The President’s “Cut-and-Invest” Agenda

President Obama released his budget proposals for FY 2012 this week. As a policy guy, this is normally a day that I anticipate with glee. This is when the governing administration unveils its priorities and describes the latest thinking on how to achieve its goals. Funding levels are proposed and new initiatives are rolled-out, all packaged together with some thoughtful rhetorical framing. But, this year, the politics of the budget process are taking much of the fun out of the exercise.

I strongly believe that the federal government needs to realign its fiscal policy for the long-term. I’d like to see health care costs brought under control and additional sources of revenue accessed (by taxing in some combination gas, carbon, financial transactions, or value added). Having worked in government, I also know that there can and should be spending cuts. Some programs are ineffective in meeting their goals or are poorly designed and administered. Others are giveaways to special interests. There should be an agenda for increasing government performance, accountability, and making sure resources are raised and deployed effectively. These are issues for the long term. Right now, the economy’s performance is dismal, aggregate demand is weak, and families continue to face real hardships. This is not the time for spending cuts that potentially deflate the economy and remove social protections.

The Obama team doesn’t agree. They have offered up a budget that holds the line in many areas and proposes significant cuts in a number of domestic policy areas. The administration is emphasizing how these cuts are being used to increase investments in education, infrastructure, clean energy, and basic research that have the potential to pay off down the line. This has been called, accurately, a “cut-and-invest” budget.

For a number of reasons, this may prove to be a successful political strategy. Namely, it will force Congressional Republicans to offer up additional cuts to demonstrate that the administration has not gone far enough. Obama will be poised to ask the country whose vision of government they like better. He’s hoping the Republicans will look draconian and he will look responsible. Of course, Congress can decide to add back spending by their own volition. Do they really want to sign off on that cut to help seniors pay for their heating bills? Maybe they will add back some money during the next supplemental “emergency” appropriation, perhaps they won’t. The bottom line is that while both the President and the House GOP are talking about cuts, he decided to use his budget as an opportunity to lay the groundwork offering voters a clear contrast.

That contrast is highlighted by the President’s call for “investments” and increasing our commitments to education, research, and infrastructure projects (and yes, early education should be considered an investment and not just child care). While I’m not crazy about their “win the future” slogan, there are large upsides to increasing those expenditures that will generate healthy returns over time.

However, in the short term, I’m concerned about how some of the cuts will disproportionally impact lower-income families. This includes resource cuts to state and local governments who are on the front lines of providing services but are flat out of cash and are already cutting back on what they do. Although the President said in his State of the Union that he will not balance the budget on the backs of the poor, the budget appears to do just that. How serious are they about fiscal reform when all defense spending is taken off the table.

In the search for cuts and budget room proposals to expand the Saver’s Credit and reform asset limits in public assistance programs were both dropped this year after being included last year. These are items that we have incubated and worked to promote in the Asset Building Program. I was told that the administration did not think there was likely to be action on these proposals this year and they could use the budget space elsewhere.

Another asset building policy, the AutoIRA proposal, remains in the budget; this would link employees with Roth IRAs if their employers don’t offer savings plans. Other exciting work promoting savings at tax time and access to financial services is being carried out at Treasury and the Social Innovation Fund. We will have more to say about these efforts in the days ahead.

Although there are allies throughout the administration and Congress who strongly believe in the salience of savings and asset building, the administration decided that this budgetary environment was not the moment to advance new ideas. Understanding that, it is still difficult to avoid seeing this budget as a missed opportunity to help mitigate the immediate hardships brought on by the recession and advance policies that promote mobility and social development. This year the budget is more glum than glee.