As Congress prepares to hear testimony from department heads on the President's FY 2009 budget, how are Democrats reacting to the President's proposal? During today's OnPoint, Stan Collender, managing director at Qorvis Communications and a budget expert, gives his take on the President's proposal and explains how he believes Congress will respond. Collender explains which agencies faired the best and which lost out in the FY 09 proposal. He also discusses the President's overall energy proposals, including those for renewables and energy efficiency.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Stan Collender, managing director of Qorvis Communications and a budget expert. Stan, thanks for coming on the show.
Stan Collender: My pleasure.
Monica Trauzzi: Stan, the president released his fiscal year 2009 budget earlier this week and it totals $3.1 trillion. Overall, what's the reaction you've been hearing to the budget?
Stan Collender: The reaction is why bother, irrelevant, non-interesting, and has no chance of being passed. But other than that, it's been well received.
Monica Trauzzi: So, specifically what are the main issues with this budget?
Stan Collender: Well, first of all this is the eighth budget submitted by this administration. Every last budget by any president includes zillions of things that he or some day she has already proposed and has been rejected a number of times. If they are still in the budget by now chances are they have substantial support. So a lot of what the president has proposed that he said was innovative and interesting, 151 program terminations, already been proposed, rejected by Congress. Not going to happen again. Second, some of the long-term forecasts understate the deficit pretty substantially. They don't include the long-term costs for any activities in Iraq and Afghanistan, nothing after 2009 for example. And it assumes a freeze of the domestic spending for 2010, 2011, 2012, and 2013 that no one thinks is actually going to happen. So you put all this together and you get a budget that's politically unacceptable, submitted by a lame-duck ... a Republican lame-duck president to a Democratic Congress, to a Democratic Congress that thinks it's going to be more democratic next year. So this budget really is probably not going to go too far too fast.
Monica Trauzzi: So what were you most surprised about, about what was included in this budget? I mean there's a big national security focus. What surprises you?
Stan Collender: Well, the national security focus was hardly surprising. I mean this is an administration that has tried to put a lot of emphasis on that and going into the election wants to emphasize the Republican credentials on national security. I think if there was one proposal that I thought was a little surprising it was a $200 billion 10-year cut in Medicare. That is a little extreme, almost certainly never going to be accepted by a Democratic Congress. But you've got to keep in mind, what this administration was trying to do with this budget more than anything else was show that the president's policies would result in a surplus by 2012. So a $200 billion cut in something was necessary to get spending down to that level so that the deficit would be eliminated. No one thinks these things are actually going to happen or that we're actually going to have a surplus, but that's what the president was trying to do.
Monica Trauzzi: But then why was so much cut from the domestic end of things?
Stan Collender: Well, again, in the same way that this administration, for political reasons, has tried to show that it was very pro-defense, it's trying to show the conservative base of the Republican Party that this president and, therefore, congressional Republicans are the ones to be trusted with domestic spending. That is to cut domestic spending. I mean this is an administration that for years has said domestic programs are not things we want to do and that's not things the federal government should be involved in. And even if they haven't tried to cut them all, they really have tried to put the brakes on it. So, you had your choice, you could either propose big cuts in entitlement, which Medicare was one, but that was it; tax increases, which this administration is never going to do; cuts in defense, which this administration also was never going to do; and that left one category, domestic spending. And that's what took the big hit.
Monica Trauzzi: Senate Majority Leader Harry Reid says, "The president's budget weakens our economic security." In light of our current economic situation, how does the budget read?
Stan Collender: Well, in one sense it's actually exactly on target, that is, it's got a $400 billion deficit at a time when you want fiscal policy to be more stimulative. And you do that by having a deficit, that is spending more than you take in or taking in less than you would have before so that consumers and businesses have more money in their pockets. And a lot of the increase in the deficit, remember, it was $163 billion last year, now projected to be $410 billion or thereabouts in 2008, a lot of that increase is the result of the stimulus bill that the president and at least the House Democrats so far have agreed to. So in that sense it's going to be helpful, but remember that a big deficit could be interpreted by some, like the Federal Reserve, as being too stimulative and that may get the Fed not to cut back on interest rates as much as a lot of people would like. So there's got to be always a balance here. For this year, probably not too bad; after that it could be inflationary, might not allow interest rates to fall and that could be a problem.
Monica Trauzzi: So biggest winners and losers?
Stan Collender: The biggest winner by far is the Defense Department. I mean that goes without saying. It's a 5.5, 6 percent increase. The State Department is another big winner, so Condoleezza Rice obviously used her connections with the president to push some additional spending, hire diplomats. Biggest losers, very, very simple, is everything on the domestic side of the budget. The Education Department has 47 program terminations for example. And everything else, transportation is hurt pretty badly, if you assume that Congress is going to go along with them. Keep in mind, the president's budget is just a proposal. Congress is free to accept and reject almost all of what the president proposes and chances are a lot of this will be rejected. But every domestic program, a lot of pressure on education and transportation, those are the two big areas.
Monica Trauzzi: And one of the things Senator Bingaman was unhappy about was that there were budget cuts to energy efficiency and renewable energy programs. And this, I'm assuming, ties back to what you were saying about domestic spending.
Stan Collender: Right. This has very little to do with energy policy and more to do with trying to make the numbers work. The one place the president could look for savings was on the domestic side. The energy programs are curious when you think about what else is going on. With the price of oil related products going up pretty substantially, why is the president reducing subsidies or proposing to reduce subsidies to things that would be alternative to oil related products?
Monica Trauzzi: So, does last year's budget struggle between Congress and the administration provide any indication of how things are going to play out this year? Things are little different this year, it's an election year, but do you think that that any indication of how things are going to go?
Stan Collender: Well, the easiest way to put this is if you liked last year you're going to love this year. Democrats have less incentive to deal with the president. The president has less incentive to compromise with Congress. I was at a meeting this morning and we all agreed the likelihood of actually getting appropriations out of Congress this year, other than defense and maybe Homeland security, probably zero. The government won't shut down, but will be operating on what we call a continuing resolution, probably a lame-duck session. And the big decisions for this year won't be made until January with the next president and the next Congress.
Monica Trauzzi: So, does this budget lead the way to that balanced budget that the president's been talking about in 2012?
Stan Collender: No. Absolutely, unequivocally, unambiguously, no.
Monica Trauzzi: He says it does though.
Stan Collender: Right, but it relies on a variety of things that just won't happen. For example, he doesn't provide any additional dollars for Iraq and Afghanistan after 2009. Even under his own policies with a long-term, permanent commitment for U.S. troops in that area, it's a $30 billion a year or more cost, none of that is in there. A big one, fixing the alternative minimum tax, this would be the biggest increase on taxes, biggest tax increase on people who consider themselves middle class in the United States' history. If there is anything certain in politics in Washington this will be fixed. The president is assuming that it won't be fixed and, therefore, is allowed to assume that there's an extra $65 or $70 billion a year in additional revenues that the government is never going to collect. And then finally, on the domestic side, the president gets his numbers down to a balanced budget or a surplus by assuming an absolute nominal freeze on all domestic programs, including all energy programs. Never going to happen. Absolutely never going to happen. You factor that end, along with a probably optimistic economic forecast and we're probably looking at an additional $5 trillion, $6 trillion in spending over the next 10 years, not assumed in this budget.
Monica Trauzzi: All right, final question. This was the first time that the budget was Internet only. It was an e-budget. But a copy was available for a couple hundred dollars. Did you buy your copy or did you read it online?
Stan Collender: Actually I've done both. I did read it online. I was remarkably pleased by how easy it was to get online. I thought it was going to be a disaster. I do have a copy of the CD that I bought and today I'm getting all seven books delivered at a cost of $200.
Monica Trauzzi: Oh, nice. Well, thanks for coming on the show.
Stan Collender: My pleasure.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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