--looks rather similar to the budget strategy used by the last Democratic president facing an emboldened Republican party.

The Facts

The 1994 midterm election ushered in the Republican revolution led by House Speaker Newt Gingrich (R-Ga.). An immediate priority of the new Congress was eliminating billions of dollars from the existing year's budget--about $16 billion in cuts, or about 3 percent of the overall discretionary budget. (Most of the budget is made up of mandatory programs whose funding can only be changed by new laws, such as Social Security and Medicare, so the real budget fight is over the programs that need to funded year by year, such as defense, education and foreign aid.)

During the first two years of Clinton's presidency, Democrats had passed a deficit-reduction bill that included tax cuts for the working poor and tax increases on wealthy Americans, but few spending cuts--and earned not a single Republican vote. The now-in-power Republicans vowed to pass a balanced budget, and Clinton responded with a budget that essentially dared them to go first. The 1996 budget blueprint claimed Clinton would streamline or eliminate 400 government programs, resulting in savings of $144 billion over five years. He left untouched most of the mandatory spending programs. The result was a "sustainable" path of $200 billion in deficits as far as the eye could see.

Clinton also used some sleight of hand to achieve his claimed savings. He deferred much of the cuts until later in the five-year window--and assumed somewhat higher inflation and growth than most analysts expected, allowing him to claim cuts from a higher baseline.

Clinton's goal was to goad the Republicans into taking the painful first steps toward cutting programs. By the end of the year, the clashing visions of the two parties led to the epic three-week government showdown, which resurrected Clinton's presidency. But the battle (and a gusher of tax revenues from a booming economy) also set the stage for an eventual balanced-budget deal.

Fast forward to 2011. House Republicans are pressing forward with a plan to slice $100 billion from this year's budget, which as a percentage of the discretionary budget is about double the size of the $16 billion sought (and achieved) by the 1995 Republicans. Obama has responded with a budget plan that looks suspiciously like the Clinton budget for fiscal year 1996.

Like Clinton, Obama barely nicks the mandatory spending programs. Like Clinton, Obama claims he will eliminate or reduce hundreds of programs. Like Clinton, Obama wants to increase spending in some areas while claiming to cut in others. Like Clinton, Obama appears to be estimated future inflation and growth at a higher rate than the Congressional Budget Office, making it easier to claim "cuts" in later years. And like Clinton, the overall deficit reduction is less than advertised.

Buried deep in the budget, Table S-2 shows the effect of the budget proposals on projected deficits. For 2012, the anticipated deficit was $1.09 trillion. After adding in the impact of various proposals--tax increases, spending freezes and the like--the net deficit reduction is actually...an increase of $11 billion. That's right, the deficit actually increases slightly in the first year as a result of the president's proposals.

While deficit savings are claimed in later years, the budget is rewritten every year, so the first year is the most important. For later years, the most significant savings comes from the administration's assumption that the wars in Iraq and Afghanistan will wind down. In 2013, Obama is assuming $82 billion in savings from "overseas contingency operations"--and total deficit reduction of $79 billion.

In fact, cutting spending for the wars is the biggest revenue saver. Over five years, $443 billion would be saved in that category, compared to $154 billion in savings from the administration's much ballyhooed freeze on nondefense discretionary spending and $188 billion in revenue from tax increases and tweeks to mandatory programs.

When individual discretionary programs are compared over the years in constant 2005 dollars (Table 8.8 in the historical supplement), it is clear that over five years the president's budget blueprint would make only a small impact on the runaway spending of recent years. Here, in inflation-adjusted dollars, is how much was spent on defense and nondefense discretionary in key years over the past three decades--and would be in 2016:

Defense

1980 $331 billion

1990 $462 billion

2000 $362 billion

2010 $608 billion

2016 $540 billion

Nondefense

1980 $355 billion

1990 $321 billion

2000 $374 billion

2010 $581 billion

2016 $446 billion

Spending in both categories thus would still be higher than under Jimmy Carter, George H.W. Bush and Bill Clinton.



The Bottom Line

Every president's budget blueprint is a political document. It would be silly to pretend otherwise. Obama's budget reorders some priorities, with little impact on the deficit, and all but dares the Republicans to make politically difficult decisions first. Let the budget battle be joined.

Follow the Fact Checker at Twitter@GlennKesslerWP

UPDATE, 6:15 PM

A reader wondered what these figures above would be in terms of a percentage of the overall economy (i.e., gross domestic product). I answered below in the comments but thought it would be worth posting as part of the main article as well.

The GDP numbers are in table 8.4 and show, as share of GDP, these results:

Defense

1980 4.9 percent

1990 5.2 percent

2000 3.0 percent

2010 4.7 percent

2016 3.4 percent

Nondefense

1980 5.2 percent

1990 3.5 percent

2000 3.3 percent

2010 4.1 percent

2016 2.8 percent

While nondefense discretionary spending would be rather low as a share of the overall economy, the chart also shows that mandatory spending and net interest would grow to 16.3 percent of the overall economy, a new high. That figure shows where the real challenge lies in the budget.



