The Issues
When Obama named Orszag to head the OMB, Republicans and Democrats praised the choice because of his proven work as CBO head.
"It's good to have somebody of his stature and philosophy in that slot,” Senate Budget Committee ranking member Judd Gregg (R-N.H.) said. “You could have ended up with somebody who doesn't care at all about this. He cares deeply about the long-term fiscal responsibility of the government."
But 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."
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 the fiscal plan. 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 on the new budget.
Critics argued that the spending unduly increased the size and scope of the federal government and that the proposed deficit would cripple prosperity of future generations. 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.
The programs on the chopping block varied. For example, the position of the education attaché to UNESCO, based in the U.S. embassy in Paris, was targeted; Obama said the federal government would save over $600,000 a year by doing away with the post. On the larger scale, Orszag’s team chose to cut $750 million set aside for updating the fleet of Marine One helicopters, which were due for an upgrade.
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 will cause an unexpected level of unemployment and a drop in tax collections not reached since the Great Depression. The administration has also increased spending to level 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 for the last two years.
"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 today’s federal budget. In an attempt to address what he views as the most pressing federal budget problem, Orszag has zealously fought for the cause of reform, even learning medical lingo and increasing the number of CBO employees dedicated to the health-care problem from 31 to 47.
"The thing that I was impressed with is how he is able to pick up clinical medicine for someone who is an economist and not a doctor," said Barbara McNeil, a radiologist who heads the Harvard Medical School's Department of Health Care Policy and who organized a lecture at which Orszag spoke. "For someone who had as wide a portfolio as he had at CBO to have that understanding of health is unusual."
Maybe most importantly in this 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."
'Deficit Neutral'
In December 2008, the CBO released a study of how to reduce health-care costs by more than $700 billion a year; ironically, that would cover the amount of the hefty financial bailout package passed by Congress in fall 2008.
But Orszag will have to defend the price tag of reform, which was estimated in summer 2009 by the CBO at $1 trillion. But Orszag argues the plan aims to be "deficit neutral" over the next decade by making Medicare and Medicaid more efficient, and by raising taxes on the wealthy.
"The Administration is committed to the principle that health care reform must be deficit neutral over the next decade," Orszag wrote in June 2009 on his blog.
Do you know where your lawmakers stand on the hottest issues in the health-care reform debate? Join us in tracking and tallying the stands of all 535 Senators and House Members by the end of September.
