The Issues
When Obama named Orszag to head the OMB, Republicans and Democrats praised the choice because of his proven work as CBO head.
Obama sent a clear message with the nomination, indicating that he expected Orszag to assiduously ferret out waste, line item by line item.
"Peter doesn't need a map to tell him where the bodies are buried in the federal budget,” Obama said. “He knows what works and what doesn't, what's worthy of our precious tax dollars and what is not. Just because a program, a special interest tax break or corporate subsidy is hidden in this year's budget does not mean that it will survive the next."
Fiscal 2011 Budget Proposal
Overshadowed by a perilous political context for Democrats in an election year and an ever-growing deficit, President Obama released his $3.8 trillion budget blueprint in February 2010. The plan would spend $100 million on a new jobs program, including tax cuts for small businesses.
It would pay for such programs by allowing tax cuts on the wealthy ro expire, while at the same time slapping fees on large banks that are reeling from a public backlash against their bailout during the 2008-2009 financial crisis. The budget would also freeze all discretionary spending not related to national security.
Meanwhile, the 2010 deficit was expected to approach a record $1.6 trillion, and $1.3 trillion in 2011. The fiscal 2011 budget projected that the deficit would increase by $8.5 trillion over the next decade, a slight improvement over the $9 trillion, 10-year increase that the White House projected in August 2009.
Fiscal 2010 Budget Proposal
In February 2009, President Obama released a budget proposal for fiscal year 2010 that totaled $3.6 trillion. The size of the budget had never been matched, nor had the proposed $1.5 trillion federal deficit that would accompany it. It was sprinkled with high-speed rail spending and renewable energy initiatives that would raise the deficit to 10 percent of the gross national product, the highest rate since World War II. In order to add these expensive initiatives, the administration proposed decreased spending for the Iraq war and select taxes on the wealthy. Orszag, dubbed one of Obama’s “propeller heads,” the nickname the president has for his financial wonks, led the discussions.
Critics argued that the proposed deficit would cripple future prosperity. In April 2009, Congress passed the budget proposal without a single Republican vote in the House or Senate. The final plan stood at $3.5 trillion and predicted a $1.2 trillion deficit for 2010, which Obama plans to cut in half within five years.
The final budget also allowed for major policy changes desired by Obama, including health-care reform.
Budget Cuts
When Obama entered office, he empowered the OMB to examine the federal budget line-by-line, looking for potential cuts to decrease a deficit that is expected to reach $1.2 trillion in fiscal year 2010. Orszag led these efforts, reportedly negotiating with each department as his team looked for places and programs to slash. In May 2009, the president announced a proposed $17 billion worth of budget cuts, equivalent to almost one-half of 1 percent of the $3.5 trillion budget passed for fiscal year 2010.
Orszag’s team proposed or eliminated 121 programs. Half of the $17 billion that would be saved through these measures comes from the Defense Department, which included reducing future purchases of F-22 fighter jets to four and ending F-22 production by 2011.
But all these efforts could not counter the 2008-2009 recession that caused am unexpected level of unemployment and a drop in tax revenue not seen since the Great Depression.
The administration has also increased spending to levels not seen since the Korean war. In August 2009, the OMB released its mid-session review of the budget, which revised its ten-year deficit estimate. The 2009 federal deficit estimate improved slightly to $1.6 trillion, due to an unexpected decrease in spending to stabilize the financial system. But the ten-year deficit estimate increased by $2 trillion to $9 trillion, meaning the national debt would reach $23 trillion by 2019.
Health-Care Reform
One topic Obama and Orszag both agree on is the need for massive reform of the U.S. health-care system. Orszag has pushed Congress to overhaul the health-care system during the first two years of Obama's presidency.
"The problem has been largely misdiagnosed including by economic analysts and ... many depictions in the media,” Orszag told a group of Christian Science Monitor reporters. “The long-term fiscal problem truly is fundamentally one involving the rate at which health-care costs grow.... Social Security and aging are important, but it is not where the money is."
Orszag argues that Medicare and Medicaid costs in 2020 could equal the total amount of the federal budget. In an attempt to address what he viewed as the most pressing budget problem, Orszag has zealously fought for the cause of reform, even learning medical lingo and increasing the number of employees dedicated to the health-care problem when he was CBO head.
Maybe most importantly in a tough economic period, Orszag argues there is a point of diminishing returns when it comes to good health care.
"If you look at spending versus health outcomes like life expectancy or other things, there is some range where you spend more, you improve [health],” Orszag said. “But at some point that curve flattens out and might even turn down. A wide variety of evidence suggests we are on the flat part or even the downward sloping part of that curve. And that suggests you can take costs out of the system without harming health and maybe even slightly improving it, although I would be cautious about going that far."
