President Obama's budget for fiscal year 2012 landed with a thud Monday, laying out short- and long-term tax and spending plans that disappointed lawmakers on both sides of the aisle. The proposal was a remarkably tame response to Washington's fiscal problems, not the bold statement about belt-tightening that the White House had suggested was coming. Yet the biggest shortcoming is that it all but ignored the most important long-term financial challenge, which is the growing cost of entitlements such as Medicare and Medicaid.
Congressional Republicans are eager to start cutting now, rather than waiting for the fiscal year that begins in October. Although we think Obama is correct to resist such pressure until the economy is on more solid footing, the trends in corporate profits and hiring indicate that the fiscal 2012 budget is the right time to start reining in spending in earnest.
More important, the budget gives the president the opportunity to define how far Congress should go and how swiftly it should restore order to its finances. But instead of sticking to the target he laid out last year — bringing the budget into balance by fiscal 2015, excluding interest payments on the debt — he pushed it back two years.
In the short term, the cuts Obama proposed for certain federal agencies and benefit programs, such as aid to wealthy farmers, would be largely offset by increased costs in other areas. And the long-term path charted by the administration would only narrow the budget gap, not close it, allowing the debt to reach and remain at alarmingly high levels relative to the U.S. economy.
The president's proposal, in other words, ignores the core message of the bipartisan deficit commission the White House assembled last year: Washington cannot climb out of its deep fiscal hole just by shrinking domestic discretionary programs. Entitlements, defense and homeland security account for the vast majority of the spending, and the federal government won't stop piling up debt without making fundamental changes in those areas as well. The rising healthcare costs that are driving up Medicare and Medicaid expenses are especially important factors in the long term. But the budget has little to offer on healthcare costs, and proposes to pare defense spending no more than the Pentagon brass wants to.
White House officials have said that the budget is just a down payment on more significant, bipartisan deficit-reduction efforts to come. But as the housing crisis showed, a down payment that's too small can leave borrowers with a debt they cannot afford.