At its heart, the 2012 Obama budget is a political rather than a fiscal document. Over the next decade, 2012–2021, it would add another $8 trillion to the national debt and take the national debt as a share of the overall economy to 77 percent, from 62 percent in 2010.
The budget also stiff-arms Obama’s own debt panel, which called for cuts of $3.9 trillion to projected debt increases over that span. Obama wants to trim just $1.1 trillion, including $400 billion from a domestic-spending freeze at elevated, post-stimulus levels. Implicit in all this is a tremendous gamble that financial markets will continue their complacent attitude concerning America’s stratospheric and rising debt levels.
But who knows what will happen in those out-year forecasts? The White House, for instance, assumes a decade of steady growth with no recessions to be seen, much less an adverse bond-market reaction that could send interest rates spiking higher.
More interesting are the predictions for 2011 and 2012. Those two years would have combined deficits of $2.7 trillion. There is not a hint of austerity in that — further evidence that the White House see no political mileage in substantial debt or spending reduction. A budget that advocates a go-slow approach also allows Obama to try and paint himself as a prudent trimmer and Republicans as reckless hachet men. Team Obama might also be keeping an eye on Europe, where austerity is being incorrectly blamed for an economic slowdown in some nations, including the UK. If there is going to be leadership on this issue, it will need to come from the GOP.
In any event, it’s hard to see how an easy compromise over the 2011 budget and debt ceiling arises between this administration and congressional Republicans. It’s going to be a bumpy ride.
— James Pethokoukis is Money & Politics columnist at Reuters Breakingviews.