Even after a hard-fought deficit-cutting deal in 2011 and a tax-increase measure in January, Washington still has a considerable way to go to wrestle intractable budget deficits under control. The Congressional Budget Office estimates cumulative deficits of roughly $7 trillion over the coming decade and warns "such high and rising debt would have serious consequences," including higher interest costs for the government, reduced national savings and investment and a potential fiscal crisis.
The campaign promise:
"I've put forward a specific $4 trillion deficit-reduction plan." — President Barack Obama, Oct. 3, 2012, presidential debate.
Obama based the $4 trillion claim on last year's budget and updated it in the budget he released in April. It incorporates $2.6 trillion in deficit savings already achieved by capping annual appropriations bills over a decade, the January tax increase on wealthier earners and the resulting savings on interest payments on the debt. The rest would come from a 10-year $583 billion tax increase, an additional layer of tax increases from slower indexing of tax brackets for inflation, modest curbs to federal health care programs and further savings on interest payments on the $16 trillion national debt.
In budget circles, $4 trillion in deficit cuts is an important figure because that's the amount of savings claimed by Obama's own deficit commission, co-chaired by former Clinton White House Chief of Staff Erskine Bowles. Bowles' plan set an enduring marker in the deficit debate in late 2010; it went after sacred cows of both Democrats and Republicans, proposing large tax increases and controversial cuts to benefit programs like Social Security and Medicare, including raising the eligibility age for both.
Bowles' 2010 plan was actually far tougher than Obama's and would generate significantly greater deficit savings. One reason: The same policy prescriptions that would have yielded $4 trillion over a decade in deficit savings if enacted in 2011 would produce far more in a 10-year time frame starting now.
Obama's accounting can be iffy, too. His plan fails to account for deficit-increasing moves also enacted during his presidency, like a two-year, approximately $240 billion reduction in the Social Security payroll tax and another two years of additional unemployment benefits. It also assumes its mix of tax increases and spending cuts would replace the automatic spending cuts going into place now.
Regardless, it's questionable whether Washington will get to $4 trillion. A round of talks between Obama and House Speaker John Boehner, R-Ohio, collapsed in December. The two sides were not that far apart, at least on paper, as they looked to add $2 trillion or more in deficit savings on top of those already accomplished. Boehner broke off the talks.
Instead, Obama won more than $600 billion over 10 years in higher taxes on wealthier earners, but the episode produced lots of bad feelings and Boehner and every other GOP leader on Capitol Hill promise there will be no further tax increases now — even though some of them had once supported a higher net new revenue figure than Obama won in January.
Obama, for his part, says there will be no budget pact without additional revenues.
How it will end up is at best a guess. Obama is looking to Senate Republicans to build momentum for a deal this year and his April 10 budget includes proposals, like a less generous cost-of-living increase for Social Security, that haven't been a part of his previous budgets.
Any budget deal with both tax increases and cuts to politically popular benefit programs will ultimately have to pass through a gauntlet of tea party Republicans and liberal Democrats. The need to raise the government's borrowing cap also may be pushed off until the fall, delaying the moment in which it all comes to a head.
Republicans say it'll take presidential leadership and a willingness to take on liberal interest groups to break the impasse. House Budget Committee Chairman Paul Ryan, R-Wis., thinks a smaller-scale agreement is more likely than an elusive "grand bargain."