Obama presents real budget and aspirational one

IT WAS almost as if there were two budgets in the fiscal year 2013 request President Barack Obama published yesterday.

One was an expansive political vision, aimed at November’s presidential election, that claims to all but eliminate the US deficit while stimulating the economy today.

The second budget was an extremely tight set of spending plans designed to fit under caps on domestic programmes agreed as part of negotiations over the debt limit last August.

With Republicans in control of the House of Representatives, almost none of the president’s budget for the fiscal year that runs from October 2012 to September 2013 has any chance of becoming law, but it is a clear signal of Mr Obama’s priorities for a second term if he is re-elected.

Taken as a whole, the budget suggests Mr Obama’s main goal is to bring down the deficit by pushing through tax increases on wealthy Americans, while carving out funds to spend on education, scientific research and infrastructure.

The headline figures are for tax revenues to rise by two percentage points of gross domestic product, while spending falls by one percentage point of GDP, bringing about a fall in the deficit from 8.5 to 5.5 per cent of output this year and to 3 per cent of GDP by 2017.

But that is based on a laundry list of Democratic preferences, including an end to the tax cuts passed by former president George W Bush on incomes, dividends and inheritances; savings from the end of the war in Iraq that are used to pay for infrastructure; and a host of tax changes that raise revenues from sectors such as oil and gas.

Under the Congressional Budget Office’s alternative scenario, which assumes the Bush tax cuts and other policies remain as they are today, then the budget deficit gets stuck at about 5 per cent of GDP.