By Lori Montgomery
Washington Post Staff Writer
Thursday, February 26, 2009

President Obama's spending plan is built on the assumption that lawmakers can resolve some hugely contentious issues -- and it relies on a few well-worn budget tricks.

The request he will deliver to Congress today proposes to provide what administration officials are calling a "down payment" on a major expansion of health care coverage for the uninsured. It identifies $634 billion in tax increases and spending cuts to cover the cost of part of the program, but does not say how the administration hopes to raise the rest of the money -- hundreds of billions of dollars more. "TBD" has been penciled into categories for cost savings and benefit reductions.

Obama's budget also would make permanent a tax cut for the middle class enacted in the recent stimulus package. But to pay for it, the president counts on a big infusion of cash from a politically controversial cap-and-trade system, which would force companies to buy allowances to exceed pollution limits. Even if that plan is approved, some lawmakers have other ideas about how to spend the money.

And though Obama told Congress on Tuesday that his budget team has "already identified $2 trillion in savings" to help tame record budget deficits, about half of those "savings" are actually tax increases, administration officials said. A big chunk of the rest of the savings comes from measuring Obama's plans against an unrealistic scenario in which the Iraq war continues to suck up $170 billion a year forever.

"They've painted the worst-case scenario in order to make it as easy as possible to improve on," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, which champions deficit reduction. "This budget is more realistic than we've seen in the past, in that it actually includes all the policies the administration is supporting. But I'd like to see them go much further in terms of fiscal responsibility in actually closing that deficit gap."

Congressional sources and others who have been briefed on the administration's plan say the president deserves some credit for making good on his pledge to "restore honesty and accountability" to the budget process. His proposal for the fiscal year that begins in October abandons some of the budget tricks of previous administrations, including the fiction that the alternative minimum tax will generate billions in fresh cash, that Medicare physicians will have their wages slashed and that spending on Iraq will fall to zero.

But the spending plan is not free of the budgetary maneuvers routinely found in any new president's first attempt at reducing his vision for the nation to cold, hard numbers, sources said. Congressional Democrats defended the proposal, while conceding that the chances of achieving its goals are highly uncertain.

"It's a bold plan. This is big strokes. This is not a budget about little things," said Rep. Chris Van Hollen (D-Md.), a member of the House leadership. "The president knows there are a lot of big lifts in this budget. But in order to turn the economy around and lay the foundation for long-term prosperity, we have to make these tough decisions."

A senior administration official, speaking on condition of anonymity because the budget has not been released, said the spending proposal is just a summary of a fleshed-out plan that will be complete in April. In addition, some details were intentionally left out of the document because the president did not want to dictate policy changes to lawmakers.

The health reform proposal, for example, "is the starting point of a conversation with Congress," the official said. "We're not going to go to Congress and say, 'Here's the plan.' We're starting a conversation and saying, 'This is what we want to get done.' "

As for cap-and-trade, the official said the administration believes it will generate enough money to fund a variety of priorities, including investments in renewable energy and rebates for vulnerable consumers who may struggle to pay higher energy bills if utilities pass along the cost to consumers. Obama also wants to use the money to cover the cost of extending his signature Making Work Pay tax credit, worth up to $800 a year for working families. That credit, which will cost $66 billion next year, was enacted in the stimulus package, but is set to expire at the end of 2010.

Counting on cap-and-trade to pay for the tax credit "is not a gimmick," the administration official said; "it's a commitment" that Obama will not approve tax cuts that run up the deficit.

The deficit is perhaps the trickiest issue in Obama's spending plan. He has pledged to cut it in half by the end of his first term. Specifically, administration officials say the annual gap between federal spending and tax collections will fall from something north of $1.4 trillion this year -- the highest since World War II -- to $533 billion in 2013.

But Republicans and some budget analysts noted that this highly touted goal is not particularly ambitious: This year's budget deficit is bloated by spending on the stimulus package and various financial-sector bailouts, expenses unlikely to be repeated in future years. The nonpartisan Congressional Budget Office recently predicted that the deficit could be halved by 2013 merely by winding down the war in Iraq and allowing some of the tax cuts enacted during the Bush administration to expire in 2011, as Obama has proposed. That alone would cut the deficit to $715 billion, according to the CBO.

"It's easy to cut the deficit in half after you've quadrupled it," said Brian Riedl, a budget analyst at the conservative Heritage Foundation. "The end of the recession, the drawdown of Iraq spending and the end of temporary stimulus spending will by itself cut the deficit in half. He should do more."

More concerning to critics are Obama's claims to have identified big spending reductions. In his speech to Congress on Tuesday, Obama pledged an end to "education programs that don't work," "direct payments to large agribusinesses," "no-bid contracts" in Iraq and "Cold War-era weapons systems we don't use."

But a senior administration official acknowledged yesterday that the budget does not contain $2 trillion in spending cuts over the next decade. Instead, the figure represents Obama's total efforts at deficit reduction, including tax hikes on families making over $250,000 a year. It also includes hundreds of billions of dollars "saved" by not continuing to spend $170 billion a year in Iraq.

The official defended the administration's figures, saying they accurately represent recent war costs. "It's a change in our policy that is going to bring those costs down," the official said.

But several budget analysts criticized the speech as misleading.

"It's a hollow number," said Sen. Judd Gregg (R-N.H.), the senior Republican on the Senate Budget Committee, who recently withdrew as Obama's nominee to head the Commerce Department. "You're not getting savings if you're assuming spending that isn't actually going to occur."