Image: U.S. President Obama signs an executive order at the White House in Washington
JASON REED  /  Reuters file
President Obama signed the executive order creating his fiscal commission on Feb. 18, 2010. Alongside Obama were Vice President Biden and commission co-chairmen Erskine Bowles and Alan Simpson.
By Tom Curry National affairs writer
updated 2/14/2011 6:23:21 PM ET 2011-02-14T23:23:21

President Barack Obama says his budget blueprint unveiled Monday would result in $2 trillion of reduced deficits over the next 10 years.

Obama's budget plan expects savings of about $1 trillion to come from domestic spending reductions and ending certain tax breaks. But in addition, his budget anticipates another $1 trillion in savings in the projected cost of overseas military operations over the next 10 years.

The National Commission on Fiscal Responsibility and Reform he created last year came up with a plan that it said would achieve almost twice the amount of deficit reduction in Obama's 10-year proposal.

Why would Obama’s proposal, if enacted, fall short of the one offered in December by the commission headed by Erskine Bowles and Alan Simpson? What could they do that Obama and his budget planners couldn’t?

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First, a word of caution: both Obama’s plan and the one produced by the Bowles-Simpson commission are proposals, not laws — and both made certain assumptions about the future performance of the American economy. Both of them incorporate a lot of guesswork about the future.

And it would take an enormous effort by Congress to transform either plan into enforceable law.

But that said, there are some crucial differences between the Obama plan and the fiscal commission plan.

Bigger cuts from fiscal commission
The commission plan calls for significantly bigger cuts in future spending than Obama does.

By 2020, the commission would bring spending down to 21.8 percent of gross domestic product while Obama would reduce it to 23 percent of the gross domestic product.

Back in the 1950s, spending averaged only 18 percent of GDP. Currently spending is nearly 25 percent of GDP, according to the non-partisan Congressional Budget Office.

Video: Obama's budget blueprint full of red (on this page)
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Each percentage-point difference of spending as a share of GDP amounts to about $150 billion, given the current size of the American economy.

The commission plan would entail much bigger spending cuts each year — more than $150 billion bigger — than Obama is proposing.

Focus on discretionary spending
Much of the focus in the administration’s rollout of Obama’s 10-year blueprint has been on discretionary spending, the items Congress decides on every year: how much money agencies such as the FBI and the Environmental Protection Agency get to spend in the next year.

Under Obama’s plan, discretionary spending over the 10-year budget forecasting period would be 24 percent higher than under the fiscal commission plan.

Under Obama’s 10-year plan, defense and security spending, which is a subset of discretionary spending, would be nearly 30 percent higher than under the commission plan. Neither the Obama plan nor the commission plan details exactly which weapons systems would be cancelled. But the commission plan would require that overseas military operations be budgeted for. Under the commission plan, the Senate would need a three-fifths vote to exceed the budgeted level for overseas operations.

Discretionary spending excludes Medicare, Social Security, and Medicaid, which together account for more than 40 percent of all federal outlays.

Even if Congress sat on its hands and nothing in current law were changed, discretionary spending would keep falling as percentage of the total budget and as a percentage of GDP.

That’s because entitlement spending —  Medicare, Social Security, and Medicaid — is growing inexorably due to demographics, the increasing cost of medical care, and built-in increases in the Social Security benefits formula.

As entitlement spending increases as a share of total outlays, discretionary spending must, by definition, decrease as a share of the total. So to some extent, the focus on the discretionary side is a choice to not examine the bigger problem.

Bigger tax increases from fiscal commission
The commission plan would raise more revenue over the next 10 years than Obama’s plan would.

The commission proposes to eliminate many of the tax credits, deductions, and other preferences that benefit particular groups of taxpayers or special interests.

It would keep mostly intact the two biggest preferences: the mortgage interest deduction and the tax-free status of most employer-provided health insurance. The commission would pare back the mortgage interest deduction by allow it only for mortgages of less than $500,000.

The commission claims that a cleaner, simpler tax code, with fewer tax breaks and lower rates, should result in $785 billion in new revenues from 2012 to 2020.

Although the commission’s proposals on Social Security would have most of their impact after the end of the 10-year forecasting window, it did call for one tax increase that Obama hasn’t included in his plan: increasing Social Security taxes on high-earning workers.

By 2020, the commission’s recommendation would result in earned income of up to about $190,000 to be subject to Social Security taxes, compared to $168,000 under current law. That tax increase would raise $138 billion in new revenue from 2012 to 2020.

The commission also wants to raise the gasoline tax $114 billion over 10 years.

Unlike Obama, the commission also called for requiring people on Medicare to pay more for the medical care they get.

People on Medicare are consuming too much health care, the commission said. “Because cost-sharing for most medical services is low, the benefit structure encourages over-utilization of health care,” the commission report said.

The commission proposed to increase cost sharing by establishing an annual Medicare deductible of $550, along with 20 percent uniform coinsurance on health spending above the deductible. If enacted, this proposal would raise $110 billion from 2012 to 2020.

So what did the Bowles-Simpson commission do in their proposal that Obama didn’t?

They proposed fiscal medicine that is very bitter and perhaps politically toxic: spending cuts, tax hikes, and cost shifting to Medicare beneficiaries. All of the ideas were serious — and all would cause most taxpayers acute pain they could not shrug off.

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Video: Obama's budget blueprint full of red

  1. Closed captioning of: Obama's budget blueprint full of red

    >>> president obama unveiled his budget proposal for the coming year, and at a time when a lot of americans are struggling economically and many are worried about this nation's massive national debt , this budget hasn't seemed to satisfy anybody. there are cuts in it that surprise even obama loyalists, and yet as a whole it's not near enough for most republicans. our white house correspondent, savannah guthrie , inside the briefing room in the west wing . savannah, good evening.

    >> reporter: good evening to you, brian. there's a phrase the budget aides like to use. we're taking a scalpel to this budget , not an ax. loosely translated it mean the president is proposing cuts, but also spending in key areas he says will keep this country competitive. arriving this morning on capitol hill , the president's 2012 budget . a bright blue book full of red ink . in baltimore today, the push for more spending on education, the president said his budget also makes tough cuts.

    >> so what we've done here is make a down payment. but there's going to be more work that needs to be done and it's going to require democrats and republicans coming together to make it happen.

    >> reporter: the $3.7 trillion budget has deficits hovering well above $1 trillion through 2012 but lays out a path to cut the deficit by $1.1 trillion over the next decade. some 200 federal programs would be eliminated or see funding slashed, including low income heating assistance, community development block grants and federal funding to big airports. the biggest cut, $78 billion, out of the pentagon over five years.

    >> i've worked on seven budgets that presidents have sent to congress. this has the toughest cuts that i have ever worked on. they're very significant.

    >> reporter: some progressives are dismayed to see favorite programs like teach for america facing dramatic cuts.

    >> unless we're in the president's budget , we'll be zeroed out, so we are barreling toward being zeroed out.

    >> reporter: the president is also proposing raising taxes to attack the deficit, lowering how much wealthy taxpayers can write off in itemized deductions, like home mortgage interest, and permanently rolling back the lower bush tax rates for top earners. republicans don't admit they have their own budget to offer but ripped the president for his.

    >> and so when you see our leader, the president of the united states , seeing this, knowing it, acknowledging it and ducking it, that is why we're so disappointed today.

    >> reporter: yet neither republicans nor the president have offered a plan to deal with the biggest part of the budget , mandatory spending for social security , medicaid and medicare. in washington, we've got kind of a political stalemate with two parties not being willing to compromise and not being really to talk honestly about the kinds of changes that are in our future.

    >> reporter: well, this is far from over. the president's budget , brian, really an opening bid. the republicans offer theirs in april.

    >> savannah guthrie at the white house for us tonight. savannah,

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