The FY 2013 budget that the Administration will release today is, in the long run, a meaningless document in substantive terms, so I don’t want to spend that much time on it. But I was a little surprised with the pushback I received about my assessment that it reflects a shift in tone rather than policy. It’s a simple fact that the Administration has wanted a deficit deal for some time, and that this budget will build in a deficit deal. They’re going about it in a smarter way with a higher bid in the negotiations. But there’s no real change in thinking here. For some time, the Administration has wanted to spend a bit more now, and reduce the deficit in the out years. Depending on the emphasis they felt they needed, they would call to (spend a bit more now and) REDUCE THE DEFICIT or SPEND A BIT MORE NOW (and reduce the deficit later).
Nothing has changed. The big difference here is that they treat cuts agreed to in the Budget Control Act (aka the debt limit deal) as part of that “grand bargain” deal. This makes the tax side of the deal a larger going-forward percentage. It’s consistent with the Administration’s earlier contention that the only way to avoid the defense trigger cuts is to replace them with tax increases.
There are certainly positives to take away from the negotiating style here. But it’s a very similar set of proposals. Don’t take my word for it, here’s the Los Angeles Times:
President Obama will call for new spending on infrastructure, education and manufacturing research, as well as higher taxes on top earners, in a budget proposal aimed at underlining his top economic priorities as he gears up his reelection campaign [...]
The blueprint outlined pulls heavily from proposals previously put forward by the president — including his jobs bill, most of which is stalled in Congress, and his deficit reduction plan, which fizzled in the failed congressional “super committee” charged with reducing the deficit.
Officials said the budget would abide by spending caps set by Congress in the August budget deal, keeping discretionary spending levels essentially flat in fiscal 2013.
Over the decade, discretionary spending would drop from 8.7% of gross domestic product to 5%, officials said.
I’ve seen praise for the boldness of this budget proposal. I’m not sure what’s so bold. When we see the numbers, we will find it to be a very consistent proposal. You have the American Jobs Act and you have the contours of the debt limit deal and you have the deficit reduction plan from last September. In fact, the New York Times is right to say that the budget presents a challenge of how to reconcile the dueling priorities of stimulus through tax cuts and deficit reduction, although this is a rhetorical challenge more than a physical challenge, since it’s entirely possible.
“There’s pretty broad agreement that the time for austerity is not today. We need to go on a path where, over the next several years, we bring our deficit under control,” Mr. Lew said on the NBC program “Meet the Press.” “Right now we have a recovery that’s taking root, and if we were to put in austerity measures right now, it would take the economy in the wrong way.”
“The challenge,” Mr. Lew added, “is how do you do two things at the same time? How do you put money forward for things like the payroll tax holiday, for things like getting a jump-start on infrastructure, for building schools, and make the decisions for long-term deficit reduction? The president has proposed a plan that would do that.”
This is not a difficult reconciliation: you increase the deficit now to increase demand, and reduce the deficit later. That’s a fairly Keynesian viewpoint. It’s also been the same sheet in the songbook the Administration has been singing off of for the last three years. That’s really my main point.