The first version of US President Barack Obama’s 2011 budget — announced way back in February 2010 — involved a $26 billion spending increase. Heavy investment would be poured into healthcare, high-speed rail, the environment and energy just to name a few.
As the negotiations came to a close however, and an agreement was reached last week, Obama was publicly celebrating a cut in spending over the rest of the fiscal year of $38.5 billion. The result was necessary, Obama claimed, as "beginning to live within our means is the only way to protect the investments that will help America compete for new jobs."
This turnaround — from big spending to big cuts — leaves Obama with a fiscal policy debate that is being fought on Republican terms. And worse, he is fighting for cuts that could have negative impacts on the future of the American economy.
In his time in the White House, Obama has touted government investment as the key to the future economic success of the United States and as a solution to the global financial crisis. Concern for debt and deficit has been paramount since his original campaign, but Obama has fought to increase government spending in previous budgets and with his stimulus package.
This approach, Obama and many economists argue, allowed the United States to avoid the worst possible effects of the economic downturn and has saved hundreds of thousands of jobs over the last two years. This is also what many argue is still required to ensure a double-dip recession.
Recently, however, Obama has muddled this budgetary approach. He continued to campaign on government investment in the lead up to the 2010 midterm elections — but he also established the National Commission on Fiscal Responsibility and Reform, which late in 2010 recommended policies such as a $200 billion reduction in discretionary spending (including cutting the federal workforce by 10 per cent), tax increases and an overhaul of social security programs. Obama has now adopted some, but not all, of the Commission’s policies as part of his future budget plan.
Following this, in the lame duck 2010 Congress session, Obama negotiated a tax deal with Republican leaders that saw the extension of the Bush tax cuts for the wealthy — which have a significant impact on the deficit. Hitherto the expiration of these tax cuts had been a major plank in Obama’s plan to reduce the deficit.
On Wednesday, Obama went back to this plan in his announcement of a revised deficit reduction strategy — which included proposals to increase taxes for the rich and to implement $770 billion worth of spending cuts by 2023.
Obama stayed out of the limelight during the negotiations, allowing Democrat Senate Majority Leader Harry Reid to make the public pitch. His attack focus was proposals put forward by the Republican congressional leadership — and in particular the policy riders designed to end funding to Planned Parenthood and to restrict the Environmental Protection Agency’s (EPA) ability to regulate greenhouse gasses.
This aggressive strategy is a politically viable way to approach a budgetary fight. By campaigning against the cuts Republicans were proposing instead of focusing on their own proposals, Democrats were able to paint a picture of an extreme opposition all set to eliminate women’s rights and stall climate action. Democrats could then claim that through skilful negotiations they had been able to stop Republicans from implementing this extreme agenda. At the same time they could campaign about the effects of cuts and benefits of programs in their local communities.
This strategy becomes more difficult to implement now that Obama has turned to large spending cuts himself.
Through becoming an advocate for spending cuts, Obama opens up many potential lines of attack: "If cutting spending is so important, why didn’t he do it earlier?" Voters may well wonder why cutting spending was not in his original 2011 budget proposal. They may ask whether this proves the Republicans were right all along. Did Obama take the country down two years of irresponsible fiscal policy that actually harmed the economy instead of helped it?
It won’t be easy to be the president who is cutting spending programs he announced only recently. Compounding the difficulties, Obama now faces a Republican opposition who are far fiercer than he is when it comes to cutting spending. If Obama’s mooted budget cuts are big, the Republicans have much bigger slices in mind. In a budget proposal released recently, Republican Paul Ryan called for dramatic cuts in health spending, including the abolition of Medicare in favour of private insurance vouchers. Ryan is showing that if cuts in spending are what the American people want, it is the Republicans who really know how to administer them.
If his spending cuts end up harming the economy, Obama will wind up with egg on his face. With the American economy still extremely fragile, cuts the size Obama and Republicans negotiated may well have a negative impact and cause big job losses. The buck will stop with the sitting president in the mind of the American public, worrying given the looming 2012 election.
Polling shows that Americans are supportive of the Democrats’ budget strategy so far. Still, Obama must be careful when he claims $38.5 billion in spending cuts as a victory. If he continues down the path he is following, Obama risks shifting the debate back to a Republican base, leaving open the question "why have a phony budget cutter in the White House, when you can have a real one?"
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