Saturday, February 6, 2010

Federal Budget Action Steps

President Obama, his political agenda, and prospects for Democrats in the November mid-term congressional elections would be well served if he beginning immediately became a little less combative and more pragmatic in his approach to working with the Congress, especially independents and moderate Republicans, whom, realistically, he needs support from to get most important legislation passed. Part of this approach should be taking bolder action on the federal budget for fiscal 2011.

In my post published on 12/07/09, "U. S. Looming Fiscal Crisis," I emphasized how serious the country's economic situation was in view of the continuing recession, high unemployment rate, growing national debt, and continuing sizable budget deficits. I also laid out a number of recommendations including moving toward a balanced budget as quickly as possible, freezing hiring of federal employees, cutting health care costs, increasing sales tax on gasoline, and overhauling the IRS.

President Obama's State of the Union speech on January 27th had many good points and, as usual, was delivered very well. However, he didn't employ most of my recommendations and it just wasn't bold enough. For example, he said he will freeze non-security discretionary funding for three years. To reduce the deficit in a recessionary environment, and to show he is really serious, he needs to cut this spending by, say, 5%, instead of just freezing it, to help reduce the deficit. I think he was right to form a bipartisan fiscal commission charged with identifying additional policies to "put our country on a fiscally sustainable path." But he wasn't bold enough, in my view, in saying his goal was balancing the budget, excluding interest payments on our national debt, by 2015.

Keep in mind that interest on the national debt is typically our fourth highest budgeted expense category after defense, Social Security and Medicare. In fiscal 2007 and 2008 the interest expense was as much as $239 billion. It declined to $199 billion in fiscal 2009 due to much lower market interest rates. The President's goal should include interest expense. If he wants to exclude interest expense, the goal should be a balanced budget by 2013, latest 2014.

Obama's plan to form the bipartisan fiscal commission headed by Democrat Senator Kent Conrad from North Dakota and Republican Senator Judd Gregg from New Hampshire through a new bill was disappointingly blocked in the Senate on January 26th. However, as I understand it, he now intends to move forward with the commission by executive order. I agree with Senator Gregg when he on February 1st said the President should have "a tougher plan to address our fiscal crisis," because his budget will not adequately move us towards solving our problem.

Yesterday President Obama tried to rally Democrats with a fiery speech in Washington, D. C. at a meeting of the Democratic National Committee. Among other partisan comments he rightly said this was no time to abandon the bold agenda charted at the beginning of his administration. One political analyst said his strategy now seems to be appealing to Republicans to make compromises to come closer to the Democratic leadership's legislative proposals and, if they do not, to accuse them of obstruction. Assuming the analyst is correct, this is not a smart approach. Furthermore, there is a big difference between "abandoning" his bold agenda and making some temporary concessions to the opposition in order to move forward in the right direction.

The goal should be getting relatively expeditious congressional approval of major legislation on such as important issues as health care reform, financial institutions regulatory reform, and energy policy that are good for the country and the majority of the American people. It should not be the goal to try to ram through reform bills that are ideally what Democrats and the President would like to get passed, but realistically have little chance of getting approved in the foreseeable future.

A modified and scaled-down health care reform bill focusing on the primary problems with our current system, incorporating moderate Republican input, and more tangibly and meaningfully lowering overall costs, maintaining what works well now, would be a good place to start. Other recommendations for the President and his administration:

1. To set a better example for fiscal discipline, propose a modest 5% cut in salaries and benefits for federal employees earning more than $100,000 for the next two years.
2. Propose more restrictions on Administration and congressional expenses for travel abroad, including for meals and lodging.
3. With a view toward saving money for the government and average Americans, and simplifying our lives, overhaul the IRS and the whole process of preparing individual tax returns.
4. Increase the federal gas tax of 18.4 cents per gallon to 30 cents to raise revenue to be applied to reducing our deficit and improving our highways. This will also induce more conservation, lessen our reliance on energy imports, and encourage the purchase of more energy efficient cars and trucks, also aiding air pollution mitigation efforts.
5. Obviously a top priority right now is action to reduce the unemployment rate by creating hundreds of thousands new jobs with decent salaries and benefits. Tax incentives to induce smaller and larger businesses to make sizable new capital investments should be a major component of the new jobs bill currently designed in Congress.


Anonymous said...

History has shown that the absolute worst thing the Federal Government can do during a recession is cut spending. In fact, since Pres. Hoover did just that and plunged the US into the Depression, cutting spending at a time like this is called Hoovering. I don't think Obama has been spending enough! We need a new WPA!!!


Viking Views said...

We could probably use a WPA like component in the pending jobs bill, assuming this would put a great many unemployed to work on good, priority projects. However, I understand one of the criticisms of the WPA in its life between 1935and 1943 was that some of the projects worked on were basically earmarks promoted by senior Congress members to impress their constituents. They were in many cases apparently not legitimate projects for WPA funding. So the selection on appropriate projects would need to be prudently managed.

Viking Views said...

Anonymous also mentioned President Obama hasn't been spending enough, but that's debatable, given the extent of our economic recovery and our scary large and growing budget deficit, trade balance deficit, and public debt levels which will be exacerbated by excessive spending. However, my understanding is that less than half of the federal stimulus funding approved by Congress last year has been spent to date, but I'm fairly certain that most of the rest will be spent this year, probably much of it in funding the pending jobs bill.

It's also critical that the spending to come is carefully targeted at priority projects that will contribute to significant and sustainable new employment and needed economic growth. Spending on earmarks for marginal projects that will not contribute meaningfully to employment and growth should not be funded by scarce taxpayer dollars.