There are two things that one can learn at the outset from the budget that Barack Obama presented today:
The first is that America has joined everybody else in abandoning the idea that the government can spend its way out of a country's economic difficulties. A senior administration official told reporters. "The debate in Washington isn't whether to cut or to spend. We both agree we should cut. The question is how we cut and what we cut."
Secondly, on the issue of where to cut, it was evident that this is a presidential election budget. An American president always faces a conflict between his role as president and building support for his presidency and his role as party leader. Obama did not propose feel-good programs that would allow the administration to propitiate every group, but presented a budget that allows him to contend to the electorate that he was evenhanded and cut programs that were dear to him as well areas traditionally prized by Republicans.
For example, Obama agreed to cuts in community development plans and in heating fuel aid to the needy. These cuts will inflame part of his political base. Three quarters of the reduction in the budget deficit over 10 years will come from program cuts or eliminations and only the remaining quarter from tax increases. This appears to tilt in the direction of the Republicans.
Obama made another nod towards the conservatives by freezing federal salaries for 2 years. State governors are increasingly seeking to reopen agreements with state employees as a means of cutting back expenses and it was inevitable that this trend would extend to federal civil service employees.
These concessions are balanced by cutting defense spending by $78 billion over the next 5 years, reducing defense spending to zero real growth. Tax incentives for oil, gas and coal producers will probably please the environmentalists and populists who generally regard the energy companies with suspicion. The measure that will probably go down best with the Democratic base is the end of tax breaks from the Bush era to the country's highest earners.
In some cases the budget has cuts and expansion in the same area. The administration will expand grants for needy college students, but will charge interest on loans to graduate school students during their studies instead of upon their completion.
The budget also tries to keep faith with the ambitious proposals contained in Obama's State of the Union address. It allocates funds for high-speed rail links, aid to education, clean energy, electric cars and broadband Internet communications.
This is Obama's opening for the battle of the budget that he will be fighting with a Republican-controlled House of Representatives and to some extent with a Democratic-controlled Senate, as some Democrats from conservative states are up for reelection in 2012. The administration will use the Republican call for deeper cuts as a way to hold Democrats in line, telling them that if they do not support the president the results could be even worse.
The Republicans, for their part, will propose an alternative budget in the house. They are calling for more drastic action, because in the words of Senator Jeff Sessions of Alabama. "We are facing a fiscal crisis". The gradual ten-year reduction of the federal deficit will be vitiated by the interest owned on already accrued debt and the 10 year plan will aggravate the federal debt by a staggering $7.2 trillion.
House Speaker John Boehner claimed that the 5 year freeze on discretionary spending is meaningless, given the fact that the previous 2 Obama budgets featured large spending increases. Appearing on "Meet the Press" the speaker complained that "locking in that level of spending is way too much"
The Republicans will also question what Obama terms "investments". For example they believe that's the high-speed rail while appropriate to the European or Japanese situations, does not make economic sense in the American context, and merely represents a wasteful expenditure of $53 billion.
Both parties have been accused of ignoring the elephant in the room, namely the Medicare, Medicaid and Social Security entitlements that neither party has so far ventured to touch. The president's own debt commission, in a report issued December, favored cuts in these programs in order to achieve $4 trillion in spending cuts over 10 years. Obama envisioned slightly over $1 trillion in cuts.