How Obama wants to soften the blow of the debt ceiling deal

President Obama’s 2013 budget mostly sticks to the spending cuts mandated by the Budget Control Act. But the budget also proposes changes — both big and small — that would affect the impact of the law, which was passed as part of August’s debt-ceiling deal. First, Obama’s budget provides a plan under which sequestration — that is, the cuts triggered by the supercommittee’s failure to pass a $1.2 trillion deficit reduction plan — won’t actually happen. Obama’s budget would cut the deficit by nearly $2 trillion in 2021 through higher taxes, thus allowing the government to avoid the spending cuts by going well beyond the $1.2 trillion requirement.

(Associated Press) “The 2013 Budget more than meets the requirement to avoid the sequestration and proposes a return to the previous caps,” says Meg Reilly, a spokesperson for the Office of Management and Budget. “The Budget reflects the President’s policies, and he believes that the sequester is bad policy that will lead to devastating cuts to domestic and defense spending.”

In fact, though the president’s budget reflects the baseline spending level under the sequester, at least one part already assumes that the triggered cuts won’t take place: The proposed spending on defense is about $4.6 billion above the level permitted under the sequester, according to Jim Horney of the Center for Budget and Policy Priorities. “It appears that the administration is threatening Congress with yet another stick: Change the law...or defense is docked for being above its cap,” explains Russell Rumbaugh, co-director of the Stimson Center’s Budgeting for Foreign Affairs and Defense program.

Secondly, Obama wants Congress to make two small amendments to the Budget Control Act itself. Under the debt-ceiling deal, legislators are permitted to set aside extra money — that is, above the spending caps — that allows Social Security and the Center for Medicare & Medicaid Services to root out potential fraud, waste, abuse or overpayment. The rationale is that such investments in “program integrity” will help save taxpayers money in the longer run, so this spending shouldn’t have to compete with other funding, particularly given the strict caps that the debt ceiling deal has imposed. “You can appropriate this money [under the caps], but then you’d have to cut other things,” CBPP’s Horney explains.

Obama now wants similar allowances for the Internal Revenue Service and unemployment insurance programs. His budget asks for a $691 million increase in funding to help the IRS target tax cheats — particularly “high net-worth individual and entities” with holdings overseas. The budget points to evidence that there’s a $5 return for every $1 spent on tax compliance, noting that the IRS suffered from a 2.5 percent spending cut in the 2012 budget. Obama also wants $15 million for helping UI programs root out improper payments. Both these proposals — known as “discretionary cap adjustments” — would require Congress to amend the Budget Control Act. Reilly, the OMB spokesperson, declined to comment on the proposals.

There is certainly appetite in Congress to change parts of the debt ceiling deal and increase spending in certain areas. Senate Republicans recently introduced a bill that would stave off defense cuts for 2013. That said, there’s still little consensus between the parties about the rout to changing the way the Budget Control Act actually takes effect.