Today, the President transmitted the FY 2011 Budget to the Congress. In about an hour, he will deliver remarks about the Budget, and after that I will be taking questions from the press with CEA Chair Romer. This post gives readers of OMBlog a brief overview of the document.
After a year in which we took immediate and unprecedented action to rescue the economy from the brink of a second Great Depression, the FY 2011 Budget takes steps to jumpstart job creation, strengthen the economic security of middle-class families, and make the tough choices to put our Nation back on the path to fiscal sustainability.
When the President took office, the economy was on the brink of a depression. The economic crisis required that we take immediate and extraordinary steps to prevent a complete economic collapse that would have caused millions more to lose their jobs. Not all of the efforts we undertook to avoid a deeper recession were popular. Nonetheless the President did what was right for our country’s future: signing into law the Recovery Act to jumpstart economic growth and taking steps to prevent the collapse of the financial system.
A year later, the economy is back from the brink – and is growing again. This "statistical recovery," however, is cold comfort for the millions of Americans who have lost their job. The President has therefore called for a package to spur job creation now – including small business tax cuts and investments in clean energy and infrastructure.
To sustain job creation and economic growth into the years ahead and provide room for the private sector to expand, we are also making tough choices in the Budget: cutting what doesn’t work or isn’t necessary and investing in what will help to expand the economy and employment in the coming years.
The Budget thus institutes a three-year non-security discretionary freeze that will save $250 billion over the next decade. We're not putting forward an across-the-board freeze, but rather an overall cap on non-security discretionary funding in which key investments are expanded but we cut back on programs that are ineffective, duplicative, or just wasteful. As part of that overall effort, we identified more than 120 programs across the government that should be terminated or reduced – generating $20 billion in savings.
At the same time, we are making critical investments in the areas critical to building a strong economy in the 21st century. That is why we increase funding at the Department of Education by $2.9 billion or 6.2 percent, make the largest proposed request for Elementary and Secondary Education Act programs while reforming it to be more effective, and provide more money for Pell grants and Race to the Top.
To build a more modern infrastructure, the Budget establishes a new $4 billion dollar National Infrastructure Innovation & Finance Fund to focus on infrastructure investments of national and regional significance.
To help put the nation at the top of the pack when it comes to the new clean energy economy, the Budget includes more than $6 billion in funding for clean energy technologies while also eliminating existing fossil fuel subsidies. And to continue our country’s proud, innovative history, the Budget invests $61.6 billion for civilian research and development – an increase of $3.7 billion, or 6.4 percent, over 2010 levels.
As we focus our efforts on spurring job creation and jumpstarting economic growth, we also have to change business as usual in Washington and restore fiscal responsibility. Because of the irresponsibility of the past decade, we’ve seen a projected 10-year surplus of over $5 trillion at the end of the Clinton administration turn into a projected 10-year deficit of over $8 trillion the day President Obama took office.
The Budget lays out a plan to put the country back on a sustainable fiscal path.
First, we have already taken action to avoid making the hole any deeper. The Administration proposed, and the Senate just joined the House in passing, statutory pay-as-you-go (PAYGO) legislation. PAYGO forces us to live by a simple but important principle: Congress can only spend a dollar on an entitlement increase or tax cut if it saves a dollar elsewhere. In the 1990s, statutory PAYGO encouraged the tough choices that helped move the Government from large deficits to surpluses, and it can do the same today.
Second, economic recovery – on its own – would take our deficits from 10 percent of GDP to 5 percent of GDP. To take them down further, the Budget proposes a series of policies including: the three-year non-security freeze mentioned above; restoring some balance to the tax code by allowing the 2001 and 2003 tax cuts to expire only for those making more than $250,000 a year and reducing the rate at which these same households write-off itemized deductions; ending subsidies for oil, gas, and coal companies and closing other loopholes; and putting in place a responsibility fee on the largest banks to compensate taxpayers for the extraordinary direct and indirect help they provided while also discouraging excessive leverage.
Third, these policies will take deficits down to 4 percent of GDP – amounting to $1.2 trillion in deficit reduction excluding war savings. But that is still not enough, and the only way to solve this is to change Washington, and bring Republicans and Democrats together to work on this problem. That is why the President wants to establish a bipartisan, fiscal commission to look at a range of proposals and put forward a bipartisan recommendation to balance the budget excluding interest payments on the debt by 2015. This type of process has worked in the past, and if everyone in Washington puts the national interest first, we are confident it will again.
Finally, as I have said many times before and will again (since it’s still true!), the key to our long-term fiscal future is fiscally-responsible health insurance reform. All our steps to rein in the deficit will be for naught if we do not reduce the rate of health care cost growth over time. The legislation passed by both the House and Senate will reduce the deficit over the next decade and put in place the key pieces that will help to bring down health care costs over time. Congress must now deliver on this promise of fiscally responsible health reform – the stakes are high, both for the millions of Americans who lack a stable source of health insurance coverage and for the fiscal well-being of the Nation itself.
If we take follow the plans laid out in the Budget, I am confident that we will be able to spur job creation now and in years to come and put our Nation back on a fiscally sustainable path, which is critically important to the future growth and prosperity of the United States.
Peter Orszag is Director of the Office of Management and Budget