Cuts, Deficit Highlight 2012 Budget Blueprint, But Battles Loom in Washington

President Obama submitted his $3.7 trillion federal budget blueprint for 2012. Gwen Ifill speaks with White House Budget Director Jack Lew about the details of the budget and Judy Woodruff has the Republican reaction from Sen. Rob Portman, a member of the Senate Budget Committee and former budget director under George W. Bush.

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    President Obama kicked off what is shaping up to be a pitched battle over the budget today. But emboldened Republicans are kicking back.

    Ray Suarez begins our coverage.


    The president's annual budget blueprint arrived on Capitol Hill this morning, the price tag $3.73 trillion, and a record $1.6 trillion deficit, the highest dollar amount ever.

    Mr. Obama touted his plan today at a school outside Baltimore.


    The only way to truly tackle our deficit is to cut excessive spending wherever we find it — in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes. So what we've done here is make a down payment, but there's going to be more work that needs to be done.


    Under the proposed budget, the deficit would drop to under $1.1 trillion next year with some dramatic cuts.

    Among the items on the chopping block, some programs popular with Democrats, including Community Development Block Grants, which help fund low-income housing and anti-poverty programs. They'd be cut by $300 million. The plan eliminates $2.5 billion in home heating aid to poor families, reduces funding in Pell Grants for needy college students by $100 million — $125 million would be removed from a Great Lakes cleanup project, and expiration of tax cuts are proposed for energy companies and families making more than $250,000 a year.

    The budget also calls for a five-year non-security discretionary spending freeze and a two-year freeze of federal government employees' salaries. States would also lose grant money for airports, water treatment plants and other infrastructure. The end of the federal stimulus and the tax increase for affluent Americans account for the bulk of the plan's estimated $1.1 trillion of deficit reduction over the next 10 years.

    But it is still creates $7.2 trillion in new debt through new spending on investments in high-speed rail, transportation improvements and new education programs.

    Today marks the first time President Obama has submitted his budget to a Republican-controlled House. House Budget Committee Chair Paul Ryan called it a disappointment.

  • REP. PAUL RYAN (R-Wis.):

    We've looked at these numbers. And these numbers are very, very clear. You really cannot borrow and spend and tax your way to prosperity, but unfortunately, that is exactly what this budget does.


    While Senate Minority Leader Mitch McConnell called the president's budget irresponsible.

    SEN. MITCH MCCONNELL (R-Ky.), minority leader: The president's budget is the clearest sign yet that he simply does not take our fiscal problems seriously. It's a patronizing plan that says to the American people that their concerns are not his concerns. It's a plan that says fulfilling the president's vision of a future of trains and windmills is more important than a balanced checkbook.


    The president and congressional Republicans are sparring over a narrow slice of federal spending: the 15 percent devoted to so-called discretionary programs not related to security or defense.

    The president's budget does call for $78 billion in reductions to growth in Pentagon spending over five years, savings recommended by Defense Secretary Robert Gates. But neither party is yet tackling the so-called entitlement programs: Medicare, Medicaid and Social Security, reforms recommended by the president's deficit commission.

    For his part, White House Budget Director Jack Lew defended the need for bipartisan action on spending.

    JACK LEW, White House budget director: I think that we've put down a reasonable plan, a comprehensive plan. It's our plan. And we understand that that's the beginning of the process. We have also said that we don't have a monopoly on all wisdom. And we look forward to working with the Congress.


    Congressional Republicans will have the chance to question Director Lew in a series of hearings next week. In the meantime House Republicans plan to vote on their own plan to cut federal spending for the current fiscal year this week.


    And for the view from the White House, we turn now to Jack Lew, director of the Office of Management and Budget. I spoke with him a short time ago.

    Mr. Lew, welcome.

    You said today that this budget is all about priorities. Can you give us a sense about what this budget tells us about this administration's priorities?



    This administration's priorities start out with kind of the big frame, which is that we have to live within our means. We have to reduce spending. We have to reduce the deficit. And we also have to invest in the future. Just like every family that sits around the table and has to make the tough choices in tough times, that's what we need to do in this federal budget.

    And we have made a lot of decisions which are difficult, but we have made the tradeoffs to try and ensure that we can have a much better future, where we can out-educate, out-innovate and out-build our competitors.

    So it's about reducing spending in some places, having the bottom line show the result but also investing where we need to.


    You're talking about making tough choices. This is a $3.73 trillion budget. Where are the cuts coming from?


    Well, the cuts really come from quite a lot of places. In the area of annual discretionary spending, we freeze spending for five years, which saves $400 billion over 10 years.

    That brings spending, this part of the budget spending, down to the levels that haven't been seen since the Eisenhower administration. And we're at a level of savings that are way beyond what one can say you do with waste, fraud and abuse.

    We're going into programs, programs that we care about, and saying, we have to make the tough tradeoffs and cut back in some places. Now, I can give you a few examples, because they're — they're — they're hard choices. You know, the Community Services Block Grant program going from formula grant to a competitive grant, cutting it in half, that means that there are going to be fewer community action agencies that get federal funding.

    The Low Income Home Energy Assistance Program, a very important program that helps people, old people and poor people, pay their energy bills in cold winter, it — it's a hard thing to do. Why are we reducing it? Because in 2008, it went from $2.5 billion to $5 billion because of a big spike in prices.

    We're looking — And as we look at all of the areas of the budget, we said we can't just level off at $5 billion. We need to go back to where it was before the price spike.


    But the — but even that is only $2.5 billion in a pretty big budget. There are even some Democrats, like Kent Conrad, the chairman of the Senate Budget Committee, who think you should be cutting deeper in the name of trying to cut that deficit.


    Well, I have only given you a few examples.

    If I move out of the area of domestic discretionary spending, we've taken defense and said, it can't continue to grow faster than inflation, as it has for more than 10 years. It needs to come to a zero real growth level. And that reduces defense spending by $78 billion for the base defense budget from where it would have been in last year's budget.

    When we look at defense overall, including spending on Afghanistan and Iraq, because of the reductions in troops in Iraq, we see more than a 5 percent reduction in defense spending compared to last year's budget. And outside of the area of discretionary spending, I think we all agree — we certainly believe, you cannot deal with the fiscal challenge we have by just dealing with discretionary spending.


    Elephant in the room, Mr. Lew, entitlements, Social Security spending, Medicare, Medicaid, not — not — nowhere in this budget.


    Well, let me start with what's in this budget. And then I'm happy to talk about the things that may not be in the budget.

    In the budget, we take, in both entitlement programs and on revenue programs, very important steps. In the case of Medicare, for years Congress and successive presidents have agreed we shouldn't let a provision go into effect that would cut reimbursement rates to doctors in Medicare by 30 percent.

    The problem is that, for years, we have just put it on the national credit card. And we have built up the debt. This year, we say it's time to stop. We put $62 billion of specific proposals in to pay for that extension of that provision for two years.

    And we have said, with a three-year window, because Congress did the right thing last December and paid for it, with a three-year window, let's figure out how to solve this once and for all, so we're not in the business of kicking the can down the road.

    In the tax code, there's a provision called the Alternative Minimum Tax, where, because of the way it works, middle-class families would slip into it. And that was never the intention. So there's been a bipartisan agreement, don't let that happen.


    What about entitlements, Mr. Lew?


    Well — but let me just finish that example, though, because for the — the Alternative Minimum Tax, what's happened over the years is, we haven't paid for fixing it.

    We have put a proposal in the budget that would have real revenue provision that pay for extending the Alternative Minimum Tax so that it doesn't hit middle-income families for three years. What it would do is, it would put a limitation on how people in the top tax bracket — that's families that make $250,000 or more — how much benefit they can get from itemized deductions.


    Mr. Lew…


    It would limit them to the level of people the bracket below them.


    What about entitlements, Mr. Lew?


    Well, I have just given an example on entitlements in terms of the $62 billion in Medicare. There's clearly more that needs to be done in the long term.

    You asked about Social Security. On Social Security, first, let me be clear. There's nothing in the projections for the next 10 years that is — that suggests that Social Security is causing the deficit problem. The Social Security issues are farther down the road. And we believe that we need to address them.

    The president said in the State of the Union that he wants to work on a bipartisan basis to address Social Security, so that current retirees and current workers who will be future retirees can count on their benefits now and in the future. We really believe that.

    We think the right thing to do is to work together, like we did in 1983, to solve the problem. The problem is that it's — the history tells us that, if you put a proposal out there, it doesn't necessarily move the process forward.

    You know, I saw, when I was working on Social Security on the Hill in the '80s, that, in 1981, a proposal set things back. It polarized the parties. We saw that in the 1990s as well. What the president did in the State of the Union was try to set out principles, so that we can actually prepare the ground for a constructive conversation. We think that's the right way to move the ball forward.


    An opening bid?


    You know, I — you know, I'm not sure I would call it a bid. It's a statement of principle.

    I mean, we stand proudly, saying we want to work together to make the changes, so that we can say Social Security is sound for 75 years. I want to be able to tell my new grandson that he doesn't have to worry about Social Security.


    Jack Lew, director of the Office of Management and Budget, thank you for joining us.


    Thank you.


    And now to Judy Woodruff with a Republican view.


    And for that, we are joined by Sen. Rob Portman of Ohio. He is a member of the Budget Committee. And he served as budget director under President George W. Bush.

    Sen. Portman, thank you very much for being with us.

    We just heard Budget Director Lew say that this blueprint will cut spending $400 billion over the next 10 years. That sounds like a big number.

  • SEN. ROB PORTMAN (R-Ohio):

    Well, unfortunately, it's not nearly enough. And I'm quoting here from the Democrat co-chairman of the president's own fiscal commission who said it's nowhere near what we ought to be doing.

    I just listened to Jack Lew's comments. And, Look, I feel a certain sympathy for Director Lew, having been in his position four years ago. It's tough. But it's particularly tough to defend this budget. And he talked about how he's proud of the fact that it did something on Social Security. There's nothing on Social Security.

    The questions were actually very insightful. You know, where is the changes in terms of these entitlement programs? It's now over 60 percent of the budget and the fastest growing part of the budget. The $400 billion, Judy, that you're talking about is a result of freezing, so it's not a reduction in spending. It's a freeze.

    So, it's as compared to what the spending would have otherwise been had we followed the president's budget from last year. So, this is not about reducing spending. And, by the way, that $400 billion is about 4.5 percent of what we have to do in order to get to a balanced budget.

    So, as Erskine Bowles said, again, who's…




    … the Democrat co-chairman of the fiscal commission, it's about 4.5 percent of the way there. So, we need to do a lot more. And we need to do it together.

    I'm not saying that we're looking to the president for all the leadership here, but this budget document is a political document today. It's very disappointing to me, because the president's own description of the problem is so eloquent. He talks about our fiscal condition and the fact that we need to get out from under this historic deficit we have this year and this debt.

    And yet, the budget proposal calls for the debt to almost double during the 10-year period of this budget.


    So, when Mr. Lew says that this budget would get federal spending as a percentage of the gross domestic product down to the lowest level it's been since President Eisenhower, you're saying that's not significant?


    I was — I was very surprised to hear him say that.

    The historic level of spending as a percent of the economy is about 20.6 percent. And this year, we will be at 25 percent. So, we have gone from 24 percent last year to 25 percent this next year. And my understanding is that the percentage does not go down below the historic level.

    In fact, because, again, we're not making some of these tough choices, we continue to spend more as a percentage of GDP certainly in fiscal year 2012, which is what this budget is all about. So, you know, we need to do better. And, again these are tough decisions, tough calls to be made. But you cannot do it just by sort of nibbling around the edges. And that's what this budget does.


    So, you're…


    It doesn't make the tough decisions.


    So, you're saying that's a — that claim is false?


    Well, I don't know. I need to look at — I told you I was surprised to hear it.

    It may be true as to the narrow issue of what the president called about 12 percent of the budget, which is the domestic discretionary budget that's non-security, which is the part that I think the director was talking about.

    But it's certainly not true as a matter of the entire budget. And that's because most of the budget is off-limits. In other words, it's not even addressed in this budget document. So, yes, I think it is false.

    I will check it after the show, but it doesn't make sense to me that that would be true, except as to that narrow part of the budget. And that may well be true.


    Well, when you and other Republicans say the administration is not serious about cutting, they come back and say, well, look, we're cutting money in — in inner-city neighborhoods; we're cutting money for clean water, for clean air, college loans; we're cutting money for low-income home heating bills.


    Well, those are…




    … those are decisions that they've made, Judy.

    I mean, as we talked about and as the director just said, the president has chosen to have a five-year freeze at the 2010 levels, in other words, the relatively high level spending that we have now. And within that freeze over the next 10 years, they're going to increase spending on certain things, like high-speed rail, as you've heard about, and reduce spending in other things.

    So, yes, the president has made decisions within that freeze. But this freeze, remember, is after a 24 percent increase in this same category of spending over the last two years. So, it's freezing this higher level of spending. And then, yes, there are decisions made within there to increase some programs and decrease others.

    But these are political decisions, and then not to touch, again, the bulk of the budget, where you see the fastest growth.


    Well, let me ask you about that, the so-called entitlements, Medicare, Social Security and the rest of it. There were two arguments I heard Mr. Lew make.

    One is that he said, in Social — when it comes to Social Security, he said it's not a factor in the deficit for the next 10 years; it should be tackled, but there's some time. And he said, with regard to the rest of it, Medicare and other so-called entitlements, he said that's got to be a joint effort.

    He said, in — recent history shows, for a president to put his own ideas out there, without the other side, in essence can set the whole process back.


    Well, I agree with him it has to be a joint effort.

    I would disagree with him again on the fact that Social Security does not add to the deficit. The trustees of the Social Security system just told us that the deficit is already in place in the Social Security trust fund. In other words, this year, Social Security will pay out more than it brings in.

    This was not supposed to happen until 2016, but unfortunately, because of a rough economy, because we haven't had the payroll tax revenues coming in as expected, it's in a deficit position. So, I'm — I was — I was also surprised by his statement there that Social Security doesn't add to the deficit.

    The other issue is that we obviously have a huge internal debt in Social Security, because for years, the Social Security trust fund has been used for everyday government spending. So this is a huge issue that we do have to tackle. And it's going to affect people's payroll taxes and workers in America.

    And for us to just say it's not a problem — which I'm not saying that he said, but that was sort of the implication — I think is — is just false. We need to tackle the Social Security issue, because it is about the future. Those who are near retirement ought to be able to keep the benefits that they have earned, but those who are not near retirement, those who are young people who are looking to the future, we need to have a program that works for them.

    And under the current trajectory, it will not be there. In fact, after about 2021, I think it is, there would be, under current law, about a 21 percent decrease in the benefits under Social Security, even if you assume that all of the debts built up in the trust fund are accounted for.

    So, we have a real problem in Social Security and in Medicare. And I agree with Director Lew that it needs to be something that we join hands on as Republicans and Democrats. But it needs leadership from the president. That is certainly a lesson we have learned over the years.



    Sen. Rob Portman, thank you very much.


    Thanks, Judy. It's great to be on with you again.