As President Obama prepares to unveil the last budget proposal of his presidency next week, the White House is taking advantage of yet another opportunity to brag about how much he has slashed the federal deficit.
“Under the president’s leadership, we have actually reduced that measure 75 percent,” White House spokesman Josh Earnest said this week, noting that the administration had also “succeeded in driving the deficit-to-GDP ratio below 3 percent.” It was, he added, “why, frankly, the president’s pretty proud of the success that we’ve had.”
But what comes next won’t make Obama proud: The federal deficit this year will jump $105 billion from last year, but it will will also increase as a portion of the economy for the first time since 2009, according to the Congressional Budget Office.
Moreover, if current laws remain unchanged, the deficit will balloon over the next decade and be “considerably larger than its average over the past 50 years,” CBO said recently. The federal deficit would reach 3.5 percent of GDP by fiscal year 2019 and hit 4.9 percent a decade from now. Debt held by the public would rise from an already towering level of 75 percent of GDP at the end of this year to 86.1 percent in 10 years.
In the budget proposal next week, Obama is likely to leave this problem for the next president. To do otherwise would mean addressing the rate of growth of entitlements such as Social Security and Medicare, which currently make up two-thirds of the federal budget and which will grow nearly 7 percent this year, according to CBO.
“I don’t think there will be a serious attack on the long-run sustainability of long-run fiscal policy,” said Rudy Penner, a veteran budget expert at the Urban Institute and former CBO director. “I wouldn’t be surprised if it were more of a philosophical statement than a call to action.”
Some of that is the nature of budget proposals made in the last year of a second term. By the eighth year of any presidency, budget proposals get to be old hat. Presidents tend to recycle ideas like so many pieces of cardboard, plausible in theory yet mostly destined for the trash bin.
Penner, who worked in the White House budget office under President Ford, said that Ford also “rehashed” proposals.
The final Obama budget is expected to be no different. The administration has already been dribbling out some of its ideas, both new and old. The president wants $1.2 billion to expand programs for the treatment and prevention of drug abuse, nearly $1 billion to detect and treat cancer, and $2 billion for new Pell grants for year-round students.
“We’ve already heard that the war on cancer is going to be $1 billion. This is a multi-trillion budget. A billion is a rounding error,” said Robert Shapiro, chairman of the advisory firm Sonecon. “These are not proposals on which a legacy is built. The president’s focus with respect to his legacy is protecting the things that were enacted years ago.”
Obama is also likely to repeat calls for an increase in the minimum wage and free tuition for community colleges. Apart from the merits, or demerits, of raising the minimum wage, inserting it into the budget is seen by Democrats as good politics because it appeals to one of the party’s key constituencies, the working poor. In 2014, the president called on Congress to raise the minumum wage to $9 an hour and index it to inflation. A similar proposal is likely now.
The budget will also include wage insurance, a scheme that would provide supplemental payments to workers who lose their jobs and end up taking new ones at lower salaries. The wage insurance plan would replace half of a worker’s lost wages, up to $10,000 over two years, for those earning up to $50,000 a year. But Obama has proposed wage insurance before — in a 2011 jobs bill and in his 2012 State of the Union address. And Republicans aren’t likely to support it this time either.
In his State of the Union address, Obama noted that some Republicans, including House Speaker Paul D. Ryan, already support the idea of expanding the earned-income tax credit to include childless workers. The president suggested doubling the credit to more than $1,000 and making workers as young as 21 eligible. Current benefits do not exceed $506 and are paid only to people older than 24. But the expansion would cost about $6 billion a year, and Republicans and the administration haven’t been able to agree on how to pay for it.
An even longer shot? A Jan. 14 appeal to Congress to provide “extra incentive” to states that belatedly take up the expanded Medicaid option under the health-care reform the GOP Congress has tried to kill dozens of times.
The president’s proposal would also change the targeting of the so-called Cadillac tax on the most generous, high-cost employer-sponsored health care plans. The controversial Cadillac tax, which is designed to help pay for other parts of the healthcare reform, has already been postponed from 2018 to 2020.
The new proposed change would raise the threshold for the tax in areas where health insurance is particularly expensive. Administration officials say that the change still would ensure that the policy remains targeted at overly generous plans over the long term if health costs rise faster than the inflation-indexed tax thresholds.
The president also wants to expand workers’ access to 401k retirement plans and Individual Retirement Accounts. Only about half of workers participate in a retirement plan, according to the Bureau of Labor Statistics. Obama would make it easier for small firms to band together to share some 401(k) costs. He would also require employers with more than 10 employees to automatically enroll workers into an IRA if there is no other retirement plan. He would also require employers to offer retirement plans to part-time employees who have worked more than 500 hours a year for at least three years.
As the White House noted on Jan. 26, “In every Budget since taking office, the President has proposed to automatically enroll approximately 30 million workers without access to a workplace retirement plan in an IRA.”
Will he succeed before he retires from the Oval Office? Whatever their merits, most of these proposals have been brushed aside before.
The new budget is also likely to link additional infrastructure spending and corporate tax reform — including a measure to stop “inversions” that allow U.S. corporations to merge with a smaller foreign firms and save taxes by moving their headquarters to lower tax jurisdictions abroad.
One thing Obama will not have to worry about this year is sequestration, the automatic across-the-board spending cuts that would take place if domestic discretionary spending breached certain caps. That was a central issue in budget talks last year, but the two-year agreement hammered out with Republicans in December casts aside those restraints in favor of both higher military and non-defense discretionary activities. Both parties this year will try to avoid that budget drama.
Obama has called his last two years in office “the fourth quarter” of his presidency, noting that a lot of exciting things happen in the fourth quarter of a sporting event. But the budget that will be released just two days after the Super Bowl might include some familiar plays, “hail Mary” passes and runs for short yardage.
“The president is negotiating with Paul Ryan now over the budget, which means that this will be a budget of modest ambitions,” said Shapiro, who was under secretary of Commerce for economic affairs in the Clinton administration. “It is, after all, his [Obama’s] last year in office. Even if Congress were less hostile to the president, Republicans would not approve any new initiatives because they’re hoping to capture the White House and this is the budget the next president has to live with in his first year.”