TOPICS > Economy

Obama Pledges New Effort to Tighten Federal Budget

November 25, 2008 at 6:25 PM EDT
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President-elect Barack Obama named Peter Orszag as his budget director Tuesday and pledged the rein in the federal budget. Financial experts mull his proposals and weigh in on the complex process of trimming federal programs.

JUDY WOODRUFF: Next, the other economic story of the day: a pledge from the president-elect to cut federal fat, even as he draws up major new spending plans.

A day after calling on Congress to act swiftly on a significant spending plan to jolt the economy, President-elect Obama was back in front of reporters today to discuss the need to rein in wasteful spending.

BARACK OBAMA, President-elect of the United States: If we are going to make the investments we need, we also have to be willing to shed the spending that we don’t need. In these challenging times, when we’re facing both rising deficits and a shrinking economy, budget reform is not an option. It’s a necessity.

We can’t sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness or exist solely because of the power of politicians, lobbyists, or interest groups. We simply can’t afford it.

This isn’t about big government or small government. It’s about building a smarter government that focuses on what works.

JUDY WOODRUFF: To help accomplish that goal, Mr. Obama announced two more members of his economic team.

Peter Orszag will head the Office of Management and Budget, which reviews federal agency funding requests. He’s currently director of the Congressional Budget Office.

Orszag’s deputy will be Robert Nabors, now staff director of the House Appropriations Committee.

The president-elect was asked if there was broad support for his economic agenda.

JOURNALIST: Given the election results, what sort of mandate do you have from the voters, do you believe? And does a large Democratic majority in Congress present an opportunity to pass your agenda or is there a danger in this environment of overreach?

BARACK OBAMA, President-elect of the United States: Well, first of all, we had, I think, a decisive win because of the extraordinary desire for change on the part of the American people.

But I won 53 percent of the vote. That means 46 percent or 47 percent of the country voted for John McCain.

And it’s important, as I said on election night, that we enter into the new administration with a sense of humility and a recognition that wisdom is not the monopoly of any one party.

In order for us to be effective, given the scope and the scale of the challenges that we face, Republicans and Democrats are going to have to work together.

JUDY WOODRUFF: Mr. Obama was pressed by a Chicago-based reporter about the needs of state and local governments, like his home state of Illinois.

JOURNALIST: Hundreds of your friends are wondering what you’re going to do, because they’re in desperate straits from the — from the standpoint of their budgets.

BARACK OBAMA: I want to be clear: Friendship doesn’t come into this. That’s part of the old way of doing business.

The new way of doing business is, let’s figure out what projects, what investments are going to give the American economy the most bang for the buck, how can we protect taxpayer dollars so that this money is not wasted, restore a sense of confidence among taxpayers that, when we spend our money, it’s on things that are actually going to improve their quality of life, create the jobs that are so desperately needed, help to spur on economic growth and business creation in the private sector.

JUDY WOODRUFF: Mr. Obama was also asked if he viewed immediate economic needs differently from longer-term budget policy.

JOURNALIST: Sir, as you inherit and add to what could be a staggering one-year deficit, maybe approaching $2 trillion, will you draw a line between temporary fixes or permanent programs, such as tax rebates versus tax cuts? And if not, how will you guard against this red ink becoming permanent?

BARACK OBAMA: The short answer is, yes, we’ve got to distinguish between a immediate and temporary infusion that’s going to be required to kick-start our economy and some of the structural spending that’s been taking place in Washington that has created this huge mountain of debt.

And part of the charge to my economic team is to find areas where we can get a twofer, where we’re getting both a short-term stimulus and we’re also laying the groundwork for long-term economic growth.

JUDY WOODRUFF: One possibility Mr. Obama pointed to was health care.

BARACK OBAMA: If we do a smart job of investing in health care modernization — let’s just say, as an example, helping local hospitals and providers set up electronic billing and electronic medical records, that experts across the spectrum consider to be an important step towards a more efficient health care system.

Now, somebody’s got to help set those up. We’ve got to buy computer systems and so forth. That’s an immediate boost to the economy, in some cases working with state and local governments, but it’s also laying the groundwork for reducing our health care costs over the long term.

Now, the last point I’ll make on this: We’re still going to have to make some tough choices. There are just going to be some programs that simply don’t work, and we’ve got to eliminate them.

Budget cuts lead to job losses

JUDY WOODRUFF: The president-elect is scheduled to hold yet another news conference on the economy tomorrow morning.

For a closer look at all this, we turn to two people who have long followed the budget, the lobbying, and the fights surrounding it, and all the fine print in between.

Robert Reischauer was the director of the Congressional Budget Office from 1989 to 1995. He's now president of the nonpartisan Urban Institute.

And Robert Bixby is the executive director of the Concord Coalition. It is also a nonpartisan organization, focused heavily on reducing deficits and promoting a balanced budget.

Thank you both for being here.

Bob Reischauer, let me start with you. What about Mr. Obama's pledge to have his people go through the budget, page by page, line by line, looking for something to cut?

ROBERT REISCHAUER, Urban Institute: Well, it's a great message. It's the right one. It's, in fact, a line out of the McCain playbook, so that's good. But John McCain's been a rather lonely warrior on this front. It's very, very hard to do.

Most of the lines that we're talking about here don't amount to a great deal of money. There are few tens of billion dollars here, million dollars, and there, but the real problem is a much larger one that is in our entitlement programs. And they're tough to change because a lot of people benefit from them.

JUDY WOODRUFF: Robert Bixby, do you agree with that assessment?

ROBERT BIXBY, Concord Coalition: Oh, absolutely I do. I wish there were a line item in the budget that said, "Waste, fraud and abuse," but it's not there. I've looked for it.

So it is -- I was very encouraged to hear the president-elect talk about the need for spending restraint and getting wise value for the dollar spent. But, you know, Bob is right. The big money is in the entitlement programs. They're much more difficult to change.

JUDY WOODRUFF: And let's talk about what we mean by the entitlement programs, Social Security -- explain what the other ones are.

ROBERT BIXBY: The big three are Social Security, Medicare, and Medicaid. And those are programs that Congress doesn't appropriate annually. They run on autopilot.

And the largest ones, those three are 42 percent of the federal budget already before the baby boomers even begin to retire, and we worry about their health care costs. So it's a very large part of the budget. It's growing faster than the economy. And the projections are that they will continue to do so.

JUDY WOODRUFF: So is this exercise, Bob Reischauer, that Mr. Obama is talking about a waste of time?

ROBERT REISCHAUER: No, it isn't. And it's very important for him to send this message. It's just going to be a very tough act to complete.

What we have to remember is even wasteful, low-priority programs create jobs. And when we begin cutting them back, some people are going to lose their jobs, even if we use that money for more sensible, longer-run efforts that might improve the productivity and growth in this country.

Entitlement programs hardest to cut

JUDY WOODRUFF: What about, Bob Reischauer, going after the entitlements? I mean, we know -- and Mr. Bixby said they're on autopilot. Congress doesn't get a whack at them every year. But what -- is there anything that can be done by the budget office, the new president's budget office to address those things?

ROBERT REISCHAUER: There's a lot that can be done. There are little nips and tucks that can be taken in these programs that over time will grow in their importance. There are ways we can transform these programs so they have better sets of incentives.

It's a long haul. We shouldn't look for them to save huge amounts of money in the next 3, 5, even 10 years, but we can take steps now that will be very important over the long run.

But I think what president-elect Obama really wants to focus on is some of these perennial recommendations that we get rid of some programs which really don't make a whole heck of a lot of sense.

And he used as an example payments to farmers who are millionaires and receive lots of money from the federal government. We've tried three or four times in the past to rein these in. Maybe we can do it with real presidential effort now.

JUDY WOODRUFF: Why is it so hard to get at those programs?

ROBERT BIXBY: Well, you're talking about very important programs and very popular programs. Social Security is perhaps the most popular government program of all time and Medicare, as well, so -- and people rely on them. People plan on them.

So it's not like, you know, an annual appropriation, if you've sort of based your retirement about your Social Security income or, you know, you're dependent upon Medicare for health insurance. You can't just cut that off right away.

JUDY WOODRUFF: But you've studied the federal budget for a number of years. If you could squeeze all the fat and all the waste, how much could you save?

ROBERT BIXBY: Not very much.


ROBERT BIXBY: Because a lot of waste, for example, is in the eye of the beholder. It's a subjective judgment. What is somebody's waste is somebody else's lifeline from the federal government.

So I think that, you know, sometimes people talk about earmarks as sort of a proxy for waste. It might be like $18 billion to $20 billion. We're talking about a $3 trillion budget.

JUDY WOODRUFF: And, again, by earmarks, we're talking about those items that individual members of Congress will push through as a favorite thing, but they add up.

ROBERT REISCHAUER: They add up. Overall, they're really the chump change of the budget here.

And one reason it's hard to cut back on these, say, low-priority programs is the benefits are concentrated. They're concentrated geographically. They're concentrated among a certain economic group. Those people will fight very hard to retain them.

Deficit is a growing concern

JUDY WOODRUFF: Let's back up and look at the bigger question looming over all this, and that's the deficit. I mean, we heard a reference there in one of the reporter's questions to $2 trillion.

How worried should this incoming president be about the size of the deficit? I mean, we're at a time of economic crisis. They're shoveling out a lot of money right now, he will be, to stimulate the economy. How worried should he be about the deficit?

ROBERT REISCHAUER: What he should be worried about is our ability to raise the resources that are needed to finance that deficit. We've depended very heavily on foreigners to supply purchases of Treasury securities.

Those foreigners don't have the resources anymore. The petro-dollars are shrinking. The big trade surplus with China will shrink. There isn't a lot of saving sloshing around world markets because of the worldwide implosion of economies.

So we have to ask, you know, who is going to buy this debt? And at what price are we going to have to pay? What is the interest rate we're going to have to pay?

And so the president-elect really has to convince, I think, world markets that, in the long run, we're going to clean up our act. In the short run, we're going to need the stimulus. But in the long run, we really are going to do something to rein in our fiscal profligacy.

JUDY WOODRUFF: How much do you share that assessment? And how worried should we be about the deficit?

ROBERT BIXBY: I think that I share that assessment. I think it's very, very important to distinguish between short term and long term. Even a deficit hawk like me in today's economy can say, "OK, we're going to have to have a very big budget deficit. And that's OK, so long as it doesn't have a long-term effect."

What we need to do is, is have a looser fiscal policy in the short term, but make sure that we maintain long-term discipline, and that's not an inconsistent thing. In trying to stimulate the economy in the short term, we don't need to add to the long-term problem; that's not going to do anything to stimulate the economy.

Bipartisanship key to budget reform

JUDY WOODRUFF: What about the person, Bob Reischauer, the president-elect has chosen to head the Office of Management and Budget, Peter Orszag?

ROBERT REISCHAUER: Like the other members of his economic team, I think he's terrific. I mean, the president-elect has put together a very strong group of individuals who have a lot of experience in crisis management and in the specifics of the budget and the economy.

So I think we should be hopeful that, if anybody can pull this off, it really is the president and this team.

JUDY WOODRUFF: What does the selection of Mr. Orszag say to you?

ROBERT BIXBY: What I think it says is that the president-elect is very serious about these budget issues, that he's serious not just about the short-term stuff, but that he's serious about the long-term, and particularly on health care.

Peter Orszag has been one of the leading proponents of doing something about our long-term health care problem, pointing out that that's one of the major problems, if not the major problem, with the long-term budget outlook for the federal government.

So in selecting Peter Orszag, I think he's sending a signal that he's serious about those long-term issues. I think it's a terrific choice.

JUDY WOODRUFF: And, very quickly, the signal from the president-elect that he wants to work across the aisle, that he doesn't want this to be just a single Democratic Party initiative.

ROBERT REISCHAUER: Absolutely essential. If you're going to succeed in this area, you really have to bring both parties together. And there hasn't been a lot of effort to do that over the last eight years and even during some of the Clinton administration. So I'm quite optimistic.

ROBERT BIXBY: I thought he sent some very good signals today on the need for fiscal discipline, even as you're looking at stimulating the economy, and the need for bipartisanship.

And his selections, I've been encouraged by that, even in the face of a potentially trillion-dollar deficit, which is pretty depressing, when you think about it.

JUDY WOODRUFF: Sure is. And the message from both of you is that, even with that, it's going to be tough?



JUDY WOODRUFF: All right. Well, Robert Bixby and Bob Reischauer, thank you both. We appreciate it.


ROBERT BIXBY: You're welcome.