EconomistMom.com

The Concord Coalition released its analysis on the Obama budget today–based on the initial budget document put out by the Administration in late February (a more comprehensive version will be released in April) and on the current-law baseline standard that the Congressional Budget Office forecasted in January (CBO is expected to update within a week or so with a new economic forecast and accounting for the recovery package).

Here are a few passages from the introduction:

The budget outline submitted to Congress by President Obama on February 26, 2009 is a bold and ambitious proposal that could transform the policy agenda for years to come. On the plus side, it calls for significant deficit reduction, improves transparency, and reflects a commitment to paying for new initiatives. The downside risk is that many things have to go right for the plan to work. The economic assumptions are optimistic, as are the assumed savings from winding down the war in Iraq. There is also the political difficulty of enacting controversial offsets to pay for proposed spending increases and tax cuts. Even if it all works, deficits would remain at or above 3 percent of GDP by 2013 and beyond — higher than the average over the past 40 years — and the publicly held debt would approach 70 percent of GDP. Moreover, all of this assumes that health care reform can be enacted in a deficit-neutral manner and that presumed long-term savings from efficiencies will eventually materialize.

The defining feature of the budget is the sheer magnitude of the changes being proposed. It is already drawing comparisons to President Reagan’s first budget in 1981. And yet, the first Reagan budget had just one central theme — reduce taxes to grow the economy. By contrast, President Obama has chosen to tackle a host of thorny issues from health care, energy, defense, and education reform to taxes and income inequality. Alone, any one of these initiatives has the potential to tie the legislative process in knots.

A further complication is that many of the budget’s main components are linked in an effort to control the net effect on the deficit. Maintaining this linkage is critical for fiscal responsibility. However, it will prove to be a formidable political hurtle because it challenges the free lunch mentality that has taken root in Washington…

And from our conclusion:

…the budget may attempt to fix too many problems at once and risks collapsing under its own weight. This prospect will be tested once the legislative process gets underway. Given the fragility and tremendous uncertainty facing our economy right now, the president will need to remain flexible in pursuing his fiscal policy agenda so that taxpayer dollars are used as effectively as possible.

Barring a further deterioration in the economy, the president’s commitment to bringing the deficit down substantially from its record setting level should be adopted by Congress in its Fiscal Year 2010 Budget resolution. Moreover, legislative actions that affect the long-term outlook must go beyond PAYGO to produce real savings. President Obama must play a critical role in getting Congress to work cooperatively and responsibly on a budget that encourages mutual sacrifice from both parties over the business-as-usual mutual excesses where everyone gets everything and no one needs to pay for any of it.