Obama's cuts: Real deal or dud?

By Jeanne Sahadi, senior writer


NEW YORK (CNNMoney) -- This much is a shoo-in: President Obama will spell out hundreds of billions in spending cuts in his 2012 budget request on Monday.

What's unclear is how far his fiscal plan will go in taming U.S. debt.

Obama did promise last summer that this budget request would call the bluff of anyone who talks a good game on debt reduction but doesn't act.

Budget experts have made clear the kinds of measures they would consider serious bluff-calling. He could embrace his own bipartisan debt commission's plan, which would reduce deficits by $4 trillion over a decade. He could show a willingness to raise taxes on everyone -- not just the rich. He could tackle Social Security and other entitlement programs.

But that's not what budget experts are expecting. Instead, they won't be surprised if the budget is limited to measures that, whatever their merits, won't move the dial on debt. Here are five to look for.

Freeze non-security discretionary spending: The White House estimates that $400 billion could be saved by imposing a five-year freeze on non-security discretionary spending -- which is a small slice of the federal budget.

Make no mistake: $400 billion is serious money in all universes except when it comes to reining in the growth trajectory of U.S. debt.

"Mandatory spending will add about $430 billion in spending over the next five years, particularly after 2014. So even if cuts are achieved elsewhere we'll be treading water," said Robert Bixby, executive director of the nonpartisan Concord Coalition, a deficit watchdog group.

The same can be said of the House GOP's proposed cuts to the same small slice of the federal budget, Bixby added.

Let tax cuts expire for the wealthiest 2%: The president is expected to reiterate his call to raise the tax bite only on high-income households.

Left- and right-leaning budget experts alike say that tax increases are needed in addition to spending cuts to tame the debt. They also say that the amount of revenue needed can't be raised simply by relying on the top 2% of households.

Making the tax cuts permanent for 98% of Americans would cost an estimated $3 trillion over 10 years -- or roughly four times the $700 billion that could be saved by the letting the tax cuts expire for the highest income taxpayers.

And that $400 billion the administration wants to save by imposing a freeze on domestic spending? "What may swamp those savings is the extension of the tax cuts, which now expire after 2012," Bixby noted.

Freeze federal pay: The president proposed -- and Congress quickly passed -- a two-year freeze on pay for federal workers.

Such a freeze may help bolster the image of a government tightening its belt. But as a cost-savings measure Josh Gordon, policy director at the Concord Coalition, would rank it as 0.3 out of 10. "It shouldn't even be on the scale. You're not saving a lot."

Shrinking defense budget: Obama is expected to include a $78 billion reduction in defense spending over five years. But most of those proposed cuts are likely to be slated for 2014 and 2015. And his funding request for 2012 is expected to be higher than the Pentagon's current funding.

Pay for new investments: The president said in his State of the Union address that his budget would call for investments in areas that he believes will help the United States remain competitive. For instance, he wants to spend more on clean energy. He proposes paying for the new investment by cutting back on tax breaks for oil companies.

It is a principle of sound budgeting to pay for any spending increases or tax cuts so that a new measure doesn't add to the country's debt.

But paying for a new project will only keep deficits from getting worse. It won't do anything to reduce them.

Silence on the biggest-ticket items?

Obama spoke in general terms about the need to reduce health care costs further and said one Republican proposal he'd consider is medical malpractice reform. Whatever the merits of such a reform, it's not a big deficit reducer.

But the big question for Monday is whether he'll directly address the unsustainable spending trajectories of Medicare and Social Security.

In his State of the Union, he called for "a bipartisan solution to strengthen Social Security" and only vaguely offered parameters of what he won't accept.

Among them, he said, "We must do it without putting at risk current retirees, the most vulnerable, or people with disabilities; [and] without slashing benefits for future generations," he said.

Non-partisan actuaries have recommended raising the Social Security retirement age slowly. Budget experts have expressed support for reducing the growth in Social Security benefits for future middle- and high-income retirees. His debt commission recommended doing both.

Do those fixes constitute "slashing" benefits in the president's mind?

Given how politically touchy entitlement reform can be, most observers note that if the president doesn't take the lead, it's unlikely Congress will follow. To top of page

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