If you think of the 2013 federal budget as a painting, start with a canvas drenched in red. This will be the fourth year in a row the federal government will clock an annual deficit of more than $1.2 trillion. Many of us are old enough to remember when a budget of $1 trillion constituted big news. Absent robust economic growth and substantial spending cuts, deficits larger than or very near $1 trillion are due to be commonplace, along with the debt-service costs associated with them ($454 billion in 2011 and $169 billion four months into this fiscal year).
President Obama has already drawn immediate Republican fire for glossing over big-ticket structural reforms of entitlement programs such as Medicare, Medicaid, and Social Security or tackling the tax reform. It’s a valid charge, although there is no recent example of a president seeking reelection stepping into this breach. Moreover, Obama feels burned by Republican demands to cut spending more deeply and oppose all new tax increases in clashes over a potential government shutdown--his first fracas with the new House GOP majority--and the later near-default experience generated by the fight over raising the debt ceiling. In other words, Obama knows his budget is dead-on-arrival because he suspects it was dead before it was even conceived, so vast are the differences over spending and taxation.
Obama and the White House also know they operate in a different political climate than the immediate aftermath of the GOP gains in 2010. Republicans still oppose tax increases and want deeper spending cuts and more aggressive policies to reduce the growth of Medicare and Medicaid. But the GOP lacks the passion for this fight it possessed a year ago. Rep. Paul Ryan, R-Wis., the chairman of the House Budget Committee, will draft another budget that transforms Medicare from its fee-for-service heritage to a voucher system for private-sector insurance purchases. But Ryan’s already trumped that purist position with a less-aggressive bipartisan alternative drafted with Sen. Ron Wyden, D-Ore. What’s more, after Ryan’s budget passed, no committee in the GOP-led House bothered to write actual legislation to make it happen. Taken together, these moves signal to Obama he need not heed GOP calls for historic entitlement reform--for while they will propose more than the White House will, they lack some of the fortitude necessary for the politically risky follow-through.
On taxes, Obama will be more aggressive than ever before. His budget will contain a more straight-forward call for $1.5 trillion in new taxes and a spending-cut-to-higher-taxes ratio of 2.5-to-1. That’s lower than the more cautious 3-to-1 ratio that Obama clung to in last year’s budget fights. The success in polls and perception that has played out since the conflict over the extension of the payroll tax cut has given Obama more confidence on the tax issue generally. And the slow-walking of Democratic negotiators on extending that tax cut, which must be resolved by Feb. 29, indicates this bravado is now party-wide and the GOP’s most immediate budget and tax headache.
These are the bright lines on a canvas of red.