Obama’s budget fails to deal with major problem

Barack Obama’s budget, unveiled with fanfare, fails to deal with his biggest money problems.

A molasses-slow economic recovery will make it hard to find the huge sums he’ll need to reach his biggest goals — fixing health care, confronting climate change and overhauling the tax system — without much deeper cuts than he’s proposing in other programs.

Obama faces not only fiscal obstacles but political ones, as well.

The White House’s exercise in fiscal discipline this week amounts to micro-cutting — proposals that would trim half a percent of the overall budget — and don’t address the sacrosanct entitlements of Social Security and Medicare. His effort found a scant $17 billion in potential savings, suggesting that only a strong economy and its boost in government revenue can truly put a dent in the federal deficit and pay for Obama’s policy goals.

Pushing an ambitious agenda during a tepid economic rebound will require money and presidential muscle that even the popular president might find in short supply.

In just two months, the recession has proved to be deeper than the White House predicted when Obama submitted his 2010 budget outline. His budget writers in February forecast that the economy, as measured by gross domestic product, would shrink by 1.2 percent this year and then grow by a relatively robust 3.2 percent in 2010. But the economy contracted by 6.1 percent in the first quarter, and economists inside and outside the government predict another, though smaller, contraction in the second quarter.

Likewise, the White House anticipated unemployment of 8.1 percent this year and slightly less next year. But unemployment is already at a 25-year high of 8.5 percent and is expected to climb when new numbers are announced Friday.

A slow recovery heading into the 2010 midterm congressional elections will probably make Democratic lawmakers especially cautious. What does that mean for the president’s agenda?

"It doesn’t improve chances," said Sen. Ben Nelson of Nebraska, a moderate Democrat. "It might dampen some enthusiasm about trying to find a health care solution that costs money."

Over the first 100 days of Obama’s presidency, the nation has shown patience with his approach toward the economy. Over time, the public will watch three key numbers — unemployment, the stock market and the deficit.

In the short term, only the stock market might offer some relief as workers could see value return to their 401(k) accounts. But unemployment could reach 10 percent next year, according to some estimates. And the deficit, which the administration has predicted will reach nearly $1.2 trillion, will dip only to $533 billion in 2013, according to the president’s own February projections. In March, the Congressional Budget Office offered a bleaker prediction — a deficit of $672 billion in 2013 under the president’s policies.

The latest Associated Press-GfK poll shows that 41 percent of those surveyed disapproved of Obama’s handling of the deficit, his highest disapproval rating on any subject polled. Other surveys show that the public is particularly attuned to government spending and the amount of red ink in the budget, a sign of restlessness that could pose a problem ahead.

Obama would like to couple the ideas of deficit-cutting and health care overhaul. He says the overhaul — costing more than $630 billion over 10 years — is the answer to spiraling costs in Medicare and Medicaid.

"The big ticket, that’s health care," said Jared Bernstein, Vice President Joe Biden’s chief economist. "That’s where some of our real savings come from in the longer term."

As for the economy, Federal Reserve Chairman Ben Bernanke predicted it would begin growing again this year, citing improved home sales, increased consumer spending and signs of improved lending conditions.

But he said activity would remain below normal and "only gradually gain momentum." Unemployment, which typically lags behind a recovery, "could remain high for a time, even after economic growth resumes," he said. In a private luncheon, he told Senate Republicans that he projected 2 percent GDP growth in 2010, according to Sen. John Ensign, R-Nev.

That assessment reinforces the "glimmers of hope" with which Obama and his team have begun to promote the economy. But it also underscores the difficulties Obama will have persuading Congress, even one dominated by his party, to put new potential stresses on the economy while it is still getting back on its feet.

"The problem, the challenge for the administration, is they don’t just need tolerance or slack from the public, they need sufficient support to drive very difficult policies through Congress," said Robert Shapiro, a former adviser to President Bill Clinton and now chairman of Sonecon, an economic advisory firm.

The economy may well not cooperate.

Analysts often talk about a U-shaped recovery, where the economy moves strongly upward after a bottom-dwelling period. But this recovery, as described by John Silvia, chief economist at Wachovia Corp., could look more like a Nike swoosh, with only a gradual rise back to normal.

White House budget chief Peter Orszag on Thursday said the administration saw no need to adjust its ambitions based on a changing economic picture.

"We have not changed policies," he said. "There are a whole variety of proposals that we put forward in February. The world has evolved a bit since then. We have incorporated those proposals in the new document as a matter of principle."


Jim Kuhnhenn covers the economy and politics for The Associated Press.