Congress Takes a Knife to Obama's Budget

This article was originally published by the Fiscal Times on Thursday, Feb. 11, 2010.

By Katherine Reynolds Lewis and Elaine S. Povich

A week after President Barack Obama unveiled his $3.8 trillion budget, a deeply divided Congress is using the proposal's perceived weaknesses as a starting point for carving up and rewriting the document.

Congressional critics charge the fiscal 2011 budget is soft on deficit reduction, weak on tax reform and hands off tough budget decisions to a bipartisan fiscal commission the president will create. While there's broad consensus around which issues should be top priorities—job creation, economic recovery, small business growth and fiscal discipline—many Democrats would like to rearrange the president's recommended spending cuts and Republicans say they'd rather scrap the plans altogether.

With control of the Congress now seemingly at stake in this year's midterm elections, politics will play as much of a role as economics in the deliberations. While the economy is officially out of recession, new jobs have yet to emerge and spending cuts could squash the fragile recovery. Meanwhile, Obama faces public dissatisfaction and opposition from both liberal and moderate voices within his own party.

"Almost everybody who looks at these issues has pretty low expectations right now," said Isabel Sawhill, a senior fellow at the Brookings Institution and director of its Budgeting for National Priorities project. "Congress is so badly divided and so partisan on these questions. It's simply not possible for people to come together and agree to do anything very significant."

In recent years, budgets from presidents of both parties have been declared "dead on arrival" on Capitol Hill, no matter whether Republicans or Democrats controlled the chambers. Lawmakers are free to ignore these proposals, and in many areas, they often do. But with a dire economic situation and warnings from abroad that the United States must get its fiscal house in order, Obama's plans have been getting a more serious reception. But that doesn't mean Congress plans to swallow the outline whole—not even close.

"The administration and Congress are debating all the right things, but they're debating a lot of things and will they get anything substantive done?" asked Mark Zandi, chief economist at Moody's "One thing that makes people nervous is that there are so many policy balls in the air, with such significant consequences."

The prospects are grim for the big initiatives in Obama's budget: a partial spending freeze, a stimulus effort that includes job creation and tax relief for the middle class and a commission to devise long-term solutions to the federal budget imbalance.

Congress quickly began to chew over some of the most high-profile ideas, such as the effort at reducing the deficit through a fee on the biggest financial firms, letting tax cuts for the wealthy expire, eliminating fossil fuels subsidies, privatizing some of NASA's core work and freezing all discretionary spending aside from national security for three years.

Rather than freezing spending across the board, the budget would increase funding for high priorities and cut back programs deemed wasteful or less important. But nearly every proposed spending cut has an avid defender in Congress, who feels emboldened to make changes because the administration cherry-picked some programs to fund while freezing others.

For instance, by proposing to scrap NASA's "back to the moon" program while the space shuttle is being phased out, Obama made enemies in both parties—illustrating that budget fights can be more regional than partisan.

"That's got to be changed," Sen. Bill Nelson, D-Fla., told White House Budget Director Peter Orszag during a Senate Budget Committee hearing last week, expressing concern over the dependability of shuttles to the international space station under privatization. "We're going to be relying on the Russians to get to and from our space station."

On the Republican side, Sen. Jeff Sessions of Alabama, home to NASA's Marshall Space Flight Center, criticized the cut as merely shifting money to private space flight programs rather than the government-sponsored one. "This was not a balanced-budget decision," he told The Fiscal Times.

Sen. Ron Wyden, D-Ore., questioned why the Pentagon budget was exempted from the freeze and urged a rethink of big weapons systems, given that explosions in Iraq are often set off with simple equipment such as cell phones. The U.S. should be "getting more value for the national security dollar in a time when our country faces real threats," Wyden said.

"There is a long history of freezes leaking like sieves and powerful interest groups trying to hotwire the process so they can bring about a thaw in their area while everybody else is put in a deep freeze," Wyden noted. Some lawmakers suggested that "freeze" is not the right word to describe a plan that initially spends more in some areas before the reductions begin.

"It's not a freeze when you announce your New Year's resolution is to lose weight but you're not going to start for two years and only after you gain 50 pounds three times," said Sen. Lamar Alexander, R-Tenn.

But John Irons, economist with the Economic Policy Institute, said Obama was correct to try to keep the economic recovery going with more spending. "In the short run there shouldn't be any cuts because we need to have the economy starting going again," he said.

Looking at the jobs question, about the only thing that lawmakers agree on is that something must be done to restore some of the 8 million American jobs lost since December 2007.

"Plainly, creating jobs must be our top priority," said Senate Finance Committee Chairman Max Baucus, D-Mont., at his committee's hearing on the budget last week. "We need to work on legislation that will create jobs and we need to work across the aisle."

Among the ideas on the table are a tax credit and infrastructure spending package just outlined by Senate Majority Leader Harry Reid, D-Nev.; a $154 billion jobs package that the House passed last year; and the Obama budget's $100 billion placeholder for a jobs package, which would include $33 billion for a tax cut to small businesses that hire new workers.

The plans to raise revenue have met little better reception. Obama's budget calls for indexing the alternative minimum tax to inflation and letting the Bush tax cuts expire for households making more than $250,000 a year, but Republicans are portraying that as a tax increase for small business owners. And the administration's plan to limit income tax deductions met resistance in the Senate Finance Committee because it would affect the popular deductions for mortgage interest and charitable contributions.

As for the fiscal commission Obama would appoint, it would have less clout than one that the Senate turned down last month. The idea still faces skepticism from Republican leaders, in large part because they view such a panel as a backdoor method for increasing taxes.

To have any chance of working, Senate Budget Committee Chairman Kent Conrad, D-N.D., said the commission would have to have written assurances from House and Senate leaders that its recommendations would be brought up for a vote.

Even if it succeeds, Conrad said Obama's broader attempts to juggle fiscal discipline with tax cuts and job growth fell short, making Conrad another Democrat unsatisfied with a president of his own party.

"I am very concerned about the long term. I believe we are on an unsustainable course," he said. "President Obama's 10-year outlook is not the path we can take as a nation."

Image credit: Michelle Hirsch/The Fiscal Times