Dylan Morris
J. Scott Applewhite  /  AP
Copies of President Obama's 2012 budget are delivered to the Senate Budget Committee by staff member Dylan Morris on Capitol Hill in Washington on Monday.
updated 2/15/2011 11:12:00 AM ET 2011-02-15T16:12:00

Betting on an improving economy to reduce government deficits worked for Ronald Reagan, and it may for Barack Obama as well.

But the president's big budget submission for 2012 does not deal with the deep problems of huge benefit programs such as Social Security, something Reagan did address. And it doesn't cut nearly as deeply as today's Republicans want. That guarantees a stormy — and probably lengthy — fight with congressional Republicans.

Despite GOP rhetoric, the bulk of the current budget deficit has little to do with Obama's stimulus spending or other Democratic policies. It is basically due to a shortfall in tax revenues because of the recession combined with "structural" deficits — fast-rising costs of Social Security, Medicare and other guaranteed-benefit programs — carried over from previous budgets.

Video: Obama's budget blueprint full of red (on this page)
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And these longer-term issues are not addressed directly — either in Obama's new budget or in various GOP proposals.

"My view is that the president's budget punted on the structural deficits issue. He did not give us any clear path forward to deal with them," said David Walker, former U.S. comptroller general and now head of the balanced-budget advocacy group Comeback America Initiative.

Story: Obama: U.S. budget challenges demand compromise

Obama told Congress his budget embraced "hard choices" to chip away at the government's mountain of debt.

But a large chunk of the deficit reduction he envisions would come from higher tax revenues, both from a return of healthy corporate profits and from selective new tax increases, and from lower recession-fighting costs associated with an improving economy.

And tax revenues are coming back. His budget projects revenues growing from $2.16 trillion in 2010 to $2.6 trillion next year and $3 trillion in 2013.

Story: GOP mocks Obama budget, House weighs spending cuts

Taking a cue from Reagan's re-election strategy?
Reagan's GOP lost 26 House seats in 1982, two years after his sweeping presidential victory. The losses were due in large part to the deep recession of 1981-82. But by 1984, the economy was once again humming. And Reagan was re-elected in a landslide.

As part of bringing down deficits then, Reagan signed a big tax increase in 1982, reversing much of his signature tax cuts of the year before. Obama also is proposing some tax increases, including a long-promised — but so far delayed — tax hike for households earning above $250,000 a year, beginning in 2013, after the next election.

"I don't think there's any question that the Obama team is focused on the Reagan re-election strategy," said GOP consultant Rich Galen. "Reagan won 49 states in 1984 because it was 'morning in America' again because the economy had come back. I think the Obama people are rolling the dice."

Story: Obama unveils $3.73 trillion budget for 2012

Reagan also later teamed with Democratic House Speaker Thomas P. "Tip" O'Neill to rescue Social Security from bankruptcy by raising the retirement age and Social Security tax rates while briefly lowering some benefits.

Obama did not embrace the key recommendations of his own deficit commission, which in December proposed stiff tax hikes and spending cuts it said would save $4 trillion over ten years. Obama's new budget would trim just $1.1 trillion over that period. The commission also proposed an eventual rise in the Social Security retirement age to 69.

White House Budget Director Jacob Lew, who was O'Neill's top domestic-policy adviser during the Reagan years and worked on that earlier Social Security compromise, said Obama's budget "draws heavily on the ideas of the commission."

Barack Obama
Carolyn Kaster  /  AP
President Barack Obama speaks at Parkville Middle School and Center of Technology, in Parkville, Md., on Monday.

"They put a lot of good ideas on the table," Lew said. "We've done what's most constructive and productive." He said Social Security's finances are not adding to budget deficits right now, and that crisis can be dealt with later.

Projection: unemployment down; deficits still up
In the earlier rebound of 1982, jobs returned relatively quickly.

Now the unemployment rate is at 9 percent even though the recession officially ended in the summer of 2009, and private forecasts suggest it will still be 8 percent or higher by Election Day 2012.

Obama's own budget document projects jobless rates falling to just 8.2 percent in the final three months of 2012.

That's still high, of course. But David Wyss, chief economist at Standard and Poor's in New York City, said, "At least it will be going in the right direction, down."

Still, Wyss suggested, deficits will keep rising even in the face of big spending cuts "if you don't get tax revenues back."

The White House predicts the annual deficit will spike at a record $1.65 trillion in the current budget year. The national debt, largely the sum of current and past annual budget deficits, stands at $14.1 trillion.

House GOP pushing Tea Party-backed cuts
At the same time Obama promotes his budget for the upcoming fiscal year, House Republicans are pushing stiff Tea-Party inspired cuts for the current one, which ends Sept. 30.

"There's so much jumbled this year," said veteran budget analyst Stan Collender. "Republicans want to do a radical re-direction of the old budget even as the new one is being proposed. And they are talking about the deficit, but what they're really talking about is spending cuts."

Collender, partner-director of Qorvis Communications, a Washington consulting firm, said it's still early in the budget game to expect compromise.

"This is not a situation where everybody is ready to start negotiating," he said. "The first thing you've got to figure out is where you're standing, and what you're standing on."

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Lawmakers sound off on Obama’s 2012 budget plan

  1. Closed captioning of: Lawmakers sound off on Obama’s 2012 budget plan

    >> plan is getting a chilly reception on capitol hill . chuck todd has more on this. good morning. what can you tell us?

    >> reporter: good morning. it will be the political battle of the year. it will set the stage for the 2012 presidential race . president obama calls the budget an essential down payment. republicans call it literally d.o.a.

    >> i guess i would say debt on arrival.

    >> reporter: almost before the ink was dry the political punches started to fly. the budget promises to cut the deficit in half in two years, with new spending on energy, education and high speed rail and cuts on democrat yk party favorites including summer school pell grants , block grants and assistance with heating bills for low income families.

    >> the only way to make the investment in the future is if the government starts living within its means.

    >> reporter: two-thirds of savings would come from spending cuts, the rest from tax hikes. the president's budget misses is message sent by voters in the last election, republicans say.

    >> it's a patronizing plan that says to the american people their concerns aren't his concerns.

    >> reporter: republicans continue don't have a plan of their own.

    >> it is premature to talk about what's in the budget given that it hasn't been written yet.

    >> reporter: house republicans are revamping the budget for the rest of this year and that has drawn fire from key obama officials.

    >> the scope of the proposed house cuts is massive. the truth is cuts of that level will be detrimental for america's national security .

    >> reporter: defense secretary robert gates joined secretary of state clinton criticizing the cuts. and a former president will be honored today, will get the presidential medal of freedom , former president george h.w. bush .

    >> thanks so much, chuck todd .

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