CBPP Statement: February 1, 2010
The President’s budget reflects both the short-term priority of boosting the economy and creating jobs and the longer-term priority of bringing deficits under control while meeting important national needs.
There is a strong case for more medium- and long-term deficit reduction than the budget contains. But the budget likely goes as far in this area as today’s toxic political environment will allow, even if the President pushes forcefully for his policies. Indeed, many of his proposals that provide fiscal restraint, from closing unproductive tax loopholes to scaling back agricultural subsidies for wealthy farm operators, may prove to be beyond what a polarized Congress, facing continuous roadblocks and with one eye on the fall election, will produce this year.
Of particular note, the budget proposes to save $750 billion over 10 years through three significant steps on the tax side. First, it would narrow tax subsidies — which budget analysts call “tax expenditures” or “tax entitlements” because they essentially represent government spending that’s delivered through the tax code, and that are now approaching $1 trillion a year in cost — such as for oil and gas companies, multi-national corporations that shift profits abroad to avoid paying their fair share of taxes here, and high-income households that receive much bigger subsidies than other Americans for the same tax-deductible expenditures. Second, it would reform financial institutions, such as by instituting a fee on large banks to cover the costs of bail-outs and discourage excessively risky behavior. Third, it would take other steps to reduce tax avoidance. Of this $750 billion in tax savings, the budget would allocate $284 billion for new tax cuts, primarily for middle- and lower-income families and for businesses, and save the rest for deficit reduction.
Enacting these and other proposals in the budget will be very difficult, given the penchant among some lawmakers to rail against deficits but vote against most measures to reduce them. Had the President proposed major additional budget cuts and revenue increases, not only would Congress almost certainly have rejected them, but the inevitable harsh attacks on them could have “poisoned the well” and made them even harder to achieve in the future if and when a more bipartisan atmosphere makes greater budgetary progress possible.
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