How realistic are the goals set out in the president's fiscal 2010 budget proposal? Who are the biggest winners and losers? During today's OnPoint, budget expert Stan Collender, a partner at Qorvis Communications, reacts to President Obama's first budget. He explains what the administration will need to do to reach its goal of reducing the deficit in four years. Collender also gives his analysis of the cap-and-trade, clean energy, and oil company tax provisions in the president's proposal.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Stan Collender, partner at Qorvis Communications and a budget expert. Stan, nice to see you again.
Stan Collender: Good to see you.
Monica Trauzzi: Stan, President Obama released his first budget this week, overall, what's your reaction? Is it what's to be expected from a new president in his first budget?
Stan Collender: Well, it's very bold. In the United States history basically you've got nothing but incrementalism, and this is not incremental in any sense. It's a radical departure from what we had during the previous eight years of the Bush administration and it's exactly what you would expect from; one, a new president's in his first budget; two, a new president of a different party then you had previously; and three, a new president from a new party facing some extraordinary challenges where basically the country is saying, "Fix this." That's what he was elected to do and so he's come up with some pretty bold plans in a variety of areas.
Monica Trauzzi: Talk about the theatrics of this week. I mean we started very interestingly ...
Stan Collender: Right.
Monica Trauzzi: ... and ended quite interestingly.
Stan Collender: Well, you couldn't have asked for better choreography quite honestly. It was brilliantly staged! It started on Monday with a fiscal responsibility summit where the topic was deficit reduction. It then went to a speech where he was hailed almost as a conquering hero by Congress, lots of applause lines, lots of standing ovations, brilliant speech, brilliantly delivered in where he talked about the speech and gave people hope. And then a day in a half later he delivers his first budget, which is, I mean this is not a 1-2 punch. This is a 1-2, 1-2 punch. I mean by the end of the week he's clearly in charge. It's his agenda. The momentum is there and my guess is he did himself a lot of good this week.
Monica Trauzzi: So he has this goal of reducing the deficit by the time his first term is over. But this budget runs deficits, so it is that possible?
Stan Collender: Oh, sure.
Monica Trauzzi: I mean can you have that type of turnaround in four years?
Stan Collender: This is a very unusual situation. This is a president who comes into office with permission to spend money, with permission to run big deficits right now. That's what the correct fiscal policy is given the state of the economy and people say, "Just fix the economy. If you think it takes bigger deficits, let's go for it." But, in a year or two, that is when we have unambiguous evidence that the economy is turned up again, he will have then have permission to reduce the deficit. That is he'll run it up because he's got permission, political permission to do it, and then he'll be able to start making some pretty substantial reductions, both on the tax side and on the spending side. And so there are very few presidents in history that have had this ability to kind of switch gears so quickly.
Monica Trauzzi: The budget essentially assumes that a cap-and-trade plan will be enacted and that the government will be collecting significant revenues from such a system by 2012. There's still a huge debate on Capitol Hill over whether cap and trade is actually good for the economy or not. There's some debate over whether it will actually pass. So, does this put further pressure on Congress to actually pass this legislation? And if they don't, what does this do to the budget?
Stan Collender: Well, first of all, keep in mind that every president's budget, to a certain extent, is a wish list. I mean it's just the beginning of the debate, not the end. So every president says, "If I were king or queen, this is what I would do." And it's not necessarily what's going to happen, but it's his statement of policy and priorities and preferences. So, does this put pressure on Congress? You bet it does. You've got the most popular leader in the country right saying this is what we should do. It's an issue that most people don't understand. The average person doesn't really understand very well. And, under those circumstances, if you're going to vote against the plan you're going to have to explain to your constituents why you want to do it. What happens if it doesn't happen? Well, there's a lot on the spending side and on the revenue side that won't occur. Don't forget, the president is proposing not just to collect revenues, but to spend a good deal of it on a variety of programs that people would want. So those programs won't happen and obviously the revenues won't flow in, so the deficit will be a little bit higher.
Monica Trauzzi: And on energy the administration is seeking to repeal oil company tax breaks and subsidies. And there's an argument being made by Republicans that this is actually going to make it more difficult for these companies to do business. Is this move sort of counterproductive to our push to reduce our dependence on foreign oil and is it just going to put more pressure on U.S. companies when they don't need extra pressure?
Stan Collender: You know, it's not as if the administration called me to explain their thinking behind it, but it looks as if it's several different things. One, the administration does want to do to reduce dependence on foreign oil, but it wants to do it with alternative energy sources. Two, given how much profit these companies have made over the last couple of years, for them to say that they can't afford these taxes is a little disingenuous to say the least. And they've got to know that they're going to be inviting that kind of scrutiny. With Exxon Mobil having to say that they've made billions upon billions of dollars in profits, to suddenly say that the higher taxes aren't justified would be a little difficult for them. I'm not saying it's a slam dunk by any means and it's not unexpected that the Republicans would oppose this. It's a higher tax in general they would oppose, but it's going to be tough for the oil companies to make that case I think this year.
Monica Trauzzi: And something he mentioned on Tuesday in his speech and then also once again in the budget is that he has this goal of expanding our renewable energy capacity, doubling it over the next three years. There's some key hurdles that need to be overcome before we're able to do that, like transmission hurdles. Is he being overly ambitious with these types of goals?
Stan Collender: You know, I don't think so. You know, look, technologically perhaps. I mean we're not quite there, but remember, this is not just words that he was speaking. He actually put some money behind his words, the stimulus plan, the budget, I mean it seems to move in that direction. And don't forget, for at least 20 or 30 years, as long as I've been in Washington, people are saying we need an energy policy. And the president is saying, all right, we can have one. We just have to get started. Again, the president's budget is a wish list. It will be argued about, forgotten about, voted on, agreed to, not agreed to over the next six to nine months. A lot of what he's proposing will be accepted, much of it will be changed. But at least he's getting the conversation going and I think that's what the plan was.
Monica Trauzzi: So, bottom line, the budget as a whole, who are the biggest winners and losers?
Stan Collender: Energy, healthcare, and education were the big winners. The big losers, defense, although defense is still going up, but not by as much as what happened in the administration, oil companies and agriculture are the big losers.
Monica Trauzzi: So, you're anticipating a big debate ahead over the next year?
Stan Collender: Oh, you bet! Look, this is part of the economic recovery package, but unlike the stimulus where everyone could kind of get behind it and say it's good for the economy, now you're threatening particular constituencies, particular industries that are important to individual members. This will be a huge fight as the year goes along.
Monica Trauzzi: All right Stan, very interesting stuff. We'll end it right there.
Stan Collender: My pleasure.
Monica Trauzzi: Thanks for coming on the show.
Stan Collender: Sure.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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