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Big Numbers
Mr. Obama's budget relies on some heavy lifting yet undone.

Friday, February 27, 2009

THERE ARE many metrics for judging a president's budget proposal. Is it honest in accounting for known costs over a reasonable time frame? Would its approach put the country on a sustainable fiscal course? Are its tax and spending provisions good policy -- and politically plausible? In this dire economic climate, there's another important question: Is the administration concentrating enough on the task at hand, which is helping to right the economy, or does it overreach in envisioning new taxes and programs?

On the honesty scale, President Obama's budget offers some improvements. It acknowledges some huge expenses that Bush administration budgets studiously ignored, such as the cost of providing relief from the alternative minimum tax. It provides $130 billion in war funding for 2010, a reasonable estimate. It provides for the contingency that the administration will seek another $750 billion (reflected as $250 billion on the budget books on the theory that some of the spending will be recouped) in emergency funding for financial stabilization.

But the assumption that war spending will drop to $50 billion per year after 2010 is wildly at odds with Mr. Obama's stated commitment to success in Afghanistan and Iraq. His self-congratulatory claim of having identified $2 trillion in "savings" relies almost entirely on the presumed lower war costs and a long-promised rollback of the Bush administration's high-end tax cuts.

Yesterday's budget shows a gargantuan deficit of $1.75 trillion, 12.3 percent of gross domestic product, in this fiscal year. The budget projects deficits declining to around 3 percent of GDP from 2013 through 2019, but they may be far higher if Mr. Obama's projections of economic growth prove optimistic. Long-term fiscal stability will require more than getting rising health-care costs under control, as important as that is. Mr. Obama's statement Tuesday that the country should "begin a conversation" about Social Security was disappointingly anemic. The conversation has been going on for a long time. It is action that has been, and remains, missing.

Mr. Obama proposes a "down payment" of $634 billion over 10 years on expanding health insurance, about half of what he says is required. His outline leaves open for discussion with Congress big questions about the shape of the plan and the source of additional funding. His proposals to reduce Medicare costs by instituting competitive bidding among private Medicare Advantage programs, cutting payments for home health care and prescription drugs, and raising premiums for higher-income beneficiaries are certain to produce the usual howls. The same is true of Mr. Obama's suggestion to pay for part of his health program by reducing the value of mortgage, charitable and other deductions for the highest-income taxpayers. Under the current fiscal circumstances, it is critical that Mr. Obama and Congress hew to the principle, set out in this budget, that health-care reform not add to the deficit.

Mr. Obama proposes to pay for the additional tax credits he promised to lavish on 95 percent of Americans with revenue generated by a cap-and-trade system for carbon emissions -- a kind of indirect tax on oil, gas and coal. Since this will raise expenses for all Americans, marrying these two initiatives makes sense, philosophically and fiscally. Once again, however, the trick will be resisting the inevitable political demands to use the revenue to cushion the blow for polluting industries.

Mr. Obama has reached for a lot in this budget; he needs to make certain that he remains focused on the economic crisis and to adjust his ambitious aims if the recovery does not proceed as he hopes.

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