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Obama Announces Proposed Cuts to Federal Budget

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Marc Goldwein
Policy Director, Committee for a Responsible Federal Budget
Thursday, May 7, 2009; 12:00 PM

The Committee for a Responsible Federal Budget's Marc Goldwein takes your questions about the proposed federal budget cuts announced earlier today.

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Read more from CRFB at US Budget Watch.

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Marc Goldwein: Good Afternoon, everyone. Earlier today, President Obama submitted part of the FY2010 budget submission (http://www.whitehouse.gov/omb/budget/). Included in this budget was a set of proposals to cut or eliminate 121 federal programs, saving nearly $17 billion.

Over the next hour, I'd be happy to take your questions on these cuts and their significance. I'll answer as many of your questions as I can, so fire away.

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New York, N.Y.: How much of the $17 billion in proposed cuts do you think President Obama will manage to get and how much political capital is he going to have to spend getting it?

Marc Goldwein: That's a great question. If history is any indication, President Obama will have his work cut out for him.

During his presidency, Ronald Reagan -- who ran and won on shrinking government -- only succeeded in eliminating four programs. His successor, George H.W. Bush proposed eliminating 246 very small programs in 1992 -- which would have saved less than $4 billion dollars. He only succeeded in getting rid of EIGHT of them -- including one to fund the Constitutional Bicentennial Commission, which was established for an event that already occurred 5 years earlier.

George W. Bush didn't see incredible amounts of success either. In his FY2006 budget, when all the stars were aligned perfectly (coming off an electoral victory with a big Republican majority and few new spending promises), he was able to cut or partially cut about 40% of the programs he proposed. For 2007 and 2008, it was less than 15%.

The bottom line is, every program has its own constituency ready to fight for its survival. Twenty million is very little to the federal government, but it's a lot to a $30 million program. The President is really going to have to fight for some of these cuts.

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budget cut reverse: So if you were a staffer who's agency is going to be negatively impacted by the budget cuts, is there any way this agency staff can promte the good work they are doing and save their program/agency?

Marc Goldwein: Now that the president has made these cuts, Congress will hold hearings to decide which programs they actually want to eliminate. Agency heads and others, of course, will testify -- and in many cases defend their programs.

If you think the administration is making a mistake and cutting a useful or vital program, my suggestion would be to write or call your congressperson. They make the ultimate decisions on how to appropriate the government's funds.

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The cruelest joke: $17B out of $3.4T is .005%.

Marc Goldwein: We're actually talking about around 0.5% of the budget, but your point stands. Even if President Obama gets all of these cuts, it just barely makes a dent in the overall budget deficit.

We have to remember first, that these cuts are about good government more than budgetary savings. They are about spending taxpayer money efficiently, not wasting it on redundant or ineffective programs.

To get real budgetary savings, the president and Congress are going to have to start making some tough choices. They are going to have to address tax policy. And most importantly, they need to find ways to get Social Security, Medicare, and Medicaid spending under control.

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Bethesda, Md.: I'm quite a bit concerned that Chrysler no longer intends pay back their $6 billion loan from the government apparently with the blessing of the White House. I haven't heard much concern about this so I'm wondering if I'm off base. This then amounts to a true taxpayer "bailout" instead of a loan and, in my opinion, sets a very bad precedent (if it is a precedent).

Marc Goldwein: From what I've read, you are correct that Chrysler will not be paying back a portion of its loan.

Of course, when the government gave the loans to car companies , they knew there was a chance of default.

The taxpayer, like an ordinary investor, bears the risk of any of the TARP investments going sour. But unlike ordinary investors, we were willing to make these investments even if they were losing propositions -- under the argument that they were needed to structurally support the economy.

It is certainly a slippery slope, and we don't want to create too much moral hazard. But we also want to turn this economy around as fast as we can.

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Yeehaw Junction, Fla.: Why hasn't Obama proposed more cuts to mandatory spending?

Marc Goldwein: In dollar amount, mandatory cuts do make up around half of these proposed cuts. The President also has tens of billions of mandatory savings elsewhere in his budget -- mostly used to finance new spending (for education, healthcare, etc).

But he has left out some very big programs -- such as Social Security. That program is an an unsustainable path, and will have to be addressed one way or another.

Medicare and Medicaid threaten to cost even more money -- and his proposed savings in these programs, used to finance his health care plan, won't be enough by themselves.

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Think Tank Land: How, logistically, does the stimulus package factor into this year's budget? What about the TARP money?

Marc Goldwein: Between the stimulus package and the TARP funding, we're talking about more than $1 trillion over 10 years (assuming we get a lot of the TARP money back). Most of that spending (and tax cuts) will be out the door by 2011. After that, though, the deficit never really recedes back to the levels we are used to under Obama's budget.

In the meanwhile, the government (both directly and indirectly) is on the hook for trillions of dollars. A lot of this is in the form of Federal Reserve programs, or from TARP, or the FDIC.

You can get a full picture of all government commitments related to the economy on our Web site at Stimulus Watch .

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Washington, D.C.: Marc,

How do President Obama's budget cuts relate to President Bush's proposed budget cuts during his final year in office? Previous years?

Marc Goldwein: In size, these cuts (121 programs for $17 billion in savings) are pretty similar.

In 2009, President Bush proposed cutting or eliminating 151 programs for a savings of over $18 billion. In 2008, he proposed cutting or eliminating 141 programs for a savings of $12.0 billion.

The difference is mainly in composition. Although we see a lot of repeats (especially in education), President Obama cuts a lot more on the defense side of the budget.

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Cincinnati, Ohio: Marc,

During the campaign, President Obama proposed that we return to the income tax rates of the late 1990s for the top brackets. How much revenue would this generate, and would it make a dent with regards to budgetary savings?

Marc Goldwein: This is a complicated question, because it depends on baselines.

Compared to keeping all of the Bush tax cuts, Obama's plan to restore the top brackets would save $637 billion (according to his budget).

The problem is, the tax cuts are already scheduled to expire under current law. So relative to that baseline, according to the Congressional Budget Office, it would COST $2.1 trillion.

And in any event, this proposal is included within his budget -- and they aren't sufficient to close the deficit over the long-run.

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Wokingham UK: Isn't it necessary to make some major cuts in military spending and in the size of the armed forces?

Marc Goldwein: I think you're right that we can't and shouldn't insulate defense spending from overall cuts.

Just like on the domestic side of the budget, there is lots of waste and redundancy in defense spending. Among this $17 billion in cuts, more than 40% comes from defense. And President Obama has proposed reforms to the defense procurement and contracting processes. And of course, he wants to bring a quick end to the War in Iraq.

But we can't get all the savings from defense alone.

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Ballston: Great idea to post the agency by agency details -- only the home page link doesn't work; the customer care email link doesn't work; and it's impossible to find a live person to help via central phone (the IT dept. voicemail message is very lame). Don't need to see this in chat, but would love a solution (heck, I still get the newspaper hard copy). Thanks for all your good work.

washingtonpost.com: Thanks, I'll check on the rest, but -- I hope this works: 2010 Budget Details: Agency by Agency .

Marc Goldwein: Hope this helps.

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Philadelphia, Pa.: How happy are you with these cuts, keeping in mind that this is a progressive government that also seeks an increased role in stimulating the economy. Could you have expect more cuts from this Administration, or do you think this is as good as can be expected?

Marc Goldwein: You bring up a very good point. When the economy is doing as poorly as it is, generally, the government should be INCREASING its spending and CUTTING taxes temporarily -- to stimulus an economy where consumers and businesses are afraid to spend.

But that doesn't mean we shouldn't be trying to make government more effective and efficient. Even with these cuts, spending in 2010 is projected to be $3.5 trillion, compared to $3 trillion in 2008. So we're not talking about big spending cuts here. But we are talking about small, lasting changes designed to improve the way we spend taxpayer money.

Over the long-run, of course, we will need big deficit reduction. And we can start proposing (and enacting) changes now -- they just shouldn't take effect until after the economy has recovered.

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Dunn Loring, Va.: What's your take on the administration's claims that health reform will reduce the huge deficits Obama is running up? Do you agree with the published studies that preventative care does little to reduce long-term medical expenses?

Marc Goldwein: As a country, we certainly spend way too much on health care, and get too little in return. This goes beyond just public money for Medicare and Medicaid; private health care costs are too high and growing too fast as well.

There is no question that some public policies can help to slow what we call "excess cost growth," making both private and public health care more affordable. Health Information Technology, more prevention, payment reform, tort reform, and the promotion of better overall health all show promise.

But none of these is a magic bullet. You're right that a lot of studies show preventative care does more to increase health outcomes (also good) than costs. There is a lot of uncertainly about other reforms as well, which is why we need an "everything on the table" approach.

And we're also going to have to accept that, even while we can slow excess cost growth, it's not likely we'll be able to stop it. That means we're going to have to make some hard choices. For the government, that means spending cuts (within or outside of health care) and/or tax increases. For individuals, it means living with less health care, working more hours (if possible), or cutting back on other consumption.

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Rockville, Md.: "such as Social Security. That program is an an unsustainable path, and will have to be addressed one way or another."

True - only if the economy grows very slowly. With the same growth we have had in the past it is not a problem. However if age to start, top income limits and some future benefits are adjusted, it will still be OK. Of all the spending programs, this is an easy one to fix and the political leadership has indicated it will be fixed soon. Why imply it is a big problem?

Marc Goldwein: The Social Security Trustees report is going to come out next week, and I think it will show the situation to be quite grim.

Even if we do see an explosion in long-term economic growth, though, it will not be enough to stop the system from running deficits. We can postpone but not prevent this. Given that, I think it makes sense to address the problem sooner rather than later.

You're right, this is an easy one. We know the options: reduce benefits, increase taxes, adjust the retirement age, or find outside sources of revenue.

But we do need political will. As you know, Social Security is often referred to as the "third rail of American politics" -- politicians who touch it die. We saw it with President Bush, we saw it with President Clinton, and we even saw it with President's Ford, Carter, and Reagan. But time is running short now. I'm hopeful President Obama and the Congress have the political will and wherewithal to deal with this program.

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Marc Goldwein: The submission released today focused mostly on micro issues within the budget. Going agency-by-agency, program by program.

Since I can see a lot of these questions are about the overall budget, I thought I would point you to some releases we have put out:

First Look at the President's FY2010 Budget Blueprint

More on the President's FY2010 Budget Blueprint

Mandatory Spending in the President's Budget

CBO's Analysis of the President's FY 2010 Budget Blueprint

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Monkey's Eyebrow, Ariz.: What are some of the biggest spending cuts Obama has proposed?

Marc Goldwein: On the discretionary side of spending, some of Obama's biggest cuts for the Fiscal Year 2010 include defense projects like the Future Combat Weapons System ($3.6 billion) and the F-22 Raptor ($2.9 billion). On the mandatory side, the termination of a program of "Entitlements for Financial Intermediaries Under the Federal Family Education Loan Program" is the biggest, saving $3.6 billion in 2010.

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Marc Goldwein: Thanks everyone for your questions today. I am sorry I wasn't able to get to all of them, but feel free to email me at Goldwein@newamerica.net. Or visit our websites at http://www.usbudgetwatch.org and http://www.crfb.org .

Happy Budget Day!!

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